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Those optimistic about 2013 point to the second half of the year (now only four months away) as when we’ll begin to see some stronger growth. In their view, Europe will be better, the U.S. will be stronger, China will begin to reaccelerate in earnest, currency will be stable, and (perhaps most importantly) the year-over-year (YoY) comparisons between 2012 and 2013 will be easier because mid-2012 was so weak. Moreover, as EMC CEO Joe Tucci stated during the company’s recent earnings call, “You can’t starve IT for too long,” which suggests that better times must get rolling again. On the other hand, CEO John Chambers’ statement in the Cisco earnings call, that perhaps 2012 represents the new normal, might be a better indicator of what we can expect in 2013. We’ll see.

That said, here’s what we’re expecting for 2013.

Table 1. 2012 and 2013 worldwide IT spending (in $ billions)

Overall, smartphones and tablets will lead the way, with a 5.6 percent worldwide IT growth rate in 2013. While Apple’s tepid forward guidance in its recent earnings call and its implications for smartphones and tablets gives us pause, we expect the category to continue to lead, with growth in the 20.4 percent range in 2013. In hardware, 2013 will look like 2012, with smartphones and tablets buoying the otherwise-weak spending in the PC, peripheral, and server segments. (This will be offset somewhat by stronger storage and network hardware spending.) Software continues to flourish — especially solutions-related software like SaaS-enabled customer-relationship management (CRM), supply-chain management (SCM), and industry vertical systems like health care. This sector will continue to grow in 2013. Finally, services has experienced a punishing 2012, and this area will only look modestly better in 2013.

A methodological note: We’ve reevaluated our model and determined that we have underweighted business-process outsourcing (BPO) as a service category. As such, we are restating 2012 and 2013 growth rates to accommodate a higher weighting of BPO in our services spending. The net is that growth in services and all spending are a bit more robust, since BPO is growing faster than the aggregate of traditional IT services. The full methodology can be found at the end of this report.

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The audio in this video is fuzzy, but Kuniavsky is worth listening to, from his definition of the internet of things to his vision for how we are going to have to change our thinking about software development in order to program it. At 19 minutes the video is the perfect length for watching during a lunch break. Check it out.

If you missed it, here is yesterday’s video from the same event: Video: Why you shouldn’t care about securing the Internet of things just yet

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At least two sources have told me that that Adobe paid well north of $100 million. (Added on December 21: A well placed source tells me that the final number is closer to $150 million.)  What may seem like a lot of money is reflection on reality of the modern software business — not only does a company need to offer software via the cloud, it also has to have a community of engaged users to keep enhancing the value of that offering. Behance team makes those points in a post on Behance blog.

Creation should be inherently collaborative – and must evolve more frequently than typical software upgrade cycles. If the tools we use to create are connected with how we showcase and discover creative work, we can help usher in a new era of idea exchange and collaborative creation.

David Wadhwani, who spearheaded this acquisition on behalf of Adobe writes on the company blog:

 As we start to roll out increasingly integrated workflows across the services, you’ll start to see the benefits of combining the creation of content with the ability to seek feedback, showcase your work and distribute it across devices.

Behance was started in 2006 and raised $6.5 million from Union Square Ventures, Jeff Bezos, Dave Morin, Yves Behar, Chris Dixon and several others. It had a million members and was host to three million projects.

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The combination of the overall change in computing, from something that occurs at a desk to something that happens on a variety of devices throughout the day, and higher performance chips based on the ARM architecture planned for next year are probably the spur for the latest rumors. The change in computing has been happening for some time, but only last week did ARM announce its next generation processor cores, the A-53 and the A-57. The big focus of those cores was that they can support 64-bit computing — a necessity for servers and the personal computer markets today.

Better chips mean a better experience

In a conversation last week with Nole Hurley, VP of marketing and strategy for ARM’s processor division, we briefly discussed the likelihood of one of ARM’s new A-50 cores having the chops to make it into laptops and other devices dominated by CPUs. The 64-bit compatibility associated with the next generation ARMv8 architecture means that the cores will be able to address more memory. That gives devices the ability to support having scores of open tabs on their browsers while running a dozen different programs or apps.

Until these cores were announced, ARM cores have supported 32-bit processing. That’s fine for mobile devices where ARM has dominated, but when it comes to content creation, 64-bit compatibility is crucial, as you can see from my colleague Kevin Tofel’s review of a Chromebook running on an ARM chip versus one running an Intel chip. Thus, with these new cores, ARM has a product that could possibly compete in the laptop and personal computing market. Those cores will be out next year with devices running that IP expected in 2014.

If Apple is contemplating this switch it is because it realizes that now that computing has gone mobile, the x86 architecture, which was optimized for performance at all costs, has been superseded by the ARM instruction set that optimizes energy efficiency at all costs. The difference now is that ARM has also been boosting performance while optimizing for efficiency and has reached a level of performance parity that supports today’s application needs. Intel’s focus on efficiency in x86 is kind of like retrofitting a Ferrari to be more fuel-efficient while ARM has been building a Tesla.

Apple hasn’t stood still however waiting for better ARM cores. It has built a better core using its ARM architecture license to tweak the current generation ARMv7 instruction set to increase the performance of the A6 processor in the iPhone 5. (An architecture license lets Apple tweak the core designs that ARM builds.) As this deep dive from Anand Tech illustrates, Apple has already made a processor for phones that could rival a traditional CPU.

Apple hasn’t forgotten about the need for software

And Apple may have already started down the path of optimizing its OS X Mac operating system for the ARM-based architecture, one major step it needs to take before any transition off Intel’s x86 platform. Back in 2007 Apple said the iPhone runs OS X and Apple later clarified that it runs on the same kernel software. Thus, must of the optimization needed to fully retrofit OS X for the ARM instruction set may already be done. That only leaves the popular software running on the MacBook left for a retrofit, and because Apple already has adapted popular programs of its own such as iMovie and iPhoto for iOS, that work may also be done.

The biggest holdout is probably Microsoft Office, and one would assume that Microsoft, once it got word of Apple’s plans it would act to preserve that software on the popular Macbook platform. However, Microsoft has been dragging its feet with ARM. For example it supports Windows RT and has a mobile platform that runs on ARM chips, but Windows 8 still doesn’t.

So, as the rumor mill works over the possibility of an Apple switch from Intel to ARM-based chips in the Macbook, it’s worth noting that the hardware is almost in place and the software is probably mostly there. The biggest unknown in this plan is how Intel might react to the threat of an Apple defection.

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“We’re in the software business, so we produce technology that substitutes for human beings,” Rabois said at GigaOM’s Mobilize conference in San Francisco, noting that the physical Square reader sells itself through physical stores that use the product. “When I go to the coffee shop, I see it, when I get in the taxi, I see it,” he said.

Rabois commented on the partnership with Starbucks, noting that one of the biggest benefits for Starbucks stores and customers is that the national chain will be able to better recognize local customers and treat them the way a local coffee shop might.

“75 percent of Starbucks payments are anonymous, and paying with Square allows you to forge a relationship with everyone who makes purchases in your store. I go to my neighborhood bar because they know what I like to drink,” he said. “We can do that at scale for every business in the United States.”

The company is increasingly facing competitors looking to get into the mobile payments space. Just this week, Groupon launched Groupon Payments, and PayPal has a similar product as well.

Unlike Square, PayPal has a sales team, but Rabois didn’t seem threatened.

“They’re going to need it,” he said.

Check out the rest of our Mobilize 2012 coverage here, and the live stream can be found here.

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But in an interview with The Seattle Times, CEO Steve Ballmer hinted that, with its new tablet, Microsoft is aiming to compete on features more than price. Ballmer said the “sweet spot” would be between “$300 to about $700 or $800.”

“I think most people would tell you that the iPad is not a superexpensive device. … (When) people offer cheaper, they do less. They look less good, they’re chintzier, they’re cheaper.

If you say to somebody, would you use one of the 7-inch tablets, would somebody ever use a Kindle (Kindle Fire, $199) to do their homework? The answer is no; you never would. It’s just not a good enough product. It doesn’t mean you might not read a book on it….”

The Verge points out that the company could still offer a lower price with a subscription to Microsoft’s Xbox Music service, but Ballmer’s comments seem to indicate that the vendor is planning to present Surface as a higher-end, highly functional device.

In the interview, Ballmer also said that while Microsoft was born as a software company, over the next five to ten years, the company will retain its core capability in software but evolve into more of a “devices-and-services company.”

“[That] is a little different,” he said. “Software powers devices and software powers these cloud services, but it’s a different form of delivery…. Doesn’t mean we have to make every device. I don’t want you to leap to that conclusion. We’ll have partners who make devices with our software in it and our services built in.”

Ballmer also defended the company’s so-called “stack-ranking” management system, which was called out as destructive and demoralizing in a damning Vanity Fair article in August on “Microsoft’s Lost Decade.” (In the system, supervisors are forced to place employees into tiers based on performance.)

While Vanity Fair said former Microsoft employees maintain that the system led to a counter-productive corporate culture, Ballmer said it rewards top talent and nudges lower performers to get with the program.

“I think you always want to have a system that has a chance to recognize people who are doing a great job, a good job, and helping people who are still doing maybe even a decent job, but they’re not doing as good a job as the other folks,” he said. “It helps to let those people recognize where they stand.”

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As much as anything, it’s a stark reminder that disruption doesn’t give a crap about legacies. This is something that I have seen again and again in my twenty years as an entrepreneur in network infrastructure, Web-based services and mobile applications.

Once upon a time, Dell was the personification of the American dream. Born in Michael Dell’s college dorm room, Dell’s founding had the homegrown optimism of a Norman Rockwell painting. Dell was the embodiment of scalable build logistics, coupled with standout customer service. It was the Amazon of personal computing — before Amazon existed.

As for HP, you remember “the HP way” and the original “two founders in a garage” narrative, right? The company was a true force driven by clear directives such as, “attack the undefended hill” and “number one or two in each targeted market.”

However, there is a paradoxical truth. Although disruptive change takes far longer to occur than most people account for, once it kicks in, it steamrolls incumbents faster than they can course-correct.

The paradox of the disrupted

At its core, the Dell and HP story is about the shift to integrated, differentiated systems lead by software (see also, Mark Andreessen’s “Why Software is Eating the World”). Like most hardware-centric companies, neither HP nor Dell ever grokked software, certainly not in terms of any integrated strategy (JetSend, Chai and WebOS were all failed software efforts by HP). This gets to the nut of why these guys missed the boat on mobile and tablets. HP, after all, actually owned Palm, yet lacked both the clarity and conviction to intelligently pursue the software play required to succeed in mobile — only the single largest segment of the next 20 years!

Then again, they didn’t think they had to. After all, the horizontal model that made Microsoft a lethal killer in segment after segment had dominated the conventional wisdom of the preceding 20 years. Built on the premise of industry alignment around loosely-coupled, but coordinated efforts between hardware and software component makers, the horizontal ethos dictated that hardware folks worry about hardware and leave the software differentiation to the software guys — separation of church and state, so to speak.

We’re all lemmings in terms of following what works. So when the horizontal model made Bill Gates the richest man in the world, industry after industry embraced it as the one right way.

With the advent of the Internet, however, a vicious cycle of commoditization — horizontal’s downside — began to play out. We are now at the endgame of that cycle, a point where few companies can make money via commodity economics, and HP and Dell are Exhibit A and B, respectively.

I believe that the next 20 years will look a lot less like the Microsoft model and more like the Apple differentiation model, where every effort is focused on the central goal of delivering complete product solutions and richer, more satisfying customer outcomes. In other words, we’ll move to an economy where businesses and industries are defined by tight integration from bricks and clicks to hardware, software and service — aka, the vertical model.

Does either HP or Dell have what it takes to make this transition? No one really knows. But what gets me excited is that some companies will figure this one out. Their success will, in turn, provide the roadmap to re-invention for the next generation of innovators to follow. We are lemmings after all.

So get ready, as we are at the end of a cycle, and approaching the beginning of a new one. It’s post-global, post-digital and post-commoditization. The new cycle is all about making the inefficient more efficient, and creating differentiation where commodization exists. The rise of integrated systems is upon us.

Mark Sigal is an eight-time entrepreneur, whose ventures have sold to Apple, IBM and Intel. He is chief product officer at Unicorn Labs, an eBooks and eLearning platform provider.

Image courtesy of Flickr user Mike Licht, NotionsCapital.com.

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