Lately, we’ve read a lot about the end of the computer age. In reality, it isn’t over. The computer is simply hiding in the clouds behind commonplace devices. As it should — and should have long ago, had we been able to figure how sooner.
For the last couple decades, we’ve studiously siloed computing devices (desktops then laptops) from communication devices (phones) from media devices (iPods then e-book readers).
Then the bright lines between products, content and connectivity blurred as computing became increasingly distributed, physically and programmatically. This blurring has challenged enabling infrastructure to handle new functionality that straddles previously distinct silos.
Apple’s (s AAPL) iPhone and Amazon’s (s AMZN) Kindle 3G have highlighted — and accelerated — this trend. Both vertically integrate the device and its connected services behind a single consumer brand. Amazon went a step beyond Apple by building connectivity directly into the device by using wholesale agreements with carriers in their own “Whispernet” platform.
Both Apple and Amazon were rewarded with the lion’s share of industry profits by owning the choke point for after-point-of-sale services.
Now, the writing is on the wall for other players: Embrace scalable cloud economics or remain stuck in a low-margin hardware business. Cloud services can be averaged over multiple product lines, and the marginal cost of adding features in the cloud is negligible when compared to that of hardware. Device makers who realize and exploit this will profit.
Let’s assume you make or are a VAR for a tablet, laptop or other CE device. Here’s my prescription to get there:
- Think of the device as a receptacle to a branded cloud-service portal that you control.
- Build in the cloud extensions as core a feature set that differentiates your hardware.
- Make connectivity transparent to ensure an always active connection to the cloud.
- Build or partner to deliver the above as a single, branded user experience.
Let’s explore those steps in pieces.
Even in the best case scenarios, tablets and laptops are differentiated by increasingly fewer hardware components assembled by the same mega-ODMs. But think instead of storage memory as a cloud service. Imagine a tablet or laptop that comes with 1 terabyte of storage in the cloud. Or think of a media tablet “tuned” to Comcast or Dish Network channels, or business laptops that embed remote IT troubleshooting or Find My PC as standard feature sets.
What about connection to the cloud features? Do you build in only the basic Wi-Fi chipset and hope the device is connected often enough to your cloud features? Or do you bite the bullet and add a 3G or 4G modem to fill the gap between hotspots? How much business do you lose when your cloud can’t be reached?
Our primary research (at Macheen) shows that 72 percent of laptops (and that number is much higher for tablets and e-readers) goes outside Wi-Fi range each month; more than half that group go off Wi-Fi five or more days a month. For core cloud service functionality, this means it can be important to enable access outside Wi-Fi range. And while it isn’t always obvious, there is an incremental hardware cost for every unit to enable even a single device actually sold — to accommodate antenna design, for example. Reselling traditional carrier data plans may not deliver the goods. Industry adoption rates for enabled units can be as low as 1 percent, so even if you ship as an option, user take rates to turn it on may not move the needle to enable cloud features. Yet by changing assumptions, we at Macheen are seeing adoption rates as high as 70 percent for enabled and active units.
Transparent connectivity (think 3G Kindle) is the key. At a minimum, find a way for all units to have an always-active connection to your cloud services — right out of the box. Transparent connectivity doesn’t mean free connectivity. As with the Kindle example, you should cover access costs in fees for content, applications and services. And as for freewheeling web access, treat that as a premium service and charge for it. Think of this as flipping the iPad data services model inside out: Justify constant connectivity through the apps and use open access as an upsell opportunity.
So who puts all this together? Different companies will answer that differently. But what seems clear is that it needs to be a single experience for the user, one that works from the point at which it is turned on and is as simple to operate as an on/off switch.
I do not believe that the computer industry will collapse down to one or two players. But I do believe that the Apple and Amazon lessons are real and require other CE players to borrow the lessons and remake themselves.
Computers aren’t going away, they’re just hiding in the clouds. Just as they should be.
Richard L. Schwartz is the President and CEO of Macheen Inc.