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Windows Is Dead, Google Killed It

Farhad Manjoo, Slate    

Microsoft founder Bill Gates speaks during a news conference in New Delhi in 2008.
Windows is dead. Let’s all salute it — pour out a glass for it, burn a CD for it, reboot your PC one last time.
Windows had a good run. For a time, it powered the world. But that era is over.

It was killed by the unlikeliest of collaborations — Microsoft’s ancient enemies working over decades, in concert: Steve Jobs, Linus Torvalds, and most of all, two guys named Larry and Sergey.

Late on Monday, Microsoft announced its unsurprising $7.2 billion plan to buy Nokia’s smartphone division. Nokia is the world’s largest manufacturer of phones that run Microsoft’s Windows Phone operating system (which is a bit like pointing out that, at 5-foot-6, I’m the tallest member of my immediate family). Microsoft is buying Nokia in order to control both the hardware and software in its devices; this move, Microsoft promises, will improve the phones themselves and make them easier to sell.

But this is the antithesis of the company’s Windows strategy. Though Microsoft insists otherwise, when this deal is done, the thing sold as Windows won’t be what it’s always been — it won’t be software that runs on lots of companies’ hardware, a platform to unite disparate manufacturers’ devices. Instead, Windows will be much like Apple’s operating systems, iOS and Mac OS. Windows will be proprietary software attached to proprietary hardware — Microsoft’s code running on Microsoft’s devices.

In a document that lays out the “strategic rationale” for the deal, Microsoft makes a stirring case for vertical integration: for a single company that makes both mobile software and hardware together. By purchasing Nokia, Microsoft says it will be able to create better phones by reducing “friction” between hardware and software teams that now reside in separate companies. Combining the companies also improves marketing “efficiency” and “clarity” — Microsoft can sell a single Microsoft device that bakes in the best services from both firms (Skype, Office, Nokia’s mapping systems).

Finally, vertical integration helps Microsoft’s bottom line. Today, for every Windows-powered phone that Nokia sells, Microsoft gets less than $10 in software licensing fees. When it owns Nokia, Microsoft will be able to book profits on hardware, too. Rather than make less than $10 per phone, it will make more than $40.

Steve Jobs long pushed against Bill Gates’ idea that hardware and software should be made by different firms. And back in the PC era, Gates was right. Gates recognized that most computer users didn’t understand hardware. We couldn’t tell the difference — and didn’t really care much about — the processors, drives, displays, and other physical components that made up one PC versus another. As a result, making PC hardware was destined to be a bruising commodity business, with low brand recognition, constant price battles, and dwindling profits.

But software, Gates saw, was a different story. Software had a face. Software imprinted itself on users — once you learned one Windows PC, you understood every Windows PC. Unlike hardware, software enabled network effects: The more people who used Windows, the more attractive it became to developers, which meant more apps to make Windows computers more useful, which led to more users, and on and on. Finally, software was wildly, almost unimaginably profitable. After writing code once, you could copy it endlessly, at no marginal cost, for years to come — and make money on every single copy you sold.

But mobile devices altered that calculation. Today, hardware matters. Unlike in a PC that you kept hidden under your desk, the design of your mobile device affects its usefulness. Things like your phone’s weight or the way your tablet feels in your hand are all important considerations when you’re buying a device; you won’t choose a phone based on software alone, and you might pay a premium for a device that’s particularly well-designed. In the mobile world, as Apple has proved, hardware can command just as much of a profit as software.

You might argue that once the basic design of a good phone or tablet becomes well known, lots of companies will copy it, and that hardware will again become a commodity. That’s the tide Apple is now battling against. At some point mobile components will become good enough and cheap enough that a $50 phone might function just as well as a $100 or $200 phone. When that happens, people will again start choosing devices by price, and hardware profits will dwindle to nothing. And, as happened with PCs, software, not hardware, will become the industry’s dominant business.

All that may well occur. (The fear of commoditized hardware explains Apple’s languishing share price.) But if mobile hardware does become a commodity and software once again becomes the determining factor in your choice of phone, we won’t see Microsoft profit from the shift. That’s because, in the last five years, a brutal, profit-destroying force has emerged in the tech world: Android.

Google’s mobile operating system — which is based on Linux, the open-source OS whose fans had long dreamed would destroy Windows — is free. Any mobile phone manufacturer can use and alter Android however it pleases. This accounts for Android’s stunning market share — close to 80 percent, according to IDC — and that market share gives Android the benefit of the network effects that once worked so well for Microsoft. Nokia was paying Microsoft $10 for every phone it sold, and in return it got an OS that can’t even run Instagram. Microsoft says that it wants to keep licensing Windows Phone to other manufacturers even after it purchases Nokia, but because they can always choose Android (which runs Instagram and everything else), few phone-makers are likely to take it up on that deal.

That’s why the Nokia purchase signals the end of Windows as a standalone business. There are now only two ways to sell software. Like Apple, you can make devices that integrate software and hardware together and hope to sell a single, unified, highly profitable product. Or, like Google, you can make software that you give away in the hopes of creating a huge platform from which you can make money in some other way (through ads, in Google’s case).

But you can’t do what Windows did — you can’t make profitable software on other companies’ commodity hardware. Thanks to Android, code is now a commodity, and Windows is dead.

Read more: http://www.slate.com/articles/technology/technology/2013/09/microsoft_nokia_deal_a_great_idea_that_came_too_late_and_killed_windows.html#ixzz2ds0WO5ZW

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Article from SFGate.

“It’s been a big couple of weeks in mobile. Verizon Wireless finally got the iPhone. Hewlett-Packard unveiled the first fruits of its Palm purchase last year. Nokia, the world’s biggest maker of handsets, abandoned its once-dominant Symbian mobile software system and demoted itself to a kind of glorified contract manufacturer of Microsoft-powered devices.

The struggle for mobile dominance has entered a new phase. Why would Nokia throw out Symbian, with its 37 percent market share, in favor of software with less than one-seventh of that? Because recently hired Chief Executive Officer Stephen Elop is convinced that Microsoft has better odds of going up against the four other mobile powers – Apple, Google, Research In Motion, and HP – and making its new Windows Phone 7 software a center of gravity for the world’s programmers, manufacturers, and consumers.

“The game has changed from a battle of devices to a war of ecosystems,” Elop told investors at a recent London news conference.

Actually, it’s the same game that created the most valuable franchises in tech history, from IBM to Microsoft to Facebook. All successfully established themselves as “platforms,” in which countless entrepreneurs and programmers developed products and applications that gave value to customers and profitability to shareholders – sucking oxygen away from rivals all the while.

Platform leaders

In the 1960s, IBM trounced Sperry and other mainframe manufacturers by creating a soup-to-nuts stack of hardware, software and services.

In PCs, Microsoft erased Apple’s early lead by signing up hardwaremakers to create cheap machines, and software companies to develop Windows versions of everything from word processors to Tetris.

Facebook vanquished social networks such as MySpace by repositioning itself as a platform – a decision that led to the creation of gamemaker Zynga and other app companies that keep Facebook’s 500 million users hanging around.

What’s different this time is scale.

“Mobile is the biggest platform war ever,” said Bill Whyman, an analyst with International Strategy & Investment. More smart phones were sold than PCs in the fourth quarter, and sales should reach $120 billion this year. That doesn’t count billions more in mobile services, ads, and e-commerce.

This war will probably last for some time, too. Unlike with PCs, where the unquestioned victor – Microsoft – quickly emerged and enjoyed years of near monopoly, no one has a divine right to dominance in mobile. Microsoft crushed its competition by forcing people to make a choice. There were far more software applications for PCs, and most didn’t work on Macs. The more Microsoft-powered machines out there, the more people wrote software for them, the more people bought them, and the bigger the whole system became. Economists have a name for that phenomenon: “network effects.”

Appealing products

All cell phones can talk to each other and handle the same websites and e-mail systems, so winning means making products that function more effectively and appealingly. That sums up Apple’s success.

Steve Jobs figured out long ago that when people spend their own money, they’ll pay for something a lot nicer than the unsexy gear the cheapskates in corporate procurement choose. While others competed on price, Apple focused on making its products reliable and easy to use. Once customers buy an iPhone and start investing in iTunes songs and apps, they tend to stick with the system and keep buying – even though there’s no proprietary lock on the proverbial door.

Apple’s huge sales volume makes carriers and suppliers more likely to agree to its terms. The software that powers everything Apple makes – all variations of the Mac operating system OS X – is as intuitive to developers as Angry Birds is to app shoppers.

The result is economic leverage of staggering power. To create a blockbuster, Apple doesn’t need to spend billions on a start-from-scratch moon-shot of a development project. It just needs to tweak a previous hit.

Take the iPad, which is in many ways a large iPod touch. Apple won’t say how much the iPad cost to develop. Consider these numbers, though: In the year that ended Sept. 30, during which Apple introduced the iPad and the iPhone 4, the company spent $1.8 billion on research and development. Over the same period, Apple’s revenue increased by $22.3 billion. Nokia spent three times as much as Apple on R&D – $5.86 billion – and increased revenue by just $1.5 billion. No wonder that Apple, whose share of total global mobile-phone sales is only 4.2 percent, gets more than half the profit generated by the industry, according to research firm Asymco.

Fast-growing Android

Even Google, Apple’s mightiest rival, got only a $5 billion increase in sales on its $3.4 billion R&D budget. It does have plenty to show for its efforts, though: Its Android platform is growing at a blistering pace. In the fourth quarter, according to research firm Canalys, twice as many Android devices shipped as iPhones.

“Google is being far more aggressive in building its platform than Microsoft ever was,” says Bill Gurley, a partner at Benchmark Capital.

Barring big surprises, the other contenders – RIM, HP, and Microsoft – are in for a slog: too dependent on mobile devices to give up, yet lacking the tools to make much progress. All lost market share in 2010 and have far fewer apps available for their devices.”

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Article from GigaOm.

“Google’s Android operating system solidified its place at the top of the charts in the U.S. with 44 percent of the market, according to a pair of reports out today.

While Android’s momentum shows no sign of let-up and Apple continues to hold its own, both are applying pressure to Research in Motion, which is hemorrhaging OS market share and was overtaken in handset sales by Apple in the third quarter.

According to NPD, which measures consumer purchases, Android’s share of the U.S. smartphone market in the third quarter increased 11 percentage points from the previous quarter while Apple’s share grew by 1 percentage point to 23 percent. Research In Motion’s share continued to tumble, dropping from 28 percent to 22 percent.

U.K. research firm Canalys, which arrived at similar U.S. numbers for the OS market, said that Nokia remained the top smartphone manufacturer worldwide with a 33 percent share, down from 38 percent in the second quarter. Apple took second with 17 percent, up from 13 percent last quarter, while RIM followed with 15 percent, a slide from 18 percent in the second quarter.

The Canalys numbers reflect the latest quarterly sales numbers from Apple and RIM, showing Apple eclipsing RIM for the first time. Apple also moved into fourth place in global handset sales, passing over RIM in the process. RIM is still the top vendor in Latin America with about 40 percent of the market but its prospects are looking tough with pressure from Apple and particularly Android, which appears to be eating into its sales. NPD reported that the iPhone 4 was the top-selling phone in the U.S., followed by the BlackBerry Curve, LG Cosmos, Motorola Droid X � and HTC Evo 4G.

Nokia continues to hold the top spot in the five so-called BRIIC countries, Brazil, Russia, India, Indonesia and China, which bodes well for Nokia as those markets are growing 111 percent year-over-year, faster than the market overall which grew by 95 percent to 80.9 million shipped units. However Android, as my colleague Kevin has noted, could eat into Nokia’s share in places like India as it moves down market into cheaper smartphones.

That’s going to be a ongoing theme as smartphones work their way into more hands. The manufacturers and OS makers who can manage the growth in lower tier smartphones should enjoy a significant volume advantage. Nokia is already losing out on the lucrative high end of the market to Apple and is now facing the threat of Android outpacing sales in mid and lower-tier smartphones. Android shipments grew 1,309 percent year-over-year from 1.4 million units in the third quarter of 2009, according to Canalys, to more than 20 million units in the third quarter of this year, good enough for a quarter of the worldwide OS market.

Meanwhile, phones running a Windows operating system account for just 3 percent of the worldwide market, according to Canalysis. With Windows Phone 7 shipping this month, Microsoft will have to claw its way back to relevance. Microsoft’s tight control on handset interface customization and its high-end specifications could limit how vendors differentiate Windows Phone 7 devices and how well they sell down market, said Canalys.”

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