about business

Comment on the Comments on my Forecast for the Computer Industry 2014


I got a number of comments on my recent post “Predictions for the Computer Industry for 2014.”  I thought the best way to respond to them was to write another post to comment on the comments so to speak. The original predictions are in italics.

 

Here we go

 

(1)  Bitcoin becomes the MySpace of Crypto-Currency 

I had communications with a number of people about Bitcoin including a detailed discussion with someone active in the Bitcoin community.  The more I learned, the more convinced that I am correct in my assessment.  I believe that the limited supply will create a lot of speculative pressures and will prevent the expansion of its use.  I think the technology is fantastic.  I think the objective is laudable, but not being tied to an existing currency and the inability to use debt to create increases in the money supply  will prevent it from achieving the objectives of its supporters.

 

I have to confess that I am a bit bewildered about Bitcoin.  On the surface, it is easy enough to understand if you just think of it as just another form of currency like the Dollar, Euro or Yen.  But unlike the Dollar, Euro or Yen, there is no country or countries backing and controlling it.  To really understand Crypto-Currency, one has to have both a pretty good technical background and in particular an understanding of cryptographic, open source and distributed systems.  But one also has to have a pretty deep understanding  of economics and especially money systems.  Frankly, understanding money is a lot harder than most people think.  It kind of reminds me of quantum mechanics.

At first, I did not take Bitcoin seriously and that in retrospect was wrong.  I actually have friends who have made small fortunes in Bitcoin (I hope none of them accomplished this by starting out with a big fortune).

I am wondering, like many, about how Bitcoin can become a real currency.  I don’t think it is that yet.  It is more like Gold although a lot easier to use and store.  But until there is a whole supply chain that takes Bitcoin as its primary currency, I think those that that accept Bitcoin for payment must be changing their prices every day to match their preferred currency.  Bitcoin is way too volatile to be used as a main currency. Because a lot of Bitcoin’s are held by speculators, there is incentive drive the value up creating a potential bubble.  We all know what happens to bubbles. Debt is a very important aspect of a successful currency. It is hard to have debt when there is high inflation or volatility.

There is a lot of concern about the potential for Bitcoin to be manipulated.  There is concern that  it could be hacked.  The mysterious start of Bitcoint by Satoshi Nakamoto (a person or collection of persons) who has since disappeared, causes some to wonder who is really behind Bitcoin.  Now it appears that Marc Andreessen, the technical brains behind Netscape and now very successful venture capitalist, has sort of taken over the leadership of the Bitcoin movement. Anyway, I guess we should be glad its not George Soros.

Given the early success of Bitcoin, there are many other Crypto-Currencies being created.  The Bitcoin people feel that they can maintain the lead because of their momentum and present dominance.  History proves that this is not always the case.

 

 

(2)  iWatch – just in time

Some people feel that this will not be a significant development if indeed it happens. I disagree in the sense that if it does happen, it will have to be significant in that it will be the first new category that Apple has introduced since the iPad. It might not matter in the beginning just as the iPod did not seem to matter.  But it ended up redefining the computer industry and disrupting the music industry.

This will be the year that Apple Introduces the iWatch.  I wrote about the iWatch here. The features that I described are still the ones I expect, but I would place more emphasis on the use of the iWatch for transactions.

By the way, Apple may introduce a large iPhone and/or a larger iPad.  I don’t think this a game changer so I am not mentioning it here.

 

(3) Microsoft – Breaking up is hard to do

 

The comments here were mostly that it will depend on who the CEO is.  I don’t think so.  I think the CEO will be picked to perform this function but there is probably a fight at the board because Balmer and Gates are still on the board.  And as I wrote here, Corporate Boards Suck.

I am putting forth Steve Rattner – the former head of Lazard and the Automobile Industry Czar for Obama.  Steve has a lot of experience working with media, communications and computer companies.  He has the financial chops to figure out how to cut up and serve Microsoft (make it medium rare..pun intended.)

Microsoft will finally get a CEO. The primary task of this person will be to breakup the company which will prove very difficult to do because this kind of thing is always difficult to do.  In some cases, parts of the company will become independent companies and trade on the stock market. For instance, I expect that will be the case for the Xbox, while other parts, like Office might be sold to a company like  Oracle.  I think it will take about five years for all the work to be completed.  Expect that Bill Gates will leave the board when the new CEO takes his/her place.

 

(4) Desktop and Notebooks fall into the black hole of mobile computing

This is actually one of the predictions that I think is most important and yes, I agree my timing might be off.

One of the key things that I did not say was that once you have enough bandwidth and processor power to maintain the interactivity  (the video and inputs), all the rest of the computing can happen in the cloud.  This will provide great improvements in performance.  Data transfers between applications can happen in the cloud and do not have to first come down to you computer and then go back up.

I said that 2/3 of Americans have iPhones.  That is clearly wrong and I apologize for being so sloppy.  However, you might find this forecast interesting

I stand by the rest of what I said although as I admitted in the beginning of my original post, I am probably too early on many of these items.  But things do happen quickly once they start.  We did not even have an iPhone seven years ago.

There is a lot of computing power in smart phones.  Take a look at the iPhone 5s as an example with its 64-bit  CPU.  The power of a mobile computer coupled with the move to Cloud Computing will change the partitioning of computing.

Look for Apple to bring out a new line of Cinema Displays that will have wireless connectivity with IOS devices.  Imagine that you can walk up to any of these displays and your phone, iWatch or iPad will link to this display.  Applications will be designed to make full use of the display’s real estate.  Blue tooth keyboards and track pads/mice will interface with your IOS device.  All of a sudden you have the full desktop experience that most users know. You will be able to use the full iWorks suite for instance.  It will might be running in the cloud but it will feel, as it does now, that it is running on your “desktop.” This is an extremely important event.  Maybe the most important event of 2014.

For instance, about two thirds of American have an iPhone. Of course, most of these are not iPhone 5s, but enough are to get things started.  Not all these customers have Macs. In fact most do not.  But most have desktops or notebooks that they will want to replace.  Instead of replacing them, they only have to buy a new Cinema Display.  They can then either use the free iWorks suite or or use the Microsoft Office Cloud service.  Microsoft will have to make sure their apps work well in this environment because the Apple iWorks programs are awesome and are free.  Google will have to do the same.

So the only customers buying desktops in the future might be those that are heavily involved in using computers to do serious computational work.  Welcome to the Mac Pro and the unannounced Mac Pro Light or the Windows equivalent.

The same kind of thing will happen with large flat panel displays.  The Apple TV will become an HDMI dongle just like Chromecast. You will be able to easily connect your IOS device to the display just as you can with Airplay now.  Apple will introduce a very powerful gaming environment for IOS that will take advantage of both the A8 64 bit processor in the iPhone but also the motion co-processor to connect with various gaming peripherals.

Look to 2014 being a very good year for Apple and in particular Apple stock (although I am negative on the stock long term).  The capabilities I described will drive demand for new iPhone and iPad purchases.

 

(5) Cable TV becomes Cable Internet

 

Here again the criticism was that I was too early.   I should have also dealt with wireless providers.  See this link.

When I first went around to all the cable company CEO’s in 1983 to introduce them to the concept of the cable modem, I told them that they should no longer think of themselves as being Cable Television Companies but rather Cable Communications Companies.  Not all of them got what I meant, but fortunately,  their greed and the fear of the telephone industry helped persuade them to experiment with the idea of using their “cable plant” to allow computers in homes to communicate with the nascent internet.

Now, the cable industry is experiencing a loss of TV subscribers as young people in particular “cut the cord” and watch TV via the internet.  But they are not really cutting the cord all the way. In particular, if they are at their home they are most likely still connected to the cable company.  Revenue from providing residential broadband has allowed the cable industry to grow in the face of a decline in TV subscribers. This year, Cable Companies will make more money from broadband than from TV. TV is just one attribute of Cable just as Word Processing is no longer a  Device but just an Application.

However, the Cable Industry has kept a lot of bad habits (like bundling of channels) which make it difficult for new companies to provide Internet based TV.  This is about to change.  But to make it really happen, Cable Companies will want to get a bigger piece of the action. They will want to charge not only for speed but also for quality just as the wireless companies are now doing.  Once this happens, everything will change.  But since this will depend on government regulations, I can not predict exactly when and how this will happen.  As part of this, providers of content can pay directly for the bandwidth.  So if you use Netflix to stream a lot of Video, it will not effect your bill with your cable company. Netflix will pay them for the bandwidth you use when streaming.

Once the dam breaks, things will change very fast.  This will have negative effects on the cable networks who have relied on having TV channels to be able to make deals for programing. Now if the Internet is used as a medium, there are unlimited “channels”.    Once TV is on the internet, advertising can be done in a much different and more targeted way.  This will also weaken the Networks that rely on advertising.  As the Networks see major declines in their profits, they will be able to invest less and less, leading to a quickening of their demise.

We will continue to see changes in consumer viewing habits. Not only will consumers see what they want when they want but they will see it with the people they want no matter where in the world they will be.  I hope to say more about this in a few weeks when a company I both advise and have invested in leaves stealth mode.

 

 (6) Facebook – the AOL of Social Media

 

Did not get many comments here.  I stand by what I wrote.

Facebook is a company I am negative on even thought I use it every day.  Clearly it is the dominate company on the social media stage but I don’t think for long.  There are a number of factors that will effect their standing.  The first is demographic. Young people that first created the market for Facebook are either moving off the Facebook Platform or never getting on.  They don’t want to be on a social media site that they share with their parents and grandparents.  Also much of the growth of Facebook as been outside the USA and in developing countries. I suspect that while these numbers add to Facebook’s population, they don’t do much for the bottom line.

Equally as important is that Facebook’s users don’t really like the company.  They might like using Facebook because it connects them with their friends but they don’t like the confusing interface, constant changes in privacy and the sense that Facebook is exploiting them.

Young people are moving to social media sites that are more mobile oriented like Tango, Talk Plus, Line and WeChat. Then there is SnapChat the opposite of a “time line”.

Facebook has a market capitalization of $135 billion dollars but made less than a billion dollars on the sale of more than $5 billion dollars.  It recently spent a billion dollars to by zero revenue buy acquiring Instagram.  Facebook is trading at 90 times estimated earnings.  For Facebook to justify its stock price it will be forced to find more ways to monetize its traffic and most of those ways will turn off their users.  Actually, the only hope for Facebook will be discovering life on another planet.

(7) Amazon buys Netflix and has to pay California Sales Tax

 

Most comments were that  Amazon would never spend this much money and they will go it alone.  That may be true but I believe that once they realize that they will not be successful on their own, they will have no choice.  It’s a strategic must for Amazon.

Amazon intends to be one of the major media distribution companies in the “new order.”  They are already following in Apple’s footsteps using Amazon Prime to distribute Media.  Now they are imitating Netflix with original programming.  Netflix has House of Cards which is a drama about a bunch of smart but corrupt politicians.  Amazon has Alpha House which is a comedy about four moronic politicians living together in a house in Washington DC.  Given that these guys are idiots, it might be better to describe it as a documentary.  House of Cards was a major hit and won an Emmy.  Alpha House is pretty much a dud. Netflix redefined viewing habits and created the concept of Binge Viewing while Amazon has had little impact on viewing habits of consumers.

Netflix is, in a sense, the worlds largest “cable” operator.  It reaches more people than HBO.  Most devices and most modern TV’s can receive Netflix.  Bezos is going to finally figure out that he can not catch up.  And he will not want to see Netflix in the hands of some other company.  Netflix was really cheap a year ago when it traded at about $90.  It is now just a bit south of $350 dollars.  Its total market cap is about $22 billion. While Amazon has done well going from $245 to $405 and has a market cap of $182 billion this is nothing compared to the movement in Netflix’s stock price.  Netflix must now feel comfortable with their current price because they have recently removed a Poison Pill provision making it much easier for someone to accumulate large amounts of their stock.  This will push the stock up even further so the sooner Amazon moves to acquire Netflix, the better.  Of course, Bezos hates paying state sales tax which Netflix does.  Maybe this is what is slowing him down.

 

(8) Internet of My Favorite Things

Pretty much all the comments I got about this were positive. No need to refute this one.

Everything is going to be connected to everything.  It is going to be a wild ride.  I already have light bulbs that are connected to the cloud. My car is connected to the cloud. I wear exercises devices that connect to the cloud. My piano is connected to the cloud.  I could even jam with musicians. It will be like the wild west all over again.

But then again, I am waiting for the hackers to take over cars, cause washing machines to destroy clothes and of course stream videos of us in our pajamas.  And then there are the personal Drones!

 

 

 

(9) Google Glass joins the other zero billion dollar business that Google launched 

I either got comments that were in agreement or comments that said I was being too mean to Google.

Innovega, the company I have been advising in this space has gotten a lot of coverage at CES.  It is the real deal although not main stream for some time and maybe never.

In the meantime, I am thinking of selling fake Google Glass for early stage nerds that don’t have the money to buy the real thing.

When cell phones came out, we actually had fake ones.  You could simulate a conversation that made you look important.  Just think of the fake conversations you could have and commands you give with Google Glass!  You certainly would not have to say “what are you wearing.”

If you read my blog often, you will know that I am not too fond of Google.  I refer to Google as the Microsoft of 21st century. Of course they have done some amazing things but much of what they do is mediocre.  For me, throwing a bunch of spaghetti against the wall and seeing what sticks is not a business strategy.  I do understand that many of you will disagree with my point of view.

I know something about the ‘glass’ application. In fact, I know a great deal. I have been working in this area for over ten years.  They company I have been involved with most recently is Innovega.  We have the real deal but it takes both glasses and contact lenses to really work, so it’s not for everyone. But I know that Google Glass is probably for a lot fewer people.

I think it is a silly idea that has very limited long term prospects.  Not because I do not believe in the concept.  It is because I do not believe in the implementation.  I joke (partly) that when Larry Page became CEO he tried to figure out how to get Sergy out of his hair.  Sergy came to him with the idea of Google Glass – which may have started when Innovega paid a visit to Google.  Larry said to Sergy “this is so important that you should spend all your time and energy on it.” It was probably worth spending a few billion dollars for Larry to no longer have to share an office with his co-founder.

 

 

 

(10) Foundry or Floundery

In retrospect, I am not sure how important this point is. I know it is important to me because I still have a fixation with my former company.  I still wish I could have had more impact as foolish  as that might be.

Finally I have to mention my former company, Intel, where I was Vice President of Business Development until I left in 1999.  Intel has a great deal of excess semi conductor manufacturing capacity.  It  is perishable – if it is not used it just goes to waste.  We used to say that when we designed a new factory, the first chip it produced cost a couple of billion dollars and the ones after that just a few dollars.  Factories have very high fixed costs.  They are like airplanes or hotels, you want to fill every seat and every bed.

Apple needs Intel to build its A processors.  For obvious reasons, it no longer wants to have Samsung build its chips.  So it probably has put a “gun to Intel’s head” and said that they will design out the Intel microprocessors in the Mac line if Intel does not start doing foundering work for Apple.  And Google is threatening Intel with developing its own line of server processors if Intel does not start making chips for Google.

Intel will remain the top semi conductor company in the world, but that is like owning the best house in the worst neighborhood.

As most of you know, Intel missed the transition to mobile but frankly even if they had made the transition, there was no way the company could continue to have the margins they enjoyed during the PC phase of computing when Microsoft and Intel earned more than 120% of the profit of the industry (this was possible because so many other companies lost money.)   It takes a long time to develop and build new factories to take advantage of new semi conductor manufacturing and design technology.  Intel was used to growth and building out capacity to intersect that growth.  In the 90s I was often quoted as saying that “Intel had to build factories to manufacture products that were not yet designed to serve markets that were not yet created.” That was true then and it is true now, but now the products will not be Intel’s.

 

 

 

About these ads

One thought on “Comment on the Comments on my Forecast for the Computer Industry 2014

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s