Intel’s CEO, Brian Krzanich, says that a year ago he realized that Intel had misestimated the swing to companion computing devices (tablets and smartphones), but now that’s behind them. Now they are going to push hard to be good at everything, and everything is going to be fine.
Sure. Fine. Not.
Businesses will also build their own cloud computing systems, Intel executives said, because it will be vastly cheaper to own them than to use public systems like Amazon Web Services. Amazon has argued that its service is cheaper.
In 2011, Intel projected revenue from business would grow 13 percent this year, but it fell 1 percent. Intel now projects business revenue will rise 8 percent by 2017.
The cloud business, along with high-performance computing and telecommunications sales, is expected to grow in excess of 20 percent in that time, Intel said. That could more than make up for a shortfall, should Intel have to cut prices or be disappointed in its still-critical PC business.
Renee James, Intel’s president, also talked about offering cloud services, like security, and chip manufacturing services, which could also give Intel a new revenue base as it comes to terms with its PC-centric past. The future, as one executive said, is a world in which “everything that has electricity will have intelligence,” and that will ultimately be the base of Intel’s new model.
Still, at the end of the session, Intel said it would be investing more heavily in tablets and cloud, a little bit less in PCs and phones.
Obviously, Renee James is out of her mind if she thinks businesses are going to build homegrown private clouds in any serious numbers, instead of moving to hosted solutions like Amazon. Fear might cause a spike or two — CIOs being risk averse at core — but the swing to hosted cloud will make them look like trilobites in a few years.
Intel is still hoping that the PC business will grow so they can fund their move to tablets and smartphones. Meanwhile, the market is poised to move to wearables and calm computing (like internet-of-things home sensors, connected appliances, and a shifting array of smart gizmos). The bottom has already dropped out of the market for everything they know how to do.
Security services? It looks like everyone that was selling servers, chips, and other hardware is now self-marginalizing to selling security software.
It’s fairly evident that Intel won’t be able to halt the power glide fast enough. Short Intel.
Here’s the closing paragraphs of my weekly update at GigaOM Research. I started by looking at recent news about Zygna, Accenture, and Intel, who are all being whipsawed by the shift away from the PC and the rise of proximal devices (smartphones, tablets, and other ‘mobile’ devices). I finish with Microsoft:
Last fall, Microsoft CEO, Steve Ballmer, outlined his new vision for Microsoft in a letter to shareholders, and rumor has it that this week he will be announcing a major reorganization of the company to try to make that vision a reality. Bottom line: I think much of that reorganization will fail because he is still gambling on Windows and Surface to break through, and they won’t.
But what might emerge from the ashes of that house on fire could be a credible player in the very different world of enterprise IT coming down the pike. Let me characterize it:
100% Cloud — We are continuing to hear reasons why companies cannot move everything into the cloud, but in the final analysis they are quibbles disguised as prudence. Ultimately, anything that can be done on premise will be possible in the cloud, with the exception of physical on-site security (which is like pretending that your money is safer in the cookie jar under your bed than in a bank).
100% Proximal — There will be functionally zero stationary computing devices in just a few years, and people will be always on, wherever they are.
100% IT-less — The downturn in Accenture’s fortunes is the start of a collapse in enterprise IT consulting, and that will rapidly cascade across the industry. Why? The use of cloud-based enterprise software and proximal hardware cuts a huge hole out of the middle of what those consultants configure for their clients. Note that this won’t stop with outsourced IT staff: it means the end of IT internally, too. (Yes, companies will still own computing devices — on the factory floor, and in the hands of retail clerks. But increasingly they will be communicating with back office software running in the cloud.)
I am going to get a lot of flack for zooming ahead five years based on these trends, but I will stand by the prediction.
This is the deep background on the future of enterprise software in general, and specifically the form factor of future cowork (collaborative and cooperative) tools.
The enterprise software companies that will weather this sea change will be the ones that drop their efforts to stop the tide. They will have to make the change that Krzanich is making at Intel, betting on the future instead of fighting it.
One last prediction: Ballmer’s reorg this week — if it comes as expected — will be a hedge. The reorg that will indicate that Microsoft has turned the corner will be when Ballmer leaves the company, and a new CEO joins, shuts down the company’s hardware efforts, and deadpools Windows. I give Ballmer another year, at most, before the shareholders demand his head.
Dell, HP, and other companies selling ‘servers’ should just get out of the business as fast as they can. The building is the new server.
Scott Weiss, The Building is the New Server
Power distribution, cooling and building layouts have been redesigned from the ground-up to maximize mechanical performance and electrical efficiency of the datacenter. And unfortunately for Intel, the relentless march of Moore’s Law no longer affords them differentiation, as customer needs have shifted from performance to power efficiency, an area where they lag rival ARM processors.
The evolution of the modern hyper-scale datacenter reflects the hyper-scale needs of the applications that run on them. Modern web 2.0 (and increasingly SaaS) applications need to handle thousands of user requests per second, processing terabytes of information in real-time across hundreds of customers. They are by necessity massively parallel and work in concert to service a user request. This is the modern equivalent of a giant supercomputer — except cobbled together from commodity server components and interconnect fabrics. It’s a profound software and hardware architectural shift that is taking us from a world where datacenters consisted of small number of independent high performance branded servers to a brave new world where the giant, datacenter building is the server.
Meanwhile on the enterprise front, the corporate datacenter is becoming increasingly sedate as on-prem applications give way to their SaaS counterparts.
The new data center architectures, borne of necessity from the giant web service providers, have the potential to massively drive down the cost of providing software as a service, the new winner in enterprise applications. As such, the cloud service providers (CSPs) such as Amazon and Rackspace, are adopting these “scale-out” architectures.
So fast forward: SaaS, will win the enterprise market. Face it — it’s just so much better and now, infinitely cheaper than any of the alternatives. And modern SaaS applications will be delivered through hyper-scale data centers that do not have branded servers from Dell, HP or IBM, but rather highly optimized, scale-out white box servers made by Asian ODMs. In addition, the operators of these massive data centers will be experts in servicing their creations — monitoring, fixing and rapidly swapping out their expected-to-fail components. Therefore, there will no longer be a need for the recurring revenue, high-margin service and maintenance contracts that have been a mainstay of the OEM server industry.
So much of what happens in the enterprise marketplace is contracting, so this transition bill be squished down to just a few years instead of a decade. And the biggest take-awayof this story is the transition from performance to power efficiency, and how that swings the lead to ARM instead of Intel on the chip side.
Barnes & Noble has risked a lot on Nook, and it’s not panning out. In fact, it’s hard to see how they can stem the fall of the retail giant.
Barnes & Noble Faces Steep Challenge as Holiday Nook Sales Decline - Leslie Kaufman
The results, covering a period that ended Dec. 29, are a sobering development for the nation’s largest bookstore chain. The declines occurred during what is supposed to be peak buying season. And the Nook unit’s sagging fortunes came despite a 13 percent increase in sales of digital content, suggesting that it is the tepid demand for Nook devices that is dragging down the unit’s performance.
Barnes & Noble has invested heavily in developing a tablet that can compete with offerings from media giants like Google, Apple and Amazon.com. Last April, in announcing a $300 million investment in Nook by Microsoft, the chief executive of Barnes & Noble’s chief executive, William J. Lynch, said the company wanted “to solidify our position as a leader in the exploding market for digital content in the consumer and education segments.”
A few months after that, the bookseller began breaking out the financial results of the Nook division, In October it completed its strategic partnership with Microsoft by creating Nook Media, a subsidiary and a signal that it was ready to ride its digital business into the future.
But while Barnes & Noble’s most recent Nooks have won critical praise, they have failed to gain significant traction with consumers.
Other companies do not break out sales of their digital tablets, but Amazonhas been saying sales of its Kindle Fire were strong. Analysts say Apple’s iPads also appear to be doing well.
“The problem is not whether or not the Nook is good,” said James L. McQuivey, a media analyst for Forrester Research. “What matters is whether you are locked into a Kindle library or an iTunes library or a Nook library. In the end, who holds the content that you value?”
For an increasing number of consumers, he said, the answer is not Barnes & Noble.
Though the company’s stock was down only slightly — falling 2 percent to $14.22 — the reaction in the financial world was unsparing. Analysts stopped short of saying that this was a do-or-die moment for the Nook Media division, but they acknowledged that options for a strong digital future were narrowing.
In a note to clients, S&P Capital IQ said, “We think this portends greater market share losses for the Nook over the medium term” and downgraded its recommendation on Barnes & Noble stock from hold to sell. Barclays said in a note that the Nook’s precipitous decline was “quite concerning” and “below even our modest expectations.”
Last month, Barnes & Noble announced that Pearson, the British education and publishing conglomerate, was taking a 5 percent stake in Nook for $89.5 million. Analysts said that cash investment was welcome and the partnership with Pearson, a major publisher of educational textbooks, might herald a strategy to move toward dominating an education niche market. Still, that would be a significantly smaller business.
My bet: Barnes & Noble will have to bail, even if Microsoft decides to increase its investment in the technology. (I doubt that Microsoft is ready to invest more heavily in a company building on Android technology, at least not until Ballmer leaves, and they bring in a new CEO who gives up on Windows.)
The Nook HD is based on the Android Ice Cream Sandwich platform and has a roughly equivalent hardware and software platform as the Kindle Fire HD. It’s slightly cheaper — like $30 — but Kindle has first mover advantage and huge capital resources. And any comparison to an iPad makes Nook look like something from a few years ago.
Maybe Texas Instruments — who make the chipset in Nooks — wants to get back into retail products? Not likely. However, Intel has been making motions to shake up their business model with the collapse of the netbook market, and the decline of PC/Windows sales, and with a market cap of over $100B they might have the money to take a run. But would they have to buy Barnes & Noble to do so? I wouldn’t buy that side of things.
Google’s another player who might want to play with Nook, but not Barnes & Noble, per se. But it would be interesting if Google decided to go retail with their own gear, as well as do something different in bookstore retail. Imagine, for example, if bookstores were reconfigured to be like gigantic Redbox machines, where you could type in any of millions of books, ten thousand of which are actually in the machine, and are delivered on the spot into your hands. All others delivered next day to your home. One percent of the staff costs. But I have no reason to believe Google is tending in this direction.
A 2013 prediction: Barnes & Noble with sell, spin out or shut down the Nook business. Pearson might be a fallback, with Nook becoming a niche educational tool.