Is Microsoft heading for a market share collapse in 2013?

In a previous post I argued that stick PCs ("Android Mini PCs" to give them their full name) could provide effective replacements for many of the functions of the average home desktop PC, and that we might see this becoming a trend in 2013. Then read that tablets have accounted for much of the lassitude in Windows 8 sales in 2012 — instead of replacing their old desktop PC with a new one, people are choosing to buy a new tablet instead. Now I hear that Acer's Chromebook [a notebook running Google's web-oriented Chrome OS], which was only introduced in late 2012, now accounts for nearly ten percent of its U.S. shipments.

Price, it seems, is key: Acer's C7 can be got for 180 to 190 quid, perfectly serviceable tablets for about the same price, and stick PCs for as little as forty or fifty quid. And while their absolute level of performance may be inferior to a desktop PC or an expensive Windows laptop, for the purposes that they are bought for, they will do just fine.

Windows seems to be under attack from all sides, its market growth opportunities — the sales that once would have been indisputably and rightfully its own — snatched away by cheaper alternatives. And all those alternatives are running OSes — Android and Chrome OS — provided, under Open Source licences, by Google.

---

Apparently Michael Dell wants to take his eponymous company private. The idea, supposedly, is that Dell will no longer try to compete in the home PC market, nor even in the business desktop market, but will concentrate on the server room, and on consultancy and integration. Apparently Microsoft is interested in investing trwo or three billion dollars out of the twenty two or so billion that would be needed for him to do this. I wonder if Microsoft is also planning a retreat from the consumer market into Fortress Enterprise?

The truth is that there has been enormous growth in consumer computing in the past few years, at least in terms of the number of devices sold. Since those devices tend to be lower power and somewhat lower performance than desktops, spending has not gone up quite so much, buit it's still climbed very respectably of course, just look at Apple. The problem is that none of that money has gone Microsoft's way. Now, inevitably, the power of those replacement devices has grown, and they are serious contenders for complete desktop replacements. Microsoft's once-mighty empire is revealed as but an island in a far larger sea. And the sea level is rising...

The coming Android super-swarm

Stick computers spell doom for Intel, Microsoft and the PC.

In 2013 Android, which has moved steadily from mobile phones to tablets and set top boxes, seems poised to enter a “swarming” phase where dozens of manufacturers will release hundreds of devices, creating new markets and swamping (even destroying) established ones as it does.

To see what I mean, just: search Google for “Android Mini PC” and take a look at a few of the products that are available. These devices, which I'm calling “stick PCs” for short since they all have a USB-stick form factor, mostly run a current or near-current version of Android, but on some of them you can install Linux distributions such as Ubuntu, ported by enthusiasts.

To take one brand as an example, the Rikomagic MK802 series has been used as a home media center, a smart displays for commercial events, for home gaming on the TV, for internet browsing (not just websites, Twitter and Facebook, but also enough oomph for YouTube and Google Docs). Enterprising users hook up USB cameras and run Skype — yes, the whole family sitting comfortably in front of the TV, chatting on camera to relatives on the far side of the world.

Android mini PCs — an evolutionary frenzy

The stick PC market is in an evolutionary frenzy. From its first appearance in mid 2012, the MK802 brand has seen five different generations in six months: MK802, MK802+, MK802 II, MK802 III and now MK802 IIIS. No sooner does a feature such as Bluetooth appears in one product than it spreads to all the others. Single core CPUs (Allwinner A10) have given way to dual core CPUs (Rockchip RK3066), and quad core CPUs are on the very near horizon.

Though often marketed as set top box replacements or home media centres, stick PCs are fully-fledged general-purpose computers, with CPU, GPU, RAM and flash memory. Connectivity usually include a couple of USB ports, and HDMI port. wi-fi and often also Bluetooth.

Bolted to a desktop monitor, stick PCs can be controlled with USB mouse and keyboard; plugged into your TV they can be controlled by infrared or Bluetooth keyboards and mice. Some of the later models can be controlled by apps on your Bluetooth-enabled Android mobile phone, a feature I expect to become universal in the next few months.

A typical spec includes a dual-core Cortex-A9 (an ARM7-class processor), ARM Mali or Imagination PowerVR graphics, a gig of RAM and four or eight gig of flash. You’ll note that these are mobile phone specs — last year’s mobile phone specs to be exact — and there’s no doubt that these devices are sourced at small marginal cost. Of course, since stick PCs are generally not mobile but attached to a TV or monitor and fed from a power lead plugged into a mini-USB port, the limiting factor is heat dissipation, and they could easily manage an A15 or even higher CPU and more powerful GPU.

Stick PCs will kill the established PC market, from the bottom up

Now that the first generation of digital TVs are moving out of the living room and into the bedroom, replaced by ever bigger and better sets, why buy your kids a new desktop PC when they can plug a stick PC into the TV in their room? For the price of a decent spec desktop running Windows 8 you can get a stick PC for every member of the family. And no more losing your files on an old, slow hard disk that has to be regularly backed up: services like Google Drive, Flickr and Google Docs provide pretty much everything the home user needs, only more conveniently.

Those who’ve been around computers for a while will recognise that with the stick PC, Sun’s Network Computer idea has finally arrived on the scene, only a decade or so late. At the time, Sun got the details wrong and was unable to build such a machine for less than the cost of a much more highly specced desktop; today, dozens of Chinese manufacturers have already succeed.

Intel, so far almost completely absent from a mobile phone market ruled by Android on ARM, is now suffering due to recession in the traditional Wintel desktop market and the failure of its Ultrabook platform, eclipsed by ARM-powered tablets. Intel’s latest accounts show net income down 15 per cent year on year.

Indeed Intel seems to have seen the writing on the wall as it has just announced that it is leaving the desktop motherboard market. Its own foray towards this market, the Next Unit of Computing, looks timid and a little clunky in comparison. The best prices I could find for a NUC with no RAM in it was about four times the cost of a typical stick PC.

As for Microsoft, while all stick PCs come with media centre software, Microsoft’s entry in that market, Windows Media Centre, is only available as an add-on to Windows 8 Pro — you can’t even get it for the base-level Windows 8 product. At current upgrade prices, soon to be upped at the end of January, that will cost you £24.99 for W8 Pro, while Media Centre is then free for a limited period. And Microsoft’s entry in the low-power, tablet space? The crippled Windows RT.

People in emerging markets, whose first and so far only computer is an Android handset, may not purchase a traditional Windows or Apple PC at all. When and if they do need something more work oriented, they may seek the familiarity of the Android interface on a cheap stick PC, keeping the cost of the base unit right down and repurposing an existing TV. Ironically, Windows 8 with its new mobile-style interface legitimises the Android UI for desk work — surely not what Microsoft intended.

The implcations for Google itself are more nuanced. The writing may be on the wall for Google TV, as that market stands to be completely gobbled up by stick PCs. However Google can take comfort from the fact that every single one of the latest batch of stick PCs seems to incorporate access to the Google Play store — hinting that Google Play may be an invaluable asset for whipping into line the likes of Samsung and the no-name Chinese phone manufacturers who strip out links to other Google web properties and replace them with Alibaba.

Opportunities for others

Ironically, such turmoil could give an opening to the savvy and fleet of foot. Perhaps Imagination Technologies (LON:IMG) could persuade someone to produce a stick with an Ingenic JZ4780 SoC (dual core MIPS CPU plus PowerVR Series5 GPU) instead of the currently-favoured RK3066.

There might also, finally, be opportunities for some of the also-ran Linux-based OSes like Tizen (backed by Intel and Samsung) or Sailfish (all that remains of Nokia’s Meego effort), or Canonical with Unity on Ubuntu. Canonical, who are pitching at mobile phone makers, have had the idea that you will be able to plug your phone into a keyboard/monitor/mouse setup and use it as the heart of a desktop system, with installed software receiving notification that it’s now running on a larger screen, and changing its layour accordingly. You can see that such a system might be even more suited to stick PCs plugged into TVs than is Android.

Windows 8 - Microsoft's Itanium moment

No one likes Windows 8, people are saying it's even worse than Vista, and the head of the Windows division at MS has been sacked. What went wrong?

For my money, Win8 was a last, desperate throw of the dice. Microsoft decided it had to win the mobile space, and wagered the desktop as its stake. MS famously understands the value of developers, and knew that there just weren't enough people developing for Windows phone, so voilà! it was going to forcibly convert all its desktop developers into becoming mobile developers by foisting a unified GUI onto them. The initial release of the new Visual Studio was the big clue for this: free app development was going to be tied to the Metro interface - a decision they quickly had to revise, but it revealed the thinking behind their actions.

And now it looks like they've lost the bet. Enterprises are already allowing people to choose to bring their own devices to work. Now that a substantial workforce re-education appears to be necessary for Metro-or-whatever-it's-called-now, they may decide to go with Macs instead. Or maybe, just maybe, 2013 will be the year of Linux on the desktop?

Recipes: Sweet and Sour Pork, and Egg Fried Rice

Two nicely complementary recipes, courtesy of the Christian Science Monitor. Homemade sweet-and-sour pork and Five secrets to fabulous fried rice.

For those unwilling to follow the links, the key to getting rice to fry properly without turning into a mushy mess is to allow it to cool after boiling it and, if you can afford the extra time, to also allow the outside of the grains to dry. An hour or so should be about right.

I find that it can also be good to toast the rice in a dry frying pan for a minute or so before boiling it; that makes it a little more flavoursome and helps it maintain its integrity after boiling.

Timeo Danaos, et insulas vendentes

Greece Ready To Start Selling Its Islands. Makes the very good point that no international investors will touch these with a bargepole, because you simply can't trust the Greek government to honour the sale. The author mentions the possibility of forcible renationalisation without compensation, but to my mind more likely is a sudden, large, escalation in land and dwelling taxes — and perhaps specific to the islands in question.

Content lock-in

What does Bruce Willis have in common with the new generation of Kindle book readers from Amazon? They both illustrate the dangers of content-based lock-in.

Willis is publicly complaining, and considering suing Apple, because he can't leave his (apparently huge) collection of iTunes music to his daughters in his will. His "ownership" of the tunes (really just a license to play them) will die with him, and when that happens his account will simply be deleted, and his investment of presumably substantial amounts of money will disappear.

The new Kindles show an even more insidious approach (Jeff Bezos is a sharp businessman). The earliest Kindle didn't have adverts at all. The next generation contained a couple of price points, and at the lowest price point the Kindle was subsidised by displaying adverts alongside text, or while books were opening. But you could avoid the advert experience, even after buying your Kindle, by simply paying the difference between the subsidised price and the next price up.

And all the while, you were buying content. More and more content.

With the latest generation of Kindles, apparently, all models at all price points now display adverts. And there's no way to turn them off. But you aren't going to just dump your Kindle are you, because of all those books you've bought that are only readable on the proprietary Kindle readers... Oops!

The debt ratchet explained

The predicament that the so-called "advanced" economies now find themselves in — i.e., terminal debt strangulation — can be easily understood by two considerations.

The first is generally referred to as "Parkinson's Second Law": expenditure rises to meet income.

The second comes from asking, what happens if part of that consumption is financed by debt? Say our income doubles one year because we get a new job, and each subsequent year we finance a little extra consumption by taking out loans, rather than by simply spending the cash on goods.

Initially, this seems to work quite well, we can afford a lot more goods each year, much more than if we simply paid extra cash for them. But over time the debt rises, and it rises until we can just afford to pay the interest on it, in addition to our other involuntary expenses. At that point, further non-obligatory consumption stops.

Now let's suppose, the applicable interest rate declines by one percent. Suddenly we have a little more money available at the end of the year. Plugging that into our earlier loop, we buy some more goods using more debt finance, until we again can only just pay the interest.

This is exactly what happened in the last few years, as interest rates declined over a couple of decades right across the world, and governments responded by taking out fresh debt. I don't know how many times, in this period, that I read articles in the financial press talking about the national debt and concluding that it wasn't the absolute size of the debt that mattered, but the size of the interest payments, and making the observation that as interest rates seemed to be continuously declining, things looked OK, at least for a while

The problem is, if each new interest rate decline encourages you to take out even more debt, what happens when interest rates finally start to creep up again, as they inevitably must? In my lifetime, the UK bank rate has varied from 2% up to 17%, and is now back down at 0.5%. With interest rates so low, even a tiny increase will double or triple your payments. And if you've already allowed your repayments to rise until you can only just afford them, then you are bankrupted by the first rise.

That's where Europe is now, with rates being artificially held down by a quantitative easing that is temporarily sterilised by the deflationary environment. It won't last.