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.

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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.

Apple, Google, Microsoft: the tipping point is nigh

And so here we are in the middle of 2010 with the mass computing market at another tipping point. Everybody can feel it, the calm before the storm; the only question is, which way is it going to go?

On the day that Apple's "magical and revolutionary" iPad goes on sale in the rest of the world, pity poor Microsoft. After pushing the tablet format (in one incarnation or another) fruitlessly for well over a decade, Microsoft has finally lived to see the market stolen from it with an audacity that we haven't witnessed since, well, they themselves stole it from GO Corp. in the 1990s.

Microsoft now seems curiously inactive. Once trumpeted as the inevitable inheritor of the smartphone operating system mantle, it has become so wrapped up in its failing attempt to take search away from Google that it hasn't even noticed that it's almost completely irrelevant, its mind share zero outside its business stronghold, like an early-90s IBM.

Apple is riding high with, for the moment at least, a larger capitalisation than Microsoft. Apple is cool once more, its products aspirational — and not just to tech dweebs this time but, with the spread of computing power into every area of life, to snobs both young and old, jocks and cheerleaders, pop stars and presidents: cool to the cool. A design company as much as a tech company, and a fashion company as much as a design company, the Apple brand is the King of Cool right now.

I can't help feeling, though, that Apple is making exactly the same mistake, by tying together hardware and software, that it did with its personal computer business. Apple was first among equals in the invention of the personal computer market at the start of the last quarter of the 20th century, and in the late 70s and 80s its Apple II line was certainly the best known and the most successful of all personal computers. With the loudest and most inventive developer community, it was the product that every other product strove to be.

However in the 1990s Apple was no longer content to profit just from sales of hardware. Deciding that it wanted a cut from everything that touched its machines, Apple replaced the open-architecture Apple II with the pretty, pricey, and indubitably closed Macintosh line. Unfortunately, Apple forced its developer community into a technology change just as the Windows-compatible market was taking off. Hardware and software makers accustomed to developing to a well-known spec for a large market and being able to sell their products without anyone's say-so suddenly found themselves developing for a gated, curated platform with puny market share. Their costs soared and their profits collapsed, and the Apple ecosystem ceded ground to cheap-and-cheerful commodity PCs running Windows. As investment in Windows-compatible hardware and software exploded synergistically, Apple fell further and further behind, eventually being almost completely chased out of the market.

And then there's Google. Eager, even cocky, it has felt the electric potential in the air and concluded that there's now the kind of opportunity that only comes along once in a generation. The hand-held (in its broadest sense) platform has been a fragmented mix of offerings. The alpha player, Nokia, is losing ground to a new challenger, and its response looks dated and incoherent. The new challenger though is limited to a single manufacturer, with all the production and innovation bottlenecks that this implies. All the other entries are also-rans. The landscape is ripe for the same kind of consolidation that was achieved on the desktop in the 90s but Microsoft, the natural company to do this, is asleep at the wheel. Bing!, and you're dead.

Of course, even if Microsoft had come up with a must-have handheld OS device manufacturers would still have been wary, given Microsoft's history of sucking the profitability out of hardware via licensing costs (though if it had achieved critical mass it would have undoubtedly have picked them off one by one, with its divide and conquer strategy of old).

Now in a world red in tooth and claw, a world of eagles and of sharks, carriers and handset manufacturers are the puffins. If there's one thing they really want, it's to differentiate their handsets from everybody else's. And if there's one thing that they really dread, it's the costs associated with actually being different. Oh how they quail at the thought of being the owner of a proprietary platform! ("Why, look what happened to Compaq, to Sun, and to p-p-p-Palm!") Odd though, since that's exactly how Apple makes all its money. They must undoubtedly perceive, correctly, that their risk-averse, extremely short-term, MBA-laden, engineering-lite corporate cultures render them completely incapable of the sustained effort required to "do an Apple" with any hope of success, so they substitute product churn, wacky names, and our old favourite, financial "innovation" for true excellence.

So Google spots the gap and brings out Android, its master stroke. Now the carriers and manufacturers can tick one box because it's Google that's paying for the development, not them (and it's not so bad for Google either because Android must be relatively cheap to develop, being based on linux and java). Android is also open source, so that's another couple of boxes that they can tick, this time labelled "Absence of lock-in" and "Low per-unit cost". Finally, thanks to Google's permissive attitude, they can realise their dream of inexpensive product differentiation via extensive customisation. Indeed, some of them customise their handsets so extensively that they are unable to upgrade them to the new versions of the operating system that Google is bringing out seemingly every couple of months. But that's no matter, just release a new handset (with a fabulous new name!) every quarter, and leave the suckers who bought the previous (now obsolete) product to cry into their two-year contracts. Sheesh, maybe "Google" is Lakota for "dances-with-fools".

The point for Google of course, is to avoid the creation of a new Microsoft (especially one that is also the old Microsoft) while relegating Apple to an expensive, upmarket, and hopefully investment-starved niche. Google doesn't have to profit from the unifying operating system per se in order to win, they just have to ensure that nobody else does. Then, by insisting that for an offering to be labelled as "Android" with all the consumer confidence that that instills, the product must use their web services, Google intend to rule, like some deity of old, from the clouds.

Microsoft Money

I am just taking a moment to mark the passing of Microsoft Money. It's not the first big name product that Microsoft has discontinued recently, but this was the product that, for me, really opened my eyes to the vicious and arrogant company that Microsoft had become.

I remember Microsoft working together with Intuit. I remember thinking that the embrace seemed rather too close for comfort, like those female spiders that eat their mates. I was not surprised then when Microsoft attempted to buy Intuit; after all, it was common practice at the time for Microsoft to work closely with a company for long enough to learn its business, learn its business model, and most importantly understand its software inside out. One always had the feeling that the relationship was not complete until Microsoft had a copy of the unfortunate "partner's" source code locked away in its vaults. Then Microsoft would either acquire the company — at a price of its own choosing — or it would bring out competitive software, usually much better integrated with Windows and often much better targetted at the mass market and much cheaper.

Such was to be the fate of Intuit. I can't remember now whether Intuit may have even agreed to be acquired, but at any rate the US Department of Justice stopped the acquisition in its tracks. Microsoft's anger was truly amazing to behold, and it brought out Microsoft Money suspiciously quickly, with the stated ambition of crushing Intuit completely and in double-quick time.

But left with no choice but to fight, the plucky little personal finance company did just that, improving its own product and bringing out new ones and always just staying that little bit ahead. And so, unlike countless other small firms who had partnered with the Redmond giant only to be betrayed, gutted and discarded, Intuit actually survived and prospered. And in this way Money was a kind of high water mark for Microsoft's ambitions.

And now it's gone, replaced by a link to one of Microsoft's many web sites: a faceless me-too in an ocean of competitive sites. The same thing has already happened to Encarts, Microsoft's encyclopedia me-too, but it's Money that really wakes me up to the slow strangulation of this corporate behemoth. I wonder how many more of its products will go the same way?

Most unexpected thing so far today

Following a link from Silicon Alley Insider, I end up at Microsoft's Wonderwall site. I'd seen it before and thought it was rather slick. "Damn fine advert for Silverlight," I muttered, and right-clicked on the scrolling video-wall to examine its properties.

Oops! — "About Adobe Flash Player 10...". How very embarrassing for Microsoft!

Intel prepping for mass roll-out of Android netbooks

This post, from January 2008, is looking a little bit prescient now. I do so love being right. [OK, I said set top boxes and it's actually netbooks, I'm still claiming half a point.]

Of course, this is just the tip of … well, something a lot more pointy than an iceberg … a giant harpoon perhaps, aimed fair and square at Microsoft's heart. Manufacturers are already putting versions of Linux on full-size desktop PCs whose primary operating system is Windows, so that you can use them — for email, browsing, and playing tunes — without having to "boot" them [i.e., not into Windows]. Look for Android to be made more suitable for this purpose.

In true Google style, nothing will be said. Officially, it won't be happening. In practice, some manufacturer's light-boot linux will turn out to be Android when disassembled by an intrepid hacker. If it catches on, good; if it doesn't, "we were never really interested in doing that anyway".…

iPhone shipments overtake Windows Mobile

As reported by Silicon Valley Insider. Their analysis covers the challenge to the current wisdom (that buyers want customised models) that this poses, and the fact that other manufacturers seem to be turning to non-Windows OSes such as Android to counter Apple.

All of which must be deeply embarassing for Microsoft. I suppose they'll just have to grin and bear it (there'll be a lot of people wanting to help them with that — at least with the grinnning part) while they do yet another revision of Windows Mobile.

It looks to me like Microsoft's in real trouble here though. It wouldn't be so bad if they'd "only" been pushed out of the number three spot (after Symbian and BlackBerry). Symbian is clearly in trouble itself and has been more or less abandoned by Nokia (that's the perception at least, after the recent open-sourcing, whatever Nokia might say) so you might expect its market share to be gobbled up by the others over time. However Windows Mobile shipments were actualy down in real terms, not just as a proportion of a growing pie: by 3% over the year.

In a world where perception matters, Windows Mobile is looking weak: the only one doing all-around worse in the mobile space is Linux. Manufacturers, like investers, tend to stampede. Will 2009 be the year Windows Mobile collapses?

Google Chrome. OH. MY. GOD.

Apologies for the quality of this post. There's so much to say and my thought processes are just running all over the place as various connections are being made. I've just read about Google's new Chrome web browser tonight, it's all over the web.

My first reaction was, "How odd!" Why would Google want to bring out a new browser? There are new browsers appearing all the time, and it would be much more in keeping with G's modus operandi to date for them to simply help out with advice, code and a bit of cash here and there, rather than to up-end the whole apple-cart like this.

Then I read the 38-page cartoon that they sent out explaining things. And my second reaction was, "Oh. My. God."

It seems obvious now that development of current browsers was either not going in the right direction for Google, or just wasn't getting there fast enough. Things are scrappy. They're fragmented. Google have big plans for the browser, and it looks like they've decided to start bringing all the strands of their work together, so that we can begin to see the shape of what's coming.

Strands? Heck, let's change metaphor. It's like when the tide starts to come in on a nice warm beach. At first all you can see is tiny rivulets of water coming from all directions and going in all directions. It's only later you realise that THE SEA is on its way and your little spot in the sun is soon going to be under six feet of water (and yes, Microsoft, it is you on that towel).

So they've made all these little moves. And they looked a bit odd and a bit disconnected. Google Apps — a bit slow, a bit underpowered, but they would be see, 'cos they're running in a browser. GWT — what's the point of a development environment that has you writing web apps like they were desktop apps? Gmail — nice example of what you can do with Ajax, was it written using GWT? Android — what browser does it use?

But now Google are bringing out Chrome, whose intent seems to be to run applications as complicated as the most complicated ones that you run natively on your operating system, and to run them just as fast (or at least, in the same ball-park). Hmm, Google Apps, they're going to be a bit snappier now, aren't they? Hmm, I can see the point of a big-iron development environment based on a typed language now! And Android, currently sporting the browser that Chrome is based on, will likely be running Chrome or a Chrome-alike in the next release (after the one that we still haven't had yet).

That's enough hot air and pontificating. The rest of this post is specific reactions to things in the cartoon, which you may not understand unless you follow the link above and read the cartoon.

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They are using the Webkit code base. Not Mozilla. By my reckoning that's now about a million billion important new browsers have been built on webkit, versus ... erm ... (I can't think of any) built on the Mozilla codebase. OK, so I'm using "important" in a very particular sense: "big", that is to say, backed by an organisation (probably a commercial company) and guaranteed a large user base. (And I know that there are lots of browsers based on Mozilla, but together they must have a user base approaching, what, 10,000 people?) [Yes, other than Mozilla itself and Firefox.]

Mozilla are #?*&ed! Now the flow of money from Google to the Mozilla foundation is not charity, it's a deal whereby Mozilla preferentially funnels its searches to Google. So that can stay in place. As long as Mozilla users search on Google, Mozilla can get money out of that deal, there's no sense in Google just killing it. So Mozilla is not #?*&ed immediately then, but stand by to see it lose market share vertiginously if Chrome is as good as Google thinks it's going to be.

Stand by also to see Microsoft scramble to match Chrome in terms of features. This comes at a particularly bad time for Microsoft, with IE 8 code very likely closed to new functionality, and the release only a few months away [GOOGLE SMACKS MICROSOFT, #1]. What do MS do now? Do they stick to the original release timeframe and release it as-is, and smart when nobody notices because Google released a better browser a few months back [and that's TOMORROW folks!] and everybody's using it? Or do they pull the release and desperately try to match Chrome, feature for feature?

Omnibox. I can see this running into trouble very quickly. This business of remembering what site-based search boxes you've used, and allowing you to reuse them by typing in a site identifier and then a tab and then your search terms? Think of the controversy caused by deep linking a few years back. This is an excellent way to cut a website's search page out of the loop. So now, instead of first going to Amazon's home page and having to skim over all the stuff they've kindly prioritised for you as your eye hunts for their search box, you'll go straight to their results page. Hmm. Site publishers are going to regard this as kidnapping their search boxes, and I would be surprised if there weren't a few legal challenges to it soon.

Interesting to see the places in the cartoon where they have obviously decided to put the wind up the competition. Some of them really made me chuckle.

On page 4 they say that each tab is a separate OS process. If memory serves, Unix/Linux processes used to be lighter weight than Windows ones. Assuming that's still the case, Chrome may be a bit sprightlier and more performant on Linux than on Windows [GOOGLE SMACKS MICROSOFT, #2] — just the thing for those Linux-powered net-tops that are springing up all over the place.

On page 5 they point out that this means that the sort of badly-behaved page that used to make your entire browser crash will now only affect the one tab. This must happen to me about once a day at least: four separate browser windows open, themed for work-related stuff (several pages of documentation from assorted sites), news (Google Reader for scanning, then I open up any interesting stories in their own tabs), mail, and one for anything else; that's twenty or thirty pages all open at once, some of them regularly updating in the background. When a bad page takes down that lot it's annoying and I thank heaven for Firefox's auto-reopen feature. When the bad page is really bad, and Firefox goes down again straight away as soon as it tries to reopen it, that's when I get annoyed.

Pages 9-11 must be putting the fear of God into Microsoft right now. Google are showing off how they can push automated Chrome testing out over their famous distributed server network, testing tens of thousands of web pages per hour [GOOGLE SMACKS MICROSOFT, #3] and making sure that they cover them in order of importance, as indicated by their very own page ranking alogrithm.

Page 13 is very interesting. They mention no names, but I immediately thought of Adobe's Tamarin VM for Javascript, now donated to Apache. Were they thinking of Tamarin? Did they look at it and reject it, or was it not open source back when they decided to write one themselves? I need to look at the timescale for that more carefully. One thing: Tamarin is built for the version of Javascript that didn't make it into the new standard, and work is apparently under way at Apache to convert it for the version that did. Good luck with that. Google probably thought it was better to start from scratch [GOOGLE SMACKS ADOBE]. And if the boys that did the new Javascript VM are more or less the same ones that did the Dalvik VM for Android, then Google probably thinks it can do a damn good job on its own, and rightly so.

Interesting also that they are seem to be JIT-compiling Javascript to machine code. That's been a perilous way to go in the past, partly because of what can happen with variables. Javascript variables are untyped, but the values that they hold do have types (number, string, object, ...). Now there's nothing to stop me coding a for-next loop where the value held in some variable used inside the loop changes type on each pass through, and in the past that's either killed efforts to compile Javascript or put serious constraints on the efficiency of the resulting code (by making it have to be too general).

In this context, it's especially interesting to look at the latest release of the Google Web Toolkit (GWT). GWT you will remember lets you write your web application in Java, a heavy-duty, strongly-typed language, which GWT then "compiles" to Javascript for actual execution in the web page. The release notes for the latest version of GWT noted that this "compilation" phase effectively throws away the valuable type information, in the transformation from typed Java to untyped Javascript, and that in previous releases this negatively impacted performance. But the current release takes advantage of the fact that any Javascript variable in a web page produced by GWT is guaranteed to have come from a typed Java variable! In other words, you can guarantee that that sort of type-bending naughtiness isn't going to happen in a respectable GWT application. So you can do type inference based on the first value of a variable that you see... And then the release notes said that that had led to sundry improvements that were beyond my understanding, because all I could think of was that Javascript was still untyped.

So what's the betting that GWT-produced web applications will run especially well in Chrome, because of the good behaviour of their variables (and, no doubt, for many other reasons way above my head)?

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Michael Arrington at TechCrunch says:

Make no mistake. The cute comic book and the touchy-feely talk about user experience is little more than a coat of paint on top of a monumental hatred of Microsoft.

I hope this doesn't mean that MS have got so far under Google's skin that they are letting hatred guide their actions. That would be a colossal mistake. So far, Google have been the nimble players. They are the ones who, in every case [May not be true. I have a terrible memory!], have led the way with an unexpected paradigm-shift, leaving others scrambling to catch up. Letting Microsoft-hatred guide your actions is a mistake other companies have made in the past, and it's ruined them because it hands the initiative to MS, who are not slow to capitalise on the opportunity.

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Update: Dave Methvin over at Information Week points to where Google may have got some of the technology they are using to sandbox Chrome tabs.

Compute cloud is the end for Microsoft on the server

Every so often I look at Amazon Web Services (AWS), and though the traffic on my web site doesn't justify even their smallest offering, it's still intriguing to think about how this offering will affect other peoples' businesses.

The most obvious is web hosting. There was a time, several years ago, when I thought that the hosting business was dead except for the largest players. Nobody else would be able to achieve the economies of scale necessary to compete. But there are a lot of hosting companies around, of all sizes. Absurdly many of them seem to offer the same combination: Apache, Linux or BSD, and MySQL for if you're really advanced :). It took me a while to find someone that could offer me both Postgresql and Java servlets.

I don't pretend to understand why it is that so many so similar hosting providers can coexist, though I suspect at least some of them are rebranding efforts, reselling services from the bigger boys. Even so, there seems to be money in it.

The latest thing to hit the world of the smaller hosting provider, at least as far as the somewhat glacial state of affairs at gedsguides is concerned, is virtual hosting. That's actually been around for some years, but about a year ago everyone started to offer it, as the virtualisation products matured (and, I suppose, as the open source ones became viable). Gedsguides.com will be moving from a simple hosting account to a real virtual server just as soon as I can be bothered to do it.

With a virtual server though, the competitive landscape changes. The model now is that you get administrator access to your own Linux server, and though it may well have the usual trio of Apache, PHP and MySQL installed on it as standard, you can install pretty much anything you want on it. Suddenly I don't have to go to California to find a hosting provider that supports the software I want to use. With virtual server products in other words, hosting providers are differentiated less by the software you can use for your web site and more by their pricing, reliability, knowledge and support.

And that's it, up to the limits of a single physical machine. But supposing, just supposing, gedsguides.com became wildly successful, on the order of a wowwiki or a thottbot. Would I order a second, a third, a fourth machine at my current hosting provider? Would they be interested in supporting a distributed database, a distributed application server, a distributed file system? What sort of support could they provide? And I would be sure to need to acquire a new set of programming skills for such a distributed, failover-prone world.

Much more likely, assuming the site was showing a profit, I'd finally bite the bullet and move everything to Amazon Web Services, where new servers and new storage are available at the drop of a hat; where the failure of a single box would be invisible to me, as it would be swapped out and another one prepped and swapped in in minutes.

So AWS stands to take the high end from the current crop of hosting providers. And because each AWS server is just another virtual server as far as the user is concerned, there's no worrying about whether it will provide the right software environment. You just package your website software up into an installable binary, and it gets distributed as necessary across machines.

Of course, there's no reason (other perhaps than using http as a data transfer mechanism) why only web sites and web applications should be using AWS. Sun has recently been talking about eating its own dog food by moving its in-house IT to its compute grid (Sun's version of AWS). I'm sure the idea will catch on, even if Sun fails there will be others who succeed.

For the purposes of a thought experiment, let's take this idea to its logical, if absurd conclusion. Let's say Amazon, Sun, Google and Microsoft all enter this market (Amazon and Sun are already in it, Google and Microsoft are rumoured to want to enter it). And then let's say that everybody — all businesses that is — rather than starting up their own IT and support department simply buy services from them. So, no server software sold to businesses any more, just billing for the computation done and storage used. Sure, some of this billing would cover the cost of server software, but in the form of capabilities available to your applications.

Now look at what software everyone would be using. For Amazon and Google it would be Linux (maybe BSD too?) and a software stack that runs on top of that, almost all of it open sourced. For Sun it would be Solaris, also open source and, if not blessed with developers to the same extent as the Linux world, at least largely compatible with it due to their shared *nix heritage, and able to incorporate any advances made in the Linux world fairly easily and quickly. Not so Microsoft. Microsoft would be the odd man out, using proprietary software all the way from Windows at the bottom to IIS and SQL Server in the middle to whatever in-house developed accounts, CRM, content-management etc. solutions they chose to supply at the top.

Microsoft suddenly looks awfully lonely there. What used to be a competitive advantage — user lock-in — suddenly becomes a liability: they are the ones locked in! They will have to do a lot of running to stay abreast of their competition. Nobody will be using their server software except them. They'll major on ease of use of course. Since everything is developed in-house, there is the potential for all the bits to fit together much more smoothly than with their competitors. Well, they'd better start coding all that now then, because that scenario is at least a couple of complete rewrites away. Vista, anybody?

The thing is, if you're providing a compute cloud environment to users, you need to provide either best of breed or cheapest (or a choice) at every level of the stack. For sure, Microsoft will be providing Windows at the bottom, but will they permit you to use alternatives to IIS and SQL Server in the middle? They could, but it would hurt their pride an awful lot. And what about areas where their offerings are complete also-rans? Who uses Microsoft Content Management Server anyway? Everyone uses Documentum. If you wanted to move your content management needs to the MS compute cloud, could you use Documentum or would they shove Content Management Server down your throat? It's easy to see that in the compute cloud scenario, Microsoft's less competitive offerings would be witheringly exposed.

Of course, such a massive and complete move away from in house IT to compute cloud IT may not ever happen. But something along those lines will, I think; the question is how far it will go, and how quickly. To the degree it does, Microsoft's ecosystem will shrink, its ability to compete on all fronts will be reduced, and its ability to be the first and the biggest, and to impose its standards, will diminish.

Oh, and if I was Documentum? Or SAP or Sage? I'd be talking to Amazon really nicely, right about now.