5G and Cloud: Will it disrupt the business model of the personal computing industry?
Half a decade ago, I wrote this article - 5G and Cloud: Will it usher in the next big thing in personal computing? Now it’s time to update the same.
The first wave of disruption by cloud
For decades, if you were building a business and you needed to store lots of data, EMC was your main option. You gave the company lots of money, and it gave you some hefty machines packed with hard disks and some software for storing data on those hard disks. The trick was that you could only get that software from EMC. So, anytime you wanted to store more data, you gave EMC more money. This made the company very rich.?
Cloud computing companies like Amazon came along, letting you store data on their machines. These machines sat on the other side of the Internet, but you could access them from anywhere, at any time. That meant you didn't have to buy hardware from EMC or anyone else.
And companies like Dell, HP, IBM, Cisco and Oracle suffered the same conundrum as EMC. If you use Amazon, you don't need servers and other hardware from Dell and HP and EMC and Cisco---and you don't need databases from Oracle and IBM. (1)
The premise was: Why build expensive, almost-instantly-out-of-date data centers for your large firm when you could just rent something better from Amazon??
So the first wave of disruption by cloud happened in the enterprise space and this enabled the As-a-Service business models, where businesses need not make a large upfront investment on products.
The next wave of disruption by cloud
The next possible disruption is going to happen in the personal computing space, where owning hardware (other than input devices) will be a thing of the past. This is going to upend the business model of all the players in the personal computing space, which includes Apple, Sony, Intel, Microsoft, Dell, HP, Qualcomm and Samsung etc.
And the companies perfectly poised to take advantage of this disruption, once again, are Amazon, Microsoft and Google.
Cloud gaming
The gaming world is undergoing a transformation not seen since the advent of mobile phone games over 20 years ago.
Subscription-based streaming models are the next step in that evolution. And they seem inevitable for videogames, as media consumers are quickly growing accustomed to such services in other areas. About 83% of recorded-music revenue in the U.S. last year came from streaming, compared with less than 7% in 2010, when paid downloads and CD sales still drove the bulk of the industry’s revenue, according to data from the Recording Industry Association of America. (2)
Using cloud technology, gamers — anywhere in the world with a strong enough internet connection — could theoretically stream, rather than download, high-end games and play them in real time over the web on any device, as they might a Netflix drama series.
The disruptive implications of cloud gaming are huge. The console model, at its heart, is about control of the medium through which the principal revenue stream — the games — are channeled. If the medium is rendered irrelevant by cloud gaming, games studios such as Electronic Arts and Activision may decide to offer their wares without the middleman. And this explains the acquisition spree and consolidation in the gaming industry.
The advent of 5G broadband could accelerate the process. The ability to stream, and the diminished need for an independently high-powered, high-memory box sitting under the TV, poses a major threat to a global console market worth $34bn a year in hardware and software sales. Gaming power will lie with cloud servers, not console processors. (3)
With their networks powering fast-growing cloud-computing services, Google, Amazon and Microsoft have seemed to be the best-suited to solving the technical hurdles for game streaming, which requires games to be rendered by distant servers while maintaining a split-second response time to players’ controls.?
Success of Google Chromebook
The idea of a cloud-based laptop was not well taken when Chromebook was launched.
So what was the Chromebook concept? Assumption 1: These days, you can get online almost anywhere. Assumption 2: Google’s free online software can do almost everything regular software can do — e-mail (Gmail), Web browsing (Chrome), chat (Google Talk), photos (Picasa), word processing, spreadsheets, slide shows (Google Docs).?
Conclusion: A laptop doesn’t need a hard drive. Doesn’t need programs on it. Doesn’t need Windows or Mac OS X. Doesn’t need a desktop, files or folders. Everything you need is online, so all the laptop needs is a Web browser.
That means no moving parts and long battery life, lighter weight, no viruses or spyware, no serial numbers or copy protection, no two-minute start-up process (a Chromebook starts up in under 10 seconds), and no files stored on the laptop, so you don’t have to worry about backups and you can log into any other Chromebook, and find your whole software world waiting for you. (4)
But in 2020, Chromebook shipments reached nearly 30 million units, driven by the North American education market. (5) And the launch of Windows 365 may further cement this trend. (6)
Watch Out for the Disruption in the Business Model
Personal-Computing-as-a-Service
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PCaaS will disrupt the business model of the personal computing industry in many ways, two of which I’m highlighting here (7):
Outcome-Based. The focus in this model is on the outputs or the outcomes for customers, not on the input or the product that the company manufactures. Consider the case of Rolls-Royce, which sells jet engines to its airline customers. In the traditional service model, every engine problem and maintenance need was a revenue opportunity for Rolls-Royce, even though this downtime was costing its customers millions of dollars. In other words, the incentives for Rolls-Royce and its airline customers were not aligned. However, under the outcome-based model, Rolls-Royce is paid only for every hour the plane is flying, thus aligning the incentives for both parties.
Customer-Focused Innovation. An outcome-based model drives a company to become customer-focused and thereby changes the company’s innovation process. Ted Levitt, a Harvard Business School professor, once said that people don’t buy drills; they buy holes. While a product-focused company would continue to make its drills better, a customer-focused company would think of new technologies, such as laser, which could be used to achieve the outcome (in this case, creating a hole) that the customer is looking for. Michelin’s pay-per-mile program led it to find innovative ways to get more out of its tires. Its research showed that a third of all breakdowns are tire related and that 90 percent of these are due to incorrect tire pressure. As a result Michelin launched a suite of connected software solutions that, along with its tire-pressure-monitoring system, is designed to help trucking managers whose fleets ride on Michelin tires to optimize the performance of those fleets. This customer focus also helped Michelin realize that fuel represents 29 percent of the per-kilometer operating cost of a forty-ton tractor trailer. So the company launched a new service to help the managers of trucking fleets reduce their fuel consumption. Since its launch, the service has delivered average savings of 1.5 liters per 100 kilometers to its trucking customers, which for the entire European trucking industry would translate into savings of three billion liters of fuel, nine million tons of CO2, and €3 billion in operating cost.
Is this a Precursor to Personal-Computing-as-a-Service?
There are rumours that Apple is working on a hardware subscription service for the iPhone and other hardware products, a move that could make device ownership similar to paying a monthly app fee, according to people with knowledge of the matter.
The service would be Apple’s biggest push yet into automatically recurring sales, allowing users to subscribe to hardware for the first time -- rather than just digital services. But the project is still in development, said the people, who asked not to be identified because the initiative hasn’t been announced. (8)
If Apple goes ahead with the hardware subscription service, it will put them in a perfect position to transition to Personal-Computing-as-a-Service when the time is right.
The Disruption of the Business Model
The way I see it, we’re still at the tip of the iceberg. Hardware at the customer’s end is going to get commoditised soon i.e. there won’t be any local storage, no operating system, no CPU, and no moving parts, which will be limited to a display and human interface devices such as a keyboard and a mouse.
This will have ripple effects on the majority of the tech companies. Customers will no longer care about the hardware specs, instead companies have to focus on improving the hardware effectiveness and efficiency at their data centres.
And questions like, should we even be in the consumer hardware? If yes, which hardwares will give us the edge? Screen and camera, etc? Which activities should we perform, and for which activities should we get a partner to perform? What will be our revenue model? Should we own the key contents and softwares?
All the above questions and more, will decide the success of companies in the world of Personal-Computing-as-a-Service. And companies that already run their own cloud computing services, like Amazon, Google, Facebook, and Microsoft will have an edge.?
One thing is for sure, the future will be of PCaaS i.e. Personal-Computing-as-a-Service.
References:
7. Driving Digital Strategy by Sunil Gupta (Harvard Business Review Press, 2018)
My other articles on business model
Check my article published in California Management Review - Will Netflix Become the Next Blockbuster?