MESSAGE
| DATE | 2009-04-08 |
| FROM | Ruben Safir
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| SUBJECT | Subject: [NYLXS - HANGOUT] Computing Economcs and GNU
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January 26, 2009
$200 Laptops Break a Business Model
By BRAD STONE and ASHLEE VANCE
SAN FRANCISCO — The global credit crisis may have caused the decline in
consumer and business spending that is assaulting the giants of high
tech. But as the dominant technology companies try to emerge from this
slump, they may find themselves blaming people like David Title just as
much as they blame Wall Street.
Mr. Title, a 35-year-old new-media manager at a film production company
in New York, has dropped his cable subscription and moved to watching
most of his television online — free. While shopping for a new laptop
for his girlfriend recently, he sidestepped more expensive full-featured
computers and picked a bare-bones, $200 Asus EeePC laptop, also known as
a netbook.
“We’ve reached one of those moments in tech history when there are
low-priced and free alternatives that are both user-friendly and
reliable enough to make the switch,†Mr. Title said. “Then there’s the
extra bonus of saving some cash.â€
Silicon Valley has been gripped by a growing sense that the economic
retreat might do more than depress earnings. There is too much ingrained
optimism here to think that the tech sector will not bounce back,
stronger than before.
But the fear now is that consumers like Mr. Title, and businesses
operating with the same cost-cutting mind-set, will erode the
high-margin businesses of the information technology industry — slowing
some technologies and companies but giving new momentum to others.
A normally confident Steven A. Ballmer, chief executive of Microsoft,
expressed this very fear last week after announcing the company’s first
big reduction of its work force. “Our model is not for a quick rebound,â€
he said. “Our model is things go down, and then they reset. The economy
shrinks.â€
This has happened before. The dot-com bust earlier in the decade dragged
down high-fliers like Sun Microsystems and America Online but set the
stage for a new generation of Web powerhouses like Google and other
innovative Internet software companies like Salesforce.com, founded on
disrupting the status quo.
The recession of the early 1990s sent I.B.M., then the dominant force in
technology, into a five-year tailspin. But it also propelled Microsoft
and Compaq, later acquired by Hewlett-Packard, and Dell to the forefront
of computing.
Indeed, Silicon Valley may be one of the few places where businesses are
still aware of the ideas of Joseph Schumpeter, an Austrian economist who
wrote about business cycles during the first half of the last century.
He said the lifeblood of capitalism was “creative destruction.â€
Companies rising and falling would unleash innovation and in the end
make the economy stronger.
Recessions “can cause people to think more about the effective use of
their assets,†said Craig R. Barrett, the retiring chairman of Intel,
who has seen 10 such downturns in his long career. “In the good times,
you can get a bit careless or not focused as much on efficiency. In bad
times, you’re forced to see if there is a technology†that will help.
So who’s up, who’s down and who’s out this time around? Microsoft’s
valuable Windows franchise appears vulnerable after two decades of
dominance. Revenue for the company’s Windows operating system fell for
the first time in history in the last quarter of 2008. The popularity of
Linux, a free operating system installed on many netbooks instead of
Windows, forced Microsoft to lower the prices on its operating system to
compete.
Intel’s high-power processors are also under assault: revenue tumbled by
23 percent last quarter, marking the steepest decline since 1985.
Meanwhile, more experimental but lower-cost technologies like netbooks,
Internet-based software services (called cloud computing) and
virtualization, which lets companies run more software on each physical
server, are on the rise.
Penny-pinching shoppers like Mr. Title could have the most immediate
effect on the tech industry, particularly if more people consider
canceling their cable subscriptions to watch video online, or drop their
landline telephones to depend on their cellphones or on Internet calling
services like Skype.
Many consumers appear ready to abandon the costly desktop computer
altogether. Analysts expect PC sales to fall in 2009 for just the second
time in the last two decades, with desktops falling even faster than
they did in 2007 or 2008.
The only bright spot in the PC industry is netbooks. Analysts at the
Gartner research company said shipments rose to 4.4 million devices in
the third quarter of 2008, from 500,000 units in the first quarter of
last year. Analysts say sales could double this year despite a deep
worldwide recession.
Two lumbering giants, Hewlett-Packard and Dell, missed the first wave of
these tiny, stripped-down machines, allowing Acer of Taiwan to grab
market share. Acer pushed Apple out of the No. 3 spot behind H.P. and
Dell as sales soared 55 percent. Dell and H.P. are making the devices
now.
Even the mighty Apple, whose iPod and iPhone revenue had helped insulate
it from the first phase of this recession, reported last week that
revenue from its desktop line fell 31 percent from the same period a
year ago.
“The day of the Rolls-Royce laptop and the high-end computer may not be
totally over,†said Charles King, an independent technology industry
analyst in Hayward. Calif. “But certainly the audience for that type of
product is getting smaller and smaller.â€
Companies have also started to examine what they can do without and what
they can do differently, and their choices may alter the competitive and
lucrative landscape of business computing.
Hoping to save money, Arista Networks, a start-up based in Menlo Park,
Calif., has much of its internal technology processes online, or “in the
cloud.†Instead of buying its own hardware and software systems from the
likes of Microsoft and Oracle, it opted for e-mail and online document
services from Google and online sales and manufacturing software from
Netsuite, based in San Mateo, Calif.
It is spending a fifth of what it would be for traditional technology,
said Jayshree Ullal, Arista’s chief executive.
She smells a trend. “I think 80 percent of the new high-tech and small
to mid-size companies are doing what we’re doing,†she said.
A spate of start-ups have seized on cloud computing. Companies like
Intacct offer online accounting software as an inexpensive alternative
to Microsoft’s products, and giants like Amazon.com sell access to data
centers for business operations. Amazon has outpaced the traditional
hardware makers with such services.
The number of virtualized new servers has doubled over the last three
years, which has driven the revenue of VMware, one of the leaders in
this cost-saving technology, to an estimated $1.88 billion last year
from $387 million in 2005.
The makers of open-source software also continue to benefit from the
growing appeal of their often cheap, if not free, products. Sun
Microsystems distributes 65,000 downloads a day of its MySQL database,
which has turned into the favored business software of new companies.
The job search engine Indeed.com shows a thriving job market for MySQL
and Linux developers.
Linux has proved popular as well on a new crop of smarter devices — be
they phones, TVs or set-top boxes — that have captured software
developers’ imaginations. The new products they build will undoubtedly
challenge the status quo.
“Companies like Intel, Qualcomm and Texas Instruments that make chips
for these devices are hiring Linux talent as quick as they can,†said
Jim Zemlin, executive director of the nonprofit Linux Foundation. “They
know the future is netbooks and mobile Internet devices.â€
--
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You must be a stupid engineer then, because politcs and technology have been attached at the hip since the 1st dynasty in Ancient Egypt. I guess you missed that one."
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