Posted by: gregboyko | May 10, 2011

A “World War” in the Technology Industry

Ladies and Gentlemen, if you’re watching the tech industry you may have noticed that we’re entering a new age. And not just any age. This is reminiscent of what we saw play out in World War 2. There are a lot of similarities. It’s just the battleground and the combatants that are different. Let me explain.

Today’s announcement that Microsoft is going to purchase Skype for potentially as much as $8.5 billion is a big deal, and triggered me to think about the tech industry as a whole. There is an ongoing war (“World Tech War 2”) for thought leadership and mindshare going on right now (with market share lagging mindshare by only a short time). It’s being fought on several fronts, and in reality it started with a few minor skirmishes several years ago. The early battles were fairly minor, and in many ways weren’t even “battles”—rather they were warning shots that few heeded:

  • Apple entered the digital music market in 2001 with the iPod
  • In 2000, Google (still a very new company) began selling ads based on search keywords
  • In 2004, Facebook was founded
  • In 2006, Amazon announced a public beta for the Elastic Compute Cloud
  • In 2008, Apple release the App Store for their iPhone OS
  • In late 2008, Google released an unpolished Android OS for mobile phones
  • In late 2008, Microsoft announced the Windows Azure cloud computing platform and provided an early developer preview
  • In 2011, Microsoft announced it was porting Windows to the ARM architecture. (Note that the ARM architecture currently dominates the Intel x86 architecture when it comes to mobile devices)

At the time that each of the above events occurred, very few people understood how significantly they would affect the technology landscape. But today, with the benefit of hindsight, it’s pretty clear that each of the above events were key turning points that changed the face of computing and technology forever (although it’s too early to ascertain significance of the Windows ARM port and probably still a little early with regard to Windows Azure and Amazon EC2, but I’ll argue that case). The “warning shots” have now developed into full-fledged war.

This war is for control of the dominant computing platform that will power applications for the next 15 years. The battles are being fought along three key fronts:

  • Cloud-based computing
  • Search and advertising
  • Mobile devices

These three fronts are actually very closely intertwined, but control of just one front will not win the war. Win two, however, and I think the third is likely to follow.

The combatants are many, but generally line up in camps around three (maybe four) large “nations”:

  • Google
  • Apple
  • Microsoft
  • (maybe Amazon)

While this is a bit of an over-simplification, it’s fairly close to reality. So how do things look as I write this today?

Cloud-Computing Search and Advertising Mobile Devices
Google Google is weak here, actually weaker than would be expected. While they have some strong services, they’re pretty weak at the platform level Google owns this, but faces strong competition from Bing Strong, but facing very serious competition
Apple Apple is weak, too Weak. In fact almost non-existent outside digital media Strong, but facing very serious competition
Microsoft Strong, with Azure being the key strategy at the platform level Fairly weak, but Bing is taking territory every month. This is going to be an interesting battle front Currently controls very little territory, but the war machine is firing on all cylinders now, and may gain territory quickly
Amazon? Strong, perhaps as strong as Microsoft, but the tools store is a bit weak Not traditionally strong, but Amazon has some strength when it comes to the important vertical of product data Weak, but don’t count them out. They have Kindle and I’d expect a tablet play from them soon

 

Folks, the outcome of this war will solidify the next tech industry super powers.

But what does this mean to the consumer? The answer is similar to what we saw in the history of the real second World War. It was a time of invention. A time of engineering efficiencies never before seen. And when the war was over, there was a baby boom that changed the course of America for the next 50+ years. In internet-time, the effects will be compressed, but make no mistake: there will be a technology boom unlike anything we’ve seen before. Yes, the decade between 1990-2000 (which I could conceivably call “World Tech War 1”) was important, but this will be bigger. I believe we will see innovation (brought about by competition) that will surpass anything seen during the dot com boom.

Honestly, I’m not sure which “nations” will be the big winners. I have a few ideas, however. I think Apple will slowly lose prominence. They’re too closed off and simply don’t have what it takes on two of the three key fronts (cloud computing and search/advertising). I think Amazon will end up being less of a platform player and will be relegated to a pure infrastructure-as-a-service provider. And I think we’ll see a battle between Microsoft and Google for many years to come. Keep in mind that there may be room for two big super-powers…

It’s too early to choose any ultimate winners, but ask me again in 2015 or 2016. Things should have cleared up a little by then. But no matter what, this is going to be an exciting next few years, and consumers are going to win.

P.S. What does this all have to do with Skype? Well, Skype is basically a social network, and social networks are a wild-card in the above mix. They might even be considered a fourth front, but I think they’re actually just a key component of each of the three fronts I identified, possibly with the power to sway victory toward whichever “nation” has the strongest social play for the front. To that end, Microsoft is looking pretty good on the social network front. With the combination of Skype and Windows Live Messenger, they’ll have the largest IM and voice/video call network in the world. Don’t forget that Microsoft has a pretty strong relationship with Facebook and that Windows Live also interoperates with Facebook Chat and Yahoo Chat. Windows Live also aggregates many of the most popular social sites (e.g. Flickr, LinkedIn, Facebook, YouTube, Yelp, and dozens more).

Skype is important, because I don’t think there’s a lot of overlap between Skype and Live Messenger users. I also believe Skype is so useful from and end-user’s point of view that users will go where the service goes, making it a powerful weapon in the war currently being fought. This will be an interesting mini-battle in the overall war.

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