Daniel Eran Dilger
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Mobile EEE PC, UMPC, and Internet Tablets vs the iPhone

mobile devices iPhone
Daniel Eran Dilger
Throughout the 90s, Apple’s increasingly precarious business was hobbled and complicated by the albatross of the Newton. As Apple abandoned the sophisticated but unfinished and ultimately unprofitable platform in early 1998, Palm began selling its wildly popular PDAs while PC makers struggled to copy that success in the mobile market with clumsy WinCE based devices.

Ten years later, PC makers are still failing to understand mobile devices as Apple launches its game changing WiFi mobile platform. Here’s why PC makers will be similarly left behind in their fight against the iPhone in the market for low cost mobile devices.

Learning From the Past or Condemned to Repeat It.
While some pundits initially tried to portray the iPhone as another Newton MessagePad, fated to share in its failure, Apple applied lessons learned from the failure of the Newton platform and the success of the 3Com Palm Pilot afterward. Apple then spent six years gradually building up a strong iPod foundation for launching the iPhone.

The iPhone’s potential success likely wasn’t foreseen back in 2001 when Apple got into mobile devices with the iPod. However, a series of related technology development efforts have positioned it and the iPod touch as an ideal mobile platform, and one that will be very hard for competitors to duplicate.

Unlike Apple, PC makers learned very little from the failure of WinCE devices. Instead, they have started turning out new generation of mobile devices, whether running Linux or Windows XP/Vista, that are just as likely to flop as the successive generations of WinCE devices that fizzled over the past decade.

The Spectacular Failure of WinCE and Windows Mobile

Mobile Wars: Pick Your Product.
Last year, both Palm and WinCE smartphone and PDA devices were overshadowed by RIM’s BlackBerry platform and then by the iPhone, which took second place in the US after only being on the market for a few months. Outside the smartphone market (and the now entirely insignificant market for PDAs), PC makers are now starting to release mini-laptops at a similar price target of around $300 to $400.

While offering divergent feature sets and designed for different intended purposes, these roughly $300 mini-laptop devices are vying for attention between cheap desktop PCs (now hovering around $700), sophisticated smartphones selling for $300 to $700, and other mobile products ranging from “Mobile Internet Devices” to UMPC tablets.

While HP, Dell, and other PC makers have tried to blow out a wide range of mobile products that match nearly every category available outside of smartphones (PDAs, MIDs, UMPCs, mini-laptops, and cheap PCs), Apple has focused its mobile efforts on one device that spans all those categories: the iPhone and the cellular-free iPod touch version. Which strategy will win? The history of the Newton, considered in the previous article, helps suggest why Apple is currently ahead of the game and likely to maintain its lead.

Newton Again: iPhone vs the Mini-Laptop

iPhone and the Newton.
The media and in particular Apple’s harshest critics were quick to describe the iPhone as a sequel to the Newton, and many suggested that Apple would fail again for many of the same reasons that dogged the original MessagePad. They were wrong.

The iPhone wasn’t a $700 – $1000 futuristic luxury toy with unfinished features and no clearly practical utility. Instead, it was delivered as an iPod, phone, and WiFi web browser “breakthrough Internet” device for $599, later reduced to $399 and then accompanied by a similarly priced iPod touch cousin lacking a cellular phone radio. Apple’s new devices weren’t priced like the Newton, they were priced like the popular Palm Pilot that cleaned up in the Newton’s wake.

Also unlike the Newton, the iPhone appeared without a complex development toolkit that required learning entirely new concepts. Instead, it shipped with a slate of usable applications, and Apple announced a program to enable developers to create custom server-side network applications based on web standards. After selling four million iPhones and a few million iPod touch units, Apple unveiled a full SDK supporting nearly identical development tools as those used in the desktop version of Mac OS X.

Steve Jobs Ends iPhone SDK Panic
iPhone 2.0 SDK: The No Multitasking Myth
iPhone 2.0 SDK: How Signing Certificates Work
iPhone 2.0 SDK: Video Games to Rival Nintendo DS, Sony PSP

Unlike Another Newton.
Apple’s iPhone platform is everything the Newton wasn’t: affordable, practical, complete, and popular. It also built upon the success of the iPod, rather than being a purely speculative new product without any proven track record. While Apple struggled to sell MessagePads ten years ago, it is now a retail powerhouse and has teamed up with mobile service providers who are motivated to sell the iPhone because they see it as being a key differentiator to gaining new subscribers.

While the Newton launch involved a two year wait, rushed development, and a weak launch, the iPhone went from presentation to reality in just six months and then set sales records that immediately rivaled the entrenched competition in smartphones. It also garnered rave reviews and awards that nullified the speculative criticism by pundits seeking to downplay its success before it even shipped.

In less than six months of sales, Apple sold more iPhones than it had ever sold Newton MessagePads; Apple only sold 100,000 Newtons in its first year and by 1996 was only selling 50,000 annually. In contrast, it sold 270,000 iPhones on its first partial weekend and nearly 4 million in the last six months of 2007. Analysts expect Apple to sell more than ten million iPhones this year, in addition many more millions of iPod touch units.

iPhone Grabs 27% of US Smartphone Market

The New Palm vs Another WinCE.
In many ways, the iPhone combined the sophistication of the Newton with the simplicity and affordability of the Palm Pilot, resulting in a sustainable, smashing success. Apple’s PC rivals are largely following the failed strategy of Microsoft’s WinCE. Rather than engineering and offering something that really competes, they’re selling underpowered, impractical devices that aren’t catching on.

Microsoft’s own efforts have been to push UMPC, a failed effort to use Windows XP and then Vista as a stand in for the old WinCE on mobile tablets, clamshell mini-laptops, or PDAs. Those units are selling poorly because they are priced more like the Newton at $700 to $1500, they don’t fit in a pocket, and they don’t really do anything practical or very well. Microsoft’s UMPC partners couldn’t manage to collectively sell a million units last year, now deep into UMPC’s second generation.

Last fall, Asus launched the EEE PC, a low cost mini laptop sold for around $300. The device was notable because it was introduced running Linux rather than Windows. However, despite lots of media attention, the device only sold 300,000 units last year across three months of holiday sales. While that device isn’t directly comparable in functionality with the iPhone, the fact that Apple sold 2.3 million units in the same quarter indicates that Apple picked a far higher volume market to address with its $400 product.

Like the UMPC and Newton, the EEE PC isn’t small enough to fit into a pocket, and is only practical for users who want a low powered laptop replacement for writing or other uses compatible with its limited capacity. HP and other makers are now rushing to offer products in this mini-laptop category, but it’s not clear that there is any more demand for a mini-laptop than for the tablet/UMPC computers Microsoft has been unable to sell for the last decade.

ARM, x86 Chip Makers Fight to Ride Mobile Growth
CES: Fear and Loathing in Las Vegas

The Other Mobile Contenders.
Intel profiled the EEE PC along side its Classmate PC as an alternative to OLPC’s XO, which does not use Intel’s processors. Both the XO and Classmate PC are targeted at education markets in emerging countries, which is seen as a vast potential market, albeit struggling with very low prices and profit margins. That places them outside the commercial consumer market, and neither has really made any significant effort to sell to consumers.

Nokia is also selling Internet Tablets running Linux, which are larger than a smartphone but smaller than a laptop. The XO and current EEE PC models share a Linux foundation, primarily to avoid either paying the Microsoft OS tax or needing to develop a custom operating system.

Linux’ Mobile Problem.
Neither Linux nor WinCE nor Windows XP/Vista were expressly designed to perform well on mobile devices. Linux has been shaped to run server applications for the last decade. Little Linux investment has been made in mobile or desktop applications because there is no business model for supporting that investment through the sale of support contracts, as IBM and Red Had do in the enterprise Linux business.

Nobody is going to buy a service subscription for maintaing Linux on their EEE PC. Additionally, Asus is going to do little to engineer mobile sophistication into Linux because first, Asus is not a software development powerhouse, but second because PC companies are afraid to invest in GPL software for fear that their competitors will pick up their required community contributions and use those against them. If Asus invested a distribution of Linux that excelled on mini-laptops, HP could swoop in and simply reuse the same technology.

That would be great for consumers, but offers no inducement for Asus or any other PC maker. Corporations rarely pursue profitless altruism because shareholders insist that their resources be used for the greatest return possible. Finding shareholders content with investing in a public service that fritters away their money for them is rather difficult.

Linux also faces death threats from Microsoft, both in terms of OEM licensing agreements with vendors that are punitive to any PC makers who sell Linux based PCs, as well as in Microsoft’s more general political efforts to derail any efforts to use Linux. The company thwarted OLPC’s Linux-based XO project and pushed the group to renounce its focus on open software and instead embrace a promised version of Windows XP cut down to run on future, fatter versions of the XO. Microsoft similarly pushed Asus to offer Windows on the EEE PC.

Mac OS X vs Linux on the iPhone and Mobile Devices
Microsoft’s Unwinnable War on Linux and Open Source

Windows’ Mobile Problem.
While Linux faces significant hurdles, it does actually work on mobile devices. Microsoft faces a bigger problem: WinCE has been rejected and scorned in the market even by Windows Enthusiast pundits from Mike Elgan to Mary Jo Foley. The full Windows XP requires higher resources that make it a poor competitor to Linux. Additionally, while Microsoft has invested billions into mobile efforts, it hasn’t delivered in terms of power management, rapid booting, and a simplified interface suitable for use in mobile devices.

Microsoft has promised mobile versions of its now seven year old Windows XP for use on devices like the EEE PC and XO, but those products can only run slower with XP than they can running Linux. Windows also offers little additional value in mini laptops, because simple tasks such as writing, coding, and browsing the web do not require Windows or really benefit from it; it only adds expense to the product’s bill of materials.

The Windows PC monopoly is held in place by a combination of markets Microsoft has successfully tied to its proprietary development efforts, such as the PC gaming market, the custom corporate apps market, and the vast consumer applications market. None of those are relevant in mini-laptop devices, offering few technical or marketing barriers to Linux or to Mac OS X.

Windows Vista, 7, and Singularity: The New Copland, Gershwin, Taligent

Apple’s Mobile Solution.
In the mobile space, Apple is positioned to reap the benefits enjoyed by Linux and exploit the weaknesses suffered by Microsoft. Apple doesn’t have to pay the Windows tax that other PC maker do, but unlike hardware makers such as Asus, Apple has its own operating system, allowing it to invest heavily in Mac OS X without worrying that another larger PC maker could take its software development work and simply outsell Apple.

Among mobiles, custom integrated software and hardware is even more important than in the desktop space because of the higher requirements in power management, dealing with thermal issues, and performance constraints due to limited resources. Apple has invested heavily in solving those problems, and the iPhone and iPod touch demonstrate an advancement well beyond other PC maker’s efforts in mobile device integration.

Apple’s iPhone offers broad appeal because it serves as a smartphone, but also a full featured media player and a mobile Internet device. This past quarter, smartphones and MP3 players sales shrank year over year in the US, but Apple maintained slight growth in iPod sales and continued strong sales of the iPhone. As the company further widens the utility of the iPhone and iPod touch using third party applications, its WiFi mobile platform will also begin to aggressively compete in functionality against general purpose, scaled down PC devices from mini laptops to tablets.

Economy Burns Cellphone Sales: Down 22% In Q1 – Silicon Alley Insider
Non-iPod media player sales are down

iPod Prepares the Way.
Apple’s new platform is also reinforced by the brand strength of the iPod and the technology that has already been invested in it. Since its release, Apple built sync support into the iPod for PDA data, entertainment media, and most recently purchasing game applications. While the iPod’s PDA features were seen as an impractical peripheral add on, they are critical to supporting the PC-integrated smartphone features of the iPhone.

Similarly, many observers saw no relevance in the iPod’s simple games, but that secure application infrastructure in iTunes will be a critical component to selling and promoting iPhone software. Apple’s retail stores, online media and software sales in iTunes, .Mac data syncing, and other foundational technologies will all play into the success of the iPhone, and serve as differentiators that are difficult for competitors to duplicate.

Nokia and Microsoft are both working to develop iTunes competitors, but there’s lots of work involved in duplicating eight years of technology development, lining up media licensing contracts, and acquiring a huge installed base of customers all at once. It is particularly difficult to do all that now that iTunes is already snowballing into a major force in the entertainment industry and is being advertised for free on TV and by podcasters.

And so Apple’s WiFi mobile platform is left targeting the most valuable sections of the market experiencing the greatest growth and offering the greatest potential for future demand both in developed markets and emerging markets. Mini-laptops will be important in education roles, but so far have not seen significant sales outside of emerging markets. Other specialized mobile device categories, from PDAs to tablets to media players to Internet web devices, do not look able to stand on their own against broadly attractive integrated devices that perform all those functions well.

Apple’s iPhone Vs. Other Mobile Hardware Makers: 5 Revenue Engines
Filling the Unlocked iPhone Gap with .Mac

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  • http://coderad.net StrictNon-Conformist

    Wow, Daniel, you must be too tired for safety: not only does it appear you posted the identical post twice, but you also must have done some time-traveling back about 11 years in regards to iPhone sales figures ;)

    – Yes I posted too late to catch what happened. My WordPress client crashed and it ended up getting posted twice, and most people commented on the secondary title, which I deleted. Here are the comments that were posted on it:

    #2 rludvig on 05.20.08 at 4:53 am
    Dan, I’m not sure the Eee PC (or any other mini-laptop) is really comparable to the iPhone/Touch family. While Apple’s mobile products are mainly used to consume media and to communicate, they are not (yet) usable as content creation devices. I cannot imagine doing actual work on an iPhone, whereas the Eee PC is good enough for most tasks (email, text editing, spreadsheets, even light programming, homework, etc). I don’t really see them competing, and could imagine people owning both an iPhone and a mini-laptop. I agree that those mini-laptops still lack a proper mobile operating system, but there are several ongoing projects to correct this situation.

    #3 John Muir on 05.20.08 at 8:55 am
    @ rludvig
    There are several ongoing projects for everything.
    The fact that the EEE PC and OLPC have both repositioned to adopt Windows is profoundly depressing for anyone who hoped they would be the vanguard for popular Linux. Whether it’s Microsoft strong-arming them or just customers demanding what they already know, I don’t know as there’s so much web chatter out there at the moment for devices with so few sales as yet.
    Apple’s “whole widget” really seems to be the strongest advantage they have in the mobile space. For others to catch up, they too would have to switch strategies to something like it. The two obvious examples being Palm: initial success; and the Zune: abject failure.

    #4 Scott on 05.20.08 at 9:30 am
    iPhone vs. EEC PC, etc comparison is a stretch even for you Dan. The iPhone, at least in its current form is not suited for editing/creating Excel or Word docs. I think it would be perfect for approving orders in Retek or JDA/SAP equivalent, approving distributions in JDA Allocations or Oracle/SAP equivalent, reviewing plans in Enterprise Planning or Oracle/SAP equivalent, etc. Examles of systems I have used.
I think iPhone with an ability to recognize hand written text (better than the Newton and anything before it) would be amazing. Even BBerry edicts still write on note pads in meetings!
Another cool feature I wish for is an ability to record conversations, in meetings, during calls, etc and be able to save these in my iPhone, synch them with my Mac and back them up with time machine in time capsule/hard drive. This coupled with software to search these saved conversations would be again amazing.

    #5 Boregard on 05.20.08 at 9:36 am
    It is all in controlling your own hardware by controlling how it works, meaning the software! So…
    Which major corporation is going to have the guts, money & time to invest in their own proprietary OS, developer tools, & online distribution for the mobile device market?
    Is Nokia, HP or Dell going to put 10+ Billion dollars & years into their proprietary device system to let them effectively compete with Apple in the mobile device market?
    Apple controlling its OS & Hardware is THE ANSWER as to why Apple is rapidly growing and able to grab mobile based markets it identifies.
    Linux doesn’t give a hardware maker an advantage, as noted in the article, where “If Asus invested a distribution of Linux that excelled on mini-laptops, HP could swoop in and simply reuse the same technology.”
    Any hardware maker can copy Windows paying virtually the same license fee to Microsoft…which is not an advantage in the mobile market, sort of like Linux, or maybe Google’s Android, where anyone can use the OS.
    Hardware makers have been totally resistant to develop their own OS, and it is partially understandable in the uncertainty they will be able to gain developers.
    I do wonder, however, if Apple can take Unix and layer the UI OS layers on top, why an HP can’t do the same with the Linux kernel? I don’t know enough to answer that, though I am sure HP has analyzed it closely.
    I think it would be accurate to say it would take 5+ years to fully develop such a system, though. Who has the guts?

    #6 stefn on 05.20.08 at 10:05 am
    The iPod taught Apple how to play in the consumer sector, which, minus an IT priesthood, requires turnkey solutions. Apple then applied its traditional top to bottom quality control with new sophistication, including content delivery solutions.
    And as Daniel suggests, Apple targets the premium piece of the consumer sector. No windfalls allowed; Apple leaves the the wormy, bottom feeding piece to Dell.

    #7 L on 05.20.08 at 11:58 am
    Cheap laptops is the last place to really grow the market. However smaller than 12″ is impractical. Linux can handle email and web surfing; what most people do with computers. The hold back in drivers and people intrenched in WinXP who just can’t adapt to change well. The Palm Folio failed becuase it couldn’t do this independently of the phone, like the iPhone can do independently. And it cost as much as a full featured laptop of the same size.
    I’m looking forward to iPhone 2.0 for composing email and web browsing. Sure the iPhone is disadvantaged to a full size keyboard, but I can carry it everywhere and use the odd bits of time to surf and email while waiting.

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  • http://www.roughlydrafted.com danieleran

    @ Scott: my comparison of the iPhone vs. EEC PC isn’t about which you’d buy to do specific tasks, but rather will people buy one or the other or both? If you have an iPhone, it makes less sense to carry around a mini laptop, a MP3 player, etc.

    Clearly, the market for smartphones is greater than that for toy laptops. And while you can’t edit Office docs on the iPhone (yet), doing so on a 7″ screen is only slightly dipping a toe into practicality.

    Windows Mobile devices make a big deal out of the ability to use “Pocket” versions of Office, but they are a joke. WM Smartphones have no touchscreens and very limited keypads. Once you edit many docs, they are then in Pocket format, and can’t be used on the desktop.

    So yes, there are people who would prefer to use a mini laptop rather than a mobile phone device like the iPhone, but that group is so small as to be insignificant.

    I’m not reviewing the products in an artificial CNET style “which do we like” article, I’m pointing out market reality.

    And as I’ve decided I like to say: the EEE PC is a fun toy and cheap at $300, but it is about as practical as those TimexSinclair “computers” that sold for $99 in the early 80s but ended up in junk drawers. That might be going a bit too far, but the market for cheapo laptops is not nearly as large or profitable as that for smartphones.

  • Berend Schotanus

    I really agree with rludvig, both on the idea that iPhone and Eee PC don’t target the same markets and on the disappointment that Eee PC and OLPC seem to turn to Microsoft.

    The thrill of the Eee PC in my eyes is the low price and minimalistic approach (not running bulky Windows certainly contributes to minimalistic approach). I see it as a down market offer for the same kind of purposes where MacBook Air is an upmarket offer. And I really like to see a broad market with lots of different price points and lots of different products and approaches and I wouldn’t see why in a mature and worldwide computer market this wouldn’t be possible.
    Obviously I don’t belong to the target group for a “toy computer”, neither does Dan. But that doesn’t prevent me from looking with lots of sympathy at the Eee PC: let 1000 flowers blossom in a world full of variation and beauty!

  • fredw

    I think you are missing the point on the nitch that the eeepc type computer fills. The price on these things are going to fall in the next couple of years. The touch screen will be added. Linux will improve on these things and Microsoft will have no standing in this market. Neither will Apple.

    I am not bothered by that. Apple sells slick computer hardware with well integrated software. They don’t sell commodity DVD players, TV’s, caculators or other forms of consumer electronics.

    I think the UMPC market is heading to the sub $200 commodity hardware range. Lots of players making lots of different devices and razor thin margins. But then again with Linux on these things. Commodity portable DVD player makers could enter the market. You don’t need to be a PC manufacturer to succeed at this game.

    Apple has never made bargain PC’s or Laptops. Why would they make a bargin UMPC in the race for the $200 mark? But just because they won’t does not mean there is not a market for them. They will be more popular than the Palm ever was. But no where near as popular as cell phones or MP3 players.

    Talk to me in two years. Then we can see if I get a pat on the back…or a serving of humble pie.

  • Gatesbasher

    Interesting you should bring up the Timex/Sinclair. That’s my canned response to Linux in general: “If I wanted to write all my own software, I’d still be using my Timex 1000!”

    The Linux geeks are fond of correcting anyone who calls Linux an Operating System: “It’s a kernel!” That’s exactly the problem. What we need, as Boregard pointed out, is for someone to come along and design an OS to sit on top of that kernel. If Apple were simply selling Darwin on all their computers, and leaving it to every user to try and make every app they install function under it, essentially rewriting it in the process, does anyone imagine they’d be enjoying the kind of success they are now?

    Linux is a very, very small niche market which is essentially saturated right now. The wave of the future is seamless integration and ease of use, and Apple is riding it. Windows is essentially a hobbyist system like Linux, requiring endless tweaking and maintenance, that through a bizarre accident of history was foisted on the general public. No one wants to see that happen again.

    With all that said, I’d like nothing better than for someone to come along and write a full-featured OS to sit on top of Linux. It would have to be cheaper than OS X, since they wouldn’t have to pay BSD anything. I don’t think it would cut into Apple’s market share, but something that could be installed on a PC, a lot cheaper than Windows and much more stable and easier to use, could be the nail in Microsoft’s coffin. Now who will step up to the plate and do it?

  • beanie

    I think more significant is that ASUS EEE is establishing itself as a consumer laptop brand. If you did not notice, ASUS has been a major designer and contract manufacturer of laptops. Now ASUS is establishing their own brand and selling laptops directly to consumers.

    ASUS recently released EEE PC 900 with 8.9 inch screen, Intel Mobile 900Mhz CPU, 1GB memory, and 20GB solid-state hard drive. In June, they will release EEE PC 901 with the new Intel Atom CPU. Seems powerful enough to run Vista Basic version.

    XP version is outselling Linux version of the 7″ EEE PC at Best Buy. So given a choice, consumers choose Windows, as predicted by ASUS.

  • The Mad Hatter

    Daniel, Daniel, Daniel! Stop saying nasty things about my Timex Sinclair. I still have it, and it still works. In fact I think it works better than Windows Vista.

    As to the mini laptops – I don’t know anyone who owns one, but I know a lot of people who own IPhones or IPod Touches. I think you are right, that Apple hit the target dead on, and that most of the CE industry just doesn’t undertand what consumers want.

  • Nicky G

    I love my iPhone, heck I bought it the first day it was out and have never looked back. But shoot, it doesn’t even have a To-Do application, and no “easy” way to sync notes to/from my Mac. I have no idea why this hasn’t been provided by Apple almost a year out, when you would think this kind of functionality would be a weekend project for Apple.

  • gus2000

    Does “Parallels” make a Timex/Sinclair emulator?

  • Scott

    I get you. And you are right. The thing is, the iPhone is really powerful and it’s so close to replacing my laptop and this is the reason why I wish it was complete (had all the missing features) already. Having said that, I think we are indeed living in ‘interesting times’. I cannot wait for June 9 and for Macworld 2009 Keynote Address!

    Out of Topic: Is Apple rolling out iTunes to the countries that will be getting the iPhone and do not have the store yet?

  • rludvig

    Dan, I think that something’s missing from this article, and that is how the “toy laptops” will change the market place for laptops in general. I think we can all agree that the Eee PC doesn’t compete with the iPhone/Touch, neither as market size nor as functionality. The latter will certainly outsell these laptops in the near to medium term.

    But on the long term, I think that a lot of people (and companies) will ask themselves if they really need to buy 2000+ USD high end laptops or cheaper but bulkier ones with similar specs. I’d say that except for scientists and engineers (which certainly don’t make up for the majority of the work force), anyone can get along just fine with less hardware in a smaller and lighter package. The fact that the MacBook Air sells at all, given the price tag, is a proof that people want small and light. The Eee PC and its clones aren’t there yet, but I think they will be in a couple of years (add a touchscreen, improve the OS, battery life).

    So my take is that sometime in the coming years, toy laptops will compete with the other laptops for the same marketplace. I doubt Apple will stay out of the game, or try to compete with the Touch family of products.

  • Scott

    I am with Daniel on this one (yes, I have changed my mind). I think the smart phones and iPhone (and iPod Touch to an extent) in particular is a much bigger platform, many times bigger than UMPCs and will always be, meaning: Apple is in the money!

    Below is an extract, of a memo written by Nathan P. Myhrvold [a Microsoftie] on “Road Kill on the Information Highway”, September 8, 1993, its long, I know, thought of summarizing it but thought what the heck…

    Personal Computers:

    I’ve saved the best for last. Our own industry is also doomed, and will be one of the more significant carcasses by the side of the information highway. The basic tasks that PCs are used for today will continue for a long as it makes sense to predict, so it isn’t a question of the category disappearing. The question is one of who will continue to satisfy these needs and how?
    As a case in point, consider that the fundamental category needs for mainframes and minicomputers also still exists and will continue to do so for a very long time. Despite this, the companies involved are dying and the entire genre is likely to disappear. The reason is that a new breed of machine – the PC – came along which out flanked them. In the early years PCs were not particularly good at what minis and mainframes did, but they were terrific at a whole new set of problems that the traditional computing infrastructure had basically ignored.
    Personal productivity applications drove PCs onto millions of desks and created a very vital industry which grew faster – both in business terms and price/performance – than the mainframe and minicomputer markets. The power conferred by this growth made PCs the tail which wagged the dog; free to ignore the standards which existed for mainframes and minis and move off on their own. Over time the exponential growth in computing has finally (after 17 years) given the PC industry the technical ability to beat minis and mainframes in their own domain. Although the early software platforms for PCs had to be extended to fully realize this potential (Dos to Windows to NT to Cairo), it turned out to be far easier to do this than to make mainframe or minicomputer systems address the new needs and applications. Even within the heart of minicomputer and mainframe’s domain – giant transaction processing applications etc., the old standards will not be used.
    I believe that the same thing will happen again with PCs playing the role of mainframes and minis, and the computing platforms of the information highway taking over the role of the challenger.
    The technical needs of computers on the information highway, or IHCs are quite different than for PCs. The killer applications for IHCs in the early years will include video on demand, games, video telephony and other distributed computing tasks on the highway. It is hard to classify this as either higher tech or lower tech than the software for PCs, because the two are quite different. Most IHCs will certainly need to be cheaper than PCs by an order of magnitude and this will inevitably cause them to be less capable in many ways, but some of their requirements are far more advanced.
    Another way to say this is that the rich environment of software for PCs is largely irrelevant for IHCs. Windows, NT, System 7 and Cairo do not solve the really important technical problems required for IHC applications, and it is equally likely that the early generations of IHC software won’t be great platforms for PC style apps. This isn’t surprising because they are driven by an orthogonal set of requirements.
    The IHC world will almost certainly grow faster than PCs, both in business terms and in price/performance. The PC industry is already reaching saturation from a business perspective. Technically speaking, the industry is mired in hardware standards (Intel and Motorola CISC processors) with growth rates that are flattening out relative to the state of the art – just as the 360/3090 and VAX architectures did. The Macintosh and Windows computing environments may be able to survive the painful transition to new RISC architectures, but they will lose time and momentum in doing so.
    PCs will remain paramount within their domain for many years (we’ll still have a computer on every desk) but IHCs will start to penetrate a larger and larger customer base on the strength of its new and unique applications. The power of having the worlds information – and people – on line at any time is too compelling to resist. For a long time people will still have a traditional PC to handle traditional PC tasks – in precisely the same way that they have kept their mainframes and minis for the last 17 years. One day however people will realize that their little IHCs are more powerful and cheaper than PCs – just as we have finally done with mainframes. There will be a challenge for the IHC software folks to write the new systems and applications software necessary to obviate PCs, just as we had to work pretty hard to come up with NT, but this battle will clearly go to the companies who own the software standards on IHCs. The PC world won’t have any more say about how this is done than the companies who created MVS or VMS did about our world. Of course, some of the VMS people were involved, but as discussed above it is very hard for organizations to make the transition.
    This may sound like a rather dire prediction, but I think that for the most part it is inevitable. The challenge for Microsoft is to be sufficiently involved with the software for the IHC world that we can be a strong player in that market. If we do this then we will be able to exploit a certain degree of synergy between IHCs and PCs – there are some natural areas where there is benefit in having the two in sync. The point made above is that those benefits are not sufficiently strong that they alone will give us a position in the new world. We’ll live or die on the strength of the technology and role that we carve out for ourselves in the brave new world of the information highway.

  • Realtosh

    @ Daniel

    The ultraportable form factor is not as insignificant as you lead us to believe. Yes, I think we can all agree that the tiny phone-sized Internet device that evryone can carry in your pocket is the ultimate form factor, and by far the largest potential market. That’s why Apple is selling the iPhone 1.0 and iPod Touch and about to come out with the iPhone 2.0, and possibly other similar-size non-phone touch device that use the same interface. It makes sense to concentrate on the biggest market first. There is still a long way for Apple to grow in the mobile communications space.

    The problem with making mini-laptops is that it cannibalizes Apple’s laptop market. I get that.

    Further, Apple has their hands full right now with the iPhone and related products. I get that too.

    No one wants a worthless toy laptop that does not have a fast efficient OS and lots of practical apps. I get that too.

    But Apple will iPodify the cell phone market, by taking away the most profitable revenues. The iPhone will be by far the most technically advanced and easiest to use cell phone for the forseeable future. Apple will use this advantage to skim most of the profits at the high end by selling iPhones and touch iPods. Apple will also use the branding power of iPhone to sell simpler cheaper phone alternativeness ( a la the iPod nano, and iPod shuffle) for folks who just want to phone and want a quality phone.

    There will be a time that they accomplish all that and will still need to grow.

    So back to the mini-laptops. The toys that are available now are just that. If and when Apple gets into that market, they will not make a toy. They will make a device that will at least a practical as an iPhone, which you probably would say is the best thing since sliced bread.

    There will be cannibalizing of the laptop business with smaller, cheaper simpler devices. Apple will decide that they want that done on their terms. Just as they’ve done with the iPod. First they lock up mindshare with a great product, them go for marketshare and industry-controlling clout. They did it with iPods, are doing so with iPhones (we’re stillnear the beginning of that process). And eventually they’ll do it with laptops.

    In all cases they expand the market by marketing smaller simpler cheaper devices alongside more expensive more function bigger devices. Apple expanded the market for media players by go to the mini, then replacing it with the nano and adding the shuffle. They will make similar move with phones to accomplish much the same tactical market goals.

    And, they will cannibalize their own laptop markets, and by doing so will increase the laptop market. Their will be full-sized and uber-powerful desktop replacements and small simple devices that just do the basics: eg. email, notes, games and media consumption, on a uber-portable device that will be bigger and more profitable than iPhone for those that need a bit more space.

    The iPhone will always be with you. But there will be a smaller but still substantial market for those who want something with a bit more screen real estate, and a bit more practical for dedicated media consumption and/or dedicated media creation, whether writing notes or email, making presentations or drawing, etc on the go in an uber-portable form factor.

    Yes, I know there will be some cannibalizing of laptops, but it will be done Apple-style. Smaller simpler devices that are profitable and address a larger market than full-size laptops alone.

    Mini Apple laptops, if cheap enough could make it possible for each and every student in America to have their own laptop computer. That’s a pretty big market. Then there is the international and emerging markets where cost is an issue. Apple can grow a strong following in many markets otherwise off-lomits in quantity because of price. Apple won’t make the mistake of many PC laptop makers that try to jam every last unneeded port or connection and Windows onto every laptop. They will cut their uberportable devices into simpler cheaper and still profitable devices.

    John has it right above when he says,”Apple’s ‘whole widget’ really seems to be the strongest advantage they have in the mobile space.”

    Apple has all the pieces to the puzzle. They have developed some great technologies, that can be used synergistically in many inter-related markets. It will be fun to watch Apple create all those elegant, useful and invariably successful and profitable devices.

    They only create products for markets that will purchase them. I agree with you there.

    I only disagree with you in believing that there is an substantial addressable market. It is just less of a priority right now than getting the phone piece done right. Apple does not need to do everything; they just need to do those thing they do well. Doing iPhone well means delivering the iPhone 2.0, and the SDK and getting the distribution done well internationally. The iPhone will be a Trojan horse in many markets. There will other gadgets to follow. All these devices can’t all be Macs, even though at heart that’s exactly what they’ll be. That will be such a powerful strategic advantage over the competition.

    I can’t wait to see all the goodness that they will create. Apple is essentially changing the world. They are changing how people interact with information technology. Apple is creating a culture of technical and interface leadership that will continue for many decades. Apple will lead, and everyone else will follow. The 21st century is shaping up to be an exacting time to be in technology, especially if you’re Apple and you know how to make gadgets that people want to buy.

  • emaansinghmann

    Why isn’t Android as a Linux development by google a platform that can compete with the iphone? Can’t it power mobile PC’s?

  • http://ephilei.blogspot.com Ephilei

    “Apple announced a program to enable developers to create custom server-side network applications based on web standards.” And you labeled that as a good thing? Don’t you remember how pissed devs were at WWDC when Jobs announced that?! What is significant about the programming of iPhone vs Newton is that the Newton tried luring devs but the devs begged Apple to develop for iPhone.

  • midtoad

    you wrote “Last fall, Asus launched the EEE PC, a low cost mini laptop sold for around $300. The device was notable because it was introduced running Linux rather than Windows. However, despite lots of media attention, the device only sold 300,000 units last year across three months of holiday sales. While that device isn’t directly comparable in functionality with the iPhone, the fact that Apple sold 2.3 million units in the same quarter indicates that Apple picked a far higher volume market to address with its $400 product.

    Like the UMPC and Newton, the EEE PC isn’t small enough to fit into a pocket, and is only practical for users who want a low powered laptop replacement for writing or other uses compatible with its limited capacity. HP and other makers are now rushing to offer products in this mini-laptop category, but it’s not clear that there is any more demand for a mini-laptop than for the tablet/UMPC computers Microsoft has been unable to sell for the last decade.”.

    Your article makes it sound like the Eee PC has been somewhat of a failure, and a poor seller. In fact, it’s been a runaway success. Last I heard, over 2 million have been sold. Amazon’s top-10 best-seller list currently includes 4 different flavours of the Eee PC. And every PC maker out there is rushing to copy the thing. that’s hardly a failure.

    The Eee PC does one thing well the iPhone doesn’t: data entry. Composing any message of more than a few words is a laborious pain with the iPhone or the Touch. Though the Eee PC’s keyboard is small and takes some getting used to, it’s still way faster and easier than pecking away on the iPhone.

    I’m eagerly waiting for June to see if Apple addresses the data entry failings of the iPhone. Just give us a non-crippled bluetooth stack and I’ll be happy to put my new Apple bluetooth keyboard to use on a new iPhone instead of using with my Eee PC!

  • neoanderthal

    I’ve been assigned one of those Windows Mobile smartphones from work – an HTC Twist or Tilt or some such.
    I’m not such a big fan of it – it works ok, but has poor battery life and using it for anything other than as a phone reminds me of the proverbial 5# bag filled with 10# of material. The interface is tiny – you really *must* use the stylus, as everything seems scaled to work with the stylus’ “footprint”, and it works far too much like a standard Windows desktop.
    I was not particularly interested in the iPhone (or any other smartphone, for that matter), but the iPod Touch piqued my interest. My girl and I went to a local Apple store to have a hands-on look at them (after being drawn into Apple’s trap with the video tour of the iPod Touch) and see what they were like. We were both sold, and now both of us have a Touch. It’s actually made me re-think the whole iPhone thing, seeing how easy to use the Touch was. When I look at some of the features of the Windows Mobile and Blackberry Curves we have at work and how it compares with the Touch’s equivalents, I can imagine having access to the Touch’s cool stuff over a mostly-available EDGE network, and the thought really strikes a chord with me now.

    I planning on purchasing a tablet PC, but the only reason I’m interested in it is for art. I’d just like to have a reasonably-sized LCD/digitizer combo that I could drag around with me without too much fuss. I know that the sort of market that someone like me represents isn’t significant, most especially for Apple, so I suspect I’ll have to purchase a PC tablet for something like this. I have to admit, though, that the thought of an Eee-sized display with multitouch would be pretty cool – maybe a subnotebook form factor with a multitouch display? I don’t know… I do love the Touch, though, and seriously, if you don’t understand what a revolution in user interfaces a multitouch display is, I’d have to say you haven’t used it enough in comparison with your standard computer interfaces available these days. It’s like those goofy Star Trek:TNG mock-up displays, but with real-life functionality and usefulness.

  • Calgarian

    Thanks, Daniel. I believe the screens on the iPod Touch and iPhone are too small to compete in this UMPC/Tablet market. Apple would compete better with an iPod Touch with a screen in the 7 to 9″ range. I build on this opinion as part of my WWDC predictions here.


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