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Why Microsoft is abandoning the PC and Android Tablets are so expensive

There has been tremendous hype about Tablet and Mobile Computing. However, I often get doubters, in fact myself doubted whether this was just a "Fad" which would dissipate in a few years or was there something concrete. The utility of tablets vs. PCs have been debated endlessly and this blog is not about the technical merits of one or the other.

A few recent trends in the PC world has convinced me that PC computing as we know it is going to be "abandoned" by major manufactures. PCs might not die easily(Hell, even mainframes are not dead, with a major competitor of my client still selling new AS/400 based systems), but it will easily loose prominence and support and cede the way for the tablet and this has nothing to do with technology.

To understand this phenomenon we have to understand the eco-system that supports the PC world. In the PC world "Wintel"(Windows+Intel) was king. People, wanted a Windows PC running the latest Intel X86 Processor(486, Pentium, i3,i7...the list is endless). Everything, else was just pricing. Windows and Intel were making most of the money and here is the key point:

Hardware Manufacturers had profit margins in single figures or lower double figures.

Indeed, it was this lack of profit margins that made IBM , the inventor of PCs to sell of it's PC business to Lenovo!!. IBM(wisely) decided to concentrate on the much higher margin software business. HPs recent declaration to do the same citing profit margins further corroborates this. HP(since it consumed Compaq) is the largest seller of PCs in the world and wants to sell this off. The problem for hardware manufacturers is that margins are razor thin at 6%-11% for American companies. The problem is even worse for Asian companies with some selling at margins of nearly 2%. The eco-system is shown in the figure below:

Source: DataInsights

Why do hardware manufacturers still make PC's if the margins are so low. The answer, is simple: Volumes!!! HP's 5% margin on it's PC business still contributes to half it's revenues and profits of nearly a 9 Billion Dollars.

So clearly in the PC world Intel and Windows were king having profit margins in the 30-40% level while PC manufacturers were to use the economic term: commoditized.

But what about Apple you may ask!! Apple being in control of their entire chain always maintained high profit margins even for Macs. Apple gets more profit from the sale of 1 Mac as compared to 7 PCs by HP. Apple however did not get the volumes in the Mac as compared to HP and Dell and Pcs and such were things until something disruptive happened: The tablet was born(re?) with the iPad.

It is clear from all market data that the iPad and tablets are cutting into PC sale volumes. The figure below shows the trend of notebook sales(Source: OnlineMarketingTrends)

Indeed IDC PC Watch has shown that overall Year-on-year in 2010 and 2011 PC/Netbook shipments have fallen by about 4.2% with the only silver lining being a bullish sales of MacBooks and Lenovo in the US..

Compare all this doom and gloom with the tablet market. Apple's Profit Margins on the iPad is rumored to be at: 42%.

But here is the real deal: When you go and buy a tablet you buy an Acer, a Playbook, A Samsung Galaxy not Android+ (Whatever Processor) or iOS.

This means that once again hardware manufacturers are free and the wide range in specs for the tablets means that they can get much higher profit margins with high volumes(oh joy!!).

Add to this the fact that Android is free(Google makes no money in it) and you can see why all hardware manufacturers are moving like droves to the tablet market.

And this is why non-iOS tablets are so expensive. In trying to keep their margins high, manufacturers like HP, BlackBerry and the rest are trying to sell it at prices comparable to the iPad but not having the same features.

The aim is simple, to quickly become a market leader in this area. This is no different from IBM who in the first few years of the PC era was making profits at 40% before being beaten down by nimbler competitors like Dell, Compaq and subsequently HP.

But what about "WinTel". Both companies have missed the bus. Intel lost to ARM and NVIDIA as most tablets are powered by these processors and Microsoft is increasingly seeing the carefully built OEM eco-system being completely taken apart.

The result: Intel has announced a partnership with Google to make chips optimized for the Android.

But more surprising are Microsoft's moves, however logical considering the big picture:

• Partner with Nokia(another struggler) to get the hardware edge
• Reveal "Metro" UI as default UI for Windows 8. The "Metro" UI is more optimized for touch rather than click.
• Make Windows 8 work on ARM without support for older Intel Based Apps!!!
• Remove Plug-ins from Windows 10 "Metro Browser"
• Make the Programming for Metro as HTML+JavaScript in preference over .NET

In other words Microsoft has relegated the "Desktop" to second place. Though, it will still support the desktop, it is clear that the desktop will in a few years be what Win 95 is to us. A relic of times past.

Even their Server strategy has taken a major change. Windows 8 Server beats the pants out of cloud computing technology like Citrix and other major cloud systems. Gone are it's emphasis on .NET servers alone.

Clearly in the long-term(3-5 years?) MS is betting that the changed economic systems means that PCs and Netbooks are relegated to ancient technology pieces with hardware manufacturers literally forcing the tablets down the throats of users.

We live in interesting times and the chess game has just begun as the industry sorts itself out. This entire situation is an ode to the man who started the PC revolution, lost, started the animation revolution , the mobile apps revolution and finally the tablet revolution: Steve Jobs!!!. Let the chess game begin

Status Updates

It has been a long time since I blogged about anything. I have had a great number of ideas, but got busy with doing a lot of things at the same time. I will blog about some of those ideas later.

A colleague of mine, suggested I start a pure technical blog to document my work with technology for the technology geeks. I was reluctant in starting a pure technical blog since I believe there are too many of those out there anyway. But, I have increasingly noticed my habit of forgetting, important things, especially when I do some analysis years ago and try and remember what it was that I did.

Hence, the technical blog is more like a research journal and is actually for me to document my work. I will feel great if someone actually benefits from it.

You can access the blog at http://vikrantresearch.blogspot.com. It is aptly labelled Memoirs of a Certified Geek.

Are the IIT's obsolete?

I have had a recent animated debate with a close friend DP on a topic after watching the movie '3 Idiots'. This debate is neither new nor original. It was the standard, what can we do to improve research in India. (Inspired ofcourse from watching '3 Idiots').

Did you know that we do not have a SINGLE nobel prize winner from free India? Don't believe me check out http://en.wikipedia.org/wiki/Nobel_laureates_of_India)? Ofcourse, Mother Terresa and Amratya Sen are the only Indian "Citizens" to have won the nobel prize. The former came from Yugoslavia and the later actually stays in London. But in Science and Tech, we have had people of "Indian Origin" getting the nobel prizes, but not one true Indian making it till now. It is a strange statistic after so many years of independence. (Funny, we had nobel prize winners before independence).

On a related note, I was just checking out a video on TED about Pranav Mistry's Sixth Sense technology. Amazing, Pranav is surely one of the foremost inventors of the world. I checked his profile on Linked-In. B.E Gujrat Uni, M.Tech (Desg) IIT Mumbai and then MIT. Again, MIT takes credit for his inventions.

These observations beg the question, when will India become truly innovative and when can our own people(who clearly have the talent) have the platform to showcase their inventions and bring them to the world, independently of the Americas?

Again, none of these questions are new and have been discussed to death before in casual talks. DP and I had opposite views on this topic.

I am of the opinion, that the very "pride" of our countries the IIT's have lead to a class based system in our education that is actually hampering research and original thinking. According, to me we need an overhaul of the higher education system, making it more in line with the way the west works.

Here is an example, the US awards an "MS" (Master of Science) degree and the UK an "MSc." (Master of Science Degree). In India, if you have an MSc. you are looked down upon as it is considered an inferior degree. AFAIK(though DP disagrees) there is no equivalent to our B.Tech or B.E Degrees in the West.

To understand this further, one needs to look at the history of the IIT's. They were formed when independent India desperately needed native engineers to work on it's infrastructure projects in the 1950's-60's. Setup, by foreign hands(America, Russia, Germany, UK) their curriculum was/is designed to promote top-quality engineers and they have been more than successful in that. However, there is a catch- their curriculum was not designed for "Original Thinking" or "Mixed Thinking". Worse, by making them exclusively engineering colleges there is no concept of courses outside engineering. One cannot major in Mech. Engineering and Minor in History or Music at the IIT's. Somehow, I believe that this is an essential spark for a creative environment.

Secondly, the govt. still grants a disproportionate amount of money into the IIT's at the costs of other universities creating a deliberate class system. This has the impact that actual universities(The IIT's are not universities) are less funded and hence are less research oriented than the IIT's.

This is not to say, the IITs have not produced good stuff. They have produced great things. However, they seem to be more a training ground for people to go to the US and produce the final product rather than producing it themselves. The IIT-JEE Entrance exam, the toughest in the world is an example of what is wrong. The exam makes people miss the best 2 years of their lives (high-school) cramming theoretical Physics, Maths etc. This is good as it produces great engineers. It is bad, since those years could lead to great inventions, but no one has time to do these as they have to study. (Steve Wozniak who started Apple, made the PC when he was 16-17 and in high-school. Imagine, if he had to study for the IIT-JEE exam, what would have happened).

The main reason why this may be, is because we in India join colleges for "jobs". I remember my final year, when people went into great depression when they did not get "jobs". As Nandan Nilekani says, we have had a lot of ideas that have come of age like those of "entrepreneurs","demographic dividend" but the idea that "research" is something fundamental has not yet sinked in. Hence, our industries have mostly been service oriented, clever use of economic imbalances and yet we do not have the kind of hi-tech research that can propel a country to new heights.

We now face a peculiar problem in our higher-education. We need the millions of trained engineers to feed our service industries, and yet we need to start producing great researchers. My verdict is that we should probably disband the class based system of the IIT's and concentrate on holistic university environments throughout the country. People, should be admitted as in the west based on their overall performance in school(Class XII in India is a joke right now) with the first two years letting them explore their talents. The last two years can decide what they actually want to do. This is to a certain extent impractical in India, simply due to the sheer competition that India has. But, I am sure we can construe a practical solution to the problem. Hence, I say convert the IIT's to regular universities(albeit top ones) and regularize the degrees. So, everyone can be a B.S(or BSc.) with a specialization in a certain type of engineering. Let the actual branch be decided on the first year of campus, rather than preselecting it during the entrance itself and for god-sakes pour money into research. If nothing else, it is worth noting that now we have 10-12 IIT's but the only institutes that are well-known for their research is the IISc and the ISI we only have 2.

However, my friend DP believes that it is better to re-structure the IIT's courses albeit, maintaining the class system that has generated because of it. He thinks, if the IIT's change course the others will follow.

What say the rest of you?

3 Companies

"Itna paisa mein itna hi milega"- said "Bai" by Bai. Though, we IT workers are a little more sophisticated than that, the sentiment is the same and if you think you are on the lower side of the pay scale, I have been doing some work on the kind of companies and how they compensate employees. So, read on!!

Broadly, in my interactions, I came across three kinds of companies. The first are your general IT Services/Solutions providers, the second are the in-house IT departments and the third are product companies who have setup R&D departments in India. My analysis here is of technical delivery positions only, not sales or management.

General IT Services/Solution providers, hire people en-mass usually to fulfill a project's immediate requirement. They don't pay well!! The reason, for that is the way accounting is done within the companies. The business of these companies is services and their biggest cost is employees. They have to reduce the cost of employees. A perfect example is a "Grade Mix" metric which their projects have, which try to ensure that the overall team mix includes lower-cost trainees.

The other thing, to be noted about such firms are - a) They are not to focused on developer productivity to a large extent, preferring to hire more people than develop conditions for better developer productivity. This is actually better for them, especially in Time and Material Projects where they can bill per person. For example, no such firm will ever worry about lighting or how developers are seated which are known to increase productivity by 5-10%. The marginal increase is more than compensated for by the number of developers.(or so they think!!) This is not to say they don't care about developers, it's just their business model.

This is also reflected in their compensation models. If you ever interview for them, they shall simply take your current compensation add a reasonable factor to it(depending on urgency of requirement) and that's your new compensation. They do not take into account talent!! Frankly, I think they don't need it. They need a few talented individuals, but not "Rock-stars". It's just the nature of work they do.

In fact, it is kind of assumed in these companies that what employees make as lower base salaries, will be compensated for by "on-site" assignments. Hence, there is a huge jostle in these companies for assignments to the west.

For these companies the real talent are it's management. They will go out of the way to hire management consultants at high prices, since they realize maximum gains by having a smart management team.

In-house IT houses, have the reverse problem. They need their developers, and pay handsomely. They take care of developer productivity and go out of their way to make sure the developers have the best facilities possible. The reasons are simple!! 1) Most of their work is very boring!! 2) There is usually no on-site opportunity.

I have recently had friends join the IT arms of big investment banks. While, they are enjoying the perks and other things, some of them are already contemplating the next switch thanks to the work. This is not to say, that all their work is boring. Indeed, Fidelity Investments has given us the "DOJO" framework and some of their work is scintillating. But, all this comes in cycles, only when a major transitional project comes along.

By all means, these are the companies you should join, if you want a good salary with a stable life, since in general during business as usual conditions, these companies have predictable working hours and patterns.

The last kind of company is the R&D or product firms that are mushrooming, in India. These guys want talent , they want productivity, they want it all and are ready to pay for it. However, there is a catch!! Most companies(barring a few) have set-up R&D or "Product Development" centers in India, to reduce cost!!! Of-course they want to leverage talent in India as well, but they don't do it the way they do in their home countries. Usually, fringe work of a core product is given to the India Centers, with the main design and important work still being done in the US/UK or wherever else they are setup.

In the new decade I sincerely hope that Product and R&D based "Indian" companies would rise in prominence to compete with their global counterparts, as dependence on cost reduction is removed as the fuel that actually runs the IT industry in India currently. We need to do to the IT industry , what Japan did to the automotive industry, and I know a lot of effort is going into this. I hope to see some exciting new things, in the coming years....

Of course, there are exceptions to every category of companies I mentioned above(So, don't flame me saying, my company is of type X but does this!!). I would love feedback from others, on how they think their company works and pays.

A happy and propsperous new year and new decade to all!!!

The end of money!!!!

Are you happy with the current monetary system? Do you think, it needs improvements?

For instance, I have some pet peeves like:-

1) Why, do I have to worry about my survival if the stock market(to which I am not privy) crashes.

2) Why do some bankers in suits have control over my life?

3) Why can't I live on an island in Italy, in a castle, surrounded by servants who would do my every command and never have to work a day, while Vijay Mallya can...;)?

Well, my pet peeves aside there is a small but clear dissatisfaction growing in people of our generation regarding the status quo of today's economies.

• We all seem to have comfortable yet highly stressful lives.
• We don't have to worry about food and yet slave for longer than farmers in a village.
• We have higher life expectancies and yet we fall prey to a larger set of stress related disorders.
• We have umpteen free land and yet are forced to live in polluted, over-crowded cities in small "caves".

Of course, the problems above are for those who are relatively affluent. It is a wonder that in what we call an advanced world there is still poverty, malnutrition, hunger and frankly living conditions not suited for farm animals.

We have two outdated systems responsible for this:

1. Our monetary systems
2. Our political systems

In this post I shall talk of only the monetary systems.

Monetary Systems

The concept of "money" or monetary systems evolved as a means of distributing "limited" resources among people. The major two systems Capitalism and Communism follow different ways to do this.

Capitalism believes that resources should be distributed based on the laws of profit, supply and demand. Hence, if there is no profit there should be no resource distributed(even for high demand).

Communism follows the other way around, where a group of guys in ties decide who gets what.

Needless to say, both systems are flawed , though "regulated" capitalism or mixed economies have slowly gained precedence.

But there is a major flaw!!! Both, systems are based on the fact that there is a shortage of "resources". In fact Capitalism actually encourages this shortage of resources.

A good example is that of the diamond industry. Diamond, is one of the most abundant forms of mineral on the world and there is no shortage of it. (If diamond was rare, you would have diamond investment funds like gold bonds. Diamond prices are a product of a cartel and hence are not good investment instruments.) Yet, it is sold at exorbitant prices to consumers mainly through a slick marketing campaign.

This would have been ok, if it was meant to just satisfy the ego's of some star-studded bimbos and rich people. However, diamond mining and trade has lead to the largest human rights violations in Africa as we all know from the whole blood diamond thing. The sale of diamonds has directly financed the many revolutions in Africa causing the loss of millions of human life.

Abundance

To see if an alternative system of living is possible, we need to look at which resource is actually "scarce" in the current world. The basic stuff food, water, shelter are more or less abundantly available.

1) Energy- There are numerous abundant sources of natural energy. We have the technology to tap it!! Yet, oil conglomerates cannot allow this as it would break their hegemony.

2) Minerals- Our reliance on rare minerals is getting lower and lower. We have synthesized enough replacements for the rare ones and have techniques that can help easily re-use the rare ones.

3) Office Space in Nariman Point- Now this is clearly a man-made scarcity. By using modern communication methods, one does not need to keep his office at Nariman Point.

Ultimately, I believe that modern technology has given us the means to live life comfortably for all of the 6 Billion plus people on the planet, yet it's the very monetary and political systems that we have designed that don't allow the free flowing distribution of this "abundance".

The path ahead- Technologism

Any system comes to a breakdown point when enough people realize that it is not meeting it's objectives or the objectives themselves change.

Most people would agree on the following vision of an ideal society(details may be hotly debated):-

1) Everyone should have all the basic necessities of life which includes free medical care, shelter, education, food, ability to travel to exotic places, iPods, Latptops and whatever else their heart desires.

2) People should strive to work for a purpose other than simply money. All people, should do higher level things like advance Art, Science , Sports etc and stop having to do lower level jobs like farming, ticket collection , factory workers, management!!! which can be easily automated by robots.

In such a society above, money would not be an important thing.

Many, of you would be wondering, that this is just a pipe dream!!!. But, take a look at the following statistics:

1) The number of farmers in the world have declined from 90% of the population 300-400 years ago to around 33%. (This is also an inflated number. Many people are still farming because there is nothing else for them to do).

2) Automation has lead to job losses of millions world-wide.

The funny thing is that the affects above are due to "Capitalism" and the "Money System". In an effort to increase profits, corporations must cut costs by bringing in more automation. However, what the current systems have not yet addressed is what happens to people who are no more working!! In the current system, they die poor and jobless. Most, of them find other jobs or are protected by social safety nets.

But, what would happen when a tipping point is reached say when Robotics finally arrives and even the few manufacturing jobs available are lost. With no workers, to manage what would happen to the supervisors and the operational managers?

With a major part of the economic work-force unemployed and unable to purchase goods in a traditional system, what would happen to the "Upper Managers" and "Financial Analysts"?

In other words, the whole system would come falling down like a pack of cards to be replaced by a new system, one in which technology would decide the distribution of goods and a new social order is created.

But, what has all this got to do with me today?

Many of you reading the blog at this point may be thinking, yawn....this is just another psuedo-intellectual lecture. None of this is going to change in my life and when this happens good luck to the guys alive them. As for me, I am going to go to work tomorrow since I still have to pay home loans and it still costs money to watch movies......

However, the world needs you!! A system will always change when put under stress. But, the new system , the details, will depend on what ideas are generated years before.

Communist ideas came in the late 1800's, yet it was not until 1920's (Russia) that they could be put in practice. The ideas of many famous philosophers bore fruit years and years later.

We as today's generation have a moral responsibility to start "visioning" this future which we know is inevitable. We need to come out with great ideas for this future and bring about the small small changes that will ultimately lead to the tipping point of a better societal and economic structure.

Many organizations already do this. I strongly encourage people to see the ideas by http://www.thevenusproject.com/ who are trying to envision such societies.

If a system collapses suddenly(As the French found out during the French revolution), violence is usually a by-product and in our case if we do not evolve to a better society, we will regress into the dark ages as the religious zealots use the resentment generated by the current system to become anti-technologists and bring us into perpetual decline!!!

The choice is yours..........

.

Money Money Money, must be funny in the rich man's world

How much does money, control our world? Our education, our lifestyle, our money, even the fact that I am blogging on blogger and not selling tea in a stall is because of the amount of money I earn and our economy. I have always been interested in what exactly is money and what is this great "engine" that we call an economy.

I have recently seen the movie Zeitgiest addendum and boy does the movie scare me. I will talk about two scary aspects of money not well known to people outside trained economists.

1) What is a 1$ note(or any other currency note) :- A 1 dollar note is a "loan" given from the Federal Reserve Bank of America to the Govt. and other banks. The FED expects the loan to be returned with "interest". Now, the questions is if every note that the FED(or indeed any other central bank) issues is a "loan" then to pay the "loan" one needs more money, hence more notes, but these are again "loans". Even a non programmer can see the infinite loop here?

Basically, the main job of a central bank is to "kick-start" the money supply by supplying loans to the govt. of a country.

2) Fractional Reserve Banking: This is the second aspect of the system and was what most astounded me.

Mummy asks Pappu:- "Pappu if a bank has 10$ of money with it and it lends that to a person, how much money does the bank have".

Pappu:- "Mummy 0".

Of course, Pappu has not done a course in economics and he has failed again!!!

When bank lends 10$, 10$ is magically created in the economy !!! So now the total money supply in the economy is actually 20$(Magic!!!). The funny thing is if this 10$ is loaned to some other bank who loans it further another 10$ is created..out of nowhere.

Well actually, the amount of money created reduces with every bank lending since "central banks" need a certain reserve amount be there in the bank deposit which is a fraction of the "loans" made out. This means that Bank A (who originally got the loan) can only lend 8$(if the Fractional Reserve Ratio is 20%) and Bank B can lend up-to 6$ and so on.

The chart[source: Wikipedia] shows how a 100$ deposit magically becomes 500$.

As an engineer the chart looks just like a chart of an engine. Of course, for a given Fractional Reserve Ration the amount of money supply in the system approaches a limit as shown above!!!

The conclusion of the two points above is "Money" is "Debt or Loans". All "Money" is "Debt", and hence all "Money" needs to be re-paid. That means the "Money" supply needs to continuously increase.

But where does all the Debt get paid from? Well from you and me, from start-ups and companies and all those who borrow. Further loans, are actually finances from deposits we make!!!

Anyone can recognize the fundamental problem here!! Someone will not be able to pay back his loans, someone will go bankrupt, it is the nature of the system , some bank will go insolvent

And this is the main reason for the boom-bust, depression and all economic cycles as for "inflation" and a steady price rice.

What happens if loans are not paid back to the bank and depositors start withdrawing money- You have a depression like the sub-prime crisis we faced.

Things become more complicated if you add a Stock Market Bubble to this!!! (That would be another post).

This enormously complicated engine is "tinkered" around by a "handful" of bankers around the world and it is there decisions that affect our lives!!! Make a policy mistake and viola, I could be flipping burgers at Mc Donalds or maybe writing a lot more blog posts, since unemployed people write more!!!!

Many believe that it's the bankers that are the cause of all depressions , wars , coups etc and are the real masters of the world. It is hard to refute such an argument.

The movie goes on the show how Money controls other things like Crime(with the exception of crimes of passion all serious crime has a direct or in-direct relation to money!!!).

All the above scares me and makes me believe that there should be a better way a better system. Can we have a world without money? No, not a communist egalitarian society but a world without money?

That will be the topic of my next entry!!.