Between an xBox and a Hard Place (IBM selling PC Unit trumps Microsoft's coming hardware dominance)

When Microsoft Turns on Its Hardware OEMs and Even Dell Must Die, Will IBM Play the Savior?

After explaining last week how IBM was selling its PC division to Lenovo a) to gain an equity-sharing partner in the Chinese market and b) to free its own Power5 and PowerPC processors to better compete against Intel...the implications of IBM's deal go even further than I first suspected, and Microsoft plays a role...

...the next version of Microsoft's xBox game system will use a PowerPC processor...xBox couldn't stick to an Intel processor and be competitive with future Sony and Nintendo game consoles. So at a time when IBM is pulling away from Microsoft influence, Microsoft is, itself, coming more under the influence of IBM...

Take a long look at xBox development, the evolving PC and consumer electronics markets, and Microsoft's own need for revenue growth... xBox 3 will be Microsoft's effort to extend its dominance of the PC software industry into dominance of the PC hardware, game, and electronic entertainment industries. At that point, even mighty Dell goes down...

This article is so wrong in so many ways ...
Sun is a hardware company. This clown sounds like the same chorus who suggested that Apple get out of hardware ten years ago.
Microsoft is not a hardware company (money losing game consoles, nice mice and keyboards notwithstanding)

For those of use who remember CHRP (Common Hardware Reference Platform), IBM has shown that they cannot lead the parade away from Intel processors.
If we go way back, Microsoft wasn't even able to get its 286 ISA card to market on time, and when they did, it really didn't work.

Microsoft may have an infinite appetite for revenue, but they are not so foolish to look for it in hardware. Look at the ventures it buys up ... services, competitors (e.g. WebTV) and intellectual property (digital art, satellite photos, etc.), they want in on DRM (digital rightas management) and banking, anything where they make a little money anytime someone uses the Microsoft "standard".

Hardware monopolies are VERY hard to keep, and those who come closest sacrifice margins (e.g. HP laser printers).

I do not know what is going on with the xbox, but Microsoft will not risk their other divisions on their one division that is a perennial money loser. And one that has seen numerous kings of the hill, all temporary (Atari, Coleco, Nintendo, Sega and now Sony). They do not even have to drop the Intel processor to be competitive. The bulk of video game buyers do not need the absolute cutting edge performance, they want good video games. If it was all performance and not marketing and games, the Atari Lynx handheld would have walloped the Nintendo Gameboy eight years ago.

I don't like the IBM/Lenova deal, but it does not mean what the writer thinks it means for Microsoft and Dell. IBM has made cheap computers in the Pacific Rim before (Acer was a big supplier) and IBM themselves used to supply much to Dell, they had a formal agreement because Dell can sell PCs better than IBM.

Thank you for a well informed reply - my instincts are that the article is a stretch. However, I'm wondering if the following article shows there is more than what initially meets the eye in terms of the capability of xBox to be very quickly reintroduced for the mainstream PC market, especially if China's government wants to lessen Windows control, and Microsoft needs a fall-back position either in response to the operating system or in adopting IBM's new "Cell" chip to be released in '05 which some articles say Intel isn't able to match?:

>Mr. Steil, the German leader of the Xbox Linux project, declared: "In very simple words: The Xbox is cheaper than a PC. The Xbox is a lot smaller than a PC. The Xbox looks better (next to a TV set). The Xbox is more silent. Therefore it's an ideal Linux computer in the living room."
source: http://www.nytimes.com/2003/07/10/technology/circuits/10xbox.html?

" The Xbox is cheaper than a PC." So it is, and Microsoft loses money on every single one they sell. They have also tried very hard to make it difficult to run Linux on it.

Intel couldn't match the DEC Alpha chip, either. That was the true 64-bit chip that was out seven years ago or so? It didn't do DEC much good, and Compaq didn't know what to do with it, and HP (who bought Compaq who bought DEC) has already cast its lot with the Itanium.

Even if you have the best chip, you have to persuade people to program for it. AMD has stayed in the game by making it easy for programmers (and compiler makers) to write for the masses.

The PowerPC was always architecturally superior to the Intel series. However, Intel always managed to compensate with dramatically better clock speeds, and if need be, a drop in price. Like Microsoft in software, Intel will always have a huge advantage in hardware because the marginal cost per chip is so much less than the cost of fabrication plants and R&D. This is what Intel does, IBM has other stuff going on that makes their payday. Intel also has the advantage that they write their own chipsets, something not even AMD does. And frankly, their chipsets seem more stable on average. (Despite an occasional clunker)

BTW, there are cheap tiny computers that people are making right now with non-Intel, non-AMD, non-Microsoft parts. Go to http://www.mini-itx.com/, and you will see people sticking $100 motherboards (including processor and onboard video) into cigar boxes, typewriters, even a Windows XP software carton!

Thank you for your response. What you say has certainly been the environment for quite a while. I am trying to reconcile that with the following, however:

>"Microsoft Corp. announced plans to use IBM's [Cell] processor technology for future versions of its Xbox game console." source: http://www.computerworld.com/hardwaretopics/hardware/story/0,10801,97980,00.html
Your comment, "Intel will always have a huge advantage in hardware because the marginal cost per chip is so much less than the cost of fabrication plants and R&D," seems to skip over this fact. If that were the deciding point, it seems like Microsoft would have stayed with an Intel chip for the next generation xBox instead of committing to Cell.

Also, regarding "Even if you have the best chip, you have to persuade people to program for it," does this address that issue:

>...the Power.org [consortium ] organization will be modeled on the Eclipse.org organization that IBM created in 2001 to build a standard set of software development tools. Eclipse has become a popular development environment that's been widely embraced by industry vendors...

>"This is not just a business partner program," said Mike McGinnis, IBM's program director for PowerPC licensing, "This is a collaboration. It's giving these partners a say in where the architecture is going."

The new fundamental driver behind all this, in my layman's understanding, which gives IBM the opportunity to change the game in a big way is China's insistence on open software and hardward standards - breaking MS and Intel's control. Microsoft has tried to accommodate this by opening their Windows software code if I recall correctly. The announcement of Power.org in Beijing (not Silicon Valley) seems to accommodate China on the hardware.

"The companies also confirmed that the Cell will be a multithreaded, multicore architecture, supporting multiple operating systems including those used by game consoles... "The progressive breakdown of barriers between personal computers and digital consumer electronics requires dramatic enhancements in the capabilities and performance of consumer electronics," said Masashi Muromachi, corporate vice president of Toshiba Corporation and president and chief executive of Toshiba's semiconductor division. Source: http://www.extremetech.com/article2/0,1558,1732975,00.asp

With revenues in the future increasingly coming from content royalties, and the need for software to run on every device imaginable and with China's insistence on breaking MS/Intel proprietary control, doesn't this make it a new day? It seems like MS has to go big with xBox beyond just games to include entertainment, digital video, and PC capability to get out in front of this movement to capture the rental/royalty revenues. It's not that they want to cut Dell and HP out, but rather they are forced to move to PowerPC/Cell to hedge their bets. Doesn't Dell and HP now have to adopt the PowerPC/Cell technology (if the Power.org consortium agreement doesn't prevent this) along side Intel's and build the equivalent of their own xBox's to stay in the game since they no longer view IBM as a PC competitor?

I would like to know Intel's response:

>"The announcement also puts pressure on Intel Corp., which has been wooing some of the same licensees but doesn't have a similar consortium model for its own processor licensees, Doherty said. "There's probably going to be some head-scratching in Santa Clara over the next few years," he said, referring to Intel's headquarters in California." Source: http://www.computerworld.com/hardwaretopics/hardware/story/0,10801,97980,00.html

You are right that there is the potential of Red China's pressure for open standards does throw some wrinkles into the picture. I don't think it will be enough, by itself to change the dynamic substantially in the rest of the world.

If I recall correctly, didn't an earlier incarnation of the xbox use the MIPS processor (yet another highly touted technology that went nowhere).

I am no Microsoft shill. I dislike monopolists, whether they be a business or a government (the end result is too similar). However, the folks who are willing to spend a lot more on hardware (us, and to a lesser degree Western Europe) are not going to make a change lightly. In my own company, I wanted to find a way to go Linux. However, there was no credible way to move off of the Windows C/S Accounting package, MAS 200.

The specs you mention on Cell sound interesting, and it is something I wouldn't mind having on my desktop. It almost sounds like a supercharged Transmeta. (Which reminds me, Intel doesn't need the Xbox business as much as a new company might, and Intel chips have ALWAYS run quite hot. There might be other considerations besides performance that gave the nod to IBM.)

I have to admit, I don't see the transformation of personal digital devices as something that will result in a multi-core chip in every PDA and MP3/Cell Phone. More likely, I imagine a bunch of super-specialized chips that have FEWER features for power/heat/rf/cost considerations. Now, these chips will likely share a small family of languages. I think that was what java had threatened to be. If you go lower level then that I am afraid you are going to start wandering back into the dreaded Intel x86 instruction set. It is a kludge, and has been for over 20 years, but getting rid of it seems to be a lot harder than getting rid of, say, old COBOL code. Intel, in my opinion, makes the best PC chipsets (whether I like Intel or not, it IS an advantage for the chipset vendor to make the sets, too), and they have left enough room for AMD, VIA and company to play in the sandbox that I don't see the shift coming from this. I am a bit jaded from the earlier shifts.

Natural selection does its thing (kills off competitors) when the body in question does not live long enough to propagate, or is no longer able to propagate. I suspect that for mainstream computing, we are past the point of fluidity, and that Intel and Microsoft have become entrenched during the crucial period, as the survivors who will continue to propagate. (Isn't it funny that we have all sorts of standards named after companies and products that no longer exist: Centronics, Hayes, PS/2. Of course, even these standards are being replaced by generic ones like USB and TCP/IP).

I was not aware that eclipse.org had a large following. Not being a serious programmer, I did not keep up on that. Oddly, since the demise or downsizing of the old time computer mags, and the emergence of the websites, I actually get less general news because I no longer flip through a magazine skimming articles of peripheral interest.

In any event, the writer of the article sounded like a combination press release rehasher and would-be grand strategist who is trying too hard, and without the historical perspective to come to a mature judgement.

Thank you for your answer. Since I'm an outsider to the industry, what follows is just supposition on my part. I think we are both in agreement that Intel and MS are not going away anytime soon, if at all. The perception by the market, however, of who has growing long term dominance looking out to the end of the decade and beyond is an important deflection point influencing countries and industries regarding with whom to align.

On the face of it the statement that MS would be attempting to gain dominance in the PC industry with xBox seemed laughable. As MS being first and foremost a software company that sees one of their key strengths as being more compatable with more environments than their competitors, I assume they got into the xBox area first to make sure they developed the competency and tools to software develop for this market and integrate it with the other things they were doing.

Managing digital video coming out of the entertainment and consumer electronics markets which before were niche areas seems, like the Internet development only a short time ago, to be the next "big thing" that has top of mind importance. The ability to create virtual worlds increasingly modeled on real-world sensory data that can then be acted on is analogous to the initial spreadsheets allowing companies to model and manipulate "what if" scenarios easily for the first time. A decade of financial revolution followed from buy-out firms that could see underutilized and ineffeciently used assets as a result. It shifted the balance of power from entrenched managements to Wall Street arbitrageurs.

We will find working and living inside these new virtual worlds as necessary as today checking the Internet for the latest news. No advanced nation or organization will be able to do without it. As a result, whatever MS's original intent with the xBox, because this area is becoming so dominant in importance, MS has to dominate it as well to maintain their position. People will buy this technology just to get this virtual world even if they run tradition PCs in parallel for legacy applications. But because the xBox's can also function as PCs, it would seem inevitable that they will poach this legacy area gradually making it redundant to have two separate systems.

Intel, MS, Dell, HP etc. are national treasures that, like IBM, are key to our economic, scientific and technological strength. China is forcing open standards now to give their own companies an entre into these entrenched positions, but is this just a transition stage for gaining long run control that will then become more proprietary? If Intel and MS's dominance gets morphed into one heavily influenced by Communist controlled China instead, the ramifications are much more worrisome than the issue of how unfair MS was to Netscape for instance.

Hopefully the industry will grow too large and global by then for even a Communist China to dictate terms, but at a minimum it looks like it will be a much more level playing field which may well be good for creativity and innovation. Until their country's governance changes its character to one more democratic, however, like undemocratic regimes in the early 1930's my fear is this could come back as a threat.

The stakes China would have then in global trade, it is my guess, would be so large that they will not abuse their position. History would suggest, however, that we not necessarily count on this. IBM had a checkered history it has come out with Nazi Germany before WWII according to news accounts. Let's hope we can maintain our liberties whatever the outcome.

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