IT cost, ignorance, and the race to the bottom

IT cost, ignorance, and the race to the bottom

Summary: Look at the new crop of "smartphones" in the context of what happened with the PC - and you'll predict a race to the bottom as claims for the things escalate and both price and actual functionality fall.

TOPICS: CXO, Hardware

There used to be a high end Scandinavian furniture store in Edmonton rejoicing in the slogan: "For those who can tell the difference." Unfortunately most people either can't or won't - and one consequence is that the current store of the same name sells mid range products at high end prices.

We see that same phenomenon all the time in IT: almost everyone outside IBM's data processing markets wants to focus on cost, but price shopping across architectures implies a value equivelance that does not exist.

The most obvious reason for the cost focus in IT is that it's easy to attach credibility to costs measured as the sum of checks written, and very difficult to attach credibility to benefits estimated on the basis of airy fairy stuff like user seconds saved per transaction. The more subtle reason, incidently, is that senior management's responses to IT are conditioned by data processing expectations in which hardware costs millions and leasing makes it a pretty good proxy for operating costs.

Underlying the errors this produces is, I believe, a mistake most of us make: assuming that the factors driving personal decision making apply equally to decisions in larger organizations. My favorite political example of this involves brick recycling: because if you have a use for some bricks and your neighbor is throwing some out, then it's just stupid not to use those -but when cities extend this logic to forcing developers to recycle bricks from building demolition, the cost burdens imposed generally produce the opposite effect: largely shutting down inner city redevelopment in favor of greenfield work in the suburbs.

In the IT version we see lots of real people believing that the unit cost of a PC as advertised in a drug store flyer says something about the cost of a PC used in business - and one of the saddest stories I know illustrating the stupidity this produces features a senior government guy blowing a few million taxpayer dollars. The situation was that his agency wanted to issue a time and materials development contract covering about 120 people for an estimated eight months - but government wide PC purchasing preferences meant that the approved purchasing process for the workstations needed would bring in product from a vendor he didn't like - and possibly raise questions about the application development contract too. Faced with this, the preferred vendor offered to provide 120 older workstations for the project duration without mentioning this in the paperwork; and the ADM, who noted during the meeting that both his teenagers used two year old laptops surplused by his department, happily agreed to what he thought was a bargain - with the result that about 120 hourly contract developers got to spend nearly two years using 32MB/600Mhz PII gear for code compiles and testing in an era during which the PC transitioned from the 128MB/Ghz P3 to the P4.

People will tell you that if you can't tell the difference between two products or choices, then there is no difference, but that's just wrong - it's a celebration of ignorance, not a justification for failing to do your homework. However, there's an unfortunate consequence to this: because once people stop seeing differences in the product, they seek differences in pricing and so drive a race to the bottom - a race that drives suppliers to distinguish themselves more in their advertising than their products. Today's major PC companies, for example, all deliver the same products, made by the same people, from the same parts, and loaded with the same software -while selling the public on the belief that their product is the same as the other guy's but magically also better and cheaper.

In reality, of course, this is ridiculous - but if you've ever wondered why today's 3Ghz, four core, Windows 7 PC doesn't do much more than an early 90s Mac AV, this is the answer: price competition coupled with marketing differentiation on indistinguishable products makes it cheaper and more effective to add cores and wait states than to increase memory throughput or change the software in any fundamental way.

Where all this comes together is in business adoption of the iPhone and iPad clones now being rushed to market by the same companies that decried the Apple products as useless consumer ornamentation - because what we're seeing there is exactly the same ignorance driven rush to the bottom, albeit this time with Unix variants (Android, Linux, Qnx, etc) in the MS-DOS role, that we saw with the PC.

This is a frightening prospect - and it's not helped by remembering that Microsoft's first OS product was actually a Unix clone. The saving graces, however, could be that this time around IBM's closed community isn't driving purchasing and Apple's consumer market share is well enough established to ameliorate IT's drive to the bottom by ensuring that at least some people continue to be able to tell the difference.

Topics: CXO, Hardware

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  • it's a problem with measurement

    Companies don't want you to know the facts, so the less flattering ones don't make it to the light of day. Is an Ipad any faster than a PIII or P4 using software of that era? probably not, but the network is faster so the perception is that the pad is faster, and really who can remember 10 years ago and how fast a machine ran. <br><br>Software bloat has throttled even the fastest computers. My Windows Vista software is horribly slow in most aspects compared to the Ubuntu software that I regularly use on the same machine. Vista boots slow, upgrades for hours, and requires anti-virus. Ubuntu just works.<br><br>BUT I can't get any of my adobe suite to work, I can't get my presonus firebox to work, and drivers are unavailable for the scanner I regularly use, so I'm stuck with the windows side of things. It's all about support and lock in, and the same will go for phones and tablets if history is any guide here.<br><br>Real metrics would clarify some of the confusion. I ran debian linux on a pIII and my internet browsing was just as fast on a later model machine, running windows 2000. How could I measure that, and convince someone that software could be the answer to their problems? <br><br>It's really more a matter of politics, and trust, and honesty, all of which rarely coincide.
    sparkle farkle
    • RE: IT cost, ignorance, and the race to the bottom

      h t t p : / / 0 8 4 5 . c o m / I n r

      I tide fashion
  • I read and I read and I read....

    looking for a logic thread leading to the essence of the headline. In the last two paragraphs I finally recognized the headline topic, but the argument fell flat on its face.<br><br>Firstly, the "race to the bottom" is a highly desirable situation for society as products transition to commodity status. An average (Pentium) desktop used to costs about $3500 and now it is just above $500 (and much less valuable dollars at that), and is much more capable and powerful, despite your ridiculous assertion to the contrary. Why don't you try to transcode a large video file on your 90s Mac AV as well as a quad W7 machine and report back what you found.<br><br>Secondly, ignorant buyers and the "race to the bottom" have little to do with each other. Ignorant buyers are ignorant no matter what they buy, except if they buy cheap commodity items in ignorance the damage done is much less. We have all heard about the $1000 toilet seats etc. Stupid buying decisions are just that.<br><br>So are you saying that companies' desire for a slice of Apple's ridiculously high profit margins, which starts to force the prices down, will lead to some cataclysmic event/situation similar to the current mass availability of ridiculously cheap personal computing power for everybody and a totally connected world?<br><br>That seems to be what you are saying.
    • Is that a QED I see?

      @Economister <br><br>The reason you can transcode a video file and see it on your PC is that Apple did it - and because MS followed, Intel was forced to add some (minor) support for it. So today your 2010 four core Wintel machine is faster than a 1991 PPC - I'd be impressed except that the current generation PPC powers things like the Toshiba 3d TV in which a cell processor does 9 concurrent planer conversions in real time - producing more than two orders of magnitude in processing throughput than that PC you're so proud of.<br><br><br>Basically what's happened is that Apple gave up on the PC market to focus on digital communications devices sold into the entertainment market; IBM did its future systems trick a second time; and companies like Sony and Toshiba are forcing the market forward - making the whole wintel mess more and more obviously a 25 year detour to nowhere - all driven by ignorance, mistaken cost perception, and the consequent race to the bottom.

      Oh, and that inter-connected world thing? Virtually none of it runs on Wintel: not the phones, not the network devices, not the routing services, not the major sites. Count what makes it all work and, worldwide, the PC comes off as fleas on the hog: they're there, and there are lots of them, but they don't count for much in the total weight of the thing and for nothing at all if you're setting up a barbeque.
      • Missing (or avoiding?) the point entirely

        @murph_z <br><br>Your blog was not about Apple vs Intel/MS and I am not an Intel/MS fanboy, but nice try. Your blog was about "IT cost, ignorance, and the race to the bottom" in case you have forgotten already. Maybe you should re-read it.<br><br>The transition to commodity status happens in virtually all "mass produced" markets whether Intel/MS, Apple/PPC, ARM/whatever, communications, storage or what have you. That is fundamental economics and a major reason for having anti-trust laws. That is also the result of the industrial revolution and competition. It is a big factor in what makes us wealthy; things get better and better and cheaper and cheaper. The fact that the journey may be a bit bumpy is absolutely irrelevant. In the absence of monopoly (like) players (and yes, I am looking at you MS, Apple, Google, Intel etc.) and bad government regulations (as in your brick example) the market will pick the winners - the most cost effective solution, whatever that may be. Players will win and then be replaced by something better down the road. Only idiots become life time fan boys. <br><br>I fail to see where your three paragraph response has anything to do with my post, nor your original blog for that matter.
      • Economister, I believe it was yet anothet attempt

        by Mr. Murphy at "proving" Microsoft and Intel have hurt us, that you would be far and away richer, better, and more technologiclly advanced had people selected his solutions.

        He fails to mention that many of the devices he mentioned do not run Ubuntu nor OS X Leopard, either, so true, what was was his point?

        Yours was a most thought provoking post; his reply was that of a person who is upset that you haven't agreed with him that both Microsoft and Intel are the center, and only reason, that you are centeries behind where he feels you should be computing wise.
        Tim Cook
      • Responding to "economister" again

        3rd para relevance:

        You refer to "the current mass availability of ridiculously cheap personal computing power for everybody and a totally connected world?" and imply that this is some magical result of pc commodization. It isn't - this has come about despite, not because of, the PC.


        If I read you right, you favor regulation, think companies are evil because they seek profit - and Apple particularly so because they're very successful - and think PC commodization a good thing. Correct?

        Think about this: commodization in non resource products requires both a regression to the mean and the cessation of significant change. That is what happened with the PC, and the opposite of what you seem to think happened.

        Basically I suspect your whole argument, and perhaps worldview, is based on believing contractions - with your view that the PC is both a commodity and a force for change just being the keystone example here.
      • Response


        1. "It isn't - this has come about despite, not because of, the PC."

        Huh? The PC and resulting standardization caused commoditization via economies of scale, competition and advances in manufacturing that drove down costs and therefore pricing (of most parts except the OS and maybe Intel CPUs). Initially I believe MS played a large positive role in this but then at some point became a drag due to too much market power and monopolistic behavior.

        2. "If I read you right, you favor regulation, think companies are evil because they seek profit - and Apple particularly so because they're very successful - and think PC commoditization a good thing. Correct?"

        Absolutely not - for the most part. I do not favor regulation of most competitive markets beyond worker safety, consumer safety and environmental issues. I have NO problems with profitable companies. Unprofitable ones die and the jobs disappear. You cannot build an economy around unprofitable businesses for very long. I have no problems with Apple making loads of money as long as they operate in a freely competitive market place. Fundamental economics will ensure that monopoly rents eventually are competed away with a few minor exceptions, like niche markets. My personal position is that I do not need to be an early adopter and therefore do not need to contribute to their "excessive" returns.

        Commoditization of most markets is a good thing if driven by standardization, economies of scale and advanced manufacturing. I can guess your argument: No profits for R&D. Well, if you are fighting for your life, you will find a way to do better, because if you do not, you will get run over by those who manage to. Both MS and Intel made loads of money, but both got complacent, MS more so than Intel (due to AMD). Profits do not ensure progress, fighting for your life does.

        3. "commodization in non resource products requires both a regression to the mean and the cessation of significant change."

        Not necessarily so. I can list consumer product after consumer product that went from "high tech" to commodity while continuing to change/improve: from phones to TVs to cell phones to microwave ovens to stoves and fridges. My first microwave cost me $850 over 30 years ago and the last one was 100 bucks - and much improved. The personal computer (including those from Apple) is now a commodity item, as are cell and feature phones and smart phones will follow, as will tablets. It does not mean no further development/change. It means the they are standardized sufficiently to allow large economies of scale and that change is slowerER. The only caveat is that one needs to have competitive market forces at work, which the Intel/MS hegemony prevented. In this case the government should have stepped in earlier and opened up the markets to more competition.

        4. "That is what happened with the PC, and the opposite of what you seem to think happened."

        The PC market stagnated technologically speaking because of Intel/MS market power as outlined above. Now we have ARM and the portable OS's threatening the PC industry as a direct result of Intel/MS complacency, which means market forces are working, albeit a bit too slowly. If we let Apple dominate this new market, we will have a repeat of the downside of the PC industry, but none of the benefits (standardization/commoditization). It would be like Windows only running on MS hardware, even if made my Intel. Imagine that. We would still be paying $3500 for a PC that was even worse than what we have today.

        As a final point I will stress that unless you force industry to continue to strive for new heights, you will eventually be left behind by the rest of the world, with nothing to sell and either importing most of what you use or being forced to purchase overpriced local products. For a while you can survive with large balance of payments and government budget deficits, but eventually the chickens will come home to roost.
      • Your data is flawed.

        @murph_z A sheer review of calculation performance comes no where near 2 or even 1 order of magnitude. In fact when you utilize the SIMD instructions, The current i7 is getting close to the Cell in double precision calculations and Sandy Bridge Q1 11 will pass it with AVX and 32 GFlops per core.

        And now days you can utilize GPU's which far exceed the Cell in processing performance. For less than 100 you can achieve half a teraflop of Double Precision compute power about 5x the Cell.
    • Still laughing

      A Windows 7 PC doesn't do a lot more than an early 90s Mac.

      Only a few explanations.

      You've never used a Win 7 PC.
      You have but you had your eyes closed.
      You don't actually do anything but this blog on a computer.
      You just like telling lies about Windows and history.

      As to ignorance and stupidity, I'll agree that trying to shove iPhones and that new boat anchor the iPad (rented one for a week for testing Rudy, very underwhelmed) into organisations where real work is done is a joke.

      Picking up my WP7 phone tomorrow Rudy ;-)

      Oh and no comment on the Sun Solaris security patches? I'm sure you told me this couldn't happen - Oracle must be putting bugs into that pure, ideal Sun code.
  • RE: IT cost, ignorance, and the race to the bottom

    Computer industry was founded by ignorant people

    That explains why they are racing to the bottom
  • As I've said before this is the very reason if I were to

    own any stake in the "mobile" business I would want it to be Apple. The PC race to the bottom is well documented and perhaps the customer did benefit but we are talking about owning a stake in the actual companies and well the PC world or history is littered with the many corpses of companies that have come and gone during that famous race to the bottom. All that time Apple was there but did not participate in the race nor does it seem Apple will join the smartphone race but again will go its own way and I would day a more secure and profitable way at that. Mark my words there is going to be a lot of bodies spewed over the battle field and a HUGE amount of crapware thrust upon the unwary consumer in the process to make up revenues lost in ever decreasing sales margins. It won't be pretty......

    Pagan jim
    James Quinn
    • Yes, but....

      @James Quinn <br><br>remember Apple was already almost a corpse as a result, and could become one again. They were pretty successful in the beginning, but eventually failed to compete in any meaningful way.<br><br>As investors, EVERYBODY would like to own highly profitable monopolies. You can grow fat and lazy and make a lot of money without much risk. That is why we have antitrust laws. Without them we would not be where we are today, technologically or wealth wise. Tough competition is what spurs advances. Just look at MS as a counter example. Failing to deal with MS (and Intel?) as a monopoly (and SW patents?) is what Murphy should gripe about instead. It prevented the market from functioning properly and caused a lot of what he is talking about, and not the so-called race to the bottom. <br><br>The "race to the bottom" is not a race. It is the elimination of monopoly rents by competitors and a very important part of our economic system. Paul Murphy does not seem to understand that. <br><br>If you did not buy Apple a long time ago, you probably missed the boat. Their downside in much greater than their upside at this point, IMHO.
      • Personally I'm still uncertain of the history here

        I will grant you that Apple has had it's down turns but I do not think Apple was ever near collapse. The time MS "invested" in Apple was a settlement of outstanding litigation that Apple had going against MS as I understand it and yes it did help Apple when as part of that settlement MS swore to continue to make MS Office for the Macintosh but as I understand it Apple did at the time have as much as 4 or more Billion in it's now famous reserves and was not in any critical or near death mode?

        Still I'm not sure about that and I admit it. I've heard several stories from a host of sources over the years.

        Still what I would want is to avoid commodization of my "products" if I could and allow others to fight that battle amongst themselves.

        Pagan jim
        James Quinn
      • Yes, you hit the nail on the head

        @Pagan jim <br><br>That is exactly what you see virtually every company try to do via advertising (brand development), market manipulation, (dubious) patents, FUD etc. They somehow have to convince the consumers to be willing to pay more than what their product is strictly worth and/or prevent competitors from entering the market, so they can continue to reap those high profits. This also stifles innovation because nobody is breathing down their necks and forcing them to improve/innovate to continue to prosper.<br><br>And who pays for this? The consumer, and ultimately the economy of the country because the products are no longer competitive on the world market. You cannot export products that are not competitive. If you put in place trade barriers instead of forcing your industry to become competitive you are just making everything worse. If you live in the US this may have a familiar and uncomfortable ring to it. The US manufacturing sector got lazy and failed to remain competitive with the rest of the world. It is not about making trinkets cheaper than China, but about continuously improving the quality of the labor force and investing more and more physical capital behind each worker and producing more and more advanced, high value products with more and more automation.
      • Yes, very uncertain

        @James Quinn

        Lawsuit settlement? No, it has historically been in Microsoft's own interest to have the Mac platform viable. It's a huge market for MS application software (for a while more was sold on the Mac platform than on the PC platform). Apple was burning through its reserves at the rate of hundreds of millions a quarter in 96, and if collapse occurred it would have dried up a major market for MS products. No morality play, just business.
        Lester Young
      • Like I said I'm not sure of all the details but I

        @Lester Young
        am certain that Apple had some outstanding claims against MS and that they were settled as part of this agreement. I'll grant you that Apple sales do provide MS with revenue but you have to remember back in 96 MS had it's peek of market share like 98% and Macintosh represented at best the remaining 2%. I'd say that as Apple has grown the amount of revenue that MS gets from it's Apple's growth has gown as well so perhaps this is a good thing for MS as well:)

        Also that was that little thing called the DOJ investigation which at the time MS knew was coming down the road and did as I remember it MS tried to use the very existence of Apple as proof that MS did not have a monopoly so I can see why at that time it would benefit MS to specifically NOT stop making MS Office for the Mac.

        We both agree that Apple was in a bad way in 96 but I don't think the meager 150 million in none voting stock on MS's part was going to help all that much after all if what you said is true and Apple was bleeding 100's of millions per quarter then the 150 million would depending on the quarter would not have lasted Apple even a full quarter right? Big whoop!

        Pagan jim
        James Quinn
      • I basically agree

        @Pagan jim<br><br>Apple was in deep trouble and Jobs came back and saved the company, without question. Apple became very innovative again, produced ground breaking products and reaped huge benefits. Apple's conduct is now starting to become more like that of a monopoly, trying to protect their very profitable turf by various (and at times questionable) means. It is almost a carbon copy of early MS in some respects and you can probably lump Google in there as well. <br><br>The BIG fear of very successful entrepreneurs, like Gates and Jobs, is that future successful entrepreneurs will come along and snatch it all away. They do whatever they can to try to prevent that, including acting illegally. From an economics perspective however, this is exactly what you want. A pile of corporate copses are not really an issue at all. Both labor and capital simply move on to better opportunities and the whole economy benefits. <br><br>Beyond LEGITIMATE patent/IP issues, the economy/consumers therefore now need to prevent Apple from taking undue advantage of its position by letting other companies compete, and ultimately let Apple's somewhat ground braking products slowly become cheap commodities. If that ultimately puts Apple out of business, so be it. Apple will then have served its purpose and the fan boys will get over it. Other innovative companies will come along and move technology forward.<br><br>What I am describing above is just roughly how the productive sector of the economy should function for the benefits of the entire economy/society. That is how we move forward both technically and economically, and incidentally, why I have significant problems with Murphy's blog.
    • Apple history

      @James Quinn

      No neither the settlements nor the MS investment were material to Apple's books. They got blown out of proportion by the PC journolist (sic) community.

      What almost killed Apple was a CEO who believed the company to be in the PC business and convinced a somewhat gulliable board to support that - thus driving Jobs off to found NeXt. As Apple fell, Jobs used NeXt to do what amounted to a reverse take-over to get the company back and then put it back on track. How close the whole thing came to bankruptcy I don't know - my guess there were some real white knuckle months before the iMac succeeded in putting the company solidly into the black.
      • 1997 The deal with the Devil


        M$ didn't really care about the Apple lawsuits. In a strategic sense, they could keep Apple in the courthouse until their resources dried up. Kinda like SCO today. That would have made more sense to them (no matter the cost).

        So why did M$ do it? Leveraging their dominance in one market (PC OS) to take over another (WinCE). Mobile Computing was just getting started (with PDAs) and the Apple Newton was far in the lead. The 1997 Newton models sported the StrongARM chip - which was created to be LOW POWER (the first one). This meant that the biggest Achilles heel of the Newton (battery eater) had been fixed. The future looked good for the Newton - it would certainly sell enough to pay for itself.

        Jobs never liked the Newton (it was not his "baby"). He thought that it needed to "sink or swim" on its own merits - so he spun off The Newton Company to do just that. The he did something I have never seen in business - he spun the company back into Apple - and then murdered the Newton. Other companies inquired whether they could purchase the Newton company, its assets, and its technology. They had cash in hand!

        But Jobs locked it up and threw away the key (to this day, Apple has not released the NewtonOS). Right about that same time, Apple and M$ settled on the $150 million. WinCE went on the be a major player in PDAs (although Newton-supplier Palm did the best).

        Without the Newton, there would be no ARM today. Their stupid "Acorn" computer was pretty average and they should have died out - but the Newton market allowed them to design a great chip - the StrongARM, which is the ancestor of every ARM design today.
        Roger Ramjet