Heading forward, or not – Apple, iPhone, IBM, Sun Microsystems
We hear people say that eventually there will be no PC. Did you ever wonder what "the next thing" will look like that makes the PC obsolete? For most of us, working away day-to-day on our PC, and talking on our mobile phone, we hear the chatter, but it doesn't ring for us. As customers, all we can imagine is the PC a little cheaper, or a little smaller, or doing a few new things. And same for our phone. But, for those who are making the technology real, imagining that next way of getting things done – of improving our personal productivity the way the PC did back in the early '80s – it is an obsession.
I think we're getting really close, however. In what Forbes magazine headlined "Apple's Explosive iPhone Update" we learn that Apple is dramatically enhancing what it's little hand held device can do. USAToday hit upon all the new capabilities of the iPhone in its article "Apple iPhone software prices may rise," but these are just the capabilities us mere users can see. On top of these, Apple has provided 1,000 new Application Programming Interfaces (APIs). These allow programmers all kinds of opportunities to do new things with the iPhone (or iTouch). We all know that the netbook direction has small devices doing spreadsheets, presentations and documents – and that is, well, child's play and not the next move to personal productivity. You have to go beyond what's already been done on these machines if you want to get new users – those that will make your product supercede and obsolete the old product. And these APIs open that world for programmers to do new things on the iPhone and iTouch.
So go beyond your PC and phone with your thinking. With just one of the new offerings, Push, your iPhone could recognize your location (via GPS), know you are walking in front of a Pizza Hut (example) and ring you that this store will give you $2.00 off on a lunch pizza. Right now. And it'll create that magical bar code so the minimum wage employee at the register can scan your phone to get the price right when you check out. Or link your phone via bluetooth to your heart rate monitor in your running watch and automatically email the result to your cardiologist for the hourly profile she's building to determine your next round of pills – with a quick ring and reminder to you that you best slow that walk down a little if you want to get positive, rather than negative, impact. Or you get an alert that UBS just posted on the web a new review of GE (in your stock portfolio) and your phone automatically forwarded it to your broker at Merrill asking him for a comment and executed a stop-sell order at $.30 below the current market price via the on-line ML order application. By the way, you were supposed to turn at the last corner, but you were so busy listening to your alert that you missed the intersection so the GPS is re-orienting you to the destination – especially since there is construction on the next street and the sidewalk is closed – as per the notice posted by Chicago Streets and Sanitation this morning.
What makes this interesting is that it's the device, plus the open APIs, that make this stuff real and not just fairy dreams. That makes you wonder if you really want to lug around that 7 pound laptop, now that you get the newspaper, magazines and your books from Amazon all on the iPhone as well. And when you're delayed at O'Hare you can download last night's episode of Two-and-a-half Men and watch it on the screen while you wait to board. The laptop can't do everything this new device can do – and the new thing is smaller, and cheaper, and easier. This is all getting very real now. And with Google and Palm close on Apple's heals, it's now a big race to see who delivers these applications.
Does your scenario of the future have all this in mind? Are you planning for this level of productivity? Of information access? Of real-time knowledge? Are you thinking about how to use this capability to improve returns so you can explode out of this recession in 2010? Do you think you better take some time now to check?
In the meantime, IBM wants to buy Sun Microsystems according to the Marketwatch.com article "IBM May get Burnt." Talk about "other side of the coin." Why would anybody want to buy a company with declining sales? In IBM's case, probably to eliminate a competitor. Now that is typical 1980s industrial thinking. "So last century" as the young people say. The financial services and telecom industries are "soft" – to say the least. IT purchases are lowered. IBM and Sun are big suppliers. So IBM can buy Sun and hope that it will get rid of a competitor, and then raise prices. And that is typical industrial era – circa Michael Porter and his book Competitive Strategy – thinking. Lots of people are probably saying "why not, sounds like a good way to make money."
At least one problem is that this is no cheap acquisition. Ignoring integration problems, even though Sun is down – a huge amount down – the acquisitions is still over $6billion. Sure, IBM has that in cash. But what happens in information businesses is that competition never goes away. With budgets low, what sorts of PC servers (maybe from HP) running Linux are coming out that the customers will compare with Unix servers – and push down prices even if IBM has no Unix server competition? What opportunities for outsourcing applications to offshore server farms, running Chinese or Korean-made boxes with Linux, taking the business away from IBM exist? Or what applications will be eliminated by banks and telcos that need to axe costs for survival now that markets have shifted? You don't get to "own" an information-based business, and you don't get to control the pricing or behavior of customers. IBM needs to wake up and realize that it's investment in Sun within 2 years will be washed away.
We should be heading forward, not backward. Especially during this recession. Those companies that deliver new products that exceed old capabilities will be winners. Those that seize this opportunity to Disrupt markets – like Apple is doing – will create platforms for growth. Those that try applying industrial practices will find themselves looking in the rear view mirror, but never find that lost "glory land" that disappeared in the big recession of 2008/09. As investors, we need to keep our eyes on the growing companies building new applications, rather than the ones trying to regain yesterday.