Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

It's a Shift in Business Models, Not Innovation, That Has Shaken Up the Tech Industry

By

The sector's older and more established companies serve customers more than they need, while cloud software offers a smaller menu of individually priced services.

PrintPRINT
Intel (NASDAQ:INTC) and Oracle (NASDAQ:ORCL) are two very different companies, with one thing in common: They both have a long history of over-serving their customers – of selling comprehensive, high-performance products that almost never get used to their full potential. It's a business model that made sense during the fast-moving days of the dot-com boom, when new technology became obsolete almost overnight, and what seemed like overkill today turned out to be essential tomorrow.

These days, however, the over-serving model isn't always affordable. With the rise of mobile computing – first commodity laptops, then smartphones and tablets – battery life has become too precious to waste on features that may or may not become necessary. Fifteen years ago, corporate IT departments were flush with cash as businesses positioned themselves for the New Economy. But in the wake of the financial crisis, large firms cut costs, while smaller enterprises found themselves without easy access to credit.

Enter ARM's (NASDAQ:ARMH) diminutive, low-powered processors, and the cloud's buy-what-you-need, when-you-need-it approach to distribution. They're part of a larger movement away from over-serving, and their success owes less to technological innovation than it does to a simple – and timely – change in business strategy.

Oracle sells a range of enterprise products, and has traditionally taken a bells-and-whistles approach. For instance, the company describes its human capital management software as a "complete and integrated suite," its financial management product as "the most complete and integrated," and its customer relationship management software as "the world's most complete." The message isn't subtle.

Web 2.0 competitors like Salesforce.com (NYSE:CRM) have built their businesses on flexibility, rather than on breadth. They operate through the cloud, and this means that customers can buy what they need and avoid what they don't – a solution that would have been impractical in the days of packaged software. Small, low-needs clients can save a lot of money, whereas larger customers might prefer the bells-and-whistles of Oracle's integrated approach.

The cloud offers trade-offs rather than advantages. Instead of buying, you're renting the product. Software is updated continuously, which means that customers are paying, one way or another, for an update they might not have needed or wanted. Costs are generally lower, but then cloud software providers are almost all losing money, and these savings might be overstated. Although the cloud possesses the aura of technological freshness, in many ways, it's a throwback to the days of mainframes, when computing was so expensive that sharing it was necessary. Today, the great recession has once against brought expense to the forefront, and raised difficulties for the old over-serving approach.

Intel has a similar problem. For years, it struggled with AMD (NYSE:AMD) and IBM (NYSE:IBM) for control of the processor market, and this was a war fought in megahertz. Ultimately, Intel won; a telling moment came in 2005, when Apple's (NASDAQ:AAPL) Macintosh line abandoned IBM for Intel chipsets. However, the iPod was already four years old by that point, and with the iPhone's introduction in 2007, it was clear that we were entering a new paradigm, where size and battery life mattered at least as much as speed.

This new market was a good fit for ARM's architecture and processors designed by partners like Nvidia (NASDAQ:NVDA) and Qualcomm (NASDAQ:QCOM). Simpler and smaller than Intel's chipsets, they tend to be more efficient when performing light work. On the other hand, studies have generally given Intel an edge in efficiency when it comes to heavier workloads.

This, too, is a trade-off rather than a clear advantage, and an old technology rather than a new one. The debate over RISC vs. CISC processors has been ongoing since the '80s, with the fundamental difference between these two architectures being that, generally speaking, one of them over-serves and the other one doesn't. Thus far, mobile computing has strongly favored ARM, but as battery life becomes a non-issue for smartphones and tablets, and as the mobile software market matures and becomes more demanding, things could change.

If there's one area where the over-serving approach is doing well today, it's Big Data. Huge amounts of digital information are being collected, and storage has gotten cheaper. Oracle is on the wrong side of this equation, too; its database management business has come under attack from new entrants, most notably Workday (NYSE:WDAY).

Like Salesforce.com, Workday is a cloud company, but there's a much larger difference between it and Oracle. Businesses typically store their data in "relational" databases, in which each piece of information is organized according to its relationship with other pieces -- think of a spreadsheet. SAP (NYSE:SAP) and Oracle sell solutions for setting up, storing, and manipulating this type of database.

The problem is that customers are dealing with more data these days, and a large portion of it is ambiguous. What's the relationship of one Tweet to another? Workday addresses the problem by using so-called object databases, in which the data is less structured but more flexible – think of a deck of cards. This information is being saved for a day when it might be better understood, or more useful. As it happens, object databases have been around since the '80s. You might be sensing a pattern here. Competition plays out in technology just as it does in business, and oftentimes it's circumstances that decide between two alternative ways of doing things. Intel and Oracle represent an approach that, for many customers, is still the better approach -- and if experience tells us anything, it's that circumstances change.


Also read:

The iPhone Was Designed in California and the Moto X Was Born in the USA: Should We Care?


Four Ways BlackBerry Can Win Back Subscribers, Get Back to Its Roots


Tech Companies Love Same-Day Delivery, but It Doesn't Love Them Back


Long AAPL.
PrintPRINT

Busy? Subscribe to our free newsletter!

Submit
 

WHAT'S POPULAR IN THE VILLE