Apple, IBM, the PC, and the Cloud

We have a couple of important developments on the business side of networking that taken together could signal something significant—but not unexpected.  Intel reported numbers that were just consistently good, and Apple and IBM are entering into a mobility partnership.  The common thread offers some insight into what’s really happening with the cloud, the PC, and mobility.

Classical wisdom says that enterprise computing is going completely to the cloud, that tablets are killing PCs off, and that Apple is the trend-setter and insight leader in the market.  All of these beliefs are now called into question, or should be.  What’s is likely really going on is in some ways more interesting and in all ways more complicated.

Let’s start with the cloud.  Cloud computing, so they say, is exploding.  Given that the value proposition offered for the cloud is that it’s more efficient in resource usage than enterprise IT, cloud gains would necessarily hit the classes of computers that were the targets of cloud migration.  Intel is clearly seeing net strength in servers and less margin pressure to boot.  That’s hard to square with a view that the cloud is sucking the life out of data centers.

This doesn’t mean the cloud is a total fraud, though.  It’s reasonable to expect that in the very early phases of the market, cloud servers sold to providers to populate their resource pools would create a bump in buying.  The dip on the server side would come a bit later.  However, we are not seeing indications of wholesale flight from internal IT to the cloud at the chip level, and that should be visible by now.  Analysts are saying that corporate “refresh” is well underway and responsible for the uptick on the PC side, so why would corporations not be demonstrate their refresh-phase buying habits right now?  Cloud migration should peak with refresh because buyers have a choice between reinvestment and resettlement of applications to the cloud.  We’re not seeing it.

Speaking of PCs, Intel’s numbers also demonstrate that the death of the PC has been greatly exaggerated.  That’s always been the case; you don’t get your name in the trade rags by saying that everything is going pretty much as usual and so there’s no news to report, no adds to serve.  But we are seeing strength on the corporate side and weakness on the consumer side, PC-wise, which says that there are significant differences in the value proposition in the two places.

One difference is that most consumers really didn’t need a PC to begin with, which is why tablets took off so strongly on the consumer side.  Corporate users are a different matter, and we’re having some difficulty as an industry working through the whole notion of empowerment and productivity.  We want to think of telework and mobile work, but that’s simplistic.

First, we’re in an age where the service industry is our largest growth sector.  I may be able to write blogs and do presentations from home, even collaborate with others using web tools, but I can’t sling a burger at you that way, or rotate your tires.  Most employees don’t have a large information content to their jobs (burgers and tires, remember?) so they don’t need either PCs or tablets, so we’re fighting over the third of the market that does have strong information content, or could have.

That 30% tends to be chained to fixed work locations; our models have consistently shown that two-thirds of information-empowered workers would still have largely fixed work locations.  Less than half would have a need to take information technology with them to their actual work activity—meaning mobility.  Obviously if you’re not mobile you may find the value of PCs outweighs their lack of support for mobility.

This introduces the Apple/IBM deal, which has to be one of the great ironies of the market.  IBM has been the absolute leader in driving change in IT, but they booted it when it came to mobility.  Apple has transformed the lives of nearly everyone in a mobile-broadband device sense, but they’ve booted it with respect to the enterprise.  Now two Titanic survivors are clinging to each other and some random flotsam trying to stay warm.  And my cynicism notwithstanding, it’s a smart move for both.

I’ve blogged for some time now that mobility was inevitably the driver of new services because it introduces the notion of context.  Contextual services are therefore the linchpin of hopes for new mobile profits and also for new paradigms to empower workers.  Even though only about 20% of workers with mobile-information needs, these workers make up the top quintile in unit value of labor, so enhancing their productivity is disproportionately useful.  If you are IBM you need to be driving the bus on the contextual services space, which is hard to do without a handset or tablet.  So you partner with the primo mobile device provider.

Apple needs the cloud.  There is no credible path for mobility-driven service revolutions or consumer behavior change that doesn’t depend on a ubiquitous device window on your contextual world, and also on a bunch of servers and big data engines lurking over the horizon.  It’s extremely hard for Apple to advance their utility without a leading cloud position but they have what’s arguably the most insipid cloud strategy of anyone in the industry.  So they partner with somebody who gets the cloud, and who can offer it in every imaginable way.

One way of which is through the enterprise.  Right now consumer services are expected to be free or very low cost, which makes it hard to build out behemoth data centers to support them without looking like a CFO’s nightmare.  But point-of-activity empowerment in the enterprise could generate almost $880 billion in service revenues, and you could build a lot of data centers for a piece of that action.  Once you’ve got all that iron deployed, leveraging it for the broader market is far easier to do and far less risky from a first-cost perspective.

The early target of the enterprise is a bunch of enterprise apps for the i-devices, but I think this is going to change as both parties exploit the obvious opportunity.  In fact, if we don’t see some substantive announcements around Apple/IBM partnerships in the cloud, I think the deal has little chance of changing the fortunes of either company.  Right now, developing cloud-optimized applications for iOS is only a vague goal.  If really is vague, then these guys are in trouble.  If it’s not vague, then the alliance is going to provoke a truly massive response from Google.  Then, let the games begin.