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Is hardware back? Mobile and cloud technology offer clues

Jonathan Hassell | June 3, 2014
There are two clear catalysts for the resurgence of hardware in this era: mobile devices and the explosion of cloud computing.

* Many of these same sources also cite a mind-boggling statistic: More than 17 percent of the server hardware produced on the planet is ordered by and put into production by Microsoft for its cloud services, including Azure and Office 365. That, too, is a lot of hardware.
* Others may well have even more hardware than that. Gartner estimates that Amazon Web Services has five times more cloud infrastructure-including servers, networking gear and other hardware-than its next 14 competitors combined. Indeed, Amazon adds as much new cloud infrastructure every single day as it used to run their entire Amazon business (including the bookselling) when it was a US$7 billion business.
* Netflix, which runs its streaming video service on the AWS cloud, accounts for up to 33 percent of all Internet traffic during its peak times. That's one-third of all Internet activity on the entire planet.
* A reasonably sized data centre costs about US$1 billion. Only a handful of companies generate that kind of free cash flow to develop multiple data centres without realising a complete return on their investment. It's a capital-intensive business.

So is hardware back, from a cloud perspective? Absolutely.

Yes, the savings and the efficiency that we realised from deploying virtualisation in our own server closets and data centres caused a temporary "softness" in the market for server hardware. Yes, we wrung more efficiency from the investments we'd already made. Yes, we'll likely buy less hardware for our own resource pools as the public cloud continues to mature. But the scale at which Microsoft, Amazon, Google and even the more minor players in the industry deploy new servers and purchase hardware should more than make up for that deficiency.

Mobility and Hardware: Only the Beginning
Many experts predict the demise of the corporate desktop or laptop PCs. It's clear that, at least in the corporate world, these hardware refresh cycles are being lengthened to three to five years, primarily because the pace of hardware capability innovation has outpaced the innovation of software such that we simply don't need more powerful processors and faster memory to run, Microsoft Office or a line-of-business application acceptably well. In the consumer world, meanwhile, consumers buy bottom-priced PCs or Macs but also invest rather heavily in Android and Apple smartphones and tablets.

Put simply, the stalling out of traditional desktops and laptops doesn't necessarily mean that hardware is dead.

For example, industry giant Microsoft has converted itself rather successfully, even in these early stages, into a company centred on a strategy that involves devices-both its own and what it depends on third-party hardware ecosystem partners to manufacture-linked to all-encompassing services that Microsoft offers to both enterprises and consumers. The Windows 8 and Windows 8.1 ecosystem is designed around tablets that function as content consumption devices as well as traditional desktop productivity machines.

Apple, of course, launched the iPad juggernaut, propelling the entire industry into its current "post-PC" state. But smartphones and tablets are made of hardware, of course, and increasingly powerful hardware at that. Now we also hear about the Internet of Things, where everything from your car tires to your refrigerator contain Internet-connected hardware sensors that give data to a variety of services. That's hardware connected to the cloud-and we've already discussed how cloud hosting is hardware-intensive.

So is hardware back, from a mobile perspective? The question is whether hardware was actually ever on the "outs" in this space. Smartphones will only get more powerful and cheaper, particularly now that we have Android and, now, Windows Phone available for free without licensing cost to original equipment manufacturers. It will be possible to get an Internet-connected smartphone for US$10-20 within a couple of years and there's plenty of potential for penetration still remaining for tablets and smartphones alike in emerging markets.

Jonathan Hassell runs 82 Ventures, a consulting firm based out of Charlotte, NC, the US.


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