cloudalps (hidden peaks)

High Tech Economics – implications from a global perspective.

Swiss Franc Peg to Euro: Printing Money leads to Deflation?

While living in Switzerland (and paying for a mortgage in Swiss Francs) makes me wonder about the future of the Swiss economy in general and the Swiss Franc in particular, I am not sure Switzerland can be compared to Zimbabwe.

Jack Mackintosh (FT investment editor)  does exactly that when he compares the printing of Swiss currency with that of Zimbabwe in 2005 that led to hyperinflation. Foreign currency reserves reaching > 60% of GDP is a concern but the falling of the Swiss Franc to parity with the Euro (as experienced before the pegging introduced by the Swiss National Bank on September 6, 2011)  an even worse one.

Ultimately, we might just experience another challenge to a small but widely open economy that is surrounded by EU member states with a different approach to most economic decisions and different political situations.

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China – world’s biggest market for Cars, Mobile Phones and now: PCs!

This headline has much deeper implications than we might think at first because China did not just become the largest buyer of PCs (18.5m units in Q2CY2011 per IDC) but other markets lost some interest in commodity computers (US: 17.7m PCs in Q2CY2011)! And yes, HP’s aim to get rid of its PC business entirely is very much related to this breakthrough change: HP lost its shine in China and therefore critical market share.

While many Western consumers spend the extra money on iMacs, MacBooks or iPads, Apple’s premium price design products are not so popular in China and Asia in general. For most Asian buyers, if they get a PC it will be their first or will strictly be used for business, not pleasure or show off. The growing number of affluent citizens has however led to growing interest in tablets and therefore a slight slowdown in PC sales growth according to Lenovo’s CEO.

It is an important insight to understand that the growth potential for technology products in the Eastern hemisphere will not exactly be for those offerings that are most popular in the West at the same time. The actual upside is for PCs (mostly from Lenovo or Dell), Android phones, cloud software and is driven by globalization: the crossing of certain barriers of spendable income combined with the ambition to achieve specific “firsts” like getting kids through high school, trading items, booking vacations, launching a business.

This trend will be disruptive to many providers of technology goods since it underlines a different sort of growth in markets outside the Western hemisphere.

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Googorola = patents + “user experience” + “software excellence” + branding

 (c)  bgr.com, Jonathan Geller

Assuming that Google’s acquisition of Motorola Mobility Holdings Inc. gets approved, several strategic changes are imposed on the mobile devices market:

1. Android can now be defended effectively against IP/patent disputes by Google (which benefits all its OEM/ODM partners)

2. Android users can expected an improved user experience over the entire lifecycle of their devices (virtually enforced by Googorola upon its OEM/ODMs)

3. Android will become a safer bet for future applications like mobile payments where technology choices (e.g. NFC) are still open and non-IT partner support (e.g. banks) matter

4. Google gains access to new eco-systems critical to the Android platform: Motorola sells not just smartphones but tablets, set-top-boxes, navigation devices and deskphones

5. Google gains a Hardware Brand – Motorola has been the global leader in analog mobile phones and after losses in 2007-9 has been turned around based on (An)Droid phones

6. Google TV – not exactly winning with Logitech hardware today – potentially has a lot to gain from Motorola STBs’ #1 position in the US and its established distribution channels

7. Google can gain in the enterprise business by integrating Google Apps with Android phones & tablets and Chrome notebooks – something Apple cannot match

8. Google’s commitment to the OS & app. business – essentially anything beyond their search cash cow – has just increased materially

9. China: Motorola has an explicit strategy for China (incl. #1 China Mobile partnership)  and since Nokia’s collapse good chances to grow – a great backdoor for Google

10. Culture – one can argue that the discipline required in a competitive hardware business might positively influence a company that launches products through online betas for years

 

Of course, these assets and benefits do not come for free! I do not just think of the $12.5bn acquisition price tag but other costs to Google:

1. Integration costs: size, industry differences, low margins, cultural differences make Motorola difficult to absorb, a potential distraction and a huge management challenge

2. Confusion in branding and partnerships, distribution channel conflicts, investor perceptions will have to be sorted out quickly

3. Strategic platform impact: by implementing Android (and later Chrome OS) itself, Google puts pressure on OEMs to follow its pace, innovation, pricing – while this makes Android more reliable and competitive, it also reduces the profit potential. The bottom-line impact in the overall smartphone competition might still be positive for Android OEMs!

 

Of the above benefits, the following might deserve some more detailed comments:

ad 2. Improved User Experience: besides the more obvious advantages of the vertical integration of hard- and software (à la Apple) that matter a lot in smartphones – where an OS alone typically consists of 4 parts (core, OEM/ODM, radio stack, carrier) – it is namely the various updates during a model’s life cycle that tend to dominate the actual user experience. How long does it currently take Samsung and its carrier partners to ship the Android updates to their global user base ? Due to the substantial improvements that the intense competition between iOS and Android brings about, this is more than just cosmetics and so are the security fixes whose frequency will increase. Googorola will have every incentive plus the skills and assets to produce high quality updates rapidly while its channel and partner clout should allow for quick distribution cycles.

ad 4. Non-phone platform extension: with iOS and Windows already powering additional device categories, Android can win in scale and hence relevance for developers while giving Google the power to compete for the living room, the car, the hotel room and other spots that have attractive upside potential for Google’s core advertising business. Motorola can help accelerate the link between the search/advertising and os/apps businesses which will add to Google’s differentiation in both streams.

ad 5. Hardware brand: with the obvious cultural differences, Google might opt to keep the new hardware business in a separate organisation – with defined engineering interfaces – and under separate brands. This would help avoid many internal and external challenges and keep the Google brand equity focused on search, online advertising and apps.

ad 8. Google’s commitment to its non-search-related businesses has been questioned because it could have been seen as just diluting net income. With the Motorola acquisition, the ambition of Google gets more than just a $12.5bn boost because this hardware business cannot provide the incremental profits required to avoid dilution. Hence profit growth has to come from the software business which gains various support from the hardware. Note that this is the reverse situation of Apple where hardware drives profits enabled by software!

ad 9: China is the largest single mobile market worldwide and hosts the largest mobile operator China Mobile with some 700m subscribers. Nokia is losing share at China Mobile rapidly, Motorola is winning and Apple still has no partnership which rumours say will change with the iPhone 5. Adding to this cocktail is Google’s withdrawal from the Chinese online search market in spring 2010. Seemingly, Motorola is all upside for Google in China.

 

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Welcome!

Welcome to CloudAlps!

My goal is to give pointers and summarize the findings of my research and experience in how Cloud Computing – combined with Globalization – can change the world.

best,
Thomas

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About Thomas Rupp

Economist & MBA focused on leveraging Disruptive Technologies in IT and Telecommunications, mostly for Enterprise clients. More than 15 years at Microsoft, currently as Global Program Manager for Cloud Support Transformation. Sloan Fellow 2010 (MSc in Management) at Stanford Business School. Ultra Marathoner, Foodie, Diver and Audiophile.