If you haven’t been living under a rock, you have heard pundits proclaiming the death of the PC. As consumers move to tablets and stop buying laptops and desktops, and as companies pinch their IT budgets even harder than they have in the past, it is easy to paint a doomsday scenario for hardware. Even the hardware companies play into this myth—look no further than AMD to see weakness portrayed. It seems that for many, hardware has lost its sexiness.
But I think hardware is back! Clearly the biggest two catalysts for hardware in this era are mobile devices and the explosion of cloud computing as a way to host applications, infrastructure, and services. Let’s unpack the promise of hardware from these two perspectives a little more.
The Cloud Perspective
It takes massive amounts of hardware to run cloud services at a scale. That is what astute folks call an F-A-C-T fact. Interestingly, though, saving on hardware costs began the whole cloud wave.
Cloud services began as a natural offshoot to virtualization, which ironically was a way to squeeze more from your existing hardware and buy less in the future. Virtualization said that now that we can abstract away the physical complexity and irregularity of the bare metal that make up servers, we can deploy virtual machines across physical machines and generally orchestrate datacenter operations without really having to put Dell Server A in rack P connected to switch W. So the logical next action once we have these orchestration capabilities is to scale up your capacity and offer services to paying customers, either within your own organization through a chargeback scheme or to the general public as a public cloud service. Enter Amazon Web Services, Microsoft Azure, and recently, Google.
How important is hardware to the cloud? It is essential. It is the very lifeblood of these services and to continue innovating and offering high quality, reliable services, you have to buy enormous amounts of hardware—to the point where the market has become threatening to small and boutique cloud services firms. Just this week, Rackspace, an independent cloud computing company with a market capitalization of $4.4 billion, has hired the investment banking firm Morgan Stanley to help it seek out “strategic alternatives,” which essentially means they are looking for a partner. Why? Because you have to have deep, deep pockets—a huge war chest—to compete at the scale that the likes of Microsoft, Amazon, and Google are competing in the cloud on.
Here are some interesting statistics that put this resource issue into perspective:
- Various Microsoft sources have confirmed to me on the condition of anonymity that the scale of Microsoft Azure, the company’s cloud computing service, exceeds one million physical servers, and the company is on the path to grow the service’s capacity by 200% within a timeframe of a few years. That is a lot of hardware.
- Many of these same sources cite a mind boggling statistic: that over 17% of the server hardware produced on the planet is ordered by and put into production by Microsoft for their cloud services, including Azure and Office 365. That, too, is a lot of hardware.
- But others may well have even more hardware than that. Gartner estimates that Amazon Web Services (AWS) has five times more cloud infrastructure, including servers, networking gear, and other hardware, than the next 14 competitors have combined. Indeed, Amazon adds as much new cloud infrastructure every single day as they used to run their entire Amazon business (including the book selling) when it was a $7 billion business.
- Netflix, who runs their service on the Amazon Web Services cloud—well, at least the streaming video part of its service—accounts for up to 33% of all Internet traffic (that’s all bits on the wire anywhere in the public Internet) during its peak times. That’s one third of all Internet activity on the entire planet.
A reasonably sized datacenter takes about a billion dollars, and basically there are a handful of companies that generate that kind of a free cash flow to develop multiple datacenters without realizing a complete return on their investment. It is a very capital intensive business.
So is hardware back, from a cloud perspective? Absolutely. The savings and the efficiency that we all realized from deploying virtualization in our own server closets and datacenters may have caused a temporary “softness” in the market for server hardware. We got the ability to wring out more efficiency from the investments we had already made. And it’s true that as the public cloud continues to mature, we will all most likely be buying less hardware for our own resource pools, but the scale at which Microsoft, Amazon, and Google, and even the more minor players in the industry, are deploying new servers and purchasing hardware should more than make up for that deficiency.
From the Mobile Perspective
Many experts have prognosticated the demise of the corporate desktop or laptop. And 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, say, Microsoft Office, or a line of business application, acceptably well. In the consumer world, consumers are purchasing bottom-priced PCs or Macs but are also investing rather heavily into smartphones and tablets that run Android and Apple’s iOS operating system. Put simply, the stalling out of traditional desktops and laptops does not necessarily mean that hardware is dead.
Industry giant Microsoft has converted itself rather successfully, even in these early stages, into a company centered on a strategy that involves devices—both hardware it makes and what it depends on third party hardware ecosystem partners to manufacture—that link in with all-encompassing services that it 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 launched the iPad juggernaut which really propelled 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, or IoT, where everything from the tires on your car to your refrigerator has Internet connected hardware sensors that will give data to a variety of services. That is hardware that connects to the cloud, and we have already identified how hardware intensive that cloud hosting is.
So is hardware back, from a mobile perspective? I think so. I am actually ambivalent as to 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—which has always been available at no cost to hardware original equipment manufacturers (OEMS)—and now Windows Phone available for free without licensing cost to OEMs as well. It will be possible to get an Internet-connected smartphone for $10-20 within a couple of years, I predict, and there is plenty of potential for penetration still remaining for tablets and smartphones alike in emerging markets.
This article originally appeared, with edits, at CIO.com