For decades, a characteristic of the Wintel-dominated PC industry has been that hardware was a non-differentiating attribute of a computer. As an example, take the computer CPU: Intel delivered continuous improvements in performance, but, given that almost everyone used the same chips, hardware was a commodity in terms of differentiation.
The world has totally changed. The PC market is declining and has been eclipsed by mobile devices. Sales volumes have shifted and so has our user preference. In this new mobile world, differentiated chip capabilities have become extremely important. To develop new areas of competitive and profitable advantage, organisations must master the interplay and integration of software, services and hardware capabilities.
A strong characteristic of the Wintel-dominated PC industry has been that hardware was a non-differentiating attribute of a computer. The computer CPU is a perfect illustration: Intel delivered continuous improvements in performance, but, given that almost everyone used the same chips, hardware was a commodity in terms of differentiation.
The world however has totally changed. As discussed in an earlier post, the PC market is declining in absolute terms and has totally been eclipsed by mobile computing devices in relative terms. Not only have sales volumes shifted, so has our usage pattern. We spend more and more time using our mobile devices while static devices like PC’s and TV’s are getting marginalised. In this new world, differentiated chip capabilities have become extremely important.
To develop new areas of competitive and profitable advantage, organisations must master the interplay and integration of software, services and hardware capabilities. Furthermore, those organisations who are able to create platforms will be able to charge a tax on other organisations that use these platforms.
The chip industry has undergone two bifurcations due to the emergence of the mobile era. The first bifurcation occurred when Apple identified mobile computing devices as a huge growth opportunity with disruptive potential. Apple quickly realised that in mobile computing, performance per watt would be much more important than raw chip performance:
- Long battery life is required if users are to give preference to the mobile device over the static PC for many more tasks than just telephony, music and email.
- Low power consumption goes along with smaller battery capacities and sizes that in turn allow thin and light form factors.
- Long periods of peak performance; an energy inefficient chip quickly heats up when working hard and is consequently forced to throttle its own performance soon after starting a heavy workload.
- Low power consumption is equivalent to less heat generation allowing the elimination of cooling fans. Elimination of cooling fans yields multiple benefits: thinner and lighter designs, less battery drain and the elimination of background noise - also important for voice activated interaction.
The second bifurcation occurred due to the increasing variation in the number of mobile appliances and use cases. This increased the demand for differentiation in hardware capabilities to power different user experiences. One size would not fit all because the requirements often are impossible to combine.
This implies that in certain industries you must master yet another area - hardware technology - if you want to lead in the digital transition and not be left behind to divide the diminishing margins of the late majority. What are the developments in computer chip technology that have enabled these shifts?
- Intel missed the boat in mobile CPU’s and everyone in mobile is using ARM-based designs instead. Intel designs and manufactures chips but ARM only licenses its designs. Leading mobile chip companies thus have more degrees of freedom than PC manufacturers had: they have the possibility to adapt the ARM-designs and can also select which chip manufacturer will manufacture their CPU’s. These differences lead to chips with significantly differentiated characteristics and performance. Furthermore the decoupling of design and manufacturing has enabled the development of SoC’s.
- Mobile devices combine many key functions on a single chip, a so called System on Chip (SoC). These functions include the basic CPU, GPU and memory components of a computer but may also include GPS, gyroscopes, accelerometers, compasses, image and sound processing capabilities. Combining these functions on one SoC improves energy efficiency considerably, saves space and offers attractive (new) functional possibilities. This is another area of significant hardware differentiation for leading manufacturers as the development of SoC’s is complex and capital intensive. And the list of new functions continues to grow: biosensor data processing, barometers, advanced image signal processing, secure enclaves...
In the smartphone industry the competition is fierce. Investments in hardware capabilities are a critical component -next to innovations in software, services and platforms- to realise a price premium in the market, make a profit and escape the intensifying, head on battle with a large number of competitors.
To get a taste of what is driving innovation in chip design and how this has an impact on competitive positions in other industries, we must look at some of the developments in chip capabilities and their applications.
Image quality - Nowadays photo’s and video clips are captured and shared using mobile phones. Of course: they say that the best camera is the camera you have with you. The quality of the photos and video taken by the best mobile phones has become extremely good, despite the physical limitations imposed on the camera lens and image sensor. This quality is due to exponential advancements in the Image Signal Processing part of the mobile SoC’s. Many industry reviewers in 2015 found that the iphone 6s could shoot better 4K video than digital single lens reflex cameras costing 4.000 USD.
There are three key effects of having a good quality camera everywhere you go and being able to instantly share what you shoot with other people:
- Disruption among camera manufacturers: With the introduction of the digital camera the film camera market started to decline and within ten years it had disappeared. Today Eastman Kodak exists only as a case study in business schools. Next, mobile phones slashed the market for digital compact cameras (point-and-shoot cameras) in roughly five years. With their volumes and investments mobile phone manufacturers continue to pressure producers of the more expensive digital cameras.
- Disruption in the media industry: at the peak of the film camera industry in 1999, consumers took around 80 billion photos. In 2015, only on Facebook, about 730 billion photos were shared. If we add snapchat, WhatsApp and other social messaging platforms Ben Evans estimates that 2-3 trillion photos were shared in 2015. In other words, more photos (and videos!) were shared via the mobile phone in 2015 than were taken on film in the entire history of the analogue camera business. This has been instrumental to the shift in media preference that continues to disrupt traditional media companies.
- Disruption in the media production industry: In 2015, the Swiss TV News Station Léman Bleu decided to use iphones exclusively to shoot its reports. A growing number of TV commercials are being shot with iphones and one movie at Sundance, Tangerine, was shot with two iPhones. Newspapers, being disrupted themselves by IT, fire their photographers and give iphones to their journalists expecting them to write and take photos.
Security - As users have shifted to mobile first, organisations must follow. Mobile devices are quickly becoming the dominant user interface, for example in banking and retail. In certain markets in Asia and Africa it allowed users and organisations to skip building traditional distribution channels. In other markets, it has significant impact on brands, branches and supply chains.
Cybersecurity is growing equally rapidly and mobile devices are inherently more likely to be lost or be stolen. This has led to the need of (un)locking the device more securely as well as encrypting all data on the device. As ease of use is also a key feature in driving adoption, mobile security isn’t just a matter of software measures anymore: user requirements have also translated into hardware requirements.
Biometric authentication such as fingerprint scanning is making inroads. A safe and performant implementation of such a method requires specialised silicon that enables the safekeeping of the user’s biometric data in a secure enclave within the chip. Encrypting all data on the device without noticeable performance penalty also requires expertise in hardware. In particular in the storage controller, the piece of silicon that manages the storage chips on the device.
The secure authentication facility on a mobile device also allows the device to support secure and frictionless payment authorisation. Apple Pay has been successfully rolled out in the retail channel in a number of countries and Apple has recently announced that the payment facility will also support payment in e-commerce websites. This will create a level playing field in e-commerce with Amazon’s 1-click shopping and drastically reduce the number of people who initiate the payment process in an e-commerce site but abandon it before completion.
There are other innovations that are also enabled by hardware developments whose impact on organisations and entire industries are not yet visible. Their impact is relatively easy to envision:
Artificial intelligence - The first manifestations of artificial intelligence on a mobile device are visible and drive specific hardware requirements in a variety of ways:
- First of all the Deep Learning algorithms used in image classification and search, speech to text translation and other such functions run on the mobile device and in the data centre. In both places specific silicon -efficient GPU’s or specialised AI chips- is required.
- Secondly, the user interface to intelligent agents is (often) voice. In order for a device to be listening continuously whether it is being summoned, specific silicon is required with tailor made sound processing capabilities in order to limit battery drain and carry out sound signal processing (filtering of noise, recognising a specific voice etc.).
Biosensor data collection - Health functions are also becoming prevalent on multiple mobile devices. Such functions require specialised silicon that enable the continuous collection of data with a minimal amount of electrical current drain.
Virtual and Augmented Reality - This is a functionality that requires very high graphical processing power. Combining such capabilities in a mobile device with battery and thermal limitations can only be addressed with leading chip designs. Virtual and Augmented reality will not only play a role in gaming, retail and other consumer businesses. Professional training, professional services, field engineers and the military will all be impacted by it.
The tremendous innovation in hardware is a key pillar of innovation and differentiation in mobile devices. These innovations do not stop at the borders of the IT industry. As IT becomes a large component of other industries, chip innovation will have a major impact on more traditional industries as well.