The rise of cloud computing is changing the nature of competition within the computer industry. Technological developments have hitherto pushed computing power away from central hubs: first from mainframes to minicomputers, and then to PCs. Now a combination of ever cheaper and more powerful processors, and ever faster and more ubiquitous networks, is pushing power back to the centre in some respects, and even further away in others. The cloud’s data centres are, in effect, outsize public mainframes. At the same time, the PC is being pushed aside by a host of smaller, often wireless devices, such as smart-phones, netbooks (small laptops) and, perhaps soon, tablets (touch-screen computers the size of books).

Although Windows still runs 90% of PCs, the fading importance of the PC means that Microsoft is no longer an all-powerful monopolist. Others are also building big clouds, including Google, a giant of the internet, and Apple, renowned as a maker of hardware, with a market capitalisation that now exceeds those of both Google and IBM, its original arch-rival (see chart above).

industries market chart

Granted, there are hundreds if not thousands of firms offering cloud services—web-based applications living in data centres, such as music sites or social networks. But Microsoft, Google and Apple play in a different league. Each has its own global network of data centres. They intend to offer not just one or two services, but whole suites of them, with services including e-mail, address books, storage, collaboration tools and business applications. They are also vying to dominate the periphery, either by developing software for smart-phones and other small devices or by making such devices themselves.

This means that all three will have ample resources to spend in the main areas of the fight: data centres, cloud services and the periphery. In data centres, Google is ahead, but Microsoft is catching up in size and sophistication. Apple has most to learn, but this, too, seems only a question of time and money. Just as much of hardware has become a commodity, knowing how to build huge data centres may not be a big competitive advantage for long. And data centres can get only so big before scale ceases to be an advantage.

In services too, Google is ahead. But in Bing Microsoft may at last have created a worthy rival. The “decision engine”, to use the company’s term, does a good job of helping people choose a new camera or book a holiday. The big question is whether Apple can catch up. Its iTunes and App stores are successes, to be sure, but for now they are highly specialised. Its broader suite of cloud services, MobileMe, is nothing to write home about.

At the cloud’s periphery, however, Apple has a strong position, thanks to the success of the iPhone. More than 30m have been sold so far, 5.2m in the quarter ending in June. Its share of the American market is pushing 14%. The App Store now boasts 85,000 applications and a total of more than 2 billion downloads. But recently Google’s Android has gained momentum. Several handset-makers have released smart-phones based on it, or will do so in the next few months. In early October it received the backing of Verizon, America’s biggest mobile operator. At the end of 2012, predicts Gartner, a market-research firm, Android phones will have a bigger share of the market than iPhones.

The final possibility is for another contender to emerge. The obvious candidates are Amazon, the world’s biggest online retailer, and Facebook, the leading social network. Amazon already has a cloud of sorts. It offers cloud computing services to other online firms and has developed the Kindle, an electronic reader, which is due to be available worldwide from October 19th. Facebook runs what is arguably the most successful cloud service, with more than 300m registered users. It provides a platform for people to communicate, share information and collaborate online—all things that businesses want to do, too.

And about the game industry?

Online gaming is not new. Since the early days of the internet, netizens have indulged in “massively multiplayer role-playing online games”, a genre that, now complete with fancy graphics, is still very popular, particularly in Asia. Some console games can be played online. “Episodic” gaming, in which new add-ons for console games can be downloaded for a fee, is gaining ground. And there are many “casual” online games, often web-based versions of board and card games. Yet in 2009, all these online offerings are expected to account for just $9.4 billion of the $55 billion market for video games, according to PricewaterhouseCoopers, a consultancy.

There are several reasons to think, however, that video games have begun the transition from an industry primarily based on consoles and shrink-wrapped software to one in which online services dominate. Conventional gaming has not proved as resistant to the recession as many had expected. In America, the industry’s biggest market, sales of games were down 12% in the first nine months of the year compared with the same period in 2008, according to NPD Group, a market-research firm. Nintendo recently admitted that sales of its Wii console, long the market leader, had stalled.

Meanwhile alternatives are emerging quickly. Many personal computers are powerful enough to run fast-moving, graphics-heavy games just as well as consoles. As a result, firms are offering online games that can be played either through “client” software, which users download, or via a web browser. Gameforge, one of the biggest and fastest growing online-gaming firms, offers 15 games and has more than 85m registered players. OnLive and Otoy, for their part, plan to let users play console games without consoles, by streaming them over the internet.

Then there is mobile gaming. Handsets have long come with rudimentary games installed, but smart-phones allow users to download new games or play online via a wireless internet connection. Apple’s App Store, for instance, is full of games.

These trends are dwarfed, however, by the explosion of “social” games, which have become all the rage on social networks such as Facebook. These are more about interaction than action: players either join their friends for an online game of poker or Scrabble, or to create and show off virtual pets, farms and mob families. Zynga, the market leader, which had 22m users in January, now has more than 170m.

The most important change will be in the way publishers earn money. Although some are charging subscription fees to players of online games or selling advertising, many of them make most of their money by managing an online economy, complete with virtual goods and a digital currency. Playing is free, but users can get ahead by buying extra bits and bobs.

Facebook, Apple and a raft of start-ups are all trying to develop a low-cost payment system, which could be a lucrative undertaking in itself. If they succeed, they may bring some relief to media firms that have seen much of their business disappear into the vacuum: many in the music and newspaper businesses, for example, are pinning their hopes on the idea that consumers can be persuaded to pay small amounts for digital wares.


sources: several articles from The Economist

between October and November 2009