Sunday, May 22, 2011

Windows, Linux, ARM and Intel in a Zero Sum Game

Microsoft is talking about putting Windows 8 on ARM. Intel is trying to play this down, talking about how Linux is already on ARM, and how Intel even supports Linux itself. None of this makes sense unless you understand the position of Microsoft and Intel in the PC market.

People often speak of the "Wintel" duopoly, which of course is a misnomer. A duopoly is when two companies share a single market, at which point there is a risk of anti-competitive behaviour. However Microsoft and Intel are not a duopoly, they are two near-monopolies. Microsoft dominates the desktop operating system market, and Intel dominates the desktop CPU market. Although both OS and CPU are necessary components in a desktop computer, this doesn't make their manufacturers a duopoly because even in the best of worlds they don't compete: increased market share for Microsoft is not at the expense of Intel.

However this doesn't mean that everything can be all cozy between them, because in a broader sense they do compete. Microsoft and Intel are players in the desktop PC "value chain" (actually, its a value network, or even more precisely, a value directed acyclic graph, and if you look closely you find it isn't even really acyclic because chip-makers buy PCs, but term "chain" is more often used so that is what I'll stick to). This describes the way that money flows from PC buyers through vendors to manufacturers to parts makers to raw materials.

If you are a player in a value chain then its pretty much a zero sum game; every time someone buys a PC their money bubbles back up through the value chain and everyone grabs their bit. Your problem as a player is to get as much of this money as you can, which inevitably means that someone else gets less. Value chains are characterised by dysfunctional relationships between people who need each other but nevertheless hate each others guts.

There are two big strategic goals in a value chain. The first is obvious, the second less so:
  1. Make your bit a monopoly, so the rest of the value chain has to come to you to produce the product. That way you can charge monopoly prices and hoover up all the money coming through the value chain.
  2. Make everyone else's bits into generic commodities so that they can only compete by keeping prices low. That way they can't charge monopoly prices, which leaves more money for you. That's the consequence of the zero sum game thing.
Once you understand the second goal you understand everything about Microsoft and Intel.

  • Microsoft makes very sure that Windows runs well on as wide a variety of hardware as possible in order to keep PC hardware a commodity business.
  • Intel makes sure that Linux runs nicely on Intel processors in order to create a competitor for Microsoft, so Microsoft will have to reduce its prices, thereby leaving more money for Intel. I suspect Intel were also very supportive of Apple's move to Intel hardware for this reason, as well as the more obvious one of having a new channel.
  • Microsoft made sure that Windows runs well on AMD. However AMD have never really recovered from Intel's "Intel Inside" marketing coup (where they paid box vendors to make it sound like "Intel Inside" was a big selling point, so lots of customers thought it was). So now Microsoft need to create a new competitor for Intel, and have decided that ARM will fulfil this role nicely. In the past they also did this with the DEC Alpha for the same reason.
ARM already plays nicely with Linux, which is quite a feat because ARM isn't a single processor; its an entire family. If ARM have any sense they will make sure that this continues. Microsoft are likely to try to pay ARM off to get it to remove support for Linux. If ARM have any sense they will resist this because it will enable Microsoft to entrench itself as a mobile monopoly, thereby decreasing the amount of money available for ARM to grab for itself.

Edit: "zero sum gain" -> "zero sum game". That's what happens when you let your fingers do the thinking.

3 comments:

Ganesh Sittampalam said...

Why would it be zero-sum? If the end price of PCs changes, or if the costs of any element of the chain changes, then the total amount of margin in the chain changes with it.

I don't think ARM could remove support for Linux even if they wanted, though they could of course stop actively helping it.

Paul Johnson said...

Ganesh,

You are correct; its only zero sum to a first approximation, and the amount of money flowing in does change over time. However unless they have a completely revolutionary idea there isn't much any single player can do to influence this, so it can be treated as zero sum for strategic purposes.

No, ARM couldn't simply remove ARM support from Linux support because it is open source, but as you say they could stop actively helping, and there are a number of obstacles they could put in place (e.g. NDA on hardware details) that would make it much harder for the rest of the Linux ecosystem to maintain support.

Ganesh Sittampalam said...

Surely Microsoft and Intel can influence prices quite significantly, being major players in their respective levels of the chain?

I agree with your arguments in general though, it's in the interests of each level to reduce prices in the other levels and increase them in their own.