$35 Laptop in India…

I’ve had a few emails about this story – which is all over about a $35 laptop made in India.

Theres a lot of misunderstanding apparently about this.  First of all – it’s not a $35 Laptop.  It’s a proto-type for a laptop which the people on the project have said it should cost $35, and on mass scale would drop down to $10 a laptop.

That’s all fine and good but having a bit experience around this kind of thing lets inject some reality into the Public Relations statement.  I would urge caution and research before expecting to see one of these, for that price, any time soon.

Don’t get me wrong anyone who knows me knows this is a cause near and dear to me and I would totally love to see any low cost computing device in the hands of children.  But this is not the first time that we’ve seen some pretty incredible claims about such technology – and it’s not even the first time that India has made some petty incredible claims about low cost devices.  Last year India announced they had a 7 pound ($14 USD ) laptop in development, which – btw – this is probably the unit they were talking about.  Such price shifts are pretty common in the development phase of any hardware and the fluctuations can be a few dollars or a few hundred dollars.  And this is what you should keep in mind when you see a story like this.

 

CNN Report on $35 laptop.

This is a proto-type.  Those are their words – not mine.  PROTOTYPE.   It’s a very finished proto-type – but it’s still just a proto-type, and that means that no – they don’t have the final costs on this device.  We also don’t know how finished the device is. 

It’s running … but that doesn’t always mean a lot.  What’s the battery life?  How durable is it?  etc., etc., there’s a lot of things which might need to be worked out before all is said and done that can radically affect the price on this from a hardware view point.

There are economies of scale in production to consider, as well as the profit that manufacturers need in order to be able to produce those economies of scale.  Consider similar projects to this one – and this has been a major factor in their costs.  This project will most likely suffer similar issues because of the hardware costs.

Understand that the cost of something isn’t just the development of the software and the design of the product.  Once you’ve made the proto-type someone has to make X,000,000 or however many of them.  And these need to be available as soon as sales start happening.  So the Catch-22 reality is that in order to sell X,000,000 units to get the price down to make them affordable – you have to have already SOLD X,000,000 units to get that price from the manufacturer to make them.  Or… you need a manufacturer willing to take a $35 x (X,000,000) risk for you. 

Now, maybe I’m wrong… and they’ve got this all dialed in.  It’s most likely with a achievement such as this that when you see something this polished it’s been accounted for up to a level.  But there are, and will always be cost shifts in production of anything, so I would really caution people who are hoping for a $35 laptop that they set their expectations accordingly.  Doing this will insure that when the units do come out the press on them is more accurate and not a lot of negative “they promised but couldn’t deliver” posts from the blogosphere.   

Tech Pundits the ‘Fox News’ of IT…

(please let me know if I got the level of sensationalism right)

Headline… ”Is the Shine Off the Apple?”. 
Headline… “Can Microsoft Still Compete?”
Headline… “Microsoft Bing Yahoo make gains… Should Google Worry??”

Here’s the bottom line…

Apple’s fine – and everyone still loves them, despite the whole iPhone4 antenna thing, it’s just most pundits, like Hyenas, aren’t able to bring something down on their own – so they need to rip flesh off in small chunks before going for the kill as a pack.

Microsoft’s more a player now than ever before – they just are playing on a different level than most pundits.  Microsoft plays the long game, they always have.  Moving pieces on the board slowly and deliberately.  So don’t expect them to tip their hat. 

A quick search reveals that Microsoft’s biggest strength is not as a open competitor and never has been.  They wait for markets to stabilize and provide enough incentive to guarantee financial success.  Then when they have enough of a market to justify going all in – they do so, it’s fast and hard - and they usually win.  It’s a poker strategy they live by and this isn’t going to change any time soon.

Google (and Any Smart Company) should always worry… in this world your only as good as your last success.  Google has done an amazing job for a company with one product that they don’t charge for.     But they are Google.  And they are very very good at understanding numbers and forecasting.  If they have anything to worry about it’s that business and economics will change their model and make their cash cow obsolete.  So – Microsoft and Yahoo, yeah they’re competition but Google’s greatest competition is the same thing that Steve Jobs and Bill Gates worried about… that somewhere out there is a kid in a garage with an idea. 

Headline… “We really have no clue what’s going on in IT.  We just put up headlines and make extreme statements to force you to read this.”

That’s my take on the state of IT reporting these days.  A lot of people who have no clue how, or why the industries they report on work, or the actual motivations or directions of the companies.  The “analysts” aren’t – they’re just people who spew words and make headlines.  This applies to some big name bloggers out there as well as wonks – and I really wish that wasn’t the case.  But from what I’ve seen of late -  it’s true.  And yeah, I’m pretty fired up over some of the inane and insipid attempts at “reporting” I’ve seen.  They include story bits – but just as you’re about to question the facts they provide they break in with these block quotes or a sensationalist statement or image – and so you don’t question, you just get fired up.

MOST of the IT predictions out there and the so called “analysts” are worthless -  or worse just do not understand the actual functions of their industry, the economics, business models, or operations of a industry that they’re supposed to be reporting on.  They are often -  I have found – people who’s credentials are  as “technically skilled” or knowledgeable of the industry – come from having worked in non-technical areas of IT.

Here’s a good example.  A few weeks ago a blogger - who shall remain nameless – went on a tirade about how Microsoft Xbox had no clue about MMO’s and how Microsoft needed to listen to the MMO creators out there if they ever wanted to make money and get their console business model remade so it would work with them.

Now, if you play MMO’s this makes sense.  Let’s face it we all know about World of Warcraft right?  We all know there’s some serious cash going on there.  And Microsoft Xbox has had 3 major MMO’s that just… died on the vine under them.   It’s like how in the heck… can this not make money for them – and they just – let this stuff slip through their fingers???  This blogger called Microsoft’s people basically inept morons who did not understand the market, dinosaurs who did not understand the money they were losing.

Yet – at the same time –- Microsoft’s Xbox Live was reported at making 1.2 Billion dollars.  So, is the blogging analyst right?  Is Microsoft giving up money hand over fist even though they made 1.2 billion??

Short answer… NO.  Not even close.  He’s just some guy who loves MMO’s and thinks that’s the best business model for every game.  That’s all he plays – and he says so in the article.  He’s got no knowledge of anything except maybe how to make a min/max Elf in Warcraft. Okay, so that’s an exaggeration.  He claims to have dozens of years experience in IT.  Which… questionably would make him older than most IT fields out there and probably having experience on Univac – But we’ll go with that anyway because his respected website posts it – So hey – it must be true right kids???

The blogger / analyst mentioned knew ONE part of the IT business.  Just one.  And that’s not enough to make a sweeping statement or provide analysis.  It is however, enough to write a blog apparently.

But it’s not enough to actually understand how IT and Games and Technology all fit together – and they certainly didn’t know what it takes to make any kind of software come into being, let alone something as complex as operating and maintaining a Massive Multiplayer Online game.    I’m not going to say I do but I do understand more of the issues here than they do, and I actually have written code and had to have it deployed globally, and actually have had to understand IT business models – unlike someone who’s big skill with it all is in knowing how to get the most DPS for your Druid.

So let me take a bash at explaining why this man (and sooo many others reporting) need to understand how to do more than write a headline.

First of all… MMO’s actually are one of the smaller gamer markets if you compare cost to make and maintain vs.  FPS or a more traditional gaming system  – compare the numbers you begin to see, as “big” as MMO’s are, there’s “big” and then there’s BIG.  MMO’s are not BIG when it comes to over all profit… they’re just ‘big’ … when it comes to profit.  Even though total income from MMO’s is around 1.5 billion world wide, the cost to keep them, maintain them, etc. is far more than a normal game.  As a result that 1.5 billion isn’t PROFIT – that’s just income.  If you’ve ever looked at your checkbook… you know the difference between income… and profit. 

MMO’s are not single guys with a great job a small apartment and a fancy car – they’re married to their investors, who are constantly asking for them to do more with less, and their 2.4 children (users) are constantly asking them for braces, lunch money, allowance (you can just call these ‘game updates’)… that fancy car (all the hardware that runs the game) they had when they were single… well it’s now in need to be traded in for a minivan because you have too many kids and it’s going to burn a gruntload more gas.

Bottom line… MMO’s cost money.  A lot of money to maintain.  So even though they make a lot of money – as any parent can tell you … it’s not enough.

Here’s the reality.  Bandwidth costs money, Updates to games cost money.  Xbox live could – yes handle that, I mean c’mon Microsoft Live is a monthly fee. 

But Microsoft didn’t create the MMO.  So if the price cut comes out of Microsoft’s pocket, not the game developer, it would have to eat that cost.  Not gonna happen because, let’s face it – the game now costs them more than they can make back on Xbox live.  Soooo… maybe the game developer just raises the price right? Hey that’s what happens anyway right?  I pay my $14.99 for my monthly game subscription, plus my $55 for the game… and yeah I’d need to pay my Xbox live fee. 

Funny thing… there’s a lot of surveys of people out there on that very system… and every survey done on this subject (and there’s been man of them)  show that most gamers would not go for that.   In fact it’s a pretty overwhelming majority.  Which… ironically gamers go out and do anyway.  It appears it’s when you actually ask them if they would they say “No way in hell” but they go ahead and do it for PC’s… just not… console systems.  Very strange.

Anyway, we haven’t even gotten to the issues of the special service updates, micro-transactions, why it’s necessary for a consistent development cycle for all parties working together, and other deal breakers or if the game will be “exclusive” and so on. 

And yes… before anyone emails to point this out – I’m well aware of Steam – and that they have 25 million users.  Now, ask how many of the actual current 2.5 million accounts of those 25 million accounts are providing income for Steam?
(*based on www.gameindustry.biz data – also be aware that Steam and Xbox Live are not the same business model, its’ confusing from a gamer view but actually take a look at what each does and you can see the difference – one is a game supplier, the other is a game provider – it’s a subtle but financially significant difference) …

You can begin to see why Microsoft’s Xbox Live system works better for Microsoft, and they’re willing to walk away from an MMO deal they’re not 110% sure of – rather than take the risk associated with it. 

Why?  Because of the 10 million Xbox live accounts – the majority are paying Microsoft $50 a year or more.  Which explains why Xbox live made over 1.2 billion dollars last year… even though it’s not a game it basically is an MMO, and its almost as profitable as ALL of the MMO’s combined … for Microsoft.   Explain to me - Why exactly does it need to change it’s business model so that it can have an MMO again?

As you can see Microsoft unless they are complete morons – are not going to monkey around with with the Xbox live business model system.  Not just so they can have an MMO which may, or may not be profitable, and will most likely cost them – or a business partner a small fortune to maintain, and they will need to fight tooth an nail against established MMO’s costing more in advertising, more in – basically everything… just to say they have an MMO.  That would be insane.  Like… really insane. 

So… how about an analysis huh?  I’ve done the reading, done the research… what do I think?  Will Microsoft change it? 

My analysis… 

Here’s my surprising answer considering everything I’ve said so far… Yes.   I really think they will – and I will add,  in their time.  There is money in the MMO basket.  But that money isn’t there technologically for a little down the road. Once the money is there for them – yeah, I really think they want to be in this game all in.  It’s the market that’s holding them back.

As it becomes more profitable to open the business model up for them, and in time, it will.  But they won’t pull the trigger on that decision until the numbers are there to support it.  My guess is – they’re pretty close. 

For one thing – the more game system back ends get into a cloud, which Microsoft is becoming very strong in – the lower the price to maintain them becomes.  If handled properly – much of Xbox Live could become effectively a game provider cloud.  The technical logistics for this exist – it’s the legal and business logistics that would need to be worked out.  But from a technology view point – Microsoft is ready.

We’ve seen Microsoft test the waters with things like Monster Hunter, and they almost did it with Marvel Universe, and had a good test run with ShadowRun (yes the game I’;l give you was a miserable disappointment, more FPS than MMO – but the technology to support it was a success).  But the market is not there yet… and as I mentioned above… Microsoft historically does not get into a market unless they know they can not just make back the investment but make money off it. 

Now, if I – without being an ‘expert with dozens of years in the gaming industry’, and am just a plain old normal IT guy… can figure all of that that out with just a few minutes of searching on the internet… just imagine what a skilled blog reporter with ‘dozens of years in the gaming industry’ could do if they really set their mind to it.