The End of Business as Usual

All the buzz about Windows 8 has put an exclamation point on something many in the technology industry already knew: Mobile devices are changing business models. Early reviews of Windows 8 say that the OS is clearly meant for mobile devices, and that PC users are going to have a hard time moving away from the desktop.

The New York Times published an article today on how many industry behemoths seem to be playing catchup in the mobile business. Intel was late to the party and is now building mobile chips. PC sales are lagging, so Microsoft is betting on Windows 8 to ease its transition away from pure computing. Google, no longer content being a search engine provider, has developed the Android OS and is looking at new uses for hardware. These and other companies are entering businesses that are nontraditional for them, and the implications for the supply chain are significant.

Last week, EBN featured several stories that highlight this shift. They covered such topics as the possibility of Amazon buying a chip company, whether the PC is being replaced by the smartphone, and Google's entry into the cargo security business.

Companies seem to be moving away from the idea of core competency. A decade ago, businesses were narrowing their areas of expertise to focus on what they do best. Companies that built stuff focused on manufacturing. Those that invented stuff focused on R&D and IP. Those that made chips focused on embedding more functions on to a chip and left the manufacturing to fabs. Software companies developed software, and hardware companies developed hardware. Outsourcing was a key part of this strategy, and manufacturing was left to the experts.

Now we have Amazon, Google, and Microsoft entering the hardware business and finding new markets for that hardware. If you read the business case each company lays out, these strategies appear to make sense. Regardless of whether they succeed or fail, the electronics supply chain will play a big role in their fate.

In addition to manufacturing chips, Amazon will have to forecast demand for them, move them around the world, and possibly sell them to its competitors. Amazon, Microsoft, and Google will be under continuing pressure to release products that are better, faster, and less expensive. They will have to select and qualify suppliers. They will have to vet manufacturing partners to avoid accusations of labor and environmental abuse. They will have to increase efficiencies in the physical movement of their goods, and they will have to explore options we haven't even considered yet.

If the last few years have taught us anything, it's that nothing is too far-fetched. Companies that were once synonymous with their products (Nokia with mobile phones, RIM with BlackBerry, HP with computers) are stumbling badly. A search engine provider developed a wildly successful mobile operating platform. Apple got a black eye for, of all things, worker abuse. And vertical integration is trendy again.

Companies such as Amazon, Google, and Microsoft are new to the hardware game. If anything, the supply chain will become more important to them as their business models evolve. For these OEMs, it's no longer business as usual. And that's a huge opportunity for the supply chain.