Sony and Microsoft Battle for Hearts and Minds at E3

by Mark W. Hibben
6/14/13

Antagonizing the Community

Sony unveiled the Playstation 4 to a warm and enthusiastic reception at the Electronic Entertainment Expo while the reception for Xbox One was noticeably lower key. With hardware capability roughly comparable to Xbox One, Sony created a competitive edge by exploiting Microsoft's digital rights management mis-steps.

Microsoft had chosen XBox One (XB1) to introduce the most restrictive game DRM system yet for consoles, and this antagonized many in the gaming community. Your XB1 doesn't have to be connected to the Internet all the time, but you have to check in with Father Microsoft once a day.

Microsoft had publicised these and other restrictions on selling or trading used games prior to E3, so Sony saw its opportunity. At Sony's press conference they announced a policy of zero restrictions on used games as well as no requirement for Internet connection to play single player games. Combined with undercutting XB1 by $100 at $399, Sony's coup was complete.

The vast majority of articles written about the E3 tussel between Sony and Microsoft draw the same conclusion of Forbes writer Paul Tassi in his article "PS4's Price and Policies Humiliate Microsoft's Xbox One at E3". Informal online opinion polls also seem to confirm the anti-Microsoft sentiment. IGN's "Who is Winning E3?" poll showed Sony ahead 80.9% to Microsoft's 12.3%. An LA Times poll asked which console "Are you most likely to buy" and PS4 won 63.4% to XB1 at 27.3%.

It's too bad that Microsoft has shot itself in the foot this way, since the XB1 offers some technical advantages. After seeing the PS4, I consider the XB1 hardware and software to be better integrated, since the XB1 operating system is derived from Windows 8. XB1 offers a broader range of non-gaming services and capabilities. As I indicated in my article "Microsoft's Most Important Hardware" I liked the fact that XB1 was basically a Windows 8 PC that could serve as the center of a multi-mode home entertainment system.

To achieve this multimode role, Xbox Kinect was really essential, since it provides convenient gesture control of the Windows 8 style home screen. But it's apparent that most gamers really don't want Kinect and really don't like having to pay the extra $100 dollars for it. Sony's decision to make their own Kinect-like sensor an optional accessory appears to be, once again, intelligent marketing based on understanding their core constituency.

Moving Beyond the Core

Microsoft clearly wants to move beyond the core gamer and has positioned XB1 to serve a broader range of interests and provide a broader range of entertainment. In that context, is it really so painful to require that XB1 be always connected to the Internet? Once that ethernet cable is connected to the back of the console, either console, it's unlikely to get disconnected.

Plus, Microsoft revealed at E3 that there's an even more important role for their cloud services than providing on-line stores for games and movies. Game developers will be able to use Microsoft's cloud servers to perform AI computations and run environment simulations that would be beyond the capability of the console. Game developers will be able to endow game characters with more smarts, and advance timelines in games even when they're not being played.

XB1 game DRM will probably continue to be a sticking point with gamers, however, as Microsoft is just acceding to the wishes of the Game Industry. Developers don't like the lost revenue from unconrolled trading and reselling of used games. Microsoft is offering to host a trading and gift system for used games, but I doubt this will satisfy many people.

Game developers will be more attracted to a platform with secure DRM, just as mobile app developers are attracted to iOS for the same reason. The greater availability of high value games may overcome the resistance of gamers to the DRM system. Market forces will decide this one. If Microsoft decides that their DRM system is keeping XB1 from meeting their sales expectations, they'll make the necessary adjustments.

The 10,000 Foot View

Let me zoom out from the Microsoft vs. Sony battle to offer some observations about the current state of the gaming business. I was surprised to read this very gloomy characterization of the gaming industry by fellow Foolish blogger Leo Sun:

"When I think of the current state of the video game industry, which is characterized by declining hardware and software sales being propped up by endless refreshes of tired franchises, I like to reminisce about the good ol’ days of gaming, when video games resembled games more than Hollywood movies."

I find I have no such nostalgia for the good ol' days of gaming and in fact look forward to future games resembling Hollywood movies even more. As a story telling medium, the cinematic role playing game is still in its infancy, just as motion pictures were a century ago. In those early movies, stories and characters were shallow by today's standards, as movie makers focused on mastering the technical challenges of their new medium.

Current game designers are still contending with the challenges of their medium like the early film makers, so stories and characters have taken a back seat to the technical aspects. This is starting to change, and we saw plenty evidence of this in the game announcements that accompanied the new consoles. More games are being produced that allow completely free roaming by the player in their virtual worlds. Story lines are increasingly non-linear, another break from the past which is also difficult to master.

Far from being endless refreshes of tired franchises, what E3 offered was exciting new games with spectacularly detailed physics modeling and image rendering, combined with interesting story lines. Even the acting is getting better. One game, Beyond Two Souls, features the voice and on-screen avatar of Willem Dafoe.

The game industry has been in the financial doldrums because of the long time since the last generation of consoles was introduced, while PC gaming rigs were beyond the reach of many who could otherwise afford a $400-500 console. Having a new generation of high performance consoles will release pent up demand and spur purchases of game content. Once both Sony and Microsoft start delivery the new consoles in quantities, 10 million consoles per quarter between them is quite realistic.

The passion with which gamers have reacted to the new consoles, whether negative or positive, shows how important this new digital entertainment industry is.

 

Apple Regains its Mobile Competitive Edge

by Mark W. Hibben
6/11/13

Misplaced Emphasis

After spending a day using iOS 7 Beta on my iPhone 5, I'm confident that Apple's iOS 7 will be the best mobile OS when released this Fall. Apple had fallen behind Google's Android and Microsoft's Windows Phone in many ways. iOS 7 will put Apple out in front once again.

As an iOS developer, I was priviledged to download a beta copy of iOS 7 as well as peruse the developer documentation for it. Naturally, I have to be rather circumspect in my observations, but what has struck me about the comments from analysts and critics in the media is their lack of perspective. This is probably due both to a lack of direct experience with iOS 7 as well as a lack of technical insight into its inner workings.

This started with the rumors about iOS 7, describing it as having a "flatter" look, as if it were just a pale immitation of Windows Phone. This simply isn't accurate. What is gone is the skeuomorphism, the tendency to represent software objects with on screen "realistic" depictions of physical objects: software buttons represented by a mechanical-look button, calendar apps that affected the look of a paper calendar, etc.

The new iOS look actually has much more depth and three dimensionality. Notifications and allerts slide over the screen on translucent panels. Buttons have subtle contours. Backgrounds in apps and the home screen are now, at last, animated.

Now that iOS 7 Beta is here, the critical emphasis in the media seems mostly misplaced. iOS 7 was very much about catching up to and hopefully surpassing Apple's competitors. However, the areas where iOS has regained the lead have been mostly overlooked:

1) Animated backgrounds. Android has had marvelous animated backgrounds for the home screen for some time, available from third party developers, while Windows Phone leaves little room for any background. Apple's animated backgrounds are still very rudimentary, but Apple now provides developers the ability to build animated backgrounds into their apps, and this was demonstrated in Apple's Weather app.

2) Better multitasking user interface. The multitasking UI in iOS was cumbersome to use, and stopping apps was a tiresome process. Now iOS users will be able to dismiss apps with a flick, similar to a feature of Android, but Apple's version is actually better thought out and easier to use.

3) Air Drop peer to peer file sharing. Both Android and Windows Phone device makers have pointed to the inclusion of Near Field Communication (NFC) as an advantage over iOS devices. Android devices use NFC for Android Beam, which is why Android devices need to be in close proximity when transferring information via Beam. Apple's version of peer-to-peer wireless sharing for Mac OS devices, called Air Drop, used Wifi and didn't require close proximity. Air Drop has been available since Mac OS Lion, so it was only a matter of time before it came to iOS.

Air Drop is only one part of Apple's push into peer-to-peer device communication. In Apple's iWatch will be an iPod" I predicted that the first sign of the iWatch would be a greatly expanded set of APIs to support it. iOS 7 will support a broad range of wearable devices, provided either by Apple or by third parties, using WiFi or Bluetooth. No NFC needed.

In other areas, it remains to be seen whether Apple will catch up or even pull ahead of its rivals, Google and Microsoft. iTunes Radio will compete with other radio services and Google's Music All Access. Siri will have access to larger data bases, becoming more informative. Siri will even access Microsoft's Bing, but it's unlikely to equal Google Search.

And then there's Maps. Both Microsoft and Google tout their mapping products as having superior accuracy. Microsoft Windows Phone uses Navteq mapping technology from its partner Nokia, while Google continues to improve Google Maps. At Google IO, Google announced many enhancements to its mapping software that will keep it ahead of the pack, including real-time incident reports and course re-routing, and vector based graphics and 3D views. Apple is unlikely to best its rivals in mapping any time soon, but it's gradually living down its bad reputation.

Underwhelmed Investors

With iOS 7, Apple has been able to catch up with its rivals in important features, while maintaining its intuitive ease of use and reliability at the OS and app level. In features, it's ahead of Windows Phone, and in reliability and stability it's still ahead of Android. (I've discussed Android's technical deficiencies in "The Problem with Android".) Having the best mobile OS should confer some advantage in the Mobile Device Wars, yet investors staged a minor walk-out on Apple once the keynote was over. Why?

I think the mind-set among investors is that Apple needs to introduce either some new product category such as the iTV or the iWatch, or Apple needs to introduce a larger variety of iPhones, including a larger screen deluxe model as well as a low cost model targeted at emerging markets. Apple didn't do any of those things at WWDC.

I basically agree that Apple needs to roll out new products faster, which is why I advocated doubling Apple's IR&D spending in "The Case for Lower Apple Margins". This has brought me into conflict with numerous Apple fans who, believing that nothing about Apple should change, found themselves having to argue that it was somehow not a good idea for Apple to spend more for innovation. With each passing month, the case for greater R&D spending becomes more self-evident.

However, I would counsel some patience on the part of Apple investors. Clearly, the roll out of iOS 7 in the Fall is timed to coincide with new iOS devices, and the underlying changes to iOS suggest great new products in addition to the expected iPhone and iPad refreshes.

 

Will Apple Abandon ARM for Intel?

by Mark W. Hibben
6/10/13

PowerPC Parallel

Just as Apple once had to choose between Intel and PowerPC, a similar choice now confronts Apple between Intel and ARM processor technology.  I touched on this briefly in "Intel's Unlikely Ally, Samsung" and in this article I'll expand on the issues for Apple in making this choice.

A few months ago I wrote an article entitled "Can Intel do to ARM what it did to PowerPC?" in which I drew a parallel between the Intel vs. PowerPC conflict, that was effectively ended when Apple switched from PowerPC to Intel processors for their Macs in 2006, and today's Intel vs. ARM conflict.  Thus far I've assumed that ARM and its manufacturing partners could fend off a challenge from Intel based largely on the strengths of the ARM ecosystems. The iOS and Android ecosystems are huge, and their two largest manufacturers, Apple and Samsung are flush with cash and investing heavily in ARM processor technology, among other things. Even a few months ago, competition from Intel didn't appear at all life threatening.

Intel's recent processor announcements have caused me to re-examine my assumptions. Here, the main focus is not on Haswell, but on their much lower power Atom processors, which are still made on Intel's older 32 nm process.

Intel's latest Clover Trail Atom processors are already more energy efficient that competing ARM processors as well as more computationally powerful. And they fit into iPad size form factors and offer comparable battery life. When the next generation of Bay Trail (22 nm process) Atoms are unleashed in Q4, the performance advantage of the Atom will increase by roughly 30-50% over ARM.

By Q4, Apple will be facing competition from Android and Windows tablets equipped with these latest Intel Atoms. The pressure on Apple to switch to Intel, in the form of market competition as well as investor opinion, will become intense.

Vertically Integrated

Let's be clear what that would entail. Apple now has accumulated enough in-house processor expertise to design their own systems on chip (SOCs) to the ARM instruction set specification. Apple may continue to license ARM designs, but they haven't actually built them into their most recent iPhone 5 and 4th Gen iPads.

Apple has become a vertically integrated device maker, able to control every aspect of the design of their mobile products from the silicon to the OS. Apple management clearly relish this role and extoll the virtues of it at every Apple event, and I agree that Apple devices are superbly integrated.

Apple also has a significant ongoing investment, much of which (exactly how much is unknown) is invested in SOC production. As stated in the Q4 2012 10Q, Apple plans to spend $9.15 billion for "product tooling and manufacturing process equipment, and corporate facilities and infrastructure. . ."

Clearly Apple's organizational momentum favors the ARM status quo. Furthermore, Apple's SOC haven't been the fastest processors even in the ARM ecosystem for some time, and this has had a negligible impact on sales. Most of Apple's customers aren't running benchmark comparisons or worrying about whose processor is the fastest. They buy iPhones or iPads for the quality of the device, the ease of use, and the vast ecosystem of apps, services and fellow users.

What Can You Do for Me?

At some point when the performance difference between Apple's devices and competitors becomes great enough, Apple's customers and prospective customers will start to take notice. This is what will happen when Bay Trail tablets arrive in Q4. The logical first step, probably already underway at Apple, is to turn to the ARM community and ask, what can you do for me?

From ARM will come offers of the Cortex-A57 design, a low power 64 bit processor core. But the Cortex-A5x series has yet to enter production, although ARM and TSMC announced on April 2 the completion of a Cortex-A57 design optimized for a next generation 16 nm FinFET process.

The 16 nm refers to typical feature size and smaller is usually better in integrated circuit fabrication. The FinFET is a type of transistor that has inherently greater efficiency than previous types used for today's ARM processors and Intel's older Atoms. Intel's Haswell processor use the newer FinFETs as have all Intel processors since the Ivy Bridge generation. The Intel Bay Trail Atoms will use FinFETs, which is partly why they will be even more energy efficient.

From foundries such as Samsung and TSMC will come offers of new 20 nm processes. This will be an improvement on the 32-28 nm processes currently in use for ARM SOCs, but won't feature FinFET technology. Samsung and GlobalFoundries, as part of the Common Platform alliance with IBM, have been working on the 20 nm process for some time and claim to be ready or nearly ready to enter production with it, but none of the ARM foundries actually have SOCs in production on the 20 nm process. I expect the 20 nm processes to be in production in early 2014 at the latest.

The 16 nm FinFET processes that TSMC and the Common Platform partners have been working on probably won't be ready until mid to late 2014.

SOCs and Products Delayed

The long time period since Apple's last iPhone and iPad introductions may be due in part or in whole to delays in obtaining 20 nm SOCs for them. Every new generation iPhone and iPad have had a new generation Apple SOC, so a delay in the SOC would probably force a delay in the products themselves.

In the mean time, I'm sure Intel is subjecting Apple to a very hard sell on behalf of the Bay Trail Atoms, and Apple probably has evaluation systems using the Bay Trail Atoms working in the labs. Even if Apple had no intention to use the Atom, this would just be due diligence.

Since it takes roughly six months to ramp up production of new devices and get them onto store shelves, whatever decisions Apple has made for its planned Fall product roll-outs have already been made. This means staying the ARM course for the time being. However, if the ARM foundries can't at least come up with the expected 20 nm process by early next year, then this may tip the scale in favor of Intel. Apple will have been forced reluctantly to adopt Intel simply to survive.