Posts filed under ‘Consumer’
We Interrupt This Transition…
…to bring you an important announcement.
In today’s NY Times, former FCC commissioners William Kennard and Michael Powell both urged Congress to delay implementation of the digital TV transition. There’s been neither enough money set aside to subsidize converter boxes, nor are there enough in stock to satisfy demand anyway.
Oh, and not enough people have taken advantage of the government offer. Nor is the FCC call center prepared to handle the estimated 1.5 million calls from confused consumers once the switchover occurs.
“Moreover, many people will need help hooking up their converter boxes and setting up their antennas. (Picking up the digital signal may require reorienting or moving an antenna, or buying a more powerful digital antenna.)”
That last part has not generally been communicated to anyone. At least those likely to be affected.
[Switching to my best Jon Stewart falsetto]: “Nailed it….”
I agree with the commissioners. The FCC and other powers-that-be need to do a better job of making this transition happen. It’s not a simple one, and there are technical elements beyond the skills of many people to understand without help. Otherwise, as the article states, “If the transition to digital TV goes badly, it will inconvenience millions.”
Disclosure: I hold no position, either long or short, in any stocks mentioned here.
Viral Marketing
Smartphone applications are one of the biggest trends going, one that will only get bigger in 2009. Not exactly unexpected, especially for anyone who’s followed Salesforce.com’s (NYSE: CRM) AppExchange model. But despite how Google’s Android (NASDAQ: GOOG) foreshadowed the market, it’s taken the brilliance of Steve Jobs to get the ball rolling.
On the one hand, the dynamics are similar to ring tones
- Cheap. A few bucks each; some are free
- Easy. Apple (NASDAQ: AAPL) sets the standard for ease-of-use, though with the usual drawbacks that come from its closed system. Android’s market will be a little more “wild west”, but probably more innovative for it.
- Not originated by the service provider. The best services never are, telcos are about as innovative as rocks.
- Customizable. Make your phone personal, whether it’s playing apps or having different ring tones for each caller.
- Cachet. Everyone wants the latest “cool” app, just like they wanted the most popular songs to sound out whenever their phone rings.
On the other hand, the mobile phone app phenomenon is also evolving into an analogue for the gaming industry, with developers writing apps for one of only a few “platforms” (e.g. iPhone, Windows Mobile, Android, etc.). I expect to see developers selling versions of their apps onto multiple platforms, especially for the more popular ones, just as happens with game consoles.
The last, and most ominous similarity, is with Windows. Despite the existence of Android, there’s a chance the iPhone could become the uber platform, with most apps being written for it (at least first), creating a Microsoft-like dominance of phone applications. All of which leads to the following prediction for the New Year:
The most widespread iPhone application in 2009 will be a virus.
Think about it. All the elements are already there:
- rocketing platform/device popularity with a growing market share
- viral growth in application number and complexity, providing plenty of ready vectors for the introduction of malicious code
- existence of a large, dedicated, developer base
- a ready black market for both hardware and software–which means plenty of hackers.
Despite assurances to the contrary from its PR department, Apple software is not virus proof. It’s largely benefited from a lack of attention given its small (though growing) share of the desktop/laptop market. But the success of the iPhone changes those dynamics. Already, iphone dev team has unlocked the iPhone 3G, and is even now delivering its yellowsn0w software to the masses.
True, Android will undoubtedly be more vulnerable, given its marketplace model and the lack of a central control. But betting against hackers has always been a sucker play, and it will remain so even for the iPhone. Just ask the Blu-ray folks.
The predators are circling. And it’s only a matter of time.
Disclosure: The author holds no position in any of the stocks mentioned here.
Up And Down Vote
The Wall Street Journal had an article out yesterday that has created a real firestorm of controversy. It’s about how some of the large Internet players (such as GOOG, MSFT, and AMZN) are backpedaling on their previous Net Neutrality stances.
Moreover, they’re variously negotiating with telecablecos to gain “favored nation” or preferred treatment status on their networks.
Holy Turnaround, Batman!
Some writers quickly noted–here, and here–that Google at least is simply caching content closer to customers, just like Akamai (NASDAQ: AKAM) and other CDNs do. And that much of the Journal article reflects the kind of sensationalism many feared would appear once Rupert Murdoch (NYSE: NWS) bought the paper.
[As an aside, when I was doing research a year or two ago on Akamai, top management there vehemently denied my suggestions that they would ever be in competition with Google. Heh.]
If any of this is true, it’s a sad development, but hardly unexpected. As competition heats up for everything from ad serving to video downloads to cloud computing, everybody wants an edge. And they’re willing to pay for it.
Those that can afford to will get better services, better access, better distribution. Which means the little guys get shafted again. If you want to buy from Amazon, you get speedy page refreshes (not to mention faster access to things like S3). Google apps will work faster than, say, Zoho.
The rich do, indeed, get richer.
This plays right into telecableco hands. It’s what they’ve been lobbying for, after all. (I can almost see the big, fat, spider sitting there in the middle of its web inviting them all in. ) The result will be a vertical model, with only a few players controlling the entire value chain, up and down.
If this was just about commerce, I’d be less concerned. But it’s also about access to information. And about control of content. Ultimately, it’s about exclusion and higher costs for everyone. As well as a loss of the kind of innovation that has made this country successful.
Imagine if TV stations were free to broadcast good signals from those advertisers (or news programs) that spent more. Everyone else, they deliver fuzzy pictures with the sound continually dropping out. Pay to play. Eventually, everyone gets their news and entertainment from a few large companies. Welcome to the 50′s. There’s progress for you.
Critics argue: “But as businesses they should be allowed to offer different levels of service”. If there was true competition at the last mile level, I’d be inclined to agree. However, most of the large telecablecos built their networks–and their competitive advantage–on the revenue streams from exclusive franchises and government mandated monopolies.
You and I paid for their broadband networks through our monthly TV and telephone bills, mostly at a time where we had no choices. Or they used the proceeds from bonds whose attractive terms were based on the existence of those same “guaranteed” payment streams, which is basically the same.
Now that the moats around them have been fortified, we shouldn’t think that they’re entitled to operate as normal businesses. Monopolies (or even duopolies) don’t get the same rights as firms in a free marketplace. It’s not that I believe Network Neutrality should be regulated. (I agree about the principle but not the solution.) It’s last mile competition where the natural monopoly lies, and that’s what should be regulated. Until it’s no longer a monopoly, or until the telecablecos no longer have insurmountable market power.
Or until there’s structural separation.
Many thinkers (at least the ones whose salaries don’t depend on the success of telecablecos), have long recognized the most efficient market structure is to go horizontal–one company does the infrastructure, one does the content. Each competes within its own level, but not up and down the stack.
The PC industry helped this country thrive with the same model. Some companies built chips, some sold computers, some provided software. This drove innovation and helped keep costs low and falling. (Even the emergence of intra-level monopolies like Microsoft couldn’t halt the effect–some argue the standardization even helped.)
But now the big players are changing the game, in order to become even bigger. The Internet guys want to differentiate on performance, because they’re finally getting into each others businesses, and have to compete–some for the first time. The pipes guys want a piece of the content pie, because as network usage grows their costs go up, and they face resistance in trying to charge consumers more money for Internet access, especially as they’ve been billing flat rates for so long. But we will pay, one way or another.
Not everywhere, thankfully. Much of the rest of the world actually has competition in the last mile. They’ve created a more horizontal model, with providers competing “across” levels. If we fail to adopt this kind of structural separation in the U.S., we can watch our innovative spark and competitive advantages slowly drain away.
And just as many around the world laughed at us for voting to re-elect George Bush, they’ll laugh at us again, for voting to go “up and down”.
Disclosure: I hold no position in any of the stocks mentioned here.
‘tennas, Anyone?
Ever wake up in the morning, fire up the PC, and then find your Internet connection doesn’t work? Annoying, isn’t it? Particularly if you have no idea why. Imagine if that happened to your television set.
It could, if the day you wake up is February 17th, 2009.
That’s the day that over-the-air TV stations in the U.S. are required to cease analog transmission and go to all-digital. People who have analog televisions will no longer be able to receive broadcasts.
These unfortunate souls have three options: buy a new digital TV, purchase a special converter box (subsidized by government vouchers), or subscribe to satellite or cable.
All of this has been getting fairly wide publicity. It’s also confused a lot of people. Naturally, cable and satellite providers have joined the party, by trying to con their customers into believing they need to upgrade to digital service to watch (any) TV after the cutover. DISH Network is just one example.
(In reality, no one is “forcing” the telecablecos to upgrade to digital. But since they want to go digital for their own reasons, they’d dearly love for you to opt into higher monthly fees.)
The government ran a DTV “beta test” in Wilmington, NC in September. However, the hoopla surrounding the test, the low percentage of analog households, the presence of special help lines, and FCC commissioners lurking in the area are conditions unlikely to be duplicated when the nationwide conversion occurs.
That will affect an estimated 13 to 23 Million households–most of which are, understandably, not tech savvy. And 35% of which are completely unprepared for the transition.
Wait, it gets worse.
The dirty little secret, not widely publicized (or understood), is that even if you have a new converter box, you may lose your signal anyway.
Analog signals degrade in a familiar way–the poorer the reception, the more snow you see, and the fainter the picture gets. Digital doesn’t work like that. It tends to fall off the cliff entirely. Except for a bit of pixelation, the picture is either there or it isn’t. So people with indoor rabbit ears, or bad rooftop antennas, may lose some or all of their stations, depending on how good their reception was in the first place.
But there’s more.
Some stations are broadcasting at intentionally reduced power levels during the transition, but will ramp up subsequently. People could lose their signal only to have it restored later–perhaps after they fall off their roof trying to install a new antenna. On top of that, so-called “low-power” stations aren’t required to go digital at all. So to receive those, you’ll need to be sure and get a converter box with analog pass-thru.
What a mess.
People who want to learn more about the transition to DTV can do so at the FCC’s official site. Detailed help on antennas can be found here.
One thing’s for sure. Congressmen and FCC commissioners (current or budding) will be getting their ears bent big time after the switchover, once hundreds of thousands of loyal constituents are without their bread and circuses. The response will undoubtedly be swift, accompanied by pompous rhetoric, rolling heads, and ill-advised new laws.
Still, it could be worse. Imagine the response if 2009 were an election year, and politicians faced the prospect of people not seeing their re-election ads.
Disclosure: I hold no position in any of the stocks mentioned here.
C’mon In, The Water’s Fine
The blogosphere has been abuzz since last week about Comcast’s (CMCSA) new policy limiting the amount subscribers can download. Starting October 1st, Comcast will limit users to 250 GB of total downloads per month. Violators will first get a warning if they exceed the cap. A second “offense” within 6 months will risk loss of service for a year.
I continue to be amazed at the ISP business. The telecablecos are the only companies I know that limit the use of what they provide, instead of selling you more of it. As I wrote some months ago, the reason is largely due to the fiction of unlimited usage banging up against the reality of limited network design and oversubscription models.
I could rail at how unfair Comcast is being, or how out of touch they are with Internet users, or how ridiculous it is to punish people for exceeding usage limits they can’t measure. But I’ll leave that to other, better minds.
Instead, I’ll point out how Comcast isn’t even solving the right problem. The trouble with its network isn’t so much capacity in bytes. It’s peak speed.
[Let's ignore for the moment that the Internet is a two-way connection mechanism, and think like a telecableco, where the purpose of ISPs is to shove stuff downstream to you. We know different, but bear with me here.]
Ever take a shower at the same time as someone else in your house? What was the result? Yup, low water pressure, and a singularly annoying experience. Now imagine that on a neighborhood scale. Five people on your street decide to get clean at the same time and all you get is a dribble out of the shower head.
So what’s the solution? Well if you’re Comcast, you limit the size of the swimming pool your subscribers can have. Huh?
How many bytes you download is much less important than when you download them. If a thousand people try to stream a movie (shower) at the same time, they only use up 5 GB or so, but the experience sucks, because the speed (water pressure) is reduced for all. Conversely, download 250 GB (fill your pool) overnight when hardly anyone else is online, and you not only get a fast download but you don’t bother others.
Instead of limiting bytes–a poor proxy for usage–Comcast might be better served by limiting speed. Then they’d be in a position to charge different prices for different speed tiers. This would be relatively easy to do by capping modem speeds, would allow more accurate network capacity planning, and would solve the actual problem, namely congestion at busy times.
In other words, charge for water pressure (or size of water pipe), not the amount of water you use. If you want better pressure, pay extra. An alternative would be time-of-day charging, like traffic on interstates, bridge tolls, and electricity usage. (I suspect that would get too complicated for consumers, but you never know.)
Honestly, Comcast isn’t dumb. So why are they capping total bytes? Two explanations spring to mind, both only small contributors in my view:
- It’s easier to simply monitor total usage and kick people off. (Admittedly, most subs won’t run afoul of the new limits any time soon.)
- They’re clinging desperately to the fixed price, all you can eat model of bandwidth, and are loathe to change it unless their competitors do (that assumes they have competitors, of course).
But the real reason is that Comcast and their ilk want to be in the water business, not the pipe business.
Anybody think that the new usage caps won’t apply if the content you’re downloading comes from Comcast? Like, say with the new Network DVR service some of the telecablecos are itching to charge you for? You bet.
I have no doubt that if Comcast provided most of the video and other content you consume over its connections, their congestion problems would magically disappear. They’d probably even be advising you to build a bigger swimming pool.
And reminding you to fill ‘er up.
Disclosure: I hold no position in any of the stocks mentioned here.
Widgets And Idjits
Intel (INTC) and Yahoo (YHOO) recently announced a venture to develop a platform–dubbed “The Widget Channel”–that in effect turns your TV into an Internet thin client. Seth Gilbert over at Metue.com has a great summary.
Developers can write software widgets that can be uploaded to your TV and run in the background. You could check email, share photos with friends, bid on eBay, anything a widget on your Mac or PC can do. All while watching your favorite TV show or sports event.
Of course, you’ll also have to buy a new TV or Set-Top Box (STB) that is equipped with Intel’s CE3100 Media Processor. Good luck with that.
[I wonder sometimes whether anyone ever sees the obvious disconnect between relatively fast new media business development cycles--i.e. "Internet time"--and the much slower frequency with which people upgrade expensive items like TV sets. Many, many firms are vying to deliver a "convergence" solution. Which, if any, will be sufficiently compelling and have enough staying power to become embedded within a sizable share of TVs or STBs?]
Overall, I’m a bit skeptical of this and other similar initiatives.
What I do like is that it’s expected to be a relatively open standard (from the software point of view, at least–you still need Intel processors). Tapping the creativity of the wider software development community is a proven method for both good product and built-in viral marketing. iPhone apps, Google Maps mashups, and Firefox extensions are just a few examples. However, this alone won’t guarantee consumer adoption of the platform, just ensure functionality is available.
At the end of the day, do consumers even want this? Here’s what I think is true:
- People like to use the Internet for a growing variety of things, including watching video.
- People enjoy watching TV, preferably on a TV set. (I’d hazard a guess that most people watch TV with someone else in the room, but typically watch video on the PC alone.)
- Many do some form of Internet activity (surf, email, etc.) while they watch TV.
- Past attempts at interactive TV–at 15 years and counting–have been underwhelming, and that’s being charitable.
What isn’t at all clear, is whether those surfing are paying any attention to the program while doing so. What also isn’t clear is what the other people in the room are doing. Most likely, they’re actually watching the program.
So what happens when the surfer starts fiddling around with widgets, essentially “doing Internet stuff” while others are watching the show on the same screen. Even if the video portion of the screen is undisturbed, wouldn’t that be a bit distracting? Why does everyone seem to assume the surfer wants or needs to use the TV screen anyway? Aren’t they using a computer already?
Sometimes it seems like much of the Internet/TV/PC convergence is a supplier-driven attempt to create a market where there isn’t one. Perhaps it’s simply another self-reinforcing delusion, where media and equipment companies living in an echo chamber of trade shows, developer conferences, and press events convince themselves a market exists where it doesn’t. The 21st century’s equivalent of the videophone–a technology so compelling that consumers must want it. Except they didn’t.
I’ve seen this kind of thing countless times, especially in large, bureaucratic companies like Intel.
Someone somewhere (fairly high up in the management ranks, to be sure) has a brainchild for a new, compelling offering. A sure-fire way to help the company grow and break into new markets. So it’s funded, momentum builds, staff are assigned, and hilarity ensues.
Soon, lower level employees–who actually do the market research and understand what’s going on–figure out the idea is D.O.A. But nobody wants to tell the top brass they’re wrong, or especially that they’re “idjits” (idiots), in a shoot-the-messenger world. Particularly when their whole department was formed around the initiative. Job security will out, you know.
As the old joke goes, as you go up the management chain, crap becomes manure, then turns into fertilizer, which is recast as a way to grow the company. That’s when the flowery press releases begin. Companies rarely issue a release about how the initiative is abandoned some months later when the market fails to materialize.
Is The Widget Channel crap, or dynamic growth? It’s probably too early to tell. I suspect it’s got a decent chance to beat the competition, whatever that means. However, what’s more important is whether there is even a market to win.
Disclosure: I hold no position in any of the stocks mentioned here.
I Want MyTube, Not YouTube
Maybe I should have called this “A One-Channel TV, Redux”.
There are two recent bits from NewTeeVee about the last 10-foot problem, and especially getting YouTube to the TV. Whether via a special-purpose set-top box, or integrated into your TV, both still fall short.
How difficult can it be to get all the video services (current and future) into my TV? The answer may not be as simple as a browser, which is probably not the right user interface for the living room. But perhaps something close to that. Couple that capability together with a simple way to stream all the content you already have on your PC, and it’ll sell like hotcakes.
But yet another box with only a couple of services? No thanks.
Disclosure: I hold no position in any of the stocks mentioned here.
Ass Backwards, Again
Blockbuster (BBI) has outdone itself now. It just announced a trial of in-store kiosks that will allow consumers to download movies directly into a portable media player (PMP) to take with them. For now, only the Archos player will be supported.
Let me get this straight.
Blockbuster wants you to hop in your car and drive to one of their outlets. Using soon-to-be-five-dollar gasoline. Just so you have the privilege of downloading a movie onto a portable player.
They do seem to have this whole thing ass backwards, don’t they?
Hello! Ever hear of the Internet? Why in the world isn’t this a download to your PC and then a transfer to the PMP? (Yeah, I know, the answer is the studios and their oh-so-customer-friendly Digital Rights Management fixation.) Blockbuster’s insistence on driving consumers to their increasingly useless stores has clearly reached new heights.
Meanwhile, Netflix (NFLX)–while noting its ultimate future is in downloads–predicts that its DVD mailing business won’t PEAK for 5 to 10 years. That tells me the smart money is on DVDs (either standard or Blu-ray) to last some time. I agree.
It’s not that downloads aren’t the preferred solution–personally, I can’t wait–but that universal adoption is a long way off. Why?
- The studios’ love affair with DRM, artificially reducing the availability of video fare and making it difficult to transfer media to other devices
- Still no inexpensive, simple solution in sight for getting video from the PC or Internet to your TV.
Here’s an idea: If you insist on making people drive somewhere, at least let them leave with a disc. Use Qflix technology from Sonic Solutions (SNIC) to print a fully licensed DVD out of the kiosk instead. That’s portability and ease-of-use in a single package. As I’ve noted before, this would allow Blockbuster to reduce/eliminate inventory, and get more Hollywood back catalog titles into customers’ hands.
[Sonic holds the key technology patents on download-to-burn, which has been approved by the DVD Copy Control Association (DVD-CCA). This allows discs to be burned with CSS encryption, pleasing the studios and making such copies legal commercial DVDs.]
Sonic was working with MovieLink, prior to its purchase by Blockbuster, to push this tech into the end user market. While disc burners for consumers probably won’t go mainstream anytime soon, Sonic is in trials with kiosk makers. It’s a nice transitional solution until discs are truly dead. Why Blockbuster has made no use of this technology is a puzzle.
But then so is everything else it does these days.
Disclosure: I hold no position in any of the stocks mentioned here.
Book ‘em, Dano
Goldman Sachs analyst James Mitchell is out with a report that estimates sales of the Kindle electronic book reader from Amazon (AMZN) were between 25,000 and 50,000 in the first quarter. This is hot on the heels of another estimate of 30,000 from Citi analyst Mark Mahaney.
I certainly can’t fault Mitchell’s methodology, which backs out non-Kindle items from Amazon’s unearned revenue line to arrive at an estimate (roughly 10% of that line item) for Kindle revenue and units. Except to note that he’s made some rather broad assumptions about the other items. If so, his subtraction is suspect. Notice also that Mitchell assumes his estimates of unearned revenue for the Kindle could be higher (up to 20%), but not lower, which reveals his bias.
Citi’s Mahaney has even gone so far as to suggest 3% of Amazon’s revenue (about $750M) will come from Kindles within 2 years. Worse yet, he assumes a sales ramp roughly half of the original iPod. Frankly, he’s smoking crack.
If Eliot Spitzer hadn’t brought an end to the practice some years ago (cough, cough), I’d almost think these two were trying to drum up business for their investment banks. Instead it’s probably something much more innocent, like say pumping the stock for the traders.
Why do I think e-books are, at best, a niche item? Because end users don’t need them. Yes, it saves money for publishers and retailers. But it’s unclear whether the savings that trickle down to users overcome the hassle of another $300+ device that needs to stay charged. Plus I like paper. Apparently, so do the multitudes who continue to print things out instead of reading them on a screen. (Remember the paperless society that computers were going to bring?)
Think about it: what problem is the e-book solving for consumers?
- Gee, if only my book was portable, I could take it with me…
- Pushing a button to bookmark my place is SO much easier than bending a page corner.
- Those nasty paper cuts.
- I can take my whole library with me. (Sure, I often read 10 books at a time. And I wish I could read fast enough to finish several books on a long flight.)
- I can download a new book whenever I need one. (Yep. And how long does that take over a pokey wireless link? EVDO isn’t everywhere. And can I read the first page while the rest is downloading?)
- I want my reading material to break if I drop it.
- It’s cheaper. (True, true. Unless you want to read blogs at $2/week or newspaper feeds at $15/month. That’s a lot to pay for portability.)
Kindle isn’t going to take off in its present incarnation. Yes, there will always be technophiles and other early adopters that get one because it’s new, or somehow cool. But regardless of whether the Kindle succeeds or fizzles, the buzz-induced sales ramp will tend to look the same at this early of a stage in a product’s life.
Have you seen hordes of gadget geeks flashing a Kindle around the way they did iPods or Razrs in the early part of the adoption cycle? I sure haven’t.
But let’s assume for the moment that the analysts are right, that Kindle will ramp smartly, that reports of large orders from Chinese manufacturers are accurate, and that Amazon won’t take a bath on the units.
Let’s even go so far as to assume e-book sales are completely complementary to paper books, that Kindle entices people to read more books and doesn’t cannibalize the traditional book revenue stream. (Live dangerously, I always say.)
How does that move the needle for Amazon? Whether you think the stock is a buy or not, is 3% of revenue really going to make it a game-changer? I don’t think so. Amazon’s a visionary company, they do a lot of things right, and I wouldn’t bet completely against Jeff Bezos.
But put your money on the whole company, and don’t pay attention to the noise.
Disclosure: I hold no position in any of the stocks mentioned here.
Red State/Blu-ray State
As I expected, NPD reports sales of Blu-ray Disc (BD) players dropped precipitously over the last few months. This is contrary to the desires and expectations of Sony and others in the Blu-ray Disc Association, who seemed to think the BD/HD-DVD format war was the big impediment to HD adoption. Why should this drop have been obvious?
- The economy sucks right now. Last thing people will do is buy another box, especially since–
- Many consumers don’t see much advantage to Blu-ray over upconverted DVD players. (Of course, many people also bought HDTVs without any access to actual Hi-Def programming. )
- There’s virtually no player available (except Sony’s Playstation 3) that incorporates the full functionality of BD Live interactivity. Why would anyone buy BD now if the final feature set isn’t available?
- Oh, and did I mention that due to the lack of competition from HD-DVD, player prices have not only failed to drop, they’ve actually gone up. Doh!
By waiting as long as it did to settle the format war, the industry came perilously close to making discs irrelevant at the same time downloading is finally starting to gain traction. Its failure to prove a compelling Blu-ray value proposition for consumers is only making things worse. If this goes on any further, it’s game over.
Sony and its partners gave it everything they had just to win the battle, but forgot there’s still a war going on with the ultimate enemy–downloads.
Guess that makes High-Definition discs the Democratic Party of video.
Disclosure: I hold no position in any of the stocks mentioned here.
by Michael Mauboussin
