The window of opportunity for digital media adapters appears to be closing. The category which has vexed the strong such as Apple and felled the weak such as Moviebeam and Akimbo may finally go mainstream - but it won’t be brought to you by any of the aforementioned companies.

Instead, it will be ushered in from the unlikeliest of sources - a company that wasn’t even in the video game just  a few years ago - Verizon. Today, Verizon is beta testing a new streaming service marrying its FiOS set-top box with content delivered directly from the internet. Initial content partners include: youtube, veoh, and blip.

The feature is another component of Verizon’s strategy to single-handedly slay the DMA category and prove my long standing theory that the DMA category would only be a blip on the radar until its functionality was subsumed by the pay TV STB, correct.

Already, Verizon’s Media Manager service allows subscribers to stream personal content such as photos and music (video is coming soon) from their PC to their TV - another function DMAs promised to fulfill.

The launch of internet video available via the set-top box, combined with the aforementioned features is an indication of what the future of pay TV will look like. The STB will not longer just be a vehicle in which users access content from one proprietary network. Instead it will serve as a multimedia gateway bringing together disparate sources of content into one endpoint - in an easy to use and searchable interface. This will pose a challenge to competitors who will be forced to improve their user interface, create new content relationships, and develop new hardware to serve these functions as Verizon is doing.

But that will not happen immediately. Yes, competitors will probably take note of this announcement but their focus on adding HD channels at the behest of other features, to compete better with satellite services remain the primary short term goal. In fact, this announcement is unlikely to result in otherwise uninterested subscribers opting for FiOS.

What it will do is serve two very important goals

1.         Improve Customer Retention. Without competing services from other SPs, FiOS subscribers that switch service will lose significant functionality and may lead them to stick with FiOS.

2.         De-commoditize the service. As others race to offer the cheapest bundle, Verizon’s ability to offer new services allow them to remain above the fray. They are not selling a commodity but an experience. And experiences can never be commoditized which will actually help Verizon grow ARPU as subscribers upgrade to more advanced tiers.

This test will hopefully be just the beginning for Verizon - as they continue to build out their partnerships but avoiding conflicts of interest will be an ever present challenge. Would a partnership with Netflix devalue its VOD service? If so, is it still worth incorporating? Verizon will have to make these decisions. It has tipped its hand as to its thinking already by offering customers Starz Play - a subscription online video service featuring content from Starz, Encore, and MoviePlex.

The pace at which Verizon is adding subscribers is making competitors take note. Perhaps they too will realize that they are not competing in a commoditized environment any longer and need to improve the experience to compete with Pay TV 2.0.

Cisco, Cisco, Cisco. Another week, another acquisition. For those of you unaware of Cisco’s latest purchase details can be found here. Cisco’s acquisition of Pure Networks furthers a notion that CE manufacturers must accept: some skills cannot be found internally. For Linksys, the skills necessary to develop a simple set-up interface for its line of routers and complement that with a robust management tool to ensure network efficiency were found at Pure - which is why they initially partnered and ultimately acquired them.

For Cisco, the acquisition accomplished a number of important goals:

• Inhibiting competitors. With Pure as an independent entity its expertise could have been utilized by Cisco’s competitors. Acquiring them prevents this from happening and likely brings some Pure IP along with it.
• Reduces Commoditization. In a market increasingly sold on speeds, feeds, and price - offering additional functionality will help reduce the race to the lowest price for Linksys devices.
• Repeated customer interaction. Instead of simply engaging with the customer at purchase and then having their brand hidden under a desk amongst a mess of wires, Linksys can have a regular presence as an application providing means to monitor home network health, inform users when firmware upgrades for devices are available, and manage network traffic. This regular interaction could open the door for new business models and…
• A Linksys Ecosystem. With so many companies offering connected devices, Linksys could get into the game and offer its own connected ecosystem with its routers playing extra nice with its devices. This would ensure an easy set-up, up to date software throughout the ecosystem and advanced interoperability.

As important as the acquisition is for Cisco/Linksys to grow its digital home presence it is equally demonstrative of a major market shift: set-top box manufacturers ( Hey Cisco, don’t you own one of those?), HDTV manufacturers, pay TV service providers, mobile phone manufacturers must recognize their weaknesses (such as developing UIs) and find partners that complement their strength.

It’s not just the device, it’s not just the software or experience, and it’s not just about a static product. To succeed in the Anywhere world, you need it all. This acquisition demonstrates that Cisco has already figured this out.

I sit on my couch writing this Blog post at 7:31 ET instead of watching some fine American television fare such as So You Think You Can Burp The Alphabet because Apple has again stirred the controversy pot with cryptic allusions to future products being used to squash competitors. So, fire up the presses and let the months of guess what Apple will do next begin! As I sit here pondering over what Apple could have up its sleeve I feel compelled to do what any good analyst would do - speculate. And DVR the aforementioned show (If I don’t see who gets belched out my entire week will be ruined)!

In order to effectively prognosticate over Apple’s intentions we should first triage the situation to understand where Apple is weakest:

1. Not iPods. Dominating a slowing market (even though competitors are gaining a bit of momentum) so there is little need to risk margins to further consolidate their position in digital audio players. Adding WiFi makes sense as does incorporating social networking but that is hardly a category killer.
2. No chance it’s iPhones. With the recent success of the iPhone 3G launch and carriers eating a bulk of the cost it is unlikely a new rev or lower prices are coming soon (and even if Apple wanted to make changes the outcry witnessed at last year’s price drops would eliminate that desire).
3. Does anyone care about Apple TV. A category where Apple COULD do better. But since the category is nascent and no one else is offering low cost alternatives this is probably not it either.
4. It must be MacBooks. As Sherlock Holmes once said “Elementary, my dear Watson!” Apple has continued to grow their role in the PC space but continues to lag behind competitors. It is most likely the innovation and margin pressure will come from this product.

Now that we have determined the likely product category we must evaluate what Apple can do

The Likely

Introducing the MacBook Sub. As laptops continue to gain market momentum Apple continues to price itself out of the entry level market as lesser known brands such as MSI and Asus battle with established players HP and Dell in the sub-notebook space. But Apple is nowhere to be seen. With the MacBook not updated since what seems like 1997 it is possible the Macbook transforms into an aluminum beauty of a sub-notebook at a very attractive price - at or under $500. Or just as possible a fourth Macbook line joins the family to fill this need and the Macbook just gets a makeover. Apple gets volume and increases share but loses out on margin.

The Less Likely

MacBook Tablet Touch begs for groping (and a punchier name). The oft lusted after Macbook Tablet could finally come to fruition for all your multi-touch needs. This makes sense as it increases Apple’s tactile feedback to product portfolio ratio and it would have all the fanboys swooning. However, unless Apple were to trim margins significantly it is unlikely the cost (and price) could come down enough to appeal to the mass market - so it would probably be a premium priced product and not fall under the auspices of the comments.

The Slightly Absurd

The iMac Touch. The iMac has helped anchor Apple as a player in the connected home for some time. However, the cost of an iMac continues to exceed that of other desktops. Add to that the newest HP MediaSmart PC and Apple may have some competition as the ”coolest” desktop.  Apple’s strategy has always been to make products that fit different needs and an iMac Touch positioned as a family device fostering intra household communication would accomplish this. However, HP’s inability to gain mass market interest in TouchSmart makes this unlikely. 

The Totally Absurd

The New iPhone. I ask you to recall the go-go era of 2005 when rock and roll was alive and well and the iPod Mini was the best selling MP3 player. Then Septmeber hit and Apple killed the Mini at the height of its popularity, and rock and roll died with it. Could the same be said of the iPhone 3G? Could the iPhone 4G or dare I suggest, the iPhone 5G inter planetray satellite communication device be in the offing? The phone that can diagnose and cure diseases, replicates food ala Star Trek, runs on solar power, is built from nothing but biodegradable hemp, provides shelter from a storm, and tells time! All that for less than $100? No No, that is totally absurd (but would definitely justify ANOTHER upgrade).

What do you think?

P.S. I apologize for breaking my vow to not discuss the iPhone for a few weeks. I am sincerely sorry about my earlier misrepresentations.

Consumer Electronics are old news. Today it’s all about the software. Obviously, that’s a bit of an oversimplification but the underlying concept - that software, not devices are the future of CE continues to be proven daily. Just yesterday at E3, Microsoft announced an overhaul of it’s Xbox 360 dashboard. The iPod Touch (I dare not mention the device that shall not be named) can be upgraded and offer enhanced functionality. HP has updated its installed base of MediaSmart TV capabilities to the new version.

The industry is recognizing the need for an upgrade path to keep older devices relevant. There was a time that you needed a new iPod every year. Now the devices are small enough, store enough, offer ample features, and have their capabilities upgraded often enough that keeping a device longer is not unreasonable. The emergence of upgradeable software presents a number of possibilities that CE manufacturers must consider; selling less hardware, becoming part of a new revenue stream, and requiring CE companies to become software experts.

Ultimately, the lesson to be garnered from the change is that the experience matters most and the device is becoming secondary. If you can create a more than adequate device coupled with an ever improving UI you will succeed where others that only offer half of the equation fail. This topic strikes me an an interesting blog post, but desiring of more analysis. So, look out for a Yankee Group DecisionNote in the coming weeks that tackles the ever changing CE environment. What devices are most at risk, what partnerships will be necessary, and how business model changes will be impacted as a result.

Josh Martin beat me to the punch with his post on the Apple press release this morning (curse you!), but I thought I’d add a bit more context to the story.
Those one million iPhone 3Gs sold this weekend provide a pretty good clue for why Apple and AT&T’s activation servers are slammed and barely able to keep up. This was a big deal. Why? Because not only was it about 4 times more phones than Apple had to deal with last year at this time, but because it is probably the largest consumer electronics launch in history.

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We have been all iPhone all the time the last few weeks, so I vow that this is my last post on the iPhone for the month week day - definitely for the day.

This morning, Apple announced it had sold 1M iPhones, a substantial increase over the 270K they sold in its first weekend in June 2007. However, with a launch in over 21 countries, and some stores still not sold out of iPhones (in case you’re up for a drive the Cambridgeside Galleria has the 8Gb, and the 16Gb in B&W) it makes one wonder if Apple really met their expectations. Clearly - selling nearly 17% of the now total installed base is a win for Apple and iPhone lust continues but was 1M enough? I guess we’ll have to see how things shake out once the inventory is replenished - because not all stores suffered the same fate of the Cambridgeside Galleria.

One area that Apple unequivocally succeeded was with the Apps store. The services that will really set Apple apart experienced over 10M downloads. The large numbers of downloads is a clear indication that users have been clamoring to personalize their experience. As the store continues to grow and offer more applications to the international audience, downloads will thrive.

One App of particular note is the Remote application that finally ushers in an era where Apple offer unique communications between its device and services. While one doesn’t need a Mac to enjoy controlling iTunes it simply demonstrates the power Apple can wield when it so desires to fully integrate an ecosystem. If we thought Apple was tough to defeat before, imagine if they can further expound on these capabilities? Perhaps talk of the halo effect need to be revisited again.

Josh Martin noted this morning that the Boston Apple store had a significant line of people this morning waiting for 3G iPhones. My son Robert and I also stopped by and estimated the line at about 500 people. Since Robert is in the market for an iPhone 3G, we thought we’d stop by again at noontime to see if there was still a line. These photos show that there was, albeit shorter. My guess is that there are still about 250 people in line as seen in the attached photo. But we have much to be thankful for — at least it isn’t the crowd of more than 1,000 that queued up outside the Softbank Mobile store in Tokyo. And Japanese consumers are notoriously hard to impress with a mobile phone.

I’m sure there are people still queuing up for the iPhone throughout the day, but I wonder whether those lines throughout the day are mostly because AT&T required that Apple do in-store activation for iPhones. Last year, Apple sold out their iPhone stocks in hours because consumers could activate them at home through iTunes. This year, perhaps not so much.

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They say a picture is worth a thousand words - if so, consider this a two thousand word post about the Apple Store on Boylston Street in Boston. Looks like Apple is going to have a good day.

The iTunes Application store is open for business. The offerings that will further separate, differentiate, and personalize your iPhone have finally arrived. Want to turn your iPhone into an Etch-a-Sketch (and really, who doesn’t)? Now you can. Looking for games to stave off boredom? There are plenty. Hoping to be more productive? Well you can do that to, but as to why you would want that is a mystery to me. There are many sites highlighting the best Apps so I won’t retread that ground here, but I will link to them below.

The Apps store will definitely something for everyone, but after spending a few hours perusing it this morning I was thinking of some yet to be released applications that could be particularly useful. These ideas were borne during the time I was writing Yankee Group’s 2008 Device Survey in January. I wanted to learn more about how consumers researched products and turned that education into action. User reviews and peer group were the most used resources and the most influential. Price also played a critical role. Those factors shaped the applications I would like to see:

1. Mobile User Reviews.  Getting unbiased products reviews while at retail is nearly impossible. The end result of this is buyers seeing products, going home to research them, and then going back to the store to buy (or instead buying online). This is bad for retailers who want to invoke buying action immediately and in an era of $4+ gas all that additional travel is also bad for consumers.  This application addresses that. It would provide a compilation of unbiased reviews scoured from the most frequent sites on the web, Amazon.com, Bestbuy.com, Circuitcity.come, CNet.com. A buyer simply loads the app, inputs the device they are interested in buying and receives a roll-up of ranking from each site. Drilling down would provide the verbatims users rely so heavily on online. This can be extended to anything really, CE, books, etc.

2. Compare Pricing. The internet freed us from waiting for the Sunday paper to arrive to compare prices. Now its time to take it one step further. This application would allow users to input the price of a specific device at the retail location they are currently in. The application would then scour the web for other retailers prices and use GPS to show which locations in your vicinity offer the same product for less. Naturally, the mapping software would then provide turn by turn directions to help you get there. 

3. What will this work with? In the ever evolving world of technology, CE buyers are challenged to determine if something is interoperable with the rest of their devices. This application would let users input all the devices they own. When making a purchase decision they would input the new device and it would provide information as to what devices in the home it will and won’t work with. 

Ultimately, these applications would simplify the buying process and help bring the means to independently research a product directly at retail. No longer will users have to go home to ensure that the router they want to buy works well, fret over buying something that is cheaper next door, or worry that what they buy won’t work with what they own. This is the epitome of Anywhere - consumer’s accessing what they need when they need it wherever they are. Now all we need is some developers to actually make these applications and everything will be perfect.

Sites providing great insight into the best iPhone Applications

Tech Crunch

Engadget

Gizmodo

One of my favorite site, The Consumerist, has long been the bastion for frustrated consumers to hold companies accountable for their bad behavior. The interesting aspect of sites such as The Consumerist, is that they bring together consumers in such a way that demands attention. Two announcements today (as well as one a few weeks ago when Netflix chose to keep the profile feature) further demonstrate what recent YG survey data has shown, early adopters can create or kill a market/company/product.

1. Rogers backs down.  Rogers, which stirred up a storm with its iPhone pricing had every right to charge whatever it wanted for the iPhone - and people still would have bought it. However,  many consumers vowed not to buy the product which pulled Apple into the maelstrom of negative publicity and Rogers relented by dropping the price. So powerful are Anywhere Consumers that before even realeasing a product, Rogers had to back down and offer a more attractive package to consumers, even if they are only doing it in a promotional manner.

2. Charter Renegs. After having a contest that offered a 65″ TV, Charter refused to deliver the goods to the winner. While this issue remains unresolved at this time, (Charter has offered two smaller TVs) in the consumer empowered world of today one must wonder how long it is until the ngative PR finally engulfs Charter and they are forced to make good. With AT&T, Verizon, Dish, DirecTV, and other SPs antsy to pick off their subscribers bad PR could result in a door opening for Charter’s competitors.

Individuals have historically been challenged to force change, but as a group consumers can accomplish Herculean tasks. This is the promise and the threat of the market leaders known as the Anywhere Consumers. They have major sway over those that adopt after them and with the ubiquity of consumer sites available, user reviews on sites, and a peer group looking to them for buying advice -  failure to meet their needs will require companies to change as Rogers did or suffer the consequences of bad publicity. With increasing choice and ease of finding alternatives available everyday it would be wise for companies to please these early adopters (and all consumers in general) or suffer the consequences later.