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.

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.

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.

The emergence of ubiquitous connectivity–changing the meaning of location in our lives as a global network lets us be wherever we want–provides enormously rich research fodder for Yankee Group analysts. The move to Anywhere is nothing more, but nothing less, than what we care about here.

Summer is for reading, and I enjoy seeing what our clients are reading of our analysts’ work. And read they do; to paraphrase Mark Twain, reports of the death of the written word are widely exaggerated. (Mostly spread, I suspect, by people who don’t like to write!) Here are the six most widely read reports by thousands of Yankee Group clients in the last three months — and what they have to say:

1. Anywhere Network Scorecard: Phil Marshall sets out Yankee Group’s unique assessment methodology for the work we’ve begun to score global network providers on their journey to building out the Anywhere Network.
2. Surviving the Digital Home: Josh Martin calls out the winners — technologies, behaviors, companies — in the game to build out the fully digital home environment. Given spiralling energy costs, it’s good to see that tele-working will improve dramatically.
3. Riding the Wave from Mobile Commerce to Mobile Transactions: Jon Paisner, Chris Collins, and Nick Spencer explain how and when mobile transactions will finally emerge after years of wishful thinking, as Anywhere Consumers embrace financial services on mobile devices.
4. Advancing Mobile Applications through Managed Services: Nick Spencer shows how application architectures and the IT channel play in increasing adoption of enterprise mobility.
5. Thinking Beyond Flat-Rate Business Models: Ari Banerjee says that next-generation business models for network providers–charging a premium for quality of service, for instance– means tackling new kinds of charging technologies inside the network itself.
6. Finding a Femto Future: Roberta Wiggins forecasts the world market for femtocell technology: cool in-home bandwidth distribution that’s a game-changer for consumer broadband. But she also sees potential beyond residential applications, into the SMB/SOHO markets too.

The first report is available free on our homepage; the others are only available to Yankee Group Link Research clients. Check them out — and tell me what else you think we should be investigating on the road to Anywhere.  Happy reading!

The devices we use to access the Anywhere Network are truly legion — and getting more so. Gartner Group got a lot of headlines this week noting that one billion PCs are now in use worldwide. As one of the articles notes, that means that there’s a PC nowadays for one out of every 6.7 people on Earth. That’s an amazing accomplishment.

What’s I’ve been struck by lately, though, is how last century this business of counting PCs is. Yes, they are incredibly important devices. But PCs took an amazingly long time to reach this billion units from their humble beginnings with the Apple I introduced in 1976. Meanwhile, another personal device technology — call them PDs — invented around the same time has grown to more than 3.44 billion units, according to Yankee Group’s latest Global Mobile Forecast. That’s 1 PD for every 2 people on Earth. Of course, we know PDs better as mobile phones.

Today’s mobile phones make calls, keep our contact lists, take pictures, exchange email, do instant messaging, and can even help you navigate — and yet unlike PCs, these devices fit in our pockets. Unlike PCs , we rely on our PDs to always work, to be secure, and to become electronic extensions of ourselves. For example, in Japan, many teenage girls decorate their cell phones and their nails to match — you don’t see that happening with PCs. And, according to a recent study, people are more likely to leave their homes without their keys and cash than they are without their mobile phones; PCs, not so much.

And Yankee Group’s research shows that this trend of PDs outgunning PCs for the hearts and minds of consumers isn’t likely to stop soon. As we’ve noted in our Yankee Group Teens and Technology surveys, texting has wedded an entire generation of teen-age users to their mobile phones with a loyalty that their PC-centric and voice-addicted elders just don’t understand. And an upcoming Anywhere Enterprise report will discuss the future of Anywhere mobile applications. Hint: it’s easier to wean executives from their laptops than their BlackBerry PDs nowadays.

So bravo to the billion PCs in the world. Just don’t expect the 3.5 billion PDs on the Anywhere Network to wait for them to catch up.

What if our ability to imagine a world for consumers made richer and more productive with connected devices was limited by the imaginations of the engineers chartered with building them? What if how we’re conceiving of these things is one of the very things holding them back from arrival on the market?

Michael Rayfield, GM of nVidia’s mobile business unit, showed me a prototype Anywhere Device last week that his firm built to showcase its Tegra computer-on-a-chip family–a potential core component in an entertainment-focused device. What I learned reminded me that the way you ask a question at the outset of any undertaking has a huge influence on the nature of the answer.

“One of the problems with the mobile internet devices out now such as the Eee PC is battery life. That’s because engineers seem to approach the design challenge by taking a conventional x86 PC design and saying, ‘How will we cut back the thing’s power requirements?’ nVidia decided we could help the industry by creating a sample pocket-sized mobile device that could be really useful for 24 hours without a recharge. We think that’s key to a successful consumer experience. To do that, our design process started with a zero power budget.”

I did the expected double-take with that remark. To design a power-miserly device, they decided to allocate no power? “Not far from it,” Michael said. “What we said was, nothing gets power in the design until it’s been proven that it’s needed.”

I thought suddenly of NASA’s Apollo 13 mission, the so called “successful failure,” when following the initial crisis, grounded crew member Ken Mattingly (left in the NASA photo above, next to mission capcom Joe Kerwin) was tasked with figuring out how the crew would re-start the command module without exceeding the limits of the reduced power available. In the film version of events, after many attempts based on removing steps from the power-up sequence, he finally realized he needed to start over — to design a brand-new power-up sequence that didn’t cause the system to overload the available power.  Only then did they manage to address the severity of the limitations. 

It’s a compelling dramatic moment in the film. More importantly, it’s a reminder that a zero-based approach to anything ensures you take nothing for granted. In the case of nVidia’s zero-based power budget, the thought exercise worked in spades. The device that Rayfield’s team built serves up gorgeous high-resolution graphics, multi-tasks like crazy, and runs forever.

Just as the technology industry suffers from blind incrementalism–as in, what other new slick thing can we add to this product–it also suffers from, shall we say, decrementalism. Why do we like the iPhone so much? One reason may be this: its designers didn’t aim to out-do the smart mobile phone category, but rather to come up with the best hand-held device they could make, starting from a clean sheet of paper.

I’m sure some 2009-2010 connected devices will benefit from nVidia’s power re-think. The real question is, what false assumptions have we been making about what needs to be in a connected device? What zero-based rethink can we do on function?

With Apple’s iPhone launching on July 11 for $199 in the US with a 2-year AT&T contract, everyone (including me) is assuming that there’s a roughly $200 AT&T subsidy baked into that price. That assumption seems especially reasonable since AT&T is raising its unlimited data service subscription price by $10 per month and will no longer share subscription revenue with Apple. Those two factors means that AT&T is accruing about $480 more ($240 from the higher data service price and $240 from not sharing subscription revenue with Apple) per 3G subscriber over the two-year contract, leaving them plenty of room to pay Apple roughly $399 up front for 3G iPhones and still sell them to consumers for $199.

But there’s an intriguing twist to this story that may surprise people. According to Porteligent and as reported by EETimes, the parts cost of the 3G iPhone may be as low as $100. That means that even at $199, Apple’s price includes a roughly 50% gross margin over its parts cost, which is in the ballpark of the gross margins on traditional iPods. If AT&T is adding in a $200 subsidy, then the iPhone 3G is anything but a a phone requiring a carrier subsidy. In fact, if these numbers are true and the carriers are subsidizing the phone, the iPhone 3G could end up being the most profitable product Apple makes. But more likely, this means that Apple has a lot more pricing flexibility than analysts have given them credit for.

Now as one of those analysts, I have to apply a caveat here. It’s highly unlikely that Portelligent actually has an iPhone 3G to tear down, so their parts cost analysis is probably just an educated guess informed by current cost data from parts suppliers. But that said, Apple has a history of aggressively buying parts to achieve a market advantage. For example, Apple paid $1.25 billion in 2005 to guarantee flash memory for iPods through 2008; that purchase made it nearly impossible for other flash music players to have competitive supplies and profit margins. Apple reportedly negotiated another similar deal in 2007. In my opinion, the Portelligent’s cost is probably closer to right than wrong, simply because Apple never sells loss-leader products. And given Apple’s intent to sell this phone in more than 70 countries this year, it undoubtedly worked hard to ensure low parts costs regardless of significant currency fluctuations too.

So what’s the takeaway here? It’s simple: Apple’s 3G phone isn’t a loss-leader product needing subsidies to survive. It’s designed to be an Anywhere phone that puts your online life, media, and connections in your pocket, yet be simple enough for your grandma to use. But for Apple, it’s a business platform designed to make money — and the details of that business design may surprise more analysts than the product itself.