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.

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!

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?

You gotta love the progression of the communications bundle. After a decade of getting into each others’ businesses, the cable companies and telecoms operators are thinking long and hard about their bundles. Brian Stelter at the New York Times has written an interesting piece about how internet service providers are starting to look at the meaning of “unlimited” internet access. Evidently, many large ISPs are thinking twice about the levels of bandwidth and traffic that they’re honestly willing to provide for a fixed rate. And Brian hits the nail on the head by talking about online media consumption. In the world of flat-rate internet access, iTunes, Netflix and Hulu are free riders.

Last week, I was listening to the radio and heard a nearly identical story about airline travel. The editor for that piece took the angle that airlines are nickel-and-diming the flying public by charging for baggage, seat upgrades and so on and so forth. Because now that the load factor for major airlines is over 80%, those seats are filled with people who buy their tickets based solely on price. And with rising fuel costs, airlines are looking to the amount of weight they’re carrying around, and those 90 lb suitcases are coming to mind as a way to cut costs…or at least grow revenues.

As a marketer, I see this very differently. This is just the natural evolution of a marketplace bundle sold around a single value proposition — price. Read the rest of this entry »

2.0 is all about comparative advantage and nothing more. Adam Smith would be proud.

In this whole 2.0 world, I just can’t keep things straight. Was I born at 1.0 or 0.1? And where am I today? Am I in my 3.0s or just 1.9.2? Because I’d say that it looks like my 4.0s or my 5.0s are on the horizon, and I definitely feel like I’ve learned lessons from my 2.0s. And what will version 2.1.7b be like when we get there?

Unless I’m in the world of technology…which feels the need to 2.0 everything. Whatever you were doing is 1.0 and whatever you will be doing is 2.0. So according to the recent Advertising 2.0 conference, I’m destined to do tomorrow what I’ve been doing for years, which is going to conferences and looking for cellular signal. Or looking for a way to cram a day’s worth of work into the 30 minutes between sessions.

The biggest take-away from Advertising 2.0 is that, no matter what happens, the best that digital advertising can do is to grow its comparative advantage against other media. This is a difficult concept to grasp, but it’s very important. Everyone looks at Google, and they think that digital advertising is the land of milk and honey where riches abound.

Read the rest of this entry »

Amidst all the hubbub that is the iPhone 3G there are, dare I say it, other interesting things happening in the world of technology.

Today, HP a company that in my opinion never gets enough credit for innovation released an update to its TouchSmart PC (and about every other computer they make).

The once bulky TouchSmart has slimmed down on both size and price. Despite the cost ($1,299) remaining at a premium to PCs with similar specs it continues to push the envelope of what a PC of the future will be with its unique interface.

Similar to statements from over the top set-top box manufacturers (such as Vudu) that hardware is a necessary evil to propogate services, the same can be argued of the TouchSmart’s current form factor. Its a vehicle for a new age of PC, beyond the traditional form factor.

The desktop was a communal computing device. The laptop is a personal computing/entertainment device. The Touchsmart is a family commincation device. Now, this may be a niche but niche is where desktops must head to retain relevance as laptops continue to penetrate the home. HP is introducing us to what the desktop may one day be - perhaps a GE refigerator with an embedded HP TouchSmart Interface? You can add that to your MediaSmart TV, MediaSmart Home Server, and quickly HP could be beyond the home office in every room in the home. All that without ever putting a lowercase i before every product.

I spent a few days last week at Advertising 2.0 New York. As if virtually every advertising-related event isn’t in New York City. In my previous job, I found myself traveling the globe on a regular basis, but now that I work in digital media, it’s a trip to New York every couple of weeks.

The program was interesting, and the speakers were strong, but I found myself sitting in yet-another-basement-cum-theater-wishing-for-cellular-signal. This appears to be par for the course in New York. Theaters below ground. Poor signal. BlackBerry blackout.

The thing that amazes me about the digital advertising business is its relative size (small) and its relative impact (large). Even more interesting is the role that advertising agencies play in the process. Everyone gets paid along the way, and it’s expected that either you’re managing the client, or you’re a line-item in the budget.

So here are a few trends that appear to be surfacing:

1. Widgets are the new Flash. I’ve long said that “tapas” is Spanish for “starvation” and that “flash” is English for “a make-work project for graphic designers.” So as we send Flash sites on a brief vacation, we’re now employing graphic designers and out-of-work (as if there’s such a thing) AJAX programmers to develop advertising widgets. It’s supposed to be a really big thing because Microsoft valued Facebook at $15 billion even though everyone is losing money in social networking…including advertisers.
2. TV is important, though there’s a new generation that’s going to make their money in TV by not hoping to make their money in TV. Crazy as it may seem, the best way to get a date is to have a date. So there are all sorts of people hoping to break into television (and who will make their money in television) but who don’t appear to want to make their money in television. I still can’t figure this one out, but then again, I just watched Grey’s Anatomy for the first time (with the sound off) the other week. We have these neighbors who invite us over but who don’t turn off the television when we arrive. After 20 minutes, I start drinking Scotch in the hopes that I won’t be distracted by the flashing images.
3. Internet video is important, but “the business model” is different. As in “non existent” or “money-losing.” As in “the business model for internet video is a ‘money-losing proposition for all involved.’”
4. The canoe is small, but there’s room for others. Perhaps IPTV and satellite (which already has a small watercraft of their own design) could participate in paddling, portage or navigation. Everyone agrees that there needs to be a single set of standards for digital advertising on network-delivered television.
5. Social networks are important but nobody knows what to do with them. Agencies are willing to help. This is the perpetual pitch from the agencies. This stuff is new. Nobody has any idea why we’re talking about it. And we’re willing to help…for a fee.

And that’s the news that’s fit to print from Advertising 2.0. Thanks again to Victor Harwood, the team at Digital Hollywood. And Advertising Age for putting on an excellent show.

Every industry analyst reaches that point in time when he says to himself that he “really needs to get on top of _____ before it becomes unmanageable.” In an emerging market, it’s important to take an early position and set an agenda for market analysis. For example: the weather’s warm, and lemonade will be in demand. But without such a take on things, suddenly, there are companies coming in the door explaining about the new category of “summer refreshments” explaining how their lemonade is fundamentally different from its core components of water, lemon juice and sugar.

If you’ve ever owned a dog, it’s the same as that feeling of … I’m going to have to take the dog for a walk in the next hour, or the poor creature is going to explode. A sense of impending action that must be dealt with one way or the other.

I’ve been having that feeling for several months about targeted digital advertising. I first raised my concerns in February with my colleague Anette Schaefer. I mapped out the core of my systemic, industry-destructing argument and Anette then asked the obvious question – “do people really want targeted advertising? Or will they respond negatively?” We shelved the idea, because we had other things going on and really needed to build some internal consensus on what may be a strong position against accepted industry thinking.

So when mobile entertainment and advertising guru Linda Barrabee was working on her mobile advertising forecast, targeting reared its ugly head yet again. Linda had placeholders in her forecast to account for some form of revenue acceleration for mobile web display advertising…based upon improved ad performance because of targeting.

At that point, I again put forth the arguments for and against targeting. And I begged Linda to hold off until she and Anette and I could sit down and come to some level of consensus about where targeted digital advertising will go.

Because it’s not just about digital dollars. There are many other traditional types of advertising which offer some form of targeting, be it geographic, demographic, behavioral, psycho graphic or down to the individual and household.

The One, Two, Three Punch
Read the rest of this entry »