The rumors of a Motorola dismemberment plan have sprung anew with a Wednesday article in the WSJ.  Everyone, get your axes ready – either to grind or to hack off your favorite piece of the Moto beast.  The latest round of speculation points to the possibility of Motorola combining their handset and set top box divisions to build a new integrated future. Of course, speculation also exists pointing to the potential spin-off of these units.  Who are all these unnamed speculators anyway?  Whether it is to sell them off or create competitive advantage, the merger of the two units raises some interesting prospects.

If Motorola can come up with a workable structure to blend its mobile device unit with its set top box unit, then that new combined group would hold tremendous promise to integrate consumers’ digital media in an exciting way.  That combination would certainly attract the interests of companies like Huawei, Asus and others looking to gain more prominent market positioning in the mobile and CE industries.  Of course, if Motorola could do that easily, it wouldn’t be looking to dismantle itself and sell off the valuable morsels to the highest bidder.  So while I think the combination of the two units is a fine notion at a high level, the fact remains that Motorola has failed to integrate its two most important business groups in any significant way and will have to undergo major cultural and organizational changes to realize that vision. Back in early 2007, I met with then CMO of Motorola, Casey Keller, at a trade show to discuss media integration and device interaction between mobile handsets and set top boxes.  Keller shared the view that Motorola held the strongest potential hand in the business to do that, but was facing an anemic mobile device pipeline (how many ways can you sell a RAZR, after all?) and new levels of challenge on the set top box side as well.  So, vision took a back seat to triage and the more important task of stopping the bleeding, but execution proved to be elusive.  From YE 2006 to YE 2009, Motorola’s annual device sales dropped by approximately 65%.

Three years later, the Motorola device group is showing solid signs of rebirth with its recent line-up of smartphones architected around the Android platform.  The new expanding portfolio leverages Motorola’s greatest recent advance: the highly customized Motoblur experience that presents users with all their social networking and primary apps in a single view.  If this concept catches fire, it provides an interesting potential roadmap for Motorola to upgrade its set top box experience to include similar capabilities for social networking but, perhaps more importantly, media sharing among a consumer’s multiple devices.  With its massive share of the North American set top box market, Motorola holds a unique hand of assets and partners.  Cable companies have been desperate to extend their relevance beyond the TV and laptop and a set top box that easily interacts with mobile and CE devices, integrating digital media could be just the trick.

But the window of opportunity for this integrated approach is limited, so, Motorola, god speed. As Jeff Goldblum famously said in Jurassic Park, “Life, uh, finds a way.” In the consumer media world “life” is the idea of acquiring, enjoying and moving media on any device you want, whenever and anywhere you want.  Consumers are already experimenting with this in many forms.  Whether it is the game station, laptop, media gateway, transcoders, mobile apps, etc, consumers have a huge selection of ways to get media from A to B, but few are terribly satisfying from either a user interface or device compatibility basis.  This leaves Motorola with some wiggle room to merge the set top box business and mobile device unit to generate a new integrated vision of consumer media.  The vision will need to be both technical and cultural to bridge the gaps between the two business units, which share nothing beyond a company brand.  But with proper execution, such an approach could save set top boxes and the Motorola brand from being another set of fossils on the anywhere evolutionary path.

In a scenario that seems destine for a made for TV movie, Motorola reportedly is contemplating a new version of its spin off plan. The Wall Street Journal reported today that instead of spinning off the Home and Networks Mobility division from its handset group, the company is looking at continuing the auction of its wireless networks lines while creating a new publicly traded entity comprised of handsets and set-top boxes.
On the face of it, the combination of set-tops and handsets seems almost nonsensical. The former exists as a cozy effective duopoly with Cisco Systems–at least in the U.S.–is largely proprietary to every cable operator’s specifications, tends to stay in place for years and is as sexy as vanilla ice cream. Handsets are squarely in the consumer electronics camp where design and looks plays major roles.
But putting set-tops and handsets in the same group absolutely makes sense when we look to the future and in particular the future of the set-top. Set-top boxes are under increased pressure to start looking and acting like CE devices. And indeed many have been writing the obituary for the old cable converter for the better part of a decade.
I don’t necessarily believe the set-top is near extinction. However, its greatest threat is in fact coming from the CE community. While one can debate the relevance of stand alone devices such as a Roku or forthcoming Boxee box, increasingly gaming consoles and Blue-Ray players are taking on the same functionality as set-tops. Additionally, connected TVs have the same potential through are not being initially positioned as such. Regardless of the product, the end result is likely to force set-top box vendors to start thinking like CE vendors.

"Last time there was this much excitement about a tablet, it had some commandments written on it." -- the Wall Street Journal

Here are my quick reactions to today’s Apple Special Event; expect some more thoughtful analysis in a few hours. But the highlights of the last few hours were:

• A new Anywhere tablet device called the iPad. The $499 iPad lets consumers listen to music, watch video, read books and periodicals, and view TV shows, all from a 10-millimeter-thick multi-touch LCD tablet. The iPad is designed to be a media device, not a PC; the major software packages available will not be suites such as Microsoft Office, but media-oriented software such as Apple’s own iWords, which Apple is releasing in touch-enabled form for the iPad. That said, the iPad will run all iPhone apps, and additional packages from independent developers for iPad will be sold through the iTunes App Store. 
• High speed wireless connectivity via 3G and WiFi. iPad boasts more than 100 Mbps wireless Ethernet connection using the 802.11n standard for connecting to content in the home. Versions sold through and AT&T will also feature 3G mobile broadband connections, which will be offered on a prepaid basis. Up to 250 Mbytes per month will cost $14.99; Unlimited monthly broadband will cost $29.99.
• A new iBooks book reader application. Apple decided to attack the Kindle market by offering an eBook reader on the iPad and added online purchasing via a new iBook Store. The iBook store has 5 publishers signed on to deliver content already; more are in the works. 

Will it catch on? Based on a few minutes of hands-on playing with one, absolutely. The iPad bears the same relationship to a netbook that the original Mac did to DOS PCs: it’s a complete rethinking of the reading and media consuming experience. Apple’s full-color, full motion device makes not only netbooks, but any product with an E Ink display look tired and dated. And if you’re a publisher who lives and dies by what your content looks like, you want to be talking to Apple now; any other digital distribution is going to look very last decade.

Stay tuned for more details and a deeper analysis for clients over the next day or two.

Now that CES is a week behind us and I’ve had some time to put my thoughts together and recover from the dreaded CES flu, I’ll be writing a few blog posts on three big CE products/trends that garnered considerable attention during the show:

1. Connected Cars
2. eReaders
3. 3D-TVs

 I’ll start with a short post on connected cars, as this is really the first year where they received standout coverage: Over 380 in-vehicle technology exhibitors graced CES’ floors this year, Ford CEO Alan Mulally delivered a keynote, and a CEA press release issued before the show claimed that sales of in-vehicle technology topped $9.3 billion in 2009. Yes, you heard correctly, $9.3 billion.

A number of players will profit when more technology finds its way into our cars. Some statistics presented during the show highlight just how much network operators, automotive companies and legislators stand to win. Take a look:

• Network Operators: Demand for voice and data carriage in connected cars will open up a new market for network operators. On average, over 26 million hands-free calling minutes are purchased each month by OnStar subscribers. Alcatel-Lucent’s ngConnect Program prototype also demonstrated what LTE data plans will do for in-car streaming media.
• Automotive Companies: In-vehicle technologies are driving automobile purchases more than many analysts had anticipated. 32% of Ford buyers indicated that Sync was critical or important in their purchase decision when buying a car. What’s more, 70% of customers who participated in Sync demos across the country indicated that they are more likely to buy a Ford vehicle.
• Legislators: Legislators concerned with driver safety will be pleased with some statistics from Nuance, a speech recognition solution provider. Analysis of driver eye movements shows us that drivers keep their eyes on the road 200 to 300 percent more when using speech rather than manual input for tasks like music selection.

Given the diverse set of players in this emerging market, Yankee Group is including a number of questions on connected cars in its updated Consumer Survey. As data begins to come in, expect to see a publication on the subject in the near future.

This week, I’ve been in New York City at Gridley & Company’s Ninth Annual Internet, Marketing, Financial Technology, and Information Services Conference (whew! try saying that three times fast). This is an invitation-only event largely for the investment community, but Gridley was kind enough to invite me to participate on their mobile technology panel.

However, I got to listen to several other sessions and tweeted many of my findings yesterday. Recapped and expanded from their 140 character limits, my big takeaways were grouped into two major categories: online advertising, and what the event said about the overall economy.

We’ll start with online advertising, which comprised most of the events I attended:

1. Advertising needs to be one experience. Tumri’s best sound bite of the morning was that successful online advertising must marry the pre-click and post-click experiences. That means that landing pages shouldn’t be generic; they should complete the experience started by the ad that brought the consumer there.
2. Some ad targeting is working. A case study by ad targeting company Tumri drove HP’s display ad ROI (measured as click-through rate) up to approach Google search ad ROI. While a credit to Tumri, that result demonstrates just how tough the online display advertising business is. Expect mobile to be even tougher.
3. Online ad opportunities are smaller than you think. According to targeting company AudienceScience, most consumer time online is non-search and non-contextual. Said another way, most of the consumer’s time online is in places where contextual and search advertising don’t reach.
4. Ad targeting raises ad costs substantially. AdScience also claimed that targeted ads are fetching CPMs of between $6 and $10. That’s about a factor of 10 higher than the average online ad. Now the big question is whether that audience is bigger than 1/10th the generic audience; if it isn’t, then the return on an advertiser’s targeting investment isn’t going to pay off.
5. Facebook advertising is a disaster. According to AcKnowledge, Facebook ads have 3% of the advertiser ROI (measured in ad clicks) of Google search ads. Yikes that is bad.
6. Video CPMs are high, but falling. Forrester’s Shar VanBoskirk has been seeing some $30 to $50 online video ad CPMs; those numbers are huge compared to average Web CPMS and higher than most video CPMs I’ve seen. The bad news: those CPMs are falling rapidly.
7. Ad networks are only going to get more powerful. Vivaki’s David Kenny: more than half of advertising dollars will flow thru ad networks (but fewer of them) in three years.
8. Retaining customers remains the best strategy. Merkle cited one client whose customer acquisition average cost was $300, and ranged as high as $3,000. Their cost to retain a customer? $11. That equation should be stenciled on every CMO’s forehead.
9. Mobile advertising will be a tough nut to crack. Despite all the excitement about mobile advertising, I polled the audience from my mobile panel with two questions: “Have you ever clicked on a mobile ad?” and “Have you clicked on a mobile ad in the past week?”. The results were telling: only about 1/3 of the audience had ever clicked on any mobile ad, and only about 5 people out of 100 had clicked on one in the past week. Mobile advertising companies thinking of billion dollar IPOs should keep those numbers in mind as they chase today’s mobile advertising dollars; even by 2013, Yankee Group forecasts only about $533 million in U.S. mobile ad revenue.

The attendance at the event itself had its own message. Measured in terms of investment bankers per square foot (ib/sq.ft., a useful metric for economic excitement in Manhattan), the Gridley event scored highly. Specifically, I found myself watching the crowd and concluding that:

• The financial recovery is underway. The conference boasted something like 485 attendees, its largest ever. The financial crisis? That is so 2009.
• Online ad companies still need help with fundamental presentation skills. Some companies completely demolished their polished presentations by projecting slides with 10 point text that no one past the front row could read. Presenters—particularly those presenting to an audience of investment bankers and older advertising executives—should hew to Guy Kawasaki’s 10-20-30 rule: No more than 10 slides presented in 20 minutes with no text smaller than 30 points.
• Strong copy still trumps clever metaphors.. One session on ad targeting was titled “Ad Targeting Will Take Us from Mad Men to X Men”; it’s the title of a Gridley white paper too. The problem: it evokes an image of Don Draper turning into Woverine and in the process, losing any Madison Avenue street value. It was a clever title, but a more straightforward “Ad Targeting Will Save Online Advertising” would have been much better.
• Apple’s gaining ground in the investment banking crowd. Despite investment bankers being the bullseye of Blackberry’s market, I was surprised to see about 50% of the audience carrying Apple iPhones, and many carrying both an iPhone and a Blackberry. When I asked some of the financial members of the audience about that, they said the decision was simple: the Blackberry was for their work email, and their iPhone was for the rest of their lives (apps were also mentioned several times as a deciding factor). Given we were in the heart of one of AT&T’s most troublesome service areas (over the holidays, there were a couple instances of AT&T not even selling iPhones in New York any more), I found that result surprising. With the rumored Apple tablet on deck for this month and the 4G iPhone looming in Q2, we may see another glowing Apple logo down near Wall Street as well as on Fifth Avenue.

That’s French for “After now, the deluge”. And that’s about how I feel about today’s CES opening in just 2.5 hours. It’s going to be a very busy day.

But before the networks melt (or at least glow bright red with heat) from 120,000 people blogging away, I thought I’d recap a few highlights of the last 18 hours deserve some note. Instead of running down the facts of each announcement, I’ll let links to New York Times articles do that for me; I’ll just add my reasons why the events are significant. Specifically:

• Vendors are pushing 3D as the next high-definition. Every flat panel vendor here is hoping that 3D televisions will be the next must-have upgrade. I must admit that I’ve been impressed by the demos here; I saw Sony’s 3D technology with Taylor Swift performing last night, and it was one of the best broadcasts I’ve seen with passive glasses. All that said, with the inconvenience of 3D glass and most flat panels only one to three years old in the U.S., I don’t think most consumers will even consider replacing them for another 3 to 10 years, dooming the trend until the latter half of our new decade. I’ll be touring Panasonic’s booth this morning (it’s the size of a football field), and may have to say about this tonight.
• TVs are adding connected apps in a big way. Both Panasonic and Sony are boasting Skype conferencing on their connected TVs, and that’s far from the last app they’ll be adding. Whether built-in or add-on connected TV apps are the wave of the future, there’s no question in my mind that connected TVs will be a bigger trend than 3D in the short term, and it may be true later in the decade as well. Vince Vittore’s report published just yesterday is a timely analysis of this trend.
• Consumers may be pushing companies to become more vertically integrated. Apple’s been able to win over consumers over the last decade because it can orchestrate hardware, software, and media to create a single unique consumer experience. Microsoft’s one success story in the last decade has been XBox, which is similarly vertically integrated. Sony’s recent successes have been with Playstation Network melded to its PS3 and PSP gaming systems. Despite the appeal of open partner, these vertically integrating offerings are winning consumers and creating profits. The very fact that Google had to create its own Android phone to drive adoption suggests that we may be seeing the open pendulum swing back toward soup-to-nuts offerings.
• Cars are moving to glass cockpits. Despite the dangers of distracted driving, car companies are madly rushing to put Internet connected screens in car dashboards. I don’t actually believe that Anywhere connectivity is the juice that makes this trend take off, but rather the replacement of traditional car instruments with electronic icons, maps, and controls. By the end of this decade, analog guages in cars like we do in airplanes today: amusing antiques.
• Tablets just aren’t here yet. Despite the excitement over Apple’s rumored iTablet and Steve Balmer’s announcement of an HP tablet last night, the reality is that these connected devices are still a dream rather than reality. The litmus test? Try to buy one. It will take more than CES to get this trend moving, but it will probably take Steve Jobs bringing tablets down from his mountain later this month to make it reality instead of vapor, and even then, no one’s going to be using those tablets in any volume until at least Q2.

Happy New Year from Las Vegas!

Andy Castonguay, Dmitriy Molchanov, and I will be covering the 2010 Consumer Electronics Show all week from this city in the desert, trying to keep up with the tsunami of news and announcements from the show. You can follow our updates here at blogs.yankeegroup.com. If you want a more real-time set of updates, you can follow me on Twitter at @cdhowe or check Yankee Group tweets at #YankeeGroup.

On the agenda today is the “pre-show” activity when most companies try to beat the rush of press releases through the rest of the week. Notable today in the pre-dawn hours was an announcement of D-Link’s Boxee Box for streaming Internet audio and video to your TV. Seemlingly purpose-built to cause heartburn for cable TV executives, it’s the harbinger of many more Internet TV boxes to be showcased this week. That said, the idea that you can now buy an off-the-shelf device that for Boxee is a big deal; heretofore, consumers have had to install their own software on a PC or Apple TV.

All that said, two big stories today are our of Silicon Valley instead of Las Vegas. Specifically,

• Google announces its Nexus One phone this morning. Google will be hosting a press conference in Mountain View today to provide first looks and details on its HTC-built, Android-powered Nexus One mobile phone. Google employees received their own Nexus One’s as holiday gifts at the end of the year, but today will be the first time the general public gets an official look at the specifications and terms of sales. My view of the Nexus One is that it is an buying alternative for people who want an iPhone experience, but don’t want to buy into the Apple business model or the AT&T network. And Google does appear willing to sell it unlocked, thereby teasing us with the possibility that it is network neutral phone.
• Apple is building buzz toward its as-yet-unannounced tablet.. Apple announced today that iPhone and iPod touch users have now downloaded a total of 3 billion apps from the iTunes App Store. That totals more than 10.2 million downloads per day. This momentum is fueling a media frenzy headlined by the Wall Street Journal regarding Apple’s likely announcement of a tablet computer on January 27 in San Francisco. Stay tuned for more on that one; there are very few actual facts available as of yet. However, this story could become a CES show-stealer equivalent to Apple’s iPhone announcement in 2007 if some facts do get out.

Look for more info as we get our badges and the show really gets going.

Today’s New York Times had a terrific article talking about the challenges facing retailers in managing search advertising during the holidays. While I enjoyed reading the article over my holiday morning coffee, I came away from it thinking that the authors really missed the big story: the Anywhere revolution has fundamentally changed the art and tools of advertising from one done by people to one done by machines.

Read the rest of this entry »

After months of speculation, Comcast and GE finally announced the worst kept secret. Together, the two company have formed a joint venture that combines Comcast’s cable programming networks (E!, Vs., Sprout and Golf Channel among others) with the broadcasting, cable networks, movie studio, theme park, and online content businesses of NBC Universal. Online ticket selling Fandago and portal Daily Candy also were thrown in the mix.

Volumes will be written about this deal over the next 6 to 9 months as it goes through the multiple regulatory approval process. Based on the initial coverage, expect to see plenty of comparisons with AOL Time Warner, often held up as the most destructive merger since the Monetgue-Capulet union led to some untimely deaths. And plenty of arrows will be slung over the incongruity of a corporate entity that owns hybrid fiber/coax networks and The Incredible Hulk rollercoaster.
It’s too early to declare winners and losers in this deal, as Comcast Brian Roberts said this morning–on his newly acquired CNBC. From our perspective, though, there’s one part of this deal that is spot on. Consumers want media on their schedules at the location of their choice and on any device. Comcast already has the home well covered and is working on the location and device part of the equation with its Clearwire venture.
Just as important, this deal comes at a strategically critical time for all cable operators. Comcast is essentially doubling down on content assets during a transitory period when the greatest threat isn’t from traditional competitors like satellite operators but from over the top players like Google, blip.tv and Netflix as well as IPTV operators like AT&T and Verizon.
Comcast’s move to become an even more vertical player in this environment is a clear message to the world: content has been, is now, and will continue to be king for a long time.

Number of insert ad pages in Thanksgiving Boston Globe, 2008-2009 (Click for a larger version)

Some people watch football on Thanksgiving Day. Because of my prior lives as a marketing consultant and analyst, I do something different: I count newspaper ad insert pages.

Ad circular inserts on Black Friday provide us with interesting information. For one thing, they provide some insight into the advertising budgets of retailers. But more important than that, they provide a good view into the overall economy going into the biggest retail season of the year. If the economy is really bad, retailers don’t advertise much; on the other hand, if the economy is improving, retailers will spend more money on advertising resulting in more pages of advertising. In past years, the results from the Black Friday ad count have been fairly well correlated with actual holiday shopping results.

The ground rules for my counting are that I count only the circulars in the West edition of the Boston Globe newspaper, since those are most representative of the advertising for Black Friday. I convert all ads into 8.5×11 inch, single-sided equivalents. That means that if a retailer puts in an oversized 11×17 inch, double sided ad, that counts as 4 pages (An 11×17 page contains the area of two 8.5×11 pages, and the double sided printing doubles that).

As you can see in the graph that begins this post, this years count provided encouraging news about the New England economy, namely that:

• The Globe had 700 ad pages, the highest number since I started counting in 2005. Previous counts I have done were 412 in 2005, 636 in 2006, and 512 in 2007.
• Ads are up 17% over 2008, but more in some areas. Department stores had the most pages this year as every year, weighing in with a whopping 478 pages compared with 392 last year. Hardware stores boasted the largest percentage increase over 2008, with 42% more pages than the 28 they had in 2008. Surprisingly, electronics and furniture had slightly lower counts than 2008, although both categories have very small absolute counts.

There’s not much further insight here; clearly this is a single indirect measurement in a single retail market. But at the very least, we can certainly say this: the Globe actually delivered more ads (and presumably more ad revenue) this year than last. If a newspaper—a media category that most analysts claim is dying from Anywhere digital competition—can gain advertising this year over last, perhaps in the words of Monty Python, they aren’t dead yet. And by inference, we can claim that the economy really is starting to recover.

Happy Black Friday!