The new age of connected devices?

2 February 2010

Does the iPad herald a new age of connected devices, or is it “just a big iPod”?  Reviews have been mixed.

Apple's iPad: With WiFi for $499; with WiFi and 3G for $629

And even if you love it, will you be willing to pay the extra $130 upfront and $29.99 per month for 3G service, or is WiFi sufficient? (Particularly given that a 3G chipset adds only $7-10 to the BOM).

I suspect WiFi is sufficient, and that the price of 3G connectivity is too steep.  It is too steep, in particular, because in a new era of multiple connected devices each new device cannot come with its own expensive data plan.  It is one thing to pay for home broadband ($40-50) and a smartphone data plan (~$30).  It is another to add a netbook, a MiFi, a connected camera, an eReader, and/or an iPad and have each of these carrying its own contract.

Would you buy a separate data plan for each of these devices?

My family looked at netbooks for Christmas this year, and chose to buy without the subsidy and wireless broadband contract.  The most common use cases for netbooks and iPads are still likely to be in places with WiFi connectivity:  Home, office, hotel, café.  And if you own more than one connected device, then you are better off buying a MiFi portable WiFi hub (from Verizon or Sprint) and sharing 3G connectivity across multiple devices than having a 3G connection for each device.

With this in mind, it actually could make more sense for wireline broadband providers to subsidize netbooks and iPads and connected consumer electronics than for wireless companies to do so.  In our case, the netbook bundled with FiOS Internet or Comcast’s DOCSIS 3.0 service would have been more compelling than the 3G offer.  For the iPad, a purchase for less than $499 with WiFi and a bundle of pre-loaded apps and services (such as Verizon Media Manager or a Comcast TV Everywhere app) from a broadband service provider would be interesting indeed.

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Posted by Moe Kelley

Iguana Theory of Broadband Revisited

12 October 2009

When I was a kid I wanted a pet iguana, and the one thing I remember about iguanas from my childhood is that an iguana will grow to the size of its cage. If you want a small iguana, build it a small cage. If you want a very big iguana, build it a big cage. Unfortunately, this fun fact about iguanas turns out to be a myth.

Do iguanas grow to the size of their cages? Do people find ways to use whatever broadband is available?

Do iguanas grow to the size of their cages? Do people find ways to use whatever broadband is available?

More recently, in the age of the dot-com bubble (c.1999-2002), I heard the same theory applied to broadband. “If you build it, they will come,” was the mantra repeated by many long haul fiber network, metro fiber ring, and global undersea fiber companies. At my prior firm we termed it The Iguana Theory of Broadband: Build a really big cage, and people will dream up new and innovative (and profitable) ways to fill it. Unfortunately, this also turned out to be false – or at least overly simplistic – and led to a fiber glut and dozens of bankruptcies.

But now we are seeing broadband speeds soar:

At the same time, however, we hear Verizon CTO Dick Lynch proclaim that metered broadband will be the pricing paradigm of the future and that “the concept of a flat-rate infinitely expandable service is unacheivable.” Which is it going to be? Increasing performance at a flat rate? Or metered rates limiting demand?

New technologies are continually being developed to enable increased download speeds and drive down the cost per megabyte delivered. For most customers most of the time this has resulted in a balancing point: DSL, FiOS, and cable modem services have had fairly constant pricing while increasing download speeds over time.

If the iguana theory of broadband holds true, at least for some period of time, then pricing will remain relatively flat. If the iguana theory of broadband proves false and demand outstrips supply, then prices will increase and metered pricing could work. If the iguana theory proves false and supply outstrips demand, then broadband prices will fall, creating a difficult competitive environment for broadband service providers.

The following diagram lays out these three simple scenarios:

For metered pricing to work, demand for broadband data must outstrip supply

For metered pricing to work, demand for broadband data services must outstrip supply

So, which scenario is most likely? What are we trending toward? As we see data points that suggest one path or the other, we will be sure to point them out.

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Posted by Moe Kelley

Lost without “Lost”?

31 August 2009

One of the most important developments for network operators is the growth of “over the top” services. This can take several forms, as better connectivity and more capable devices leads to a shift from ‘dumb devices + smart switches’ to ’smart devices + dumb switches’:

  • fixed voice moves to VoIP
  • much video content moves from broadcast linear channels (conventional TV) to be time-shifted (and increasingly place-shifted), with the notable exception of really live content, such as major sports
  • in mobile phones, the advent of smartphones demolishes the ramparts of network operators’ walled gardens, and applications can increasingly be accessed without working through the ‘deck’ on the ‘phone

According to Silicon Alley Insider, we have apparently reached an interesting inflexion point: the ‘over-the-top’ platform Hulu (strapline – Watch your favorites. Anytime. For free.) now has more unique viewers than Time Warner Cable, ranking 3rd behind Comcast (strapline – High-Speed Internet, Cable, Phone …) and DirecTV (strapline – Good TV. Better TV.

Hulu vs Pay TV

Hulu vs Pay TV

This analysis relies on factoring up cable subscriber households to match unique online viewers, so it may if anything overstate the numbers of unique viewers for cable companies:

To calculate cable viewers, we multiplied their end-of-June video subscribers by 2.59, the U.S. Census Bureau’s most recent stat for average persons per household.

There is a major shift underway, which is going to have a profound impact on business models throughout the video content ecosystem. Silicon Alley Insider believes that Hulu may have a strong future, but implicitly only if it sustains the revenues (and business models) of content producers:

Hulu is increasingly making a strong case that it could be the video platform for the future — if it can ever create nearly as much revenue for content producers as cable companies do today

This has been the subject of intense debate in the office, and last week in meetings with a couple of clients. As one of my colleagues put it: “where’s the money going to come from for high production value TV shows like ER and Lost“? Here’s where I at least think Silicon Valley Insider may have got it wrong; there’s no immutable law of nature that says we have to preserve revenue for content producers.

New business models for content distribution will also change the business models for content production. I am confident that the market will clear, that if consumers want this content then channels will emerge to funnel the money to producers; the corollary to this is that as we give consumers more choice about what, when and where they consume video content, what they’re prepared to pay for may be very different. If high production value dramas are to survive and thrive, they may need to find new ways to monetize their content, or new mechanisms to fund it.

Putting in the links to this post, I found two things intriguing:

  1. when I searched for Lost I got a sponsored link for its final season…
  2. ABC characterizes Lost under the category ‘primetime‘, a concept that may be rapidly eroding in significance
Google search for Lost

Google search for Lost

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Posted by Michael A M Davies

The Kung Fu Panda Problem

20 July 2009

Leading smartphones, such as Apple’s iPhone or RIM’s BlackBerry, are having an enormous impact on the mobile industry.

Within five years about half of US users will have upgraded to a smartphone and these customers will represent nearly 60% of industry revenues.   These smartphone users will also represent approximately 75% of wireless data traffic from cellphones (excluding laptops and MiFi) as applications, games, and multimedia content on the go become mainstream.

The Market is Upgrading to Smartphones

The Market is Upgrading to Smartphones

In addition to bringing significant change to the mobile ecosystem, this mass-market upgrade to smartphones is finally making convergence a reality.  Apple iPhone users are seamlessly moving content between their computers, iPods, iPhones and televisions using iTunes and simple docking station connectors (or, better still but a bit expensive:  AppleTV).  Other lead users are cobbling together ‘DIY’ solutions with products such as SlingMedia’s SlingBox, Roku’s Netflix box or TiVo with Amazon Video On Demand (VOD).

Smartphone’s were the missing link for convergence, and now they will play a critical role in consumer decision-making for content and service providers.  Companies that do not offer a complete solution, including smartphone integration and seamless transfer of content across TV and PC, are beginning to face what we call, “The Kung Fu Panda Problem.”

This past winter our family went skiing in the mountains of Maine.  For the four-hour trip, I purchased ($14.95) and downloaded the movie Kung Fu Panda, so my daughters could watch it on my iPhone.  The user experience for my daughter was pretty good, but the really interesting thing is what happened later, when we were home and they wanted to watch it again.

In today’s world, we seemingly have a myriad of options on how to purchase and watch video across TV, PC, and mobile:  Mobile TV, streaming video, Comcast VoD, or DVD – either purchased or through Netflix.  For a long time, DVD was the best format for covering a wide-variety of circumstances and use cases.  But carrying around a huge collection of DVDs isn’t great.  Once I purchased Kung Fu Panda from iTunes, we could watch it on TV (with a simple connector cable), on our family’s MacBook, on an iPod or on my iPhone.  Perhaps most importantly, I always have it (and any other videos I’ve downloaded) with me.

Here’s a comparison of alternative approaches to anytime, anywhere video:

Currently, only Apple and the iPhone enable me to seamlessly move content between mobile, my computer, and my TV

Currently, only Apple and the iPhone enable me to seamlessly move content between mobile, my computer, and my TV

Hence, the Kung Fu Panda Problem:  Not only am I now unlikely to buy the Kung Fu Panda DVD or to rent Kung Fu Panda from Verizon or Comcast On Demand, but – having experienced this just once – I am also unlikely to purchase or rent any video from these providers until they can match the value and seamless integration provided by Apple.

Worse yet, every day thousands of new iPhone users discover this for themselves, and this pattern will extend beyond iPhones and into WebOS, BlackBerries and Android devices as the multimedia smartphone experience improves.  It is likely to be easier to move from smartphones back into other devices in the home than the other way round for a long time to come.

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Posted by Moe Kelley