Consumer Electronics

Whatever Happened To The Digital Home? Part III

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(carrying on directly from my previous post)

Stuff that didn’t even occur to me:

  • Tablets. This isn’t a great shock; forecasts and models are all based on evolutionary change to existing ecosystems and technology. Apple’s iPad success was a revolutionary change that no analyst could have predicted. Interestingly, the iPad is a sort of half-way house between the old PC-based home and the potential digital home, offering an easy-to-use, flexible consumption device that hides all that techie stuff. It helps that in iTunes, Apple has delivered the equivalent of another concept in the report: the third-party media/content aggregator.
  • Social networks. Like tablets, the rise and rise of the likes of Facebook, and Twitter has fundamentally changed consumers’ relationship with their home technology. A PC, TV, or mobile phone in the home is now merely a gateway to accessing friends and the wider community rather than a solution in itself. Arguably, this is a far healthier relationship, aside from the desperate need to communicate absolutely everything, obviously.
  • The move to web-based services and then back to apps. This is an interesting one to consider; as a consumer technology analyst, I naturally expected digital home experiences to be delivered via installed software — software that was perhaps even installed at the factory for devices like TVs. The growth of Flash, HTML5, Ruby on Rails, etc. meant that many services and experiences were delivered via a browser. This makes sense in retrospect: once a compatible browser is available on a device, a service becomes available with very little (if any) tweaking — much better than having to rewrite for every architecture or operating system. More interesting still is the reversal of this trend as app stores and downloadable apps for phones, tablets, and PCs aim to “monetize” consumer service delivery; you lose some of that web browser compatibility if you code directly for iOS, Android, or Windows, but you gain consumer engagement (and, potentially, direct revenue).

(I’ll finish off this series of posts with a look to the future — is the digital home a redundant concept?)

Whatever Happened To The Digital Home? Part II

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(carrying on directly from my previous post)

Things that failed or haven’t happened yet:

  • Video chat. While Skype and its competitors have done very well on PCs, it’s still not the ubiquitous video chat (via TVs, phones, game consoles, etc.) that I had envisioned and that would get us beyond today’s tech-aware audience and into every home. It will be interesting to see where this goes in the future as Microsoft adds functionality to Skype.
  • Centralized storage. I’ve used NAS devices and home servers for nearly a decade, and this may have blinded me to the fact that most consumers still rely on local PC/phone storage for sole copies of their content — with perhaps an external hard disk for back-up if you’re lucky. Conceptually, the idea of a dedicated storage device on the home network is still the sole preserve of techies and content hoarders; arguably, the window of opportunity for folks like Netgear, Synology, and QNAP to engage with a more mainstream audience is closing, as online storage services like Dropbox, SkyDrive, and Google Drive will eventually render local storage redundant. Additionally, the need to generate storage efficiency has decreased as memory costs have plummeted: in 2004, a 250 GBhard disk cost $250 according to this great cost comparison; you can now get 3 TB drives for much less than that if you shop around. This has meant that building several gigabytes of storage into every device (phone, DVR, TV, camera) is easier and more cost effective than having a central store — even if this does lead to massive duplication and version control nightmares.
  • Voice control. This idea was thrown into the mix to spice it up, as consumer-based voice control seemed fairly unlikely in 2004. Sure enough, there still aren’t any convincing multi-device voice control technologies in people’s homes, but we’re not far off in terms of the underlying technology — Xbox Kinect and Apple’s Siri are starting to show that this kind of thing can work in a limited capacity.
  • Connected appliances. We’re still no nearer to the “Internet-enabled fridge” than we were back in 2004. The downsides of high cost, long replacement cycles, and perceived lack of utility still outweigh the potential upsides — the kitchen sees the most traffic in the house, it’s a good place for a Wi-Fi router, and it offers appliance maintenance benefits. The recent failure of Chumby — with its cute connected display/alarm clock/app store that failed to find a market — demonstrates the risks associated with razor-thin hardware margins. But there is still hope: the excitement around the Nest Learning Thermostat last year and the potential applications of maker-type technology like Raspberry Pi or Arduino in this space means that we may yet see dumb technology replaced over time.
  • That “brain” to manage the digital home. As storage has become super cheap and Wi-Fi the near-universal networking standard, the management of more centralized storage and more complex networks hasn’t really been needed. Add in the growth in streaming to individual devices — effectively a point-to-point delivery from the content provider — and the intelligence needed to manage the digital home becomes redundant. The closest we have to this today is Apple’s device and iTunes ecosystem; loading multiple devices, managing streaming, and offering (for the more technically minded) network back-up solutions, it has become a default “brain” for those buying into an Apple-centric home. Again, more intelligence management would allow better back-ups, more seamless content sharing, and fewer “Why won’t video X play on device Y?” frustrations — but it’s difficult to see who would provide this now that so many devices manage their own connectivity and content.

(next up; what was unanticipatable when the digital home concept was first created)

Whatever Happened To The Digital Home? Part I

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Just over 8 years ago, I wrote a Forrester report titled “A Manifesto For The Digital Home,” outlining what needed to happen from a consumer’s perspective for the true “digital home” to become a reality. (We defined the digital home as a single, unobtrusive network environment where entertainment, communication, and applications could be shared across devices by multiple household members.) A lot has changed in the intervening years, but are we really any closer to that reality now?

From a consumer’s perspective, I hypothesized that four things needed to be in place to make the digital home a mainstream reality: flexibility (of connection, exchange, and ease of use); control (of sharing, data privacy, and what goes where); security (of personal information, bought content, and communications); and mobility (of devices, applications, and content). Of course, all of these needed to be underpinned by affordable technology and desirable content and applications.

For this to work, the digital home needed five key technology elements: a network (or, more likely, multiple seamlessly bridged networks); great interfaces on multiple devices; centralized storage; some form of central management function with the intelligence to manage the network, storage, and access issues; and great content that had been “digital-home-enabled” — i.e., able to be shared, backed up, and transcoded without licensing or technical issues.

Some things I got right:

  • Device-agnosticism. More and more stuff will run across a variety of devices. Interestingly, this has been driven by social media and content owners promoting browser-based or streaming solutions rather than (as predicted) standards organizations or by an altruistic streak in the hardware manufacturers — most of those efforts have got bogged down in copy protection or years of certification.
  • Streaming content. Referred to somewhat quaintly as “broadband VOD” at the time, the streaming of content has taken off in a big way in major markets, mainly to prevent other distribution methods (legal or otherwise) taking hold. Advances in broadband speeds and compression technologies have exceeded even my optimistic expectations at the time.
  • Easy networking. This has happened, sort of. Surprisingly, instead of the vision of a co-operating set of network technologies working together where they are best suited (3G/4G outside the home, Wi-Fi for computing, ZigBee/Z-Wave for appliances, etc.), we’ve ended up with faster Wi-Fi crammed into pretty much all devices with 3G as the “just works but it might be expensive” fallback. This certainly makes the network topology easier, and attaching to secure Wi-Fi routers is much easier today than it was 8 years ago. But I can’t help feeling we’ve missed a trick here; the reason those low-power, short-range solutions existed was to facilitate much broader connectivity without security or configuration issues. In addition, Wi-Fi is still an expensive option (both in terms of power and components), and this has held back the networking of non-traditional devices.

(I’ll continue this series with analysis of stuff that didn’t happen as expected and what has happened that couldn’t be anticipated in my next post)

April 27: The New Amazon Kindles Hit Europe, But Without The Fire

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As of yesterday morning, Amazon is accepting pre-orders for the Kindle Touch (Wi-Fi or 3G) in the major European markets (the UK, France, Germany, Spain, and Italy) for around the same price as the Kindle Keyboard used to sell for — although it will cost more than the later, non-keyboard non-touch device Kindle (naming conventions are not, apparently, Amazon’s strong point!).

The ‘new’ devices have been available in the US since mid-November 2011, so they’re heading to Europe some 6 months later; this is good for most markets except the UK, where the Kindle Keyboard launched at much the same time as in the US.

The Touch has slightly more memory than some of the older devices, is smaller than the Kindle Keyboard, and — of course — has an infrared touchscreen. It’s a nice device with the same excellent screen and battery life, and it continues to be a proof point for single application devices that really excel. However, these devices are looking increasingly expensive when one can buy an (admittedly not great) 7-inch or 10-inch Android tablet for about the same price. And while device manufacturers like Sony and Kobo aren’t offering high-profile competitive devices in Europe to match the Barnes & Noble Nook in the US, they do offer perfectly competent — or even better, depending on how firmly you buy in to Amazon’s ecosystem — e-Ink readers at a variety of price points.

Perhaps the biggest question for tech-conscious consumers though is this: “Where’s the Kindle Fire?” This was announced at the same time as the Touch in the US and also started shipping there in mid-November. I think that Europeans will have to wait quite a bit longer for the Kindle Fire, and here’s why:

While the Fire is Amazon’s future, it does quite nicely with e-Ink devices. Here’s a question for you: Is Amazon more like Google or Apple? With regards to devices, Amazon’s business model is far more Google-like; while they both make devices (or support partner manufacturers), they are really interested in the content and your connection to it — either selling it to you (Amazon) or selling advertising around it (Google). In contrast, Apple has built a compelling ecosystem, including content offerings, but it is still really about selling you that next device. While Amazon makes money from Kindles (both the Touch and the Fire), the real margins are in what it sells you to put on it. If you use an iPad, Android tablet, or PC to download music, e-books, and video from Amazon, its margins from you are higher than for those people to whom it sold a device as well. Confused? Let me explain with a hypothetical example:

  1. John buys a Kindle Fire for $200 (Amazon margin: 20%) and buys $200 of content (Amazon margin: 35%). Total profit margin from John’s purchases: 27.5%.
  2. David uses his iPad and buys $200 of content from Amazon. Total profit margin from David’s purchase: 35%.

Amazon might have made more dollars in profit from John, but the content is infinitely resellable for no extra effort — devices aren’t.

So why is Amazon in the devices business at all? David’s example above gives a clear indication: he may buy e-books from Amazon now, but he’ll almost certainly buy his music, videos, and apps from iTunes. Amazon doesn’t want to be locked out further down the line, hence the Fire. Will Europe have to wait another 6 months for the Fire? Other than the iPad, there is no compelling device to take its place, so it probably will. But, tech-conscious consumers may choose to hold off on buying a Kindle Touch and wait for the Fire, luckily for Amazon its more mainstream consumers that buy e-ink Kindles.

The supporting infrastructure isn’t in place. I’ve touched on this before; the Kindle Fire draws on Amazon’s back-end cloud infrastructure (as does the new Touch) for storage and web browsing support (Amazon Silk). Rolling this out internationally means a significant investment in data centers and legal clearances. This is easier with the Touch, as you are only looking at e-books — most of which Amazon sold you in the first place. The data centers will come, given Amazon’s cloud investments for its business-to-business offerings, but it will take time. One obvious alternative would be to launch the Fire without these cloud facilities — but this lessens both the utility of the device (limiting storage) and how tied in customers are to Amazon.

We’re still waiting for the Android tablet market to shake out. The Kindle Fire is already one of the best-selling Android tablets, but this market still lacks focus (and decent margins). Court cases, form-factor debates, and telcos (particularly in Europe) that are still smarting from the last subsidy disaster (mainly the Samsung Galaxy 10) mean that Amazon can afford to take its time and get its device (and ecosystem) right. Additionally, Windows tablets (on x86 or ARM) are still at least 6 to 9 months away and will be much more expensive than Amazon’s current or proposed devices.

My best guess is that the UK may see the Kindle Fire in late Q2 or early Q3, as Amazon has traditionally used the UK as a European launch pad; Germany and France may follow by year-end. Because of the data center restrictions, it’s possible that other, smaller markets may never get the device in its present form.

What Does HDD Manufacturer Consolidation Mean For The Wider Technology Industry?

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As of last week, when Western Digital’s proposed deal to buy Viviti Technology (formerly Hitachi GST) was finalized, the world has just three global suppliers of hard disk drives (HDDs). Western Digital, Seagate, and Toshiba control around 50%, 40%, and 10% of the market, respectively. The history of acquisitions in this space is fascinating, as shown by this diagram (courtesy of a great article on Wikipedia):

Admittedly, some fairly stringent conditions have been imposed by regulators on both Seagate and Western Digital for their latest acquisitions — including running separate operations for a number of years. But a market of up to 700 million HDD units per year (if you extrapolate from iSuppli numbers) is boiling down to just three suppliers. While solid state drives (SSDs) are manufactured by a whole range of firms, these will be too expensive for most applications and will have too low a storage capacity to match hard disks for the next 3 to 4 years.

What does the wider consumer technology industry gain and lose from this accelerated market consolidation?

Glass half-full:

  • Stability. All three firms now have a steady volume business, decent balance sheets, and forecasts of healthy market growth for the next few years.
  • Concentrated evolutionary innovation. The three firms will now provide a top-down focus for research into improving capacities, energy usage, and form factor. While there are some differences in capability — Western Digital has not yet developed hybrid drive technology, for instance — all are focusing on a continued supply of better and better conventional HDDs. This isn’t particularly sexy, but it is at least dependable.
  • Consistency. Fewer manufacturers mean fewer variations in elements like controllers, cache, and software drivers, making the specification and manufacturing process somewhat easier.
  • Better ‘partners.’ One additional benefit deriving from the previous three points is that firms in the position that Western Digital, Seagate, and Toshiba find themselves in often start making more of an effort to be proactive partners with their customers — allowing them to better understand client demands and needs to ensure that their competitors don’t get a foot in the door.

Glass half-empty:

  • Reduced supplier competition. Obviously, all three firms will compete massively for market share, particularly Seagate and Western Digital; Toshiba is so far behind that it doesn’t stand a realistic chance of catching the top two. But where is the plucky little manufacturer targeting industry verticals? Who will force the pricing issue?
  • Global supply chain risks. As we saw with the Thailand floods in October 2011, disruption in a manufacturing supply chain concentrated in one country or region can have a knock-on effect, although arguably it wasn’t as much of a disaster as many predicted — helped by generally lackluster PC and technology sales. Will the supply chain consolidate even further in China and Thailand now that just three firms control the purse strings?
  • Suppliers with more power. Consumer technology manufacturers already have to deal with component-supplying titans like Microsoft, Intel, and Samsung; you can now add Western Digital and Seagate to that list.

Overall, these acquisitions show the natural (if somewhat accelerated) consolidation of a costly manufacturing industry that doesn’t necessarily deliver fantastic margins; those are, hopefully, reserved for the final device manufacturer. For the technology industry, the pluses probably outweigh the minuses; even in the worst-case scenario where competition decreases, SSD manufacturers will keep pushing the envelope and keep the HDD titans on their toes.