January 22, 2012 by Sam Vasisht | No comments

The Binary Prospects of Google TV. Is it Beholden to what Apple Does?

GoogleTV generated buzz at CES this year, which should not be surprising given the market clout of Google and the rework needed to the tarnished image of GoogleTV.  Most of us will agree that GoogleTV has failed to perform.  Personally, with GoogleTV2.0 upgrades to my Logitech Revue, all of the personal and system settings were erased during the upgrade.  How can something like that not be addressed in a system upgrade, especially given the black eye GoogleTV already has?  Despite some major brands announcing GoogleTV initiatives (see footnotes at the end of the article), skepticism prevails on multiple fronts about GoogleTV’s ability to make its mark , rosy predictions from Google notwithstanding.

However, another scenario could play out to turn the tide on GoogleTV.  This scenario has more to do with what Apple, its arch rival in some market segments, does than what Google does.

The Connected TV market is highly fragmented.  Most TV manufacturers have built their own Connected TV platform and storefronts.  This is to everyone’s detriment, and some have even proposed an idealistic but impractical approach for the television manufacturers to create a standard for Connected TVs.  In other words, there is no unifying factor to this fragmentation of Connected TV platforms.  While some of the major television manufacturers have announced plans to support GoogleTV, these television manufacturers are also pursuing their own Connected TV and applications platforms, in some cases based on Android, thereby making Google TV seem more of a hedge than a committed strategy for them.

Ironically, Apple’s next move in the television space may turn GoogleTV into the unifying force for Connected TVs, if indeed Apple does something as disruptive for televisions as it did for smart phones.  The smart phone market went from a few competing platforms to an outright platform war. In such platform wars, there is typically room for only two to battle it out.  What’s happening with PalmOS (RIP), Blackberry, or Symbian (RIP) in the context of iPhone and Android is evidence of this.

Should  Apple create an AppleTV to the exclusion of traditional television set manufacturers (as it did for the smart phone), the best recourse for existing television manufacturers would be to rally behind GoogleTV as the logical contender to Apple’s forced disruption of the television market.  However, if AppleTV includes the traditional television set manufacturers, this will most certainly be the final nail in the coffin of GoogleTV.

Steve Jobs is claimed to have said that the television set market was not attractive because of the slow upgrade cycles relative to mobile phones, for example.  Could it be that his ‘cracking’ the television market had partly to do with a change in Apple’s philosophy of creating a licensable software platform rather than a device?  With $160 billion at stake just in the US for television services without counting Internet advertising and services revenue, the business of television is far more lucrative on the services (and advertising) side than the device side.  Should Apple pursue this prong – and thereby enable Apple services on third party devices, while letting the device manufacturers create the presence of AppleTV devices it will certainly eliminate GoogleTV from the equation.  Apple’s ability to disrupt the market while also creating new opportunities for Connected TV devices through the strength of its brand and its services ecosystem would be ignored by television manufacturers at their own peril.  However, should Apple decide to build a closed platform as it is historically inclined to do, it will give GoogleTV a shot in the arm.

This may be yet another reason to tingle with anticipation on what Apple has in store with the next version of Apple TV.

From the Las Vegas Strip to your living room: Google TV partners at CES

Google TV Tries Again

Google TV Rebounds with New Chipset Partners and Devices

 

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December 19, 2011 by Sam Vasisht | No comments

2011 Has Been a Landmark Year for Online Video

As 2011 comes to a close, it is hard to deny that it was a definitive year for online video even against the backdrop of the assertive pace that the industry has been on for the past few years.   The highs and lows of the year seem to be tightly intertwined.  Among some of the prominent ones, Netflix set the high water mark for online video success by becoming the largest video subscription service in the US based on subscriber count, only to come crashing down a few months later for different reasons.  Even though Netflix still has an impressive subscriber count, due to management missteps and decline in investor confidence, it is no longer the invincible juggernaut it appeared to be earlier in the year.  It also demonstrates how volatile an industry we’re in, as do some other examples from 2011.

Recent rumors of Verizon’s interest in acquiring Netflix indicate shifts taking place in the world of PayTV as Verizon extends its video services to OTT.    Similarly EchoStar earlier in the year closed acquisition of the assets of Move Networks, and its related company, Dish, subsequently acquired Blockbuster out of bankruptcy protection.   Combined with Echostar’s prior acquisition of Sling Media, one has to question whether this is a ‘kitchen sink’ approach to addressing the disruption of PayTV by OTT, or something more strategic.  Time will tell.

Meanwhile, another PayTV industry initiative –TVEverywhere – finally seemed to gain traction in 2011, despite prevailing skepticism about it earlier in the year.   Its slow and steady progress in 2011 would suggest that it is gathering steam , augmented by the recent announcement about HBO Go now being available to 98% of HBO subscribers .

Similarly, UltraViolet finally launched with the first few titles in Q4, though it is still early to conclude where it is headed.

Hulu’s aborted exit attempt may also suggest an inflexion point in how broadcast networks view OTT.  Regardless, Hulu hit its stride in 2011 and validated the premise of Hulu Plus by reaching its year-end target of 1 million subscribers by September.

Among the other advances bridging traditional and OTT video, we may look back and realize that 2011 was the year when one or both of Google and Apple finally got their act together after a first ill-conceived attempt of GoogleTV and AppleTV respectively.  This appears to be the subtle message at least for now from ‘…Steve Jobs “I’ve finally cracked it”…’ to the recent upbeat tone of Google’s Eric Schmidt about GoogleTV’s adoption by television manufacturers.   In this vein of bridging traditional and OTT video, second screen applications had their share of controversy and adoption, as various MSOs tried to roll out iPAD applications for linear and VoD content, and meeting resistance from programmers around content rights issues.  Whether the future lies with Connected TVs, second screen applications, or both, it would seem that Google and Apple would both have potentially significant roles to play going forward and 2011 may be the year they found their mojo.

I can’t close out this piece without mentioning the 800 pound gorilla of online video, namely YouTube.  With initiating its quest for premium content and original professionally produced content in 2011, YouTube signaled that indeed the game has changed in online video.  2011 may well be recognized as the year when the definitive bridges were built or the lines were blurred – depending on how you want to look at it – between traditional video programming and OTT.

There were dozens of other noteworthy developments in the industry, some major, such as the emergence of Facebook as a prominent video destination, Amazon offering free video streaming content to Amazon Prime subscribers, and Walmart, the largest DVD retailer, launching its VUDU online video service.  There are far too many to cover here,and having been engaged in the industry since 2004, I cannot overlook the importance of 2011 as a year when a lot of things changed and coalesced.  How this plays out in 2012 and beyond can only get more interesting!

Stay tuned!  If you think I missed noting something that is significant or noteworthy, I welcome your comments on here for everyone to see or drop me a line at sam@21techmedia.com!

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December 01, 2011 by Sam Vasisht | No comments

The Paradox of Social TV

The DVR phenomenon, followed by VoD, and then the tsunami of OTT, was launched by a universal disdain for appointment based television viewing.  The notion of watching any video anywhere at any time has been the holy grail of new and emerging technologies and services such as VoD and online video.

Nobody can argue that this trend has been anything but successful. DVR and VoD penetration has continued to rise among cable and satellite subscribers. OTT video continues to be unstoppable.

A bigger force that has pervaded our lives since then though has been social media.  The valuations of social media startups continue to dwarf those of digital media for example.  The rate of adoption of social media services, whether that be social networks like FB and Twitter, or social commerce daily deals such as Groupon, also outpaces the use of digital media.

Companion viewing on second screens (such as an iPAD or smart phone) is the next big frontier for television (and one that I believe will catapult Apple to its next ‘big thing’ after the iPhone as a key attribute of the next iteration of AppleTV).  While the appeal of the second screen is in its potential for advertising – and highly targeted, interactive advertising to boot – one of the primary adoption path of such second screens will be through social features.

For all the things against appointment based viewing of television, one of the main attractions of it has been the ‘water cooler phenomenon’. That is now evolving to what can be reasonably called the second screen phenomenon.  This social integration with video is an interesting fork in the road that seems to lead back to appointment based viewing.

Chill.com is trying to capitalize on social behavior by setting up appointment schedules for OTT content so that people can schedule group viewing sessions.  At some point, if this catches on, there is no reason why something like what Chill is doing cannot become a feature in every OTT site’s viewing options.

Traditional linear television programming is also trying to reinforce such second screen social behavior.  Ten broadcast groups covering 45 of the top 50 markets covering 76 million US households have partnered with ConnecTV, a second screen application tied to live TV.  Some of the broadcasters have invested in the startup as well.

Even in the world of music, the new hot arrival is not Spotify but turntable.fm that encourages people to listen to the same stream at the same time – sort of like radio, albeit with additional social features thrown in.

Is there social viewing without appointment based viewing?  Digital and social media industries are evolving at such a fast pace that it is not inconceivable that new forms of social interactions may emerge that obviate appointment based viewing as a core construct for social TV.  But for now it seems that there are limited options to do so, and the attractiveness of social integration with video viewing may take us back to the future of appointment based viewing.

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November 09, 2011 by Sam Vasisht | Comments Off

Content Remains King

 

In 1998 Reed Hastings founded Netflix, the lar...

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If the recent gyrations of Netflix and Hulu demonstrate anything, it is that content still rules.  We can talk about the new forms of services, devices and formats, but at the end of the day content dictates the business.

Hulu’s rapid growth was primarily the result of its access to content from its owners who were major broadcasters.  It was an attractive acquisition target for some because of these content rights.  It posed inherent risks to its potential acquirers because of the content rights.  Finally, it was taken off the block by its owners in no small part because of where their content could end up.  Simply stated, Hulu attractiveness to consumers and potential acquirers is and has been the availability of content.  The somewhat tenuous relationship between Hulu and its broadcast owners is largely because of the uncertainty of where the premium content business is going because of online forces and the balancing act everyone is trying to do.  On the one hand, those with large established revenue streams and business relationships are continuing to band together despite undercurrents of change, and on the other, they are all looking to secure their future in a time of uncertainty, lots of unknowns, large potential disruptions and undoubtedly a few black swans before the tally is taken.  This goes for PayTV providers, broadcasters, cable networks, OTT providers, studios, advertisers and pretty much anybody participating in the business of premium content.

The other case in point for this argument is Netflix.  How does such a runaway success company by all measures stumble so badly so quickly?  They are playing in the same uncertain field as everyone else and it seems they tried to get ahead of the FUD, or perhaps were consumed by it.  In any event, it seems they overlooked the importance of content while getting carried away by the subscriber numbers for their streaming service.  Had their streaming library had the same depth and selection as their DVD rental library, I doubt this would have caused as much or even any upheaval.  Despite, the portended demise of physical media, and the lackl

Image representing hulu as depicted in CrunchBase

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uster adoption of BluRay while TV viewing and OTT video continues to grow, there is an obvious lesson here that content trumps the medium.

We are living in a time of rampant innovation in the digital media industry as a result.  Technological forces and shifting consumer demands are stretching the seams of everyone’s business models.  I see UltraViolet and TVEverywhere first and foremost as business models to maintain status quo to access of content by established players while opening themselves to new forms of distribution and mediums at the same time.  The amazing new technologies and systems being developed for these are to ensure that the king does not leave the castle walls without sufficient safeguards.

As a technology marketer it is not that hard pill to swallow as it may seem that good old fashioned content still rules.  After all what it is leading to is amazing technology innovation in video that we have not seen in more than half a century, no matter what part of the industry you’re in.

 

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September 21, 2011 by Sam Vasisht | Comments Off

Netflix: Weathering A Storm Or Causing A Tempest In A Teacup?

In 1998 Reed Hastings founded Netflix, the lar...

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Just as dumb companies do not turn innovative overnight, innovative and smart companies don’t turn dumb suddenly.  Past performance is generally a good indicator of future performance, at least in the near term.

Netflix was the darling of video innovation, becoming the largest paid video subscription service in the U.S. (by subscriber count) and creating a tsunami of buzz of what the future of video was all about. Then the company implements a price change and suddenly stands to lose a million subscribers.  The news is abuzz about them miscalculating the market, being too hasty, ham-handed and even foolish in implementing the price change.  Netflix has gone from a darling among innovative companies to one that seemingly turned dumb overnight.

The range of speculation on what is causing this loss of subscriber count has everything and the kitchen sink thrown in.  The question I have is not what caused this subscriber loss, but rather, so what?!

Netflix has 24 million subscribers: 24 million!!  I think that still places Netflix ahead of Comcast, a milestone that rattled the windows in Q2.  The worst hit Netflix will take as a result of the price increase is behind them, and  it still has 24 million subscribers!

Nowhere have I read a mention of ARPU, one of the metrics subscription services live by.  With financial guidance remaining the same, ARPU is trending north.

Playing to quarterly results for the Street is the death knell for growth companies.  Clearly, Netflix ignored this by implementing the price increase.  No one is dumb enough not to recognize that it will take a hit on account of the price change.  So what if it is one hundred thousand, or one million.  In the long game, Netflix is executing a strategic shift that is bound to hit some unexpected bumps along the road.

That raises the question of metrics.  Innovative companies chart course by their own metrics, not those of analysts or the Street.  I recently read an article that Steve Jobs made Apple what it is by ignoring profit (that of course is what Wall Street lives by).  I subscribe to the thesis, and Apple is just one example.

The beauty of all this is that the companies or people we admire the most don’t play by the rules we understand.  I for one would like to think of Netflix as one of those companies.  We were surprised when it was bidding against the likes of HBO for original content or shelling out nine figure licensing fees for premium content.  Give it some time and I believe that we’ll see a Netflix bounce again.  Maybe a quarter or two and we’ll be singing the praises of Netflix (disclaimer – I am not nor have ever been a stock holder of NFLX)

That said, as I have said before here and here, Netflix has its own conundrum for achieving long-term success.  It may weather the current onslaught of subscriber response to the price changes, but whether it can make it to the big leagues in the transforming online video industry is to be seen.  Netflix hopefully knows what this will require better than any of us.  This round may be a play to get to the finals of that league — rather than what a 19% drop in stock price might seem to indicate.

 

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September 19, 2011 by Sam Vasisht | Comments Off

Did Netflix Overlook Consumer Inertia?

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With everything being said about the Netflix price increase and its ripple effect in projected subscriber loss as well as the steep drop in stock price, we still may not know everything that caused this unexpected turn of events for Netflix.  I could list here all the reasons that are being suggested including price sensitivity, service bundles and competitive forces, but at the end of the day the unexpected outcome could be more tied to irrational consumer behavior than any of the more obvious reasons. I expect that Netflix modeled the price increase taking into account price elasticity measurements to project some subscriber loss.  Given that they needed to change their Q3 guidance, something went terribly wrong.

Could it be that they did not take into account a deeper consumer behavior?  Despite nearly perfecting how to make video recommendations to consumers, does Netflix actually understand everything about its users?

As consumers, we are, for the most part, creatures of habit.  We don’t examine everything we do, or why we do it, particularly when dealing with small ticket items.  In the scheme of things, taking into account prices of other subscription services such as cable, Internet, and cellphones, Netflix is a small ticket item.  Small ticket items are driven by impulse and inertia.  Netflix probably benefited from both impulse and inertia for a long time.

More recently, Netflix was probably benefiting more from inertia, particularly in the DVD segment of its subscriber base.  What Netflix did in announcing the price increase may have broken that inertia, more so than change people’s perception of the value of the service.  It is still a small ticket item after all.  When prompted, users will pay attention and make a choice.  That is what Netflix did – prompt users – in a way that it probably did not anticipate.

Let’s hypothesize how this inertia and Netflix’s actions manifested itself:

For subscribers who were highly infrequent DVD users:

These are people who did not watch sufficient DVD’s but kept the service out of inertia and frankly limited other alternatives for the past many years.  The price change woke them from the slumber, and many decided to make a decision that could have been postponed, in some cases indefinitely, had the inertia not been broken.  While a few years ago, adequate alternatives did not exist for these users, now with the availability of Redbox and other kiosk services, the tradeoff may have been sufficient for such users to drop Netflix when they stopped to think about it.

SAN RAFAEL, CA - AUGUST 14: A sign advertisin...

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Interestingly, these were also the most profitable customers for Netflix.  By waking their slumber, Netflix may have done the greatest damage.

For subscribers who watched a lot of DVDs:

I expect a lot of these users are still with Netflix, but it is possible that for some such users their high appetite for DVDs is being also satisfied by Redbox.  To pick up the occasional Redbox impulse DVD while keeping a Netflix service would not be out of the ordinary for such users.  However, by creating a decision point as a result of its price hike, Netflix would give these users reason to pause on how to best allocate their dollars for their voracious habit.  For some the idea of an impulse rental at a nearby Redbox outweighs the hassle of actually needing to pick up and return the DVD.  At a dollar a rental, that’s one DVD every other day for a $15 monthly spend.  With Netflix, even with a 2 DVD option at approximately the same price, the logistics don’t allow watching a new DVD every other day.  While that math alone may not have overtaken  the previous state of inertia, giving people a reason to pause with the price increase, caused them to reevaluate their options, thereby breaking the inertia.

For the others in the middle:

Even among others, I expect Netflix broke people out of their inertia.  While many may have concluded that Netflix is still good value for money, others may have felt compelled to make a change.  With the likes of Redbox popping up everywhere and various attractive options for getting current TV programming online, some customers likely chose alternatives over Netflix when prompted.

An interesting corollary, if you buy into this thesis, is that any unbundling or price increase by Netflix may have triggered this behavior and upset the apple cart as it did.  So the actual dollar amount of the price increase may have been less relevant than the directional change of unbundling and price increase.  This is where any quantitative pricing models go out of the window.

While it is important to monitor customer satisfaction (which actually woefully few companies do, but at least most know to try and keep customers satisfied), it may be just as important for companies to know why customers stay with them in the first place.  Whether satisfied or not, if customers stay with you for reasons other than what you think, it may be a sign of other impending problems.

 

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August 24, 2011 by Sam Vasisht | Comments Off

Is Smart TV an Oxymoron?

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Just so you don’t misunderstand me, let me start with the disclaimer that I love the idea of Internet-connected TVs. If the future is to have most things connected to the Internet, such as your toaster, refrigerator and washing machine, the TV is not a bad place to start.

Earlier this year, ConnectedTVs were rechristened SmartTVs, probably as a way to draw some of the reflected light from the growing popularity of smartphones.  For the first time in Q4, 2010, smartphone shipments exceeded PC shipments globally, and by 2012 smartphone shipments are predicted to surpass feature phone shipments in the U.S., according to InStat.  This is a long journey for smartphones that were until very recently simply the purview of enterprise and business users.

The term “smart” in the context of devices or gadgets alludes to advanced and rich in features or something that is elegant to use in functionality.  The inflexion point in smartphone adoption happened with the iPhone.  It immediately redefined the category of smartphones from a business work horse to the coolest, most fun gadget you could have with an online connection (and a mobile one to boot).  The rest, as we all know, is history.  Who could then resist the lucre of being in the smartphone business?  The game is on with Android following suit, Microsoft waking from its slumber, RIM bearing the major brunt of this tectonic shift, Nokia losing its mantle as the leading smartphone platform and eventually discarding Symbian, and Palm getting acquired by HP.

History is being written, folks, and the smartphone will forever change how we do things.  Location based services being used for commercial applications, such as local promotions; finding friends and building spontaneous social networks; checking into venues; and all sorts of other seemingly useful and useless things are nevertheless transformational in what we do and how we do it.  And this is just the start.  Expect a lot more from the smartphone when we’re out shopping, looking for things to do, using virtual reality to enhance our experiences of places we’re visiting, using QR codes to get more information instantly and interact with advertising and such on the go, and the list goes on.  Truly, calling these devices smart is appropriate nomenclature.

Phones are first and foremost a communications and productivity tool.  Despite all the fun stuff that is available for smartphones — gaming and video included — one cannot deny that the tremendous utility of the platform, applications, and location awareness is an important driver of productivity and connectedness.

The TV, on the other hand, has mainly been an entertainment device.  As the programming has evolved, so has the role of TV in our lives.  We don’t hear the term anymore, but for the longest time the lowly television was called the idiot box.  Everyone can relate to Bruce Springsteen’s lament of ’57 channels and nothing on’, at least until the arrival of DVRs.  Even then, by the time the fall season ends, the TiVo library starts getting sparse.

The TV has been credited as a contributor to the general dumbing down of how we spend our time.  Whatever smart things could be done on a TV set in the past never took off.  I am referring to things such as WebTV and Microsoft Media Center PCs. I am sure some of the rationale for that was consumer choice — although those products coming from Microsoft may have had some bearing on it too, if you know what I mean.  The smartest things connected to our TVs today are game consoles, and therein lies the dilemma of calling the TVs smart as well.  GoogleTV still has a pulse, but just about, and AppleTV – well, that was dumbed down as well.

So forgive me if the use of the term smartTV is going to take a little more getting used to compared to the smartphone.  ConnectedTVs was an appropriate name – they are after all now connected to the thing that we all want to be connected to – namely the Internet.  However, making the qualitative distinction that the TV is going to do smart things for us, or actually help us do smart things is yet to be seen.  I am definitely in the camp that wants smart utility merged with the TV, but (despite being a marketer) I need it to be more than a marketing term before I can subscribe to it.

 

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August 19, 2011 by Sam Vasisht | Comments Off

More On TV Audience Erosion

Television was still in its experimental phase...

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In a previous post, I wrote that demographic changes in our population perhaps amplified, or were even mistaken for, cord-cutting data.  The crux of this was the decline in the 18-49 age audience for broadcasters. This is a critical audience metric that drives the approximately $70 billion television advertising market.  Traditionally, this is so because the 18-49 audience is considered to be the heaviest consumers and buyers of goods and services advertised on television.

In my earlier post, I suggested that as our population ages and the last of the baby boomers migrate out of this demographic, its overall size is not growing as fast as it did, and in fact the older of this demographic — who are actually reaching their peak earning and spending years – is actually declining.

One adjunct point that I left out of the original post was the question of whether 18-49 demographic actually mattered as much as we count on it to, or whether it was a vestige of some legacy limitation or consideration.

Surely as measurement technologies advance and we have better ad targeting capabilities for television, actual content viewing and response to advertising will outweigh the age metric. In another post on this topic in Gigaom, “Bad news for Nielsen: TV ads to be bought more like online ads,” Ryan Lawler quotes Michael Hayes, president of Initiative Digital, suggesting that the 18-49 demographic does not matter because what matters is the buying behavior and intent, regardless of age and gender.  If we can measure this — which is the goal with digital ads and IP enabled set top boxes – then the age demographic is irrelevant.

I could not agree more with these statements. At the same time, even without getting to the highly measurable state of television advertising with new IP-based solutions, it seems that marketers and media buyers would have other important considerations given what we already know of aging demographics of our population.

I don’t claim to be a statistician or a sociologist.  I am a consumer of data rather than creator or aggregator of it, such as is done by analytics firms like Nielsen and comScore.  At the same time, as a marketer, I cannot help but point out another shift in consumer behavior that is noteworthy to marketers.  There is some truth in statements like “40 is the new 30,” and “50 is the new 40.”  People are living longer, healthier lives, and older people today live more like their much younger counterparts of before.  I suspect very little of this idea has been incorporated into the media buying considerations, given the 18-49 criterion has been static for some time.

As IP connectivity continues to mushroom for TV playback devices, such as is happening in spades already, expect to see the media buying landscape shift as well.  How quickly this happens will be subject to the big blocks of consumer demand, content services, and device penetration coming into formation.  It will not happen overnight, but much faster than one would have predicted a few years ago, given the tectonic shifts already happening in the media industry.

 

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August 16, 2011 by Sam Vasisht | Comments Off

Google and Motorola – Nothing More than the IP

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There’s never a dull day in tech, and digital media in particular!  Just when you think there’s enough to handle with questions around who’s going to end up with Hulu, what Netflix’ price hike will do to its subscriber numbers, or whether startups can do a run around over traditional media models as in the case of Zediva doing ‘DVD streaming’ – (if only it were that easy), the big ‘black swan’ event happens out of the blue – pardon the mixed color metaphor.

I am referring to Google buying Motorola Mobility.

The speculation and analyst machinery went into redline territory almost instantly.  And why not, Motorola Mobility is the segment that has the mobile and cable/broadband business lines of the once illustrious Motorola.  If there are two tech industry segments that are going gangbusters it is mobile and video – and both these are represented in Google’s initiatives across Android, YouTube, and GoogleTV.  These are also represented in Motorola Mobility, albeit the company has been lagging in both these categories of late -  having lost its mantle in the top 5 handset vendors some time ago and losing its position as the number one set top box manufacturer last year.  But that’s Motorola for you, and a discussion for another day – how a once enviable company dropped to such lows.

Nevertheless, while Motorola Mobility has been losing ground for some time, it is still the 2nd largest set top box supplier to PayTV operators and the leading supplier of IPTV set top boxes.  It is also the system supplier to Verizon FiOS in the IPTV space. That’s reason enough to give rise to speculation of what this means for Google’s video and TV initiatives.

This announcement has a special significance for me.  Motorola Mobility is only the second public company that Google has acquired.  The first was On2 Technologies whose acquisition closed at the beginning of this year.  As it turns out I have been an employee – and perhaps the only employee to bear this distinction – of both these companies.

Other than making me long on GOOG (On2 was primarily a stock based transaction and so will the Motorola Mobility deal if it goes through, and I was/am a stock holder of both companies) – it gives me some insight.  And if history is a teacher, I would tell all the speculators on what is going on here:  not much to speculate about!  Google is buying Motorola Mobility for its mobile patent portfolio.  That in itself is important enough and worth the $12.5 billion price, period.  The idea that Motorola Mobility’s overall business has a great strategic fit with Google, and will somehow change the landscape of video, GoogleTV and PayTV is perhaps a nice exercise in scenario analysis, but if that happens it will be evolutionary and opportunistic, and not the driver for this deal.

That said I will go out on a limb and suggest that Google will shed these parts of its business or shutter them over time.  If they can open source set top boxes, CMTS, and other network plumbing, they would but it does not make much sense.  The value of these businesses, while seemingly significant, are actually not that attractive in the long run.  In the case of On2, Google shut down the encoder business lines that were On2’s primary revenue streams.  Google is building its bulwark against the likes of Nokia, Microsoft, Apple and others in the mobile IP space.  Motorola is a giant when it comes to IP (almost three times as many patents compared to Nortel’s 6000 patents which a consortium of Google’s competitors acquired for $4.5 billion – albeit value of patents and number of patents can be unrelated.)  That is justification enough.

When Google acquired On2, there was similar speculation.  What did it mean for Skype, Adobe Flash, and so many other considerations given the large footprint On2 had in the video landscape?  I am a fan of Occam’s razor – the simplest explanation is most likely the correct one, or as a graduate schoolmate used to say, there is no fifth leg of the cat.   Google just needed a video format because they cannot be beholden to the likes of Microsoft, Adobe or Apple (WM, Flash and H.264 respectively.)  I wagered they were going to open source it, dilute the value of MPEG LA’s licensing initiatives for H.264, and try and make technology ownership a non-issue, which is in the best interests of Google.

Similarly, the grand plan for Motorola Mobility is the simplest solution (and what Google has stated) -having an IP portfolio to counter the growing threat of IP litigation against Android, an extremely important pole in Google’s tent.  This is all the more important given the IP issues that MPEG LA is raising about On2’s technology and VP8 codec.

If this deal turns out to be anything more than building IP defenses for Android, it would be serendipity, or icing on the cake, at best for Google.  Given Google’s discipline about sticking to their knitting, I am of the opinion that they will shutter or divest extraneous parts of this business over time.  Meanwhile, it is rich fodder for fortune telling and speculation that will keep the blogosphere and media buzzing for a while.

 

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August 15, 2011 by Sam Vasisht | Comments Off

Scarcity Breeds Aggregation Opportunities

Based on news from the world of online video over the past few weeks, the dust is starting to settle on a number of topics that had been contentious, if not controversial for some time. Among them is the affirmation of online services as a bona fide monetization model for major media. This was stated by Viacom on its earnings call two weeks ago. Similar signals from other corners of the industry range across Netflix’s price increases in its continuing quest for premium content licensing; Amazon stepping up its game in video streaming with a licensing deal with NBC and a few weeks earlier with CBS; and Hulu attaching attractive 5 year content licenses with its rumored sale offer while signing up additional content deals as well.

The race for content aggregation is on.

Content is just one form of aggregation that is the hallmark of the industry. The flip side of content aggregation is audience aggregation. The idea of long tail and ‘market segmentation of one’ is great in theory, but businesses are built on aggregation.

I have long maintained that aggregation is a fact of life and will dictate much of how the industry evolves. Even TV Everywhere is in fact a virtual aggregation model of different services such as HBO GO, linear channels such as CNN, and now Fox’s pay-wall for broadcast programming. Google TV’s Achilles heel, in addition to all its other flaws, was its inability to aggregate meaningful content for video audiences. Among the breaking news over the past few weeks was also the continuing saga of Google TV’s dismal performance with the release of data that returns exceeded shipments. More on Google TV later.

Where the rubber meets the road is when aggregation models intersect with business models and technical underpinnings. That’s when the economics of scarcity take over and the interesting business dynamics emerge. (All economics are economics of scarcity, so that is a redundant term btw, but I thought I would use it for emphasis).

In traditional Pay-TV, the scarcity was in spectrum, whether for cable, broadcast or satellite. This made it a medium for premium, high value content broadcasts that could reach millions of users simultaneously. Today emerging scarcity is bandwidth, user interface real estate, time – and assuredly more scarce resources will emerge over time that will shape the industry and our businesses.

At the same time, such scarcity creates opportunities.

While premium content services and mega million content deals have been getting the spotlight, there are a lot of things going on in our industry that address the impending scarcity that could become bottlenecks in the growth of our industry. A few examples illustrate the point:

Recently, mobile bandwidth caps have become a reality. New bandwidth optimization and traffic management technologies are abounding in the shadows of the big news of multi-million dollar content deals. The Net Neutrality debate is another face of bandwidth scarcity.

Best Buy’s Insignia Connected TVs are using TiVo’s UI – another piece of recent news. That’s a first for TiVo, and may well be a good business for them. Rovi has filed law suits against Hulu, and earlier sued Amazon for its search and program guide IP. Whoever can figure out the UI challenges to all this content getting aggregated, presented, discovered and displayed will have much to gain.

Lastly, consumers’ lack of time and attention is creating the opportunity to aggregate different types of services in new and interesting ways that can be classified as social TV, second-screen or multi-screen experiences or whatever else, but it is creating new aggregation challenges to be solved. And there is no dearth of takers in addressing these challenges.

So let’s not forget, we are all in the business of aggregation. The big question is what is it that we’re aggregating? Getting back to Google TV, it tried to aggregate too much of the wrong thing –everything off the Internet onto a TV screen. We know how that turned out. Netflix, Amazon, Apple, Hulu – they’re all aggregating content for which there is known demand. How they and others aggregate experiences, aggregate solutions to technology challenges, and aggregate user demand through creative and innovative usability solutions that save people time and effort, will decide the winners and losers.

What are you aggregating that this industry needs?

 

 

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