Thousand, tens of thousands of people line up a day in advance to pay up to $400 for a device most plan to dispose of within 3 years. The device is sold with pretty healthy margins and is rapidly sold out. Meanwhile TV sales, a device most will be using for the next 14 years and is sold with virtually no margins, TV sales are at best flat as well as TV pricing. In spite of the weak economy, there is plenty of excitement in consumer electronics but it seems to be concentrated on a couple of products and one company. Indeed there is some speculation that Apple might become a monopoly. I see little danger of that. This posting contains some of my views on what is happening and what is likely to happen in Consumer Electronics (CE). I first give an assessment of where the industry stands then likely (or in some cases already implemented) reactions
BREAKING IT DOWN
To be sure, Apple has a great deal of consumer mindshare. This exist because of great marketing and a wide product line where success on one consumer platform reinforces success on others. However wide participation across the industry is not necessary for success. An example is Google's recent decision to sell its Set Top Box (STB) which came with its purchase of Motorola Mobility; the group was not necessary for Google's plans. Another part of Apple's success has been masterful management of the CE ecosystem, including the parts where they are a buyer rather than a seller.
Components As I have noted in other postings, information operations can be classed in 5 functions: Display (which also includes other human interfaces such as printers or speakers), Memory, Communications, Processors, Sensors. Many of these functions had been common stand alone devices such as Cameras (sensor), simple cell phones (communications) and tape recorders (storage). However, although these devices are still available, mostly people buy the function as part of a composite device such as a smartphone. I will comment on 4 of the 5.
Display: In the diagram, TV is not listed as a separate platform. Although there are current efforts to change this, it has largely become a peripheral, a display, for the Set Top Box or other content outlet. There has been wide speculation about Apple launching an Apple branded TV set. I have previously posted that I think that this would actually be good for the industry as Apple will certainly spark a round of innovation and would certainly attempt to lead prices up. But absent content agreements an Apple TV is unlikely unless it can be sold as a requisite attachment to some other device.
Storage & Communications: Providing free cloud store with their devices puts device makers in the role of selling storage. Unlike most smartphones, the iPhone does not have removable flash memory. By selling iPhones with differing on-board flash capacities, Apple effectively garners for itself the flash attachment sale. Removable storage, such as flash, can be thought of as a form of communications as well; the flash chip can be moved from one device to another, transporting the information on it as well. The absence of removable storage limits the user's communications options. The change in connector to a proprietary design further puts Apple in the business of managing and selling communications for its devices.
Sensor: Cameras still exist as a separate CE category, but there has been steady improvement in cell phone cameras both in terms of resolution and functionality. Cell phone cameras will never be able to take massive lens attachments, but short of that, the ubiquity of cell phone cameras is putting an end to the "point and shoot" segment of the camera market.
Composite Devices
The incorporation of various component functions into composite devices such as the smart phone means that the smartphone is effectively gobbling up the markets of those components as independent devices... except for the TV/Display, where the all-important content selection function was taken over years ago. TVs still have tuners, but few actually use them. Another basic trend in composite devices is compactness. The smaller something is the more difficult the engineering and the fewer companies can compete. CE leaders therefore; therefore promote thinner and thinner devices.
Operating Systems
Operating Systems (OS) are way to manage the ecosystem. Among Google's first moves in CE were development of its own OS. HP developed its own OS; but it seems to have gone by the way with their absence from the tablet and smartphone market. With the time and difficulty of enticing a developer community, of all of the parts of the CE ecosystem, a vibrant OS is the most difficult to replicate.
Content & Services As I noted above, removable storage is as much a form of communications as it is storage. That being the case, with the proliferation of high speed internet connections and the decline in hard drive and flash storage costs, the optical disc market is going away as it the content industry's distribution chain for physical media. However, having seen what happened to music industry pricing and revenue with their internet distribution agreements, the video industry is in no rush to sign up for the same thing.
Consumer Outlet
A man walks into a Walmart and asks to buy a Kindle. The sales associate behind the counter says, "But we don't sell Kindles." The man asks, "You are one of the nation's largest CE retailers, the Kindle is an extremely popular CE product?" The sales associate answers, "Yes...." There is no punch-line. The fact is Walmart is discontinuing its sales of Kindles the device isn’t just a tablet, it is a competing retail outlet that can solicit and take orders. Although, even in the most tumultuous relationships, big companies rarely refuse to do business with each other; Apple still buys from Samsung, the differing interests among the major players is causing some rifts in what is normally a short-term maximize revenue industry. The conflict is not just between Walmart and Amazon, but Google as well. Apple has its well known tiff with Samsung but also looks to avoid doing business with Google, hence Apple trying to replicate Google Maps. Finally, all of the hardware makers have some issue with those that are primarily not hardware makers, as the non-hardware makers would like the hardware to be free in order to more easily sell content.
FUTURE
Components
Much of what has been going on with composite devices have been facilitated by what is going on with display technology, packing ever-more pixels into the same size screen. That is coming to an end, not because the technology has reached its limits but because the human eye cannot see ever more concentrated pixel densities. As with the other components, displays will continue to improve, but not to the point where they are driving the platforms, not without a fundamental technology change. Flexible displays may be that change and I discuss more on that below.
Fundamentally, the component makers have two principal interests. The first is to reassert themselves either as independent products or as composite devices. The TV industry formed the Smart TV Alliance in order to facilitate an app developer community writing apps for smart TVs. Nikon has developed a camera with on-board wireless communications, turning the tables on the existing composite devices by adopting some of their function. Coupled with its Droid operating system, a Skype app and a Blue Tooth headset and contrary to what I said above, you start to approach a cell phone with interchangeable lenses. Add advanced voice or esture command features and it could be computing device as well.
The component makers have a secondary interest in balancing out the power of the OS at least as far as that OS exists as a sales channel. That means supporting the Brick and Mortar retailers.
Composite Devices
As discussed above, the TV makers would like to make the TV a composite device. The number of participants in other composite devices market will expand as well. Given the extent to which tablet sales are eating into sales of the incumbent notebook, existing notebook and notebook processor companies desire to add these devices to their lineup. HP has a desire to re-enter both the smartphone and tablet markets. Barnes and Noble has the Nook, Amazon has the Kindle to increase their consumer reach and facilitate content sales, not to make money on tablets. A tablet from Walmart would not be a surprise. Indeed, making money on tablets may be quite difficult with more proprietary tablets from those wanting only to expand consumer access.
In addition to new participants in the existing platforms, there might be new platforms again driven by advances in display technology: a new form factor for the tablet enabled by a roll-up display or a smart watch. Again, advanced voice command or gesture recognition can facilitate these new platforms as well as wireless recharging. For human factors reason, I do not expect a near-to-eye device (glasses with built in video screens) as such devices have been launched in the past and gotten a ho-hum reception from the market.
Although information can be shared across platforms, the composite devices really are not that tightly linked. Nintendo recently introduced the TVii which changes that. In some ways it is the game console reasserting its central position and the TV as a peripheral. However, it is also bringing new functions to the TV and fundamentally expanding the usage model. The name TVii bares some resemblance to the much rumored itv and it may be Nintendo beating Apple to the punch.
Operating Systems
Just one comment about operating systems, Microsoft has been sitting in the anti-trust penalty box and has not been much of a factor as the smartphone and tablet markets have developed. Their time in the box is up and given the current valuation of Apple, they won't be seen as the behemouth; so I expect them to be much ore aggressive.
Content & Services
Since the advent of the VCR and cable, the direction has mainly been in the direction of user purchased content rather than ad supported. In addition to Amazon's rumored ad supported tablet, ad supported content is in resurgence. Possibly this is due to the weak economy but this would tend to favor Google and the Droid world. This is especially true given the video content owners reticence about following the path of the music content owners.
Consumer Outlet
As stated above, I expect the Brick and Mortar retailers to get added support from the hardware makers that actually intend to make money on hardware. I also expect that both the B&Ms and the online retailers to expand their offerings of proprietary tablets. In addition both the B&Ms and online retailers might expand their http://www.amazon.com/gp/b/ref=pe_215910_25932080_pe_ecg/?ie=UTF8&node=5785845011&ld=SYSE25810360 services, buying used product in order to facilitate the sale of newer versions. Increasing supply constraints on rare earths used in electronics may drive this as well.
Digital Signage
Finally, a mention of digital signage and digital out of home.... As digital signage becomes more ubiquitous, how these mobile devices interact with the signage will become a factor in their utility. Apple chose not to include Near Field Communications (NFC) on the iPhone 5. This was, perhaps, compelled by the Apple business model. However, for the Droid world, NFC may be a critical part of their future allowing consumers to opt-in for advertising regardless of device maker.
CONCLUSION
The above, though an incomplete assessment of the market, highlights that there are numerous opportunities for innovation in the CE world. Although Apple rides high, their position is not as secure as it seems. If their competition or other adversaries quit focusing on copying Apple and instead focus on the consumer and giving them something that Apple doesn't... that is stylish and easy to use, then there is a world of possibilities. Indeed, with the advancement of flexible displays, there is an inevitability of change.
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