CE 2012

INTRODUCTION
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.

For this analysis, I break the CE ecosystem into 5 parts: Components, Composite Devices, Operating Systems (OS), Content & Services, and Consumer outlet. Although Apple, as a device maker seems to have the upper hand currently, others in the ecosystem are multi-billion dollar companies as well and have ways to respond.

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.

What determines TV Sizes

LCDs are made, several at a time on larger sheets of glass (called a mother-glass) and “cookie cut” into smaller displays. Determining how many LCDs to cut from a mother-glass is a balance of pricing and geometry. In general, larger displays sell for more per square inch than smaller displays, so there is an incentive to make as few cuts as possible. However with current quality requirements, the bigger the display, the lower the yield, as it is more likely to contain a visual defect. Further, for whatever size is chosen, the manufacturer must have orders for that size. In general, sizes are chosen so that at least 6 individual displays (cuts) come from each mother-glass but usually less than 25. An LCD maker with a yield issue may choose to do more.

There are a number of geometric considerations as well. Of course the size of the manufacturer’s equipment is a starting point, the length and width of the mother-glass it was designed to take. LCD fabrication equipment (fabs) comes in generations or gens. Early on, the gen of a fab did describe when it was made. However as the size of LCDs diversified with the types of products using flat panels, gen has taken on a meaning more related to the size of the equipment than when it was produced. An LCD maker may install a Gen 6 fab to make monitors and the fab may be newer than their Gen 8 fab making TVs. Within a Gen, sizes may vary somewhat; a slightly large Gen 6 fab may be termed a Gen 6.5. As with all manufacturing equipment, products change, screen sizes change, and a fab will eventually be making a different product in a different size from what it was originally designed for.

Aspect ratio is another consideration. TVs are generally 16:9. Notebooks may be 16:9 or 16:10. Cell phones and monitors can have substantial variances from square to 21:9. In addition to the display itself, a small border area is needed to cut the mother-glass into individual displays. The size of this border depends on the manufacturer. Finally, LCDs are usually made with all the displays on one mother-glass being the same type. The arrangement of these displays on the mother-glass is termed the lay-up. The layup does not necessarily use every square inch of glass, in fact usually not. However, makers like to maximize glass utilization from the standpoint of getting the most out of their equipment and maximizing the number of cuts.

Sometimes very small differences in equipment or display size can mean the difference between getting an extra cut or two. For instance, when the Standard Panels Working Group (SPWG) settled on a business notebook size of 16:10, 14.1” diagonal vs. the competing 15:9 14.0”, two sizes that cannot be differentiated except by actually measuring them, there were substantial manufacturing implications. While all of the fabs that could make a 14.1” could make the 14.0” as well, two of the fabs that could make a 14.0” could not make the 14.1” without making it with fewer cuts. This meant that those fabs were uneconomic at that size. The 14.1” size was chosen to be consistent with previous aspect ratios and with the long term planning for Windows regarding screen content.

So, very small differences in equipment size may cause an LCD maker to choose one particular screen size vs. another. This is why TVs are often termed 42” (or some other size) class vs having every maker make a screen that is precisely 42”. Sometimes when it seems that the industry has settled on a standard size such as 40”, an individual LCD maker will determine that he can get the same number of cuts and consequently virtually identical costs, on a 42” or larger screen size and start offering that size. Even when the industry seems to standardize on sizes (32”, 40”, 55”) other sizes will proliferate. For a particular sized fab originally designed to make 12 cuts from a mother-glass, only certain sizes of larger screens will fit well on that equipment. In this example, trying to make a slightly larger screen may mean going from 6 cuts to 3.

Recently there was a story of some TV brands selling smaller than advertised TVs. The article tended to blame the retailers for the problem. However, large retailers sell multiple brands and multiple models; they cannot inspect every TV model to ensure that it is in compliance. Most Retailers actually do keep tape measures behind their TV counters; however this is mostly to ensure that the TV physically fits where the consumer is intending to place it. Short of actually measuring the screen diagonal yourself, the best guarantee that you are getting the screen size advertised is to buy a trusted name brand.

The New IBM

When DisplayWriter, by IBM, was still the dominant word processing software, my company was faced with a decision on upgrading. I don't recall what decision was made, but I do recall that it wasn't DisplayWriter. DisplayWriter was ruled out because it could not write to an Ascii file which was the universal word processing file type at the time. It could read Ascii, it just couldn't output to Ascii, meaning that once you modified a report in DisplayWriter, future modifications had to be done with Displaywriter. Rather than cementing the IBM software as the only choice, the Ascii situation cemented Displaywriter as a definitely not. Personal tech decisions can be less pragmatic. However, repeated instances of not putting the consumer first can wear on a company's brand and, eventually, marketshare.

In Europe, cell phones are required to have a micro-USB connector. In addition to convenience for the customer, this minimizes waste from having to continually buy multiple new chargers and discard the old. Preserving connections such as preserving connections to other types of word processing software minimizes the headaches and expenses of upgrading system components without having to upgrade everything. In some sense, this is more important to the consumer as no one wants to toss all of their old peripherals in order to upgrade particularly if their peripheral is an automobile with a dock made for the old device with the old connector. I imagine the automakers are not pleased with the idea of a new connector either as they had been considering closer integration of car functions with the owners mobile device.

In Rugged Displays I mention how, although consumer cared about every bit of weight, they held little value for increasingly thinner notebooks once they got under an inch. We also now know that 80-90% of cell phone users jacket their phones, sometimes increasing the thickness by triple. As with many factors in consumer design, thinness can be pushed to the point of diminishing returns or even no value beyond bragging rights. To be sure, bragging rights are important for branding but they are easily trumped by features that carry real benefit.

The Film Rolls No More

When the IBM PC was introduced in the early 1980's the component cost of the 5 1/4" floppy drive was about $550. After some initial rapid cost reductions and a format change (with a capacity increase) around 1987, the device settled into a very regular 18% per year cost reduction. Although there were some attempts to expand the device capacity at the end of its life, the floppy basically relied on predictable annual cost reductions to remain on the PC platform. The image to the side is from an old technical paper of mine on integrated optics. Being partly a mechanical device and flash being made by photolithograpy, it was a matter of time before flash replaced the floppy; but floppies did not live that long and flash thumb drives are now used like floppies were although I am still waiting for AOL to start sending me dozens of free thumb drives in the mail. (Before net connections were standard, AOL used to send out its net connection software on floppy disk to anyone that they remotely thought might have a computer.)

Floppies were cheap enough to be considered free but lacked the capacity of a hard drive or tape. However, like tape, it was removable from the device and made for easy transfer of data from one machine to another. But therein lies the rub. Removable media are more a form of communications than they are of storage. Though the floppy was, in some ways competing with tape or a hard drive, the real competition was the internet. As files grew bigger and the internet grew more capable there was no longer any point to having a floppy disk. About the same time floppies were going away, optical discs (with a c) were on the rise. Optical discs were cheaper and much higher capacity. However, advancement of the internet and of wireless capacity has been relentless. Even the cheapest DVDs and Blu Rays today come with a WiFi connection standard and increasingly rarely get used to actually play discs.

Tape has disappeared as well. Hard drives were on a steeper cost curve and tapes inability to do random access did it in. AS on the PC platform, Tape's optical cousin, film, survived for much longer having inherently much higher data capacity. However,Fuji is now discontinuing its motion picture film business, shortly after Kodak announced its exit from the business as well. Although the decision may be credited to a general trend to have everything digital, end to end, it is really the low cost of digital transport rather than any cost advantage of digital storage. It was the combination of cheap hard drive storage and vanishingly small data delivery (as opposed to carting around 100 pound rolls of film) that spelled the end for film at the movie theater.

Film, of course, is not disappearing completely. Very high end theatrical projection such as Imax will continue as film is still top end as a theatrical display technology rather than as a communications or storage device. I earlier published a list of my favorite display related movies. There were only 9 in my top ten. Cinema Paradiso is my #10. Here's to film.

Fine