The Rock, Paper, Scissors of Gadgets

There are three ways to make money on consumer hardware: you can charge more than it cost, you can attach a service and cover the hardware cost with service charges, or you can use the hardware as a vehicle to sell content or other products. There is nothing that says that you cannot do all three. However, in a competitive environment, the three different strategies tend to nullify each other. With cellular phones, the model had previously been to give the phone away at cost in order to get the consumer to sing a service contract. The problem with such a model is that when you are giving away the hardware, every component of the hardware is cost. Such platforms tend to not be a font of innovation as new or upgraded components means more costs. The incumbent hardware is highly vulnerable to new entrants that offer new capabilities and upgraded performance; the hardware rock breaks the cost cutting scissors of service subsidized hardware. The top cell phone makers during the free cell phone era are now struggling as the cost reduction race has tuned into an innovation race.

With hardware being rock and services being scissors, content becomes paper. The willingness of the content owners to support a hardware platform can make or break that platform. Disney’s decision to support Blu-Ray rather than HD-DVD spelled the end of HD-DVD. The video content owners’ reticence to sign an agreement with Apple seems to be a stumbling block for the much rumored Apple TV set. Paper covers rock.

The FCC with its “must carry” rules and the FTC with its antitrust enforcement makes it difficult for service providers to refuse content. So, scissors rarely cut paper, at least as far as content is concerned. However there are some examples and there may be more as the diversity of delivery mechanisms for content and product expand. As if it were a secret, Amazon made known that it is selling the Kindle at cost. The Kindle is clearly a sales vehicle for third party content and product. It has drawn a response from Walmart, which is ceasing to carry the Kindle. Indeed it would not be out of the question for Walmart to offer its own Tablet or to seek some linkage with a competing tablet maker.

Going forward, there are a variety of ways “rock, paper, scissors” could play out. As the OS owners, the managers of competing ecosystems, try and triangulate among products and services, a variety of either matching or blocking moves may occur. Microsoft is making closer ties with Barnes and Nobel. There is some speculation that tablets might get offered for free. This is ongoing in the smart phone and tablet markets. It would not be unreasonable to expect the battle to spill over into TV. Indeed, TV may be as big a prize as any.

Tech Top 20 Brands

Interbrands released their "Best Global Brands" report for 2012 ranking their estimation of the top 100 brand names in the world. Although there were certainly many distinguished brands that did not make the list, the list it serves as the starting point for a slimmed down Tech Top 20 Brands. There were 26 technology companies on the list. For the purposes of this blog I included only those that have in the past or might launch consumer products in the entertainment space or could directly impact that space. This removed three companies and the bottom 3 tech companies did not make the top 20.

On the List
Disney is on the list because, although they do not have a line of consumer electronics, they certainly could. Further, it was Disney's decision to back Blu Ray that spelled the end of HD-DVD. As a major content supplier, they have considerable sway over what happens in video. As a former PC maker, IBM is on the list as well even though they show no signs of wanting to get back into the consumer products business. Likewise, GE may not want to get back into consumer electronics but certainly could.

Movers and Shakers
At #20, Facebook was new to the top 100 list and I have no corresponding brand value for them for 2011. The average of the top 19 brands grew by 18%, largely driven by Apple. A few brands (Google, Samsung, and Amazon) grew at rates above the average and Panasonic was close at a 14% growth rate in its brand value. Most companies on the list were well below this and 7 lost brand value in absolute terms per the estimation of Interbrands.

Not on the List
There are, of course, and infinite number of companies not on the list. Coca cola was actually number one in in rand value. Although I do not expect a line of Coke, e-readers in the near future, as one of the largest advertisers, they could have considerable impact on digital signage communications and consequently on mobile devices.

Rank	Brand	Sector	Brand Value($M)	Value Change from 2011
1	Apple	CE	$76,568	129%
2	IBM	Business Services	$75,532	8%
3	Google	Internet Services	$69,726	26%
4	Microsoft	Software	$57,853	-2%
5	GE	Diversified	$43,682	2%
6	Intel	Processors	$39,385	12%
7	Samsung	CE	$32,893	40%
8	Disney	Content	$27,438	-5%
9	Cisco	Business Services	$27,197	7%
10	HP	CE	$26,087	-8%
11	Nokia	CE	$21,009	-16%
12	Amazon	Retailer	$18,625	46%
13	Canon	Electronics	$12,029	3%
14	eBay	Retailer	$10,947	12%
15	Sony	CE	$9,111	-8%
16	Philips	CE	$9,066	5%
17	Dell	CE	$7,591	-9%
18	Nintendo	Games	$7,082	-8%
19	Panasonic	CE	$5,765	14%
20	Facebook	Internet Content	$5,421	New

The Apple Camera

"Purple Haze was in my brain,
lately things don't seem the same,
actin' funny but I don't know why
'scuse me while I kiss the sky.:

Purple Haze Lyrics by Jimi Hendrix

In addition to the Map issue, the Apple 5 seems to have an issue with the camera. Specifically, it is generating a purple flare around bright objects. One of the features that was changed with the iPhone 5 camera was the addition of a sapphire lens. Sapphire is harder than glass but like most transparent things harder than glass, it also has a higher index of refraction. The higher index means that an uncoated lens will have higher surface reflections and higher scattering, particularly for blueish light. Even in the lens of your own eye, blue light tends to scatter more than red which is why many sun-glass brands switched from green to red or orange and why black and white photos tend to be clearer with a 25A red filter on the camera.

Apple may have had the lens coated and the coating gets worn off or was not properly done. The camera being digital, it should be possible to implement a software fix. The sapphire lens was probably implemented in response to a customer issue and is likely to to stay. The image above is a Hendrix album cover and obviously not taken with an iPhone 5 camera.

The End of Broadcast TV

Broadcasters as an Impediment
Color TV was introduced to the public 61 years ago and was immediately withdrawn from the market. Though, nominally, the withdrawal was to conserve resources during the Korean war, in truth, it was a technology dispute between the broadcasters. The original CBS color scheme involved a monochrome CRT and a color wheel generating field sequential color. RCA, the owner of NBC, was developing a different color technology, the familiar shadow mask and spatial integrating color. The dispute delayed the implementation of color TV for over a decade and it was not until the mid-1960’s that the networks were all broadcasting in color in prime time.

Twenty-five years later, analog HDTV had been implemented in Japan and the US was planning to convert to HDTV as well. The conversion meant that all of the broadcast stations would have to upgrade their equipment for a questionable return on investment. The upgraded signal and consequent investment did not allow them to charge more for their air time. At the same time, some of the remaining US consumer electronics companies, not wanting to cede the rest of the market to Japan, proposed a digital HDTV format. The digital HDTV format was decided upon in large part because it delayed implementation of HDTV. To sweeten the deal for broadcasters, the US government decided on an implementation scheme that gave the broadcasters additional, valuable, spectrum.

Long before the implementation of HDTV, with the growth of cable, over the air broadcast ceased being important to consumers as a content source. However, the TV market being what it was, the “rabbit ears” connection on the back of the TV set remained until the transition to HDTV. In truth, the vast majority of consumers needed neither the rabbit ears connection nor the tuner; however it was kept on the platform to preserve incremental marketshare.

Value of Spectrum
In the early growth period for cellular phones, it was common for cell phone companies to buy local taxi-cab operations, not to get around town but for the spectrum they had for communicating with their cabs. Once the cellular networks were in place, the cab drivers could uses cell phones as easily as their old radios; but the purchase of cab companies showed just to buy their allocated spectrum proved a windfall for the previous owners.

As wireless communications have grown, radio spectrum has become more and more valuable. Now, it seems that the government has decided that the TV spectrum is too valuable to leave it in service of little used broadcast TV reception and has begun the process of buying out the broadcast stations. The stations do not actually own the spectrum, but as with all government transfers payments the status quo is something of a contract with those that benefit from the current policy and the government will not change the policy without buying out the incumbents.

Implications As with the transition to HDTV, when NTSC to HDTV converters were provided at a subsidized rate or free, no doubt consumers that are dependent on broadcast will get some help from the government. Possibly, in addition to subsidizing cable or satellite access, it might also subsidize internet access thereby preserving access to free news and other content. The major networks and broadcaster might suffer some decline in viewership as their captive audience goes away. However, their profit from the sale of their spectrum should be more than their loss.

For the CE market, a major encumbrance is removed for TV set innovation. The current HDTV format was designed in large part to accommodate broadcast TV. The removal of broadcasters from the picture will enable some experimentation in formats. Actually, Vizio is already doing this with its Cinema-Wide product. As with 3D, even further control of TV formatting might fall to the movie industry once the broadcasters are gone. Better sound might also rise from an option to standard. And… as there is no longer an access advantage to the broadcasters, more diverse sources of local content will develop. As cable made possible new networks without the investment in a broadcast and local infrastructure, the departure of broadcast TV might enable a blossoming of the blogosphere into video content. Finally, the additional spectrum that is made available might be further enabling to new services and to ubiquitous digital signage.

Conclusion
Broadcast TV, with its large distributed infrastructure, has been a traditional impediment to TV innovation. As broadcast goes away, a round of innovation both in hardware and content is certainly in the offing. Advancements in mobile electronics, and the additional spectrum freed up will advance this as well. As with any change of this type, it can’t come soon enough but will likely take much longer than it should as it has to handle the objections of those dependent on the current infrastructure. It would be nice if it was decided that this is inevitable so let’s just do it. However, as with HDTV, the change will likely take 10 years.