Following up on my last post about Apple’s strategy in the television market I thought I’d share this link. I think it strengthens my assertion that the first cracks in the status quo of the television (all encompassing) supply chain are going to be legal issues regarding what you can and can’t do with content. What do you have the “rights” to view either for free (FCC controlled broadcast television in the US) or that you’ve paid for (cable/satellite). The company that leverages the legal loopholes and provide a great experience should have a great first mover advantage.
There’s been a lot of talk and speculation about Apple and their entry into the television market. I thought I’d throw my hat in the ring with my own speculation.
I don’t understand why Apple would be interested in building a television. What makes more sense to me is that they would build the next-gen cable/satellite box.
Here’s my rationale:
- You don’t replace your television very often so adoption of an Apple television set would be slow. My guess is that the average television probably lasts 7 years. I had a rear-projection set that I bought in 1996 that lasted until 2010! Granted it wasn’t my primary set by that time but it was in service none-the-less.
- There are a ton of competitors in the television business but only a handful in the cable-box business. And they suck at software. Scientific Atlanta (now part of Cisco) and Motorola are players in this market. Apple could reinvent the user experience as they’ve done in music (iTunes) and mobile apps (App Store) and disrupt that market.
- The pixels on a television aren’t disruptive. How you interact with the content could be. This is where they would focus their attention. A new software platform and the right partnerships (Time Warner, Comcast, Cox, DirectTV, Dish Network) and they could dramatically change the way most people interact with their television content.
Here’s the kicker. A lot of people claim that everyone wants to get rid of their cable or satellite and go “over the top” and pay for content as they consume it. Ain’t gonna happen! At least not very quickly. It’s not as simple as getting rid of the middle man and paying for your content directly. Who would fund the expensive production costs for the high quality shows you’ve come to love and expect when you turn on your tv?
I’ll claim that it’s not paying the cable or satellite bill that everyone is tired of. It’s not being able to digest the content on-demand. So here’s what Apple is going to do…
They figured out that the key is in making video available on-demand, not trying to displace the cable/satellite providers. I don’t think it’s the $100/mo that’s the problem. It’s that you feel like you’re paying for content you don’t get to see. You will obviously never be able to watch all of it but you might be willing to continue paying $100/mo if you know you have access to all of it when you want it. And, you’ll never have to worry about recording something in the future.
When you pay your cable or satellite bill each month you buy the rights to view a plethora of content. Let’s say there are 100 channels that you have access to and each of those channels is broadcasting 10 hours of original programming each day. That’s 1000 hours of content that you have the right to view every day! How much of it do you consume? Nielsen tells us you watch something like 5+ hours per day. So there are 990+ hours of content that you have the right to view but don’t get to see. After it has aired, unless you record something with a DVR, you can’t see it until it has been “programmed” to air again.
So I think Apple has figured out that the key to disrupting the television market isn’t a television, it’s making all the content you’ve paid to have access to available anytime you want to see it. And they’ll make search and discovery a joy for a change. Apple is going to record every show that comes across one of their partners distribution pipes and make it available on-demand from their cloud of servers in North Carolina. They only have to store one copy and if you have purchased the rights to see it (ie. paid your cable or satellite bill) you have access to that content 24 hours a day, 7 days a week. And you can view it not only on your television set (with new Apple box) but on your mobile devices as well. ”Siri, I’d like to watch Discovery Channel” or “Siri, I’d like to start watching season 4 of Mad Men”.
I’m not an attorney nor do I have access to the contracts that the distributors sign with the content owners but what gets interesting is whether or not Apple could get into the business of either stripping out the commercials when you time-shift the viewing (maybe another fee for commercial-less viewing?) or they can act as the middleman and offer ad targeting services to the distribution partners.
The cable companies want to ease out of the content business and focus on the high-margin bandwidth business. I’ll claim they may jump in bed with Apple and cede that part of the business to them over the next decade. Apple isn’t going to deliver you a new television. They’re going to build the world’s largest DVR and give you access to an amazing catalog of content with your iPhone and iPad as the “remote control” of choice.
Am I crazy?
Google is taking another crack at social with Google+. All indicators are they had a great launch last week.
Social is key to the next wave of advertising innovation. Google already dominates the Internet advertising market through search. Most of their $31B in revenue this past year came from incremental increases in ad spending along with the continued pillaging of traditional newspaper and magazine advertising dollars. Google was extremely disruptive to the print publishing industry over the past decade and they’re planning to do the same in television. That’s where the real money is.
Take a look at this chart: http://www.onlinemarketing-trends.com/2011/02/global-advertising-spending-by-medium.html. Advertising is a ~$450B market globally with television advertising taking the lion’s share. Television advertising dollars are very different than Google currently attracts to it’s search dynasty. Television dollars are brand dollars.
Brand dollars are the kind of advertising dollars that Facebook has been attracting and Google understands that getting a grasp on social is likely key to tapping into those television dollars. Will be interesting to watch (no pun intended) as Google unleashes their engineers on our televisions. Hopefully they’re learning a thing or two from Apple’s success with the iPhone platform and ready to unleash 3rd party developers on their Android/Chrome-based Google TV stack. That’s where the disruptive innovation they need will likely occur.
Used to be there was a gap between consumer and business-class products. Consumer products generally weren’t reliable, robust or feature-laden enough to withstand the rigors of use in a business environment. That line is now blurred, particularly in software and electronics. Apple is the latest example of this. Business people are giving up their Blackberry’s for iPhones. What was blasphemy just two years ago is now reality.
Apple is driving design standards and software development expectations in both consumer and business applications. They are continually raising the quality bar. This is good for the industry. You can’t be lazy when you’re designing your next software product. Apple’s customers (a lot of us now) know the new bar and hold every other product we encounter accountable in context to the Apple experience.
Every software developer should be stealing as many ideas and norms from these market leaders and implementing them as fast as possible. You can’t use the excuse that you’re a one-man shop and Apple has thousands of developers. As I wrote yesterday, that’s how you’re now being judged. Better get used to it.
I watched Apple’s iCloud announcement a couple of weeks ago. Here’s what I heard. ”We’re going to trade complex for simple.”
It sounds like they plan to copy (cache) all of your data on every Apple device you own. The iCloud service will be used to synchronize the devices ensuring that you will find the same data no matter which device you are on (iMac, iPad, iPhone, etc). They will store a copy of that data on their central servers as well.
So what Apple is going to “trade” is storage costs for simplicity. They’re going to put the files you own and access on every device and keep them synchronized without having to think about it. A copy of the same file will automagically find its way onto every one of your Apple devices. From a design standpoint this would be heresy to most engineers! What a waste of space and resources. What Apple clearly understands is that 1) storage costs will continue to approach zero and 2) Apple customers are not engineers nor are they versed in the complexities of traditional data management.
From a product design standpoint I think this is a smart move on their part. ”Normal” people don’t understand networks, file systems, data synchronization, or any of the other intricacies of data management. Simple wins over optimized, as it should.
From a business standpoint Apple is leveraging their strengths with this strategy. They know a large number of their users have more than one of their devices. They will set a new bar for simplicity and expectations and fortify the desire to have all Apple devices because “it just works”. People are willing to pay a premium for that. They will also build obsolescence into their devices as your storage needs increase due to their inefficient ways. Smart move on their part.
Most software companies are in some phase of incorporating the “cloud” into their product/service strategy. Apples “Fat” storage strategy could be a blueprint for simplifying your offering.