Kent Displays is not a name which will immediately bring recognition to consumer electronics industry veterans, but it’s one to watch out for. The company, based in Kent, Ohio, makes a unique and patented variant of LCD displays, Reflex™, and after many years of trying different professional applications finally came out with its consumer-oriented Boogie Board towards the end of 2010. According to CEO Albert Green, the company’s initial sales projections of “a few thousand” were vastly exceeded, with several hundred thousand sold in the run up to Christmas. Boogie Boards were available at $39.99 in Brookstone stores if you were lucky enough to find one. Sales will exceed one million this year. What are they? Basically they are small, very light, notepads, and require no power to retain the image since they use reflected light. The image can be erased instantly and this function requires a small 3V watch battery. The writing experience truly is very similar to paper, in fact in many ways it is much better. When the company adds local storage in future iterations, this will become a powerful, simple, low cost and easy-to-use notepad which could synch directly to a PC or smart device for further processing. I can’t wait to get my hands on one before next year’s CES. David Mercer

The only thing in the middle of the road are dead skunks and yellow lines

Or so goes the Texas adage. Today’s 3-2 FCC vote on rules pertaining to so-called “Net Neutrality” may once again prove that compromise guarantees only one thing.  That nobody’s happy. The debate, which has been a five year long rollercoaster ride, came to a head in what is being described as “rules of the road” for the Internet. The inherent fuzziness of the provisions, which include such vague concepts such as “transparency,” “network management,” and “unreasonable discrimination” all but guarantee that the matter will ultimately be decided in the courts. Furthermore, the same rules don’t apply to fixed and mobile networks.

Fair to Middling

FCC Chairman Julius Genachowski made a point of characterizing the rules as “middle of the road” approach—though likely one where no side even feels a little bit ok about it. “On one end of the spectrum, there are those who say government should do nothing at all, on the other end of the spectrum are those who would adopt a set of detailed and rigid regulations.” The Chairman said he rejects “both extremes in favor of a strong and sensible framework - one that protects Internet freedom and openness and promotes robust innovation and investment."

A Little Hyperbole Goes a Long Way

Indeed, critics are vocal on both sides, with opponents comparing it to the “government takeover of the Internet,” and Net Neutrality supporters calling it “worse than nothing.” Outspoken Senator Al Franken calls it the “most important free speech issue of our time,” and surmised that “ If corporations are allowed to prioritize content on the Internet, or they are allowed to block applications you access on your iPhone, there is nothing to prevent those same corporations from censoring political speech.” Republican FCC Commissioner Robert McDowell, in a Wall Street Journal Op/Ed piece said that the new rules will squelch innovation and investment, and reflect more “coercion than consensus or compromise.” He goes on to say: “On this winter solstice, we will witness jaw-dropping interventionist chutzpah as the FCC bypasses branches of our government in the dogged pursuit of needless and harmful regulation. The darkest day of the year may end up marking the beginning of a long winter's night for Internet freedom.”

Netting Out Net Neutrality

It’s still not over

It’s not over—not even by a long shot. April’s ruling by the U.S. Court of Appeals for the District of Columbia challenged the very role of the FCC in regulating broadband. Certainly, this is yet to be scrutinized and debated in Congress, and ultimately in the courts.

Please Have Exact Change

While the rules voted on today preclude service providers from blocking “lawful content,” they apparently do little to discourage the practice of “paid prioritization. ” The rules, set to go into effect in 2011, create a “toll road” of sorts on the metaphorical information superhighway—a road that companies such Google and Netflix may be forced to take.

FUD Factor 2.0

Markets don’t like fear, uncertainty and doubt. We all know that. And while Chairman Genachowski suggest that the rules “increase certainty in the marketplace, and spur investment both at the edge and in the core of our broadband networks”, the result may be just the opposite. Well, that’s what it smells like anyway.  -Ben Piper

Cisco today unveiled its long-awaited consumer Telepresence product. A smaller and scaled-down version of the company’s enterprise-grade TelePresence system, “ūmi” (‘you-me’) comes with an HD camera, a console and a remote. The idea of the videophone is far from new. Children of the 60s and 70s may recall George Jetson getting chewed out by his boss, Mr. Spacely, over videochat. In fact, the technology, is older than that, and was conceptualized as early as the late 1800s. The German Bundespost offered (albeit short-lived) commercially-available service the1930’s. AT&T announced its Picturephone product at the 1964 World’s Fair, though the service never quite took off, reportedly maxing out at 500 subscribers nationwide.

This time it’s different…

What makes this time different? According to Cisco’s VP of Consumer Marketing, Ken Wirt, three things are different this time. The quality and ubiquity of HD displays, the increased average household bandwidth, and exponentially increasing processing power have converged to create a ‘perfect storm’ for telepresence.

With apologies to Elvis Costello

Writing about telepresence is like dancing about architecture

Or was that Frank Zappa? In any case, as with HD or 3D, trying to explain telepresence to someone who hasn’t seen it is akin to trying to explain the color blue to a blindfolded person. You kind of have to see it to understand it. I had a chance to test drive the product last week before the official product announcement, and must say that—even as a professional skeptic--I left the demo thoroughly impressed. The so-called “immersive” effect (allowing you to ‘see what others are feeling’ ) is quite noticeable, and is what distinguishes it from a garden-variety Skype video or web-based video chat program. There is near perfect synchronization between audio/video, and people appear life sized on the screen. Ken Wirt cited a study showing that 55% of all conversation is non-verbal. It’s no surprise that it is our body language, the nods and raised eyebrows, shaking heads, smiles and smirks, that distinguish a phone call from a ‘carbon-based’ face-to-face meeting.

The Uncomfortable Topic of Money

The price tag is steep, at $599 for the unit, plus a monthly fee of $24.99 for unlimited ūmi calls, video messaging and video storage. The system will be sold through Best Buy/Magnolia Home Theater stores, bestbuy.com and on the cisco website. The service requires a minimum of 3.5 Mbps to work in 1080p, though it can be optimized for use at lower speeds, as low as 1.5Mbps for 720p. This means that the service will largely be limited to those with cable broadband or FTTx. Cisco believes that 34% of US households have this type of upstream capability—which is in line with Strategy Analytics’ own estimates.

The Network Effect

Back in the early days, the phone company sold “telephone pairs,” with the understanding that the value of the network lies in the number of nodes. A telephone network with one phone is not terribly valuable. Nor is a telepresence unit if there’s nobody on the other end. Cisco has partially circumvented this problem by providing interoperability with Google video chat, though if you’re spending $600 on a unit, you probably want the “real thing.” The real value of telepresence will be realized when there is a robust network of equipped households. While family video-calling seems the most obvious use-case, its utility seems rather limited. How many times do we really want to videochat with Grandma each month? Unless and until the network reaches critical mass, the appeal and draw of video calling will be very limited. Rather than a consumer mass market play, the real opportunity might very well be in the Business to Consumer (B2C) space. If private industry can help subsidize and drive the technology more mainstream, it could hit the critical mass it needs. Cisco talked about a number of other potential applications, three sound like potential winners in driving telepresence forward. These include

Financial Services: A $600 upfront investment and $25/month is a drop in the bucket for a company trying to prove its value to high net worth clients. For the cost of a few steak dinners, a Financial Services company could equip a client’s living room and increase the frequency of “touch points.”

Health Care: While the chatter around Telemedicine never seems to cease, this is one application where it actually could make sense. An insurance company might find it financially beneficial to subsidize a unit for a patient requiring regular and routine examinations, or for medical compliance monitoring (“Did you take your pills Mrs. Smith?”)

Distance Learning: How about tapping into the multi-billion dollar distance learning market in the US.  Equip every “Phoenix” with a system? That’s what I call scale.

I want one… but not for $599 plus $24.99/month

Many who experience the technology firsthand will want one for their own living room. It’s cool. It works well, and the potential applications are only limited by the imagination. It’s light years ahead of pc-based chat. On the flipside, the price is high. Too high. And when you add on the 24.99/month fee, it starts to feel like another cable bill. Survey research conducted by Strategy Analytics in Q3’10 shows that 30% of Americans showed some interest in a service of this type. Importantly, though, 46% of those interested said they are often concerned about their ability to afford regular household bills, 45% said they worried about signing up to new fixed term contracts when buying new products and services.

Adoption Will be Slow But Steady

Cisco would certainly admit that the $599 price point is untenable for the long run, and as volumes slowly ramp up, we should expect to see price points come down. If Cisco is successful in getting private industry into the game, and a subsidy model takes hold, we could see adoption speed up. The other barrier standing in the way of rapid adoption is broadband. While today only one-third of households have the minimum required bandwidth to support the system, this will certainly increase going forward. We estimate that by 2015, over 60% of all US households will have at least 1.5 Mbps upstream capabilities. Stay tuned…we’ll be putting out a Telepresence report in the upcoming

Returning to temperate climes after my first “summer” visit to Las Vegas, I am more amazed than ever at Nevada residents’ ability to withstand daily temperatures of 40 degrees plus and practically zero humidity. At least I now know what 108 Fahrenheit feels like. The contrast between this and a proper British summer (a few days of 25C followed by cool cloud and rain) could not be more stark. Las Vegas’ Mandalay Bay was the venue for Cisco’s annual customer gathering, which this year also brought together a hundred or so analysts for in-depth discussion of product and commercial strategy. The highlight product announcement was the Cius, as reported by my colleague, Susan Welsh de Grimaldo. While the company has not officially announced pricing, I expect it to be closer to $1000 than $500. Cisco is quite clear that the Cius is positioned as an enterprise solution, and these prices are likely to prevent much leakage towards “unofficial” consumer markets. What was most interesting, perhaps, is the genesis of the Cius within the Cisco organisation. It was obvious from many conversations that few people were aware of its development until very shortly before its unveiling. Even John Chambers himself claims to have been unaware of it until two months ago. If the product proves successful it will be further justification of Cisco’s innovation in organisation and management which allows dynamic cross-fertilisation of ideas across multiple teams. The other news centered on home energy management, where Cisco is launching a “Home Energy Controller” allied to Cisco Energy Management Services, which will be offered by utility companies to help consumers understand and control their energy consumption. The Controller uses Zigbee, WiFi and other home networking technologies to exchange data with and, potentially, control a variety of home devices. Much of our discussion with Cisco execs centered on the challenges and opportunities for service providers offered by OTT video, as well as the potential for telepresence in the home environment. Telepresence has a been a success for Cisco in the corporate market, and it is still on track to bring a consumer solution to the market by the end of 2010. It still strikes many people, both in the industry and consumers, as odd that Cisco should have a serious consumer strategy. While its brand presence is growing, not many would consider it as a competitor to the Sonys, Samsungs and Apples of the world. And there is no doubt that the company’s financial power is built on its core network switching and routing market dominance. Cisco does have key positions in home networking and set-top boxes, as well as the TV and broadband service provider space, but the jury is still out on whether Cisco itself will become an overall leader in consumer markets over the next decade. But consumer players cannot ignore Cisco as an influence on market direction. Its innovation processes, as demonstrated by Cius, will combine with its financial strength to create a wave of consumer innovations over the coming years. Many may fail, but it will only take a few to be successful for rivals to feel the heat. Client Reading: Chasing the Elusive IPTV Business Model: NDS, Cisco and Comcast to the Rescue?

Is it a sign of Trouble at’ Mill? Or just another corporate shake-up while business goes on as usual? Microsoft yesterday announced the departure of leading Entertainment and Devices executives Robbie Bach and J. Allard. Microsoft CEO Steve Ballmer will take charge of the division, with Don Mattrick running the Xbox side and Andy Lees the mobile business. There are clearly problems for Microsoft in its mobile business. All the various iterations of its mobile phone software over the years have failed to make significant market impact as Apple and, now, Google, make the running. Microsoft’s biggest problem is that consumer is still a relatively small and fragmented part of its overall business. It’s losing out to Apple, and others, in the consumer market because its primary corporate focus continues to be business users of Windows. Apple, which, not through lack of effort, never achieved prominence in business markets, has been able to focus its strategy on the consumer space without the hindrance of adhering to a corporate software strategy. From Microsoft’s perspective it might seem logical to group Xbox, music players and mobile phones under one roof, but this makes less obvious sense to the outside world. Xbox has been successful largely because it has been left alone to formulate its own strategy focused on games, entertainment and the digital home. Dan Mattrick, whom I met last summer to discuss Xbox strategy, should now try to persuade Ballmer that the Xbox team needs to remain a discrete unit with liberty to forge its own direction, and if necessary outside of the demands of the corporate Windows strategy if necessary. With the launch of Natal imminent, the continued ramping up of online services based around the Xbox 360, and the plateauing of Xbox 360 sales, Microsoft can ill afford a dilution in focus because of this disruption to the senior management team. David Mercer Other Blog Posts Of Interest: PS3 Global Market Share Reached 31% in Q1 2010 Sony’s PS3 to Win Current Games Console Battle; SA Forecasts 47.5 Million Global Console Market in 2010 Sky Player Finally Arrives Where It Belongs, But Work Still to be Done TV or Videogame? 1 vs 100 on Xbox Live Offers Lifeline To Appointment Viewing Client Reading: Taming the Waves: Games Console Life Cycles and Platform Competition

"The FCC is not having a one-night stand with Net neutrality,” said FCC Commissioner Michael Copps back in 2008, “ but an affair of the heart and commitment for life.”   Today’s ruling by the U.S. Court of Appeals for the District of Columbia may amount to a trial separation for the lovely couple.  The court delivered a painful kick in the shins to the FCC today, ruling that the agency  overstepped its boundaries in 2008 by imposing an enforcement action against Comcast, alleging the cable company’s  broadband network management practices to be in violation of the FCC's policy principles. Today’s ruling vacates the enforcement, which had called on Comcast to be more transparent in its network management practices.   While today’s decision may raise more questions than it delivers answers, it may be useful to consider some of the short and medium term implications.   The court’s decision is more about the FCC’s authority than on “Net Neutrality” per se  My number one prediction?  The mainstream media will get it wrong.   They will suggest that this is a ruling against Net Neutrality.  To be clear, today’s ruling is about the role and the regulatory boundaries of the FCC—not necessarily a ruling against Net Neutrality or the concept of an Open Internet.  The FCC in a statement said the agency remains "committed to promoting an open Internet and to policies that will bring the enormous benefits of broadband to all Americans."   This decision will be challenged, but that could take years.  In the meantime, look for the service providers to begin “testing the waters.”   I’m no lawyer, but as a more than casual industry observer, I can predict with some certainty that this is not a definitive ruling.  It will more than likely end up in the Supreme Court—but don’t make any plans yet.  Broadband is now classified by the FCC as a “lightly regulated information service,” and as such it skirts many the regulations imposed on traditional Telecom services with regards to open networks. Some suggest that the FCC, as a rulemaking body, can simply reclassify broadband, and impose tougher regulation.   Whatever the final disposition is, time is on the side of the service providers.  The glacial speed of change in DC means that in the upcoming months (and even years), Comcast and other service providers—granted a temporary reprieve—will likely begin testing the waters, and recommence traffic prioritization and other various and sundry network management antics.   What about OTT?   An affirmative decision on Net neutrality has always been a cornerstone of the future of unmanaged over-the-top (OTT) video.  Today’s ruling throws a monkey wrench in those works.  Until the next challenge, Comcast (and any service provider for that matter), reserves the right to prioritize and manage traffic streams as they see fit.   “Sure we’ll get your YouTube video—just not all at once.” And oh yeah, what about the future of the US National Broadband Policy?   Here’s hoping the FCC is reunited with its soul-mate.   -Ben Piper

In a report to be published in the few days, my colleague Martin Olausson and I talk about the new challenges facing France Telecom (Orange), in light of a recent ruling by the French Competition Authority. According to a commission appointed by France's Competition Council, Orange’s exclusive carriage of channels on its “Orange TV” IPTV platform “has drawbacks in the short, medium, and long-term,” rendering it “undesirable to maintain.” This decision could potentially have repercussions on the entire industry, and Orange will need to fundamentally alter its marketing strategy to stay in the game. A few thoughts…

If not content, then what?

Strategy Analytics has long held that content—particularly exclusive content—would be a key differentiator and driver of IPTV uptake. Recent developments in the hyper-competitive French market threaten to change that model.  Orange, which was unable to differentiate itself on the basic services level, has pursued an aggressive content strategy in recent years, spending over €200 million to acquire exclusive rights to sports and other content, packaged under its Orange Sport and Orange Cinéma Séries brands. The strategy has worked quite well for the operator, and utilizing exclusive content to market its pay TV services has led to rapid growth of its pay TV segments. Now all of that is in limbo, and the operator will need to find other ways to stand out.

Pricing matters…but differs by region

One of the takeaways of a report we published back in September was that platforms don’t matter to customers—features do.   Well, features and price. Further customer survey work we have just completed confirms that price as a churn motivator depends largely on the individual market. Our research shows French consumers to be the least motivated by price, and those in the UK most influenced. Much of this has to do with consumer perception. In France, all the major triple play service providers offer very similar packages at essentially the same price. Our interpretation is that the typical French consumer might not feel it worth the time to make a switch—even for a 20% discount. The perceived disparity is much greater in markets such as the UK, where pricing and bundling disparities are much more pronounced.

Challenge is in finding ‘non-content differentiators’

The recent ruling by France's Competition Council suggests that the “traditional” differentiation through content may not be viable for much longer. As such, operators will be forced to find other ways to differentiate and “own” the customer. The easiest way to do this, in our opinion, is to control the gateway into the home and offer a better QoE, and more value for money (i.e. better bundles) for the consumers than the competition.

The depth of the recession in the US consumer electronics market was highlighted today by CEA data which confirmed a decline in dollar revenues in 2009 of 12%. The outlook for 2010 improves but only in the sense that the rate of decline falls to 3%. In the meantime we're hearing news of new 3D TV channels already, with both ESPN and Discovery throwing their hats into the ring. This is great, if expected, news for the many 3D-ready TVs we expect to see over the next few days. At this evening's CES Unveiled event Sensio were showing their passive 3DTV, even though the company today announced its partnership with Visio to launch an active 3DTV later this year. Mitsubishi was also showing its laser 3DTV with the adaptor which will be necessary for compatibility with Blu-ray 3D players when they are lauinched. Logitech was showing its new Lapdesk N700, a laptop “cushion” with in-built speakers designed for enhanced laptop usage in the comfort of the armchair. The peripheral retails at $89.99 and also features an in-built cooling fan to prevent over-hearing, a familiar problem for those many TV viewers who now sit with a laptop on their knees. Logitech have thoughtfully added a grip to help keep the laptop steady, but unfortunately in my case it failed to prevent the Macpro falling to the floor. No damage done, luckily, but perhaps evidence of a need for further improvement in design. Logitech was also demonstrating the fruits of its recently closed acquisition of Lifesize Communications, a videoconferencing specialist. On display was its Passport set-top videoconferencing device. This retails at $2500 and allows anyone with a minimum 2-way 1Mbps broadband connection to communicate using HD video (720p). The service downscales to lower resolutions for slower bandwidth connections. Logitech claims that this device is a third of the price of any other similar product on the market. That may be true today but is unlikely to remain so for much longer. Videoconferencing and telepresence are shaping up to be one of the emerging trends of this CES and we will hear a lot more over the next few days, in addition to the Skype/Panasonic/LG announcement today. Yet another OTT video set-top box was being demonstrated by Syabas with its Popbox product. This grew out of the company’s Popcorn Hour device. The Popbox has been designed to be especially user-friendly, and the user interface does appear attractive and accessible. The service integrates currently 20 “content application channels”, which means things like Netflix, and is working with 200 application developers. It will launch in March 2010 and retail at $129, plus $20 for the optional WiFi module. The Popbox is 1080p-capable, although the only 1080p content was demonstration material. If Syabas manages to sign 1080p deals with content providers it will certainly be a step ahead of most competitors. ProVision CEO Steve Cliffe was confident enough in his company’s wireless HD technology to carry a laptop across the show floor while it streamed 1080i HD content, and there was no loss or deterioration in signal. This UK firm was founded by professors at Bristol University, and uses proprietary error correction and RF management techniques to improve HD video streaming over 802.11n. The company is talking to set-top box and TV manufacturers looking to support HD distribution to multiple home devices. Another UK firm, Imagination Technologies, was launching its Pure digital radio products for the US market. Pure is the leader in the UK but virtually unknown overseas. It will, rightly, tread carefully as it enters the notoriously challenging US market, and will obviously (since the standard is not used) drop DAB from its US product line-up, instead concentrating purely (sorry) on internet radio. Its Sensia product is the highlight of the range and features a full-colour touch screen LCD display as well as additional interactive capabilities like Twitter and Facebook. Pure confirmed to us that video-capable devices are a natural step forward and can be expected in the next year or so. Client Reading: HDTV: Standards Muddle Clouds Outlook For Wireless Displays

Cisco has agreed to acquire Tandberg, the videoconferencing specialist based in Norway, for around $3bn. Cisco has long targeted video conferencing, or telepresence, as a major growth opportunity, and also sees a mass consumer market for home telepresence solutions in the longer term. The Tandberg move will boost Cisco’s position in the global corporate telepresence market, which has been a growth segment in recent years, and not just because companies are cutting back on travel. Our main interest, of course, is the emergence of consumer telepresence solutions and other emerging media businesses. Cisco states that it hopes the Tandberg group, which will become the Telepresence Technology Group within the Emerging Technologies Group at Cisco, will drive video innovation. We look forward to hearing how Tandberg will drive further innovation in the critical video element in Cisco’s strategy. Twitter: twitter.com/DavidMercer_SA Client Reading: Digital Media Devices Global Market Report