How is Facebook “Like” your Grocery Store
Ever wonder about those coupons that come shooting out of the machine at the checkout counter of your local grocery store? Every time I complete my order the machine issues coupons as if I hit the lottery.
As I thought through this process I started to realize all of the personal information I give my grocery store each time I hand over my "savings" card and my credit card to make the payment. The former tells the store exactly who I am so it can connect my purchases with me, the purchaser. The latter gives Visa the same info, but that's for another post.
When I am on Facebook I indicate the things I "Like". Most users freely give Facebook a profile of themselves by posting who they are, what schools they attended, where they work, their age, what music, books and TV shows they like, who our friends are, etc. This creates a very powerful profile that any advertiser would love to have. One has the ability to limit how this personal information is used but the data is right there, thanks to me freely offering to put my life online.
Is the same so at the grocery store? Does anyone realize how much the purchases they make at the grocery store provide a detailed profile of who I am, perhaps more than the deliberate choices I make, and the information I post about my life, on Facebook? And think about the use of one's Visa, Mastercard, or American Express Card. They collect data on your spending habits across multiple venues, and even issue a report to you at year end recapping your expenditures.
I inadvertantly, but freely, tell my grocery store I like Coca Cola over Pepsi, Skippy over Jiff, wheat bread over white, Tropicana over Florida's Natural, Sam Adams over Budweiser. In doing so I am telling them what I "Like" without clicking a button. Yet have I told them how they can use this identifiable personal information to target advertising to me? Isn't the coupon racing out of the machine a form of advertising that is targeted to me based on the decisions I make in the grocery store? Where can I go in the grocery store to make changes to my privacy selections that determine how this information is used and ultimately what ads are presented to me? I'm sure their is a way, but it is not as obvious to me as what I can do on Facebook. I go to my privacy settings, I check or uncheck the boxes. Done.
We give up so much personally identifiable information in the grocery store that is used to target advertising to us. Yet people are up in arms every time Facebook changes their privacy policy so they can offer us targeted ads that correspond to our "Likes". Same with Google and Google+.
And more technologies are being developed to capture our "Likes" in the closed environments in which we go about our daily lives. Have you read about all of the investments being made in computerized systems for the car, some of which capture usage data for car rental or insurance companies, and many of which you won't be told are present? Will these systems include functionality for me to select to whom my driving habits or my personal entertainment selections can be reported? Intel has set aside $100M to invest in this industry. I tell people my new Explorer is a computer in an SUV chassis. If only the MyFord Touch software functioned as well as the software on my iPhone.
Yet I digress.
I am not saying people shouldn't care about how this information is collected and gathered. My point is simply in our everyday lives we offer so much information based on where we drive, where we shop, how we use our smartphones, the channels we click on the TV, everything. Yet we do it naturally in our daily routines without thinking about who is gathering the information and using data mining software to figure out who we are and how to reach us to make money from advertisers. Should we be as concerned about this as we are when Facebook changes its privacy policy or its methods to advertise to us?
If you read this I bet you will think twice the next time you are selecting Skippy or Jif.
Lessons from a Lion
I started this blog to write about the intersection of digital technologies and content and devices, but I feel the need to go off the tracks a little and offer some thoughts on the passing of Joe Paterno, and what we can all learn from his leadership.
I grew up in a small rural town in Southeastern, Pennsylvania. Saturdays in the fall, no matter where I was or what I was doing, I found a way to watch or listen on radio to the broadcast of the Penn State football games. While Pennsylvania has two major cities on its eastern and western borders, State College was the capital on Saturdays. And regardless of the outcome of the game on Saturday, I spent my Sunday morning devouring the game highlights in the Philadelphia Inquirer. No Internet in those days kids, so the newspaper had to suffice.
I attended several games at Beaver Stadium but my most memorable game was a road trip with a coworker and Penn State Alum to South Bend to watch Penn State play Notre Dame. As I sat beneath the arms of "Touchdown Jesus" in the end zone I watched and cheered as Penn State defeated a great Notre Dame team with a field goal in the last 30 seconds of the game. I'll never forget this experience.
Over the years my passion for Penn State football grew, as did my admiration for the man with the large framed glasses and Brooklyn accent who led the team on Saturdays. His rolled up pants and white socks harkened back to the days of old school, smash mouth football. But what I began to learn by reading more about this man, this icon, this legend, was the impact he had not only on the football team but on Penn State and its student body.
Since his passing many of these accomplishments have been revealed. The donations of over $4M to fund a wing of the library that now bears his name. He and his wife's support of the College of Liberal Arts and the founding of the Paterno Fellows program in that College. His suggesting to alumni who wished to donate to the football program to donate their money to the Classics program in the Liberal Arts college as he so loved the classics that he wanted the program to survive. His yelling from his car window to students to "get to class" and to "study", as if their grandfather was watching their every move. His traveling to Philadelphia several times a month with players to visit a player who had been paralyzed from the neck down during a game, and his words of encouragement as that man learned to walk, and eventually attend law school and become a lawyer. Many of these same stories were shared during the past week, those of how Joe Paterno would not let go of each and every one of these men until they were on a path to reach their potential, and even then he offered counsel when needed.
Joe Paterno went to Penn State to coach football, but he also had a large hand in building the University from a small, agriculture, college in central PA to a world class institution. This was his Great Experiment, and a lesson in leadership. He took a singular idea with singular focus, "Success with Honor", and first started with his players to plant this seed. As this seed spread from the players to the students his vision grew. And as these players and students graduated the vision moved beyond the campus to the daily lives of these alumni. They could hear him encourage them to hustle and to determine whether this day they would move forward or backward, as you can't stand still, as Jimmy Cefalo so eloquently offered in his speach during the Memorial Service. From this singular seed grew a movement that was backed up by action, by the coach living these ideals each day and leading by example. And from this singular idea Penn State grew. It became not only a major college football power, but a world class institution.
But this wasn't enough for the bespectacled man from Brooklyn. His vision was larger, so much so that he sacrificed the independent status of the athletics program to join the Big Ten conference. Yes, Joe Paterno was a major supporter of this action as it gave students of Penn State the opportunity to share the resources of the other world class institutions in the Big Ten. Michigan. Ohio State. Purdue. Joe's vision was to create world class students, and world class people, and to do so meant sharing the wealth, and his vision, with others.
Its a shame the events of the past few months have tarnished Joe Paterno's reputation and how people will remember him. Frankly, I believe Phil Knight, the Chairman of NIKE, hit the nail on the head in his eulogy, and I am glad someone had the courage to address the elephant in the room. After all, can each of us not look at our lives and wish we had done more in a certain situation, even if the actions we took were in accordance with the law? Thanks, Mr. Knight, for stating what many who know the true character of Joe Paterno already understood.
Thus, from a singular vision and a focused set of values and principles, Joe Paterno became the center of a revolution that started in central Pennsylvania that is now global. There are tens of thousands of alumni worldwide who carry this vision in their work and family lives, and who would go to battle for Joe Pa if asked. And many of them have over the past few months. To have such an impact in the world. This could be compared to the lives of other visionaries, like Steve Jobs, whose passion and focus changed the lives of many and whose death evoked extreme emotions.
That each of us could be so committed to improving the lives of our fellow man. That each of us could have a singular vision for our lives and pass that vision to those in our family, those with whom we work, who work for us, in our volunteer activities, in the children we coach or mentor. Isn't this the reason we are on this planet, to leave it a better place than when we arrive?
I say thanks, Joe Paterno, for giving a boy from a small town in rural PA a team to cheer for on Fall Saturdays, and an example of what can be accomplished when a singular vision and passion become a movement.
Tumblr-ing Dice
"Tumblr has scant revenue and a nascent business model...and it raised $85M in venture capital". This is how the Wall Street Journal opened its article on Tumblr's latest capital infusion that valued the company at $800M.
I want to point out from the beginning I am not a Tumblr hater. They are growing rapidly in terms of users, unique visitors and page views. They have a slick, user friendly, interface and presentation that makes reading blogs clean and fresh. And user's posts can be as simple as a photo. They still pale in comparison to the top blogging services based on unique visitors - Blogspot at 340M and WordPress at 130M according to Doubleclick's Ad Planner.
Tumblr just has "scant" revenue, no business model and an $800M valuation. In December of 2010 the company raised $30M at a valuation of $120M. Thus, in 8-9 months, with "scant" revenue, Tumblr's valuation increased almost 6X. How does this happen?
Most valuations begin with multiples of revenue, EBITDA, or Net Income based on the values of comparable companies. With "scant" revenue these methodologies are useless.
One can only surmise the Venture Capitalists who invested in Tumblr looked at other metrics to infer a valuation. My guess is they looked at things like number of users, unique visitors, total page views and growth in some or all of the above. Since several of the participants in the latest funding round were also investors in LinkedIn let's look at LinkedIn for comparables.
Using information from Doubleclick's Ad Planner data from July 2011, LinkedIn had 80M unique visitors and 2.5B page views. At the same time Tumblr is listed as having 34M unique visitors and only 1.7B page views (NOTE: the WSJ article quotes the Tumblr CEO has claiming the page views are closer to 13B; also, LinkedIn now claims more than 100M users - full disclosure). Based on the Doubleclick data LinkedIn has more than 2X the unique visitors and 800K more page views. LinkedIn went public at a market capitalization of about $9.0B and as of 10/2/11 was trading at a Market Cap of just over $7.2B. This would infer a reasonable "valuation" for Tumblr, using this data, of about $3.6B. Let's not forget LinkedIn had revenues in their last fiscal quarter ending June 2011 of about $121M. Their trailing 12 month revenue was about $324M, making their market cap about 22X trailing 12 month revenue. Seem high? What does this say about Tumblr?
If you want to look at other comparable valuations based on revenue, The Business Insider 2011 Digital 100 World's Most Valuable Startups, as of July 2011, lists Tumblr at #22 at the WSJ reported $800M valuation with, remember, "scant" revenue. Coupons.com is listed at #21 at a $1.0B valuation. Its revenues are reported at $100M, thus a 10X multiple to revenue. eHarmony is listed at #23 at an $800M valuation. Its revenues are listed at $300M or about a 2.7 multiple to revenues. The multiples reflect the business model of each company based on how it derives revenue vis-a-vis its competitors. Again, with hardly any revenue Tumblr is valued at a comparable level to companies who are generating at least $100M. Fair?
One could say a paradigm shift is upon the investing community, one that attaches value to the aggregation of a community of online users to whom a business model can eventually be developed. This could be driven by the fear of missing out on an investment in the next Google or Facebook. The Venture Capital investment pools are raised to create a return on the investment for the limited partners. Failure to deliver a return impacts the next funding round. Perhaps there is a premium attached to the valuation by the venture capitalist that accounts for the higher level of risk they bear for investing in a business without revenues but with "potential" to create significant revenues. I imagine there is also cache in having your firm affiliated with an investment in the next Google or Facebook.
The business model for these community aggregation sites becomes a debate amongst the investors as to which model will generate enough revenue and profitablility to validate the valuation to be pitched at the time an investee is IPO'd or purchased, one that will provide this return on invested capital for the VC firm. Thankfully for the VCs they have compatriates who also buy into the valuation premises they are espousing, creating an exit for the VCs via IPO or acquisition at an even more elevated valuation. To quote a former Econ professor of mine, "what a tangled web we weave".
A school of thought back in the old days, you remember, 5 or 6 years ago, mandated companies had to actually have revenues and generate profits by properly managing their businesses for a valuation to be determined. I understand the times are a changin' but this still feels to me like a game of chance. I have no doubt Tumblr, and others who are in the community aggregation business, will develop ways to generate revenue, probably advertising based or some level of premium service for users who desire advanced services a la LinkedIn. But will these models truly validate the accelerated valuation placed on the company by its Venture Capital investors? LinkedIn IPO'd at a valuation of about $9.0B and then was promptly downgraded by analysts at the same entities that argued for the $9.0B valuation.
It all seems like a roll of the dice to me, and in this case the Tumblr-in Dice.
Streaming Media East Device Review
I attended the Streaming Media East Conference and Exhibits this week in NYC and wanted to share some thoughts about the variety of devices I gave the old test run in the Broadband Device Pavilion.
Devices were divided into basically four categories - streaming devices, like Apple TV, Boxee, Roku, etc., DVRs, Game Platforms, like PS3 and Xbox 360, and Disk Drives with streaming capability, like Western Digital and Seagate.
My favorite streaming device was the Roku, with the Boxee Box a close second. Roku had an easy to navigate UI and a larger selection of content platforms available than the others. It also had a large number of independent platforms that are web based to peruse, many for free. Boxee supports a larger number of video and audio formats/codecs, comes with an SD Card slot and supports web browsing, which Roku does not. But if you're app crazy and could care less about techie stuff like codecs, Roku is a good selection for the price (under $100). Apple TV is basically presenting the iStore on the TV. You can purchase the same items on the TV via the Apple TV box as you can on your computer. Its also the only platform where you can have access to iTunes and your music library, if that's important to you.
TiVo is the DVR king, by far. The combination of easy UI and functionality as a STB via its cable card slot offer an added benefit.
The Sony PS3 offers more technical features than its game platform competitors in terms of video and audio formats supported. Of the models featured it also had the largest hard drive and the largest collection of the standard content platforms (i.e. Netflix, VUDU and Hulu Plus). The Xbox 360 is the only platform to partner with ESPN, so for sports nuts this may be a better option. Oh, yes, and Sony is dealing with that little network issue and security breach that has exposed >100M subs' personal data to elements not interested in playing MMOGs. Something to think about.
Interesting addition to this line up was the hard disk manufacturers. Seagate and Western Digital diplayed several devices that are basically external hard disk drives with some streaming functionality. And I mean minimal. I'm not sure why a company would offer a hard drive device as a streaming solution when the market is headed the opposite direction. Other major players (Apple, Roku) have removed the hard drive from their current devices.
I also had a chance to explore a cool Samsung TV. The devices was attached to a blue ray disk player, which is where the streaming functionality was resident. The Samsung representative indicated Samsung does offer 6 TV models that have the streaming functionality imbedded into the TV. The UI was clear and displayed as apps would be on one's smartphone. More than 10 users profiles could be stored so any family member, unless you believe in large familes, could set up their own start page that would be displayed after logging into the system. Several other Blue Ray players with streaming functionality and lots of apps were on display as well from Panasonic, Sony and LG, but the Samsung product was the standout, IMHO.
I am sure there are many other products out there that were not in the Broadband Device Pavilion, but this display gave a great overview of the technologies and devices available if one is interested in updating their home entertainment solutions, and perhaps cutting their cable bill dramatically.
Flip Flop?
I am sure many fans of the Flip Digital Camera have been lamenting the demise of the device by its parent, Cisco. Many news stories have cast the reason for the demise as the convergence of video capture on smartphones, an issue I have blogged about in the past WRT other devices (Flo-TV, MSFT Zune, Netbooks - RIP), but loyal fans of the device are shaking their head. You loved the convenience of the device, the video quality and its built in editing tools. Why, just last week, The View's Sherri Shepherd (aka Mrs. Tracy Jordon on 30 Rock) had her Flip confiscated at Radio City Music Hall while attending the Charlie Sheen Torpedo of Truth tour, or whatever he is calling that travesty.
To me, something stinks about this announcement. Look at a few quick facts:
1. Cisco purchased Pure Digital (Flip's Parent) for $590M in stock, including 105 employees. Cisco announced it is laying off more than 500 employees. Did staff increase 5 fold in 2 years?
2. Flip has sold 2.5 million units in total in spite of the rapid growth of smartphones with video functionality
3. Flip, et al, account for only 1% of Cisco's total revenue ($40.0B), around $400M. Does discontinuing a product, and making such a public announcement of it, who's revenue is a rounding error in a company's P&L make sense?
[A location deep inside Cisco HQ] We have a problem. Shareholders are upset that our margins are eroding and our stock price hasn't budged in 2 years (bouncing between 18 & 28). We've invested lots of money in acquisitions and in R&D to develop a networking business for the home. Our core corporate networking business is under pressure as cheaper alternatives are available and as companies move toward "cloud-based" service models. What should we do?
[Back to blog] And the answer was kill the Flip? This, my friends, is called a distraction.
The reality is Cisco's other businesses, their core networking businesses, are struggling. The Cable Set Top Box business is declining, including a decline of 29% year over year according to the latest 10Q Quarterly SEC Filing and forecast to continue to decline in the coming quarters. Sales of network products for the home (i.e. Linksys) are also declining. In fact, the latest 10Q reports sales of the Flip Video Recorder "OFFSET" the decline in sales of the Video Systems business. So kill a small product that is contributing to sales and profitability? Recall Cisco spent much more on the acquisitions of Scientific Atlanta ($6.0B) and Linksys than they did on Pure Digital, Flip's parent.
The reality is the larger home networking businesses are in decline as consumers have a variety of alternatives now available for entertainment and home connectivity. Younger consumers who are heaped with college loans and who are struggling to find jobs are not ordering cable service. Even the large cable MSOs (i.e. Time Warner Cable, Cablevision, etc.), the ones who BUY the digital cable STBs are developing their own STB by-pass strategies called TV Everywhere, leveraging new technologies to distribute content to consumers on smartphones and tablets.
In addition, Cisco is in the midst of rolling out a new line of switches (Nexus 700 Series) that has a lower price and margin mix than the older product line (Catalyst 6500 Series - according to their 10Q). They are also focusing on the transition of companies to virtualization, cloud-based services, Web 2.0 services, increased global company collaboration and the transition from IP4 to IP6 technologies. All of this takes money and places Cisco in competition with other large corporations as technologies that enable these services converge.
Thus, Cisco's decision to announce the demise of the Flip Video Recorder served as more of a management purpose ("look, we are working to fix the problems in our consumer segment") to appease analysts and shareholders than it did to solve larger performance issues within the company. This was more of a short term smoke screen, and where there is smoke, there is fire.
Kinect TV?
Is Microsoft holding back on us?
As I reflected on the press and coverage of the 2011 CE Show, sub-titled "Its an App, App, App, App World!" it occurred to me that Microsoft has in its portfolio all of the technology, hardware and software, to launch a really cool platform that would revolutionize home entertainment.
If MSFT were to take the Surface device, flip that baby length wise horizontally, with out legs or a stand, so it can hang on a wall, manufacture this in a variety of sizes like a traditional TV, incorporate the Kinect motion sensing technology as well as all of the inputs and outputs on a traditional TV (HDMI, USB, Cable Card, video in & out, audio in & out, blah, blah, blah), and develop a user interface that can be controlled, get this, without a remote but with the motion of your hands, BAM!, you've got yourself one hot item. MSFT sold 8 million Kinect devices during the holidays. 8 MILLION! This integrated platform would make the consumer feel as if they are in a Matrix movie or an episode of CSI Miami with the ability to move items, your APPS, around the screen with the flick of a wrist and a point of your digits. What a paradigm breaker! And no more questions in the home about the location of the remote control or how to record a show on the DVR. This device would scare the life out of the traditional CE companies who are now focused on, you guessed it, incorporating APPS into their TVs! Enough of the Apps already! Time to move forward in the entertainment center of the home.
I see this as a breakthrough device and the next gen in living room entertainment. I'd buy one of these before I ever purchase a 3D TV. While they're at it, attach the X-Box to the platform and you have a complete home entertainment solution that can stream movies and TV shows to the "Display", not to mention play traditional video games. This is a killer platform, IMHO.
I don't want my TV to look like the screen of my smart phone when I turn it on. I want the main entertainment display in my home to offer a fuller and richer experience so I can sit in my favorite chair and be involved in my entertainment, like I'm Keanu Reeves dodging bullets in the Matrix or "H" trying to solve a case in South Beach. "Miss Boa Vista, do you have the results of the DNA samples collected at the crime scene?" I digress. Connect the surround sound and the man cave just got super sized. Tell me your boys won't be envious when they roll in for the big game and you're making things happen on the "display" with one hand while holding a chilly in the other. No spillage, please.
I am sure there are smart, visionary, folks working at MSFT - subject to debate and venom Apple fans, I know. If I can "connect" the dots, surely someone in Redbank already has. I certainly hope this concept is on the drawing board and will be revealed at the 2012 CE Show. And let's hope the teams within MSFT with the ability to create this visionary product and service get past internal barriers and execute this idea. I'm sure technical issues have to be overcome, perhaps in the creation of the UI, but the holiday season of 2010 proved the demand is in the market for a break though device that engages the consumer. Nintendo proved this with the Wii a few years ago. Kinect proved this again last year.
MSFT - you have the power, you have the technology, God knows you have the cash, now make it happen!
(Not So) Deep Thoughts
Its been a while since my last blog post - been busy - so instead of a deep, thought provoking, missive I thought I would share some snippets of topics that have been on my mind over the past few months.
Cablevision. Really irritating the consumers in my hamlet. First they conspicuously drop a marketing piece in the monthly invoice stating they are shutting off the analog signal in my community, offering digital cable boxes for "free" for twelve months to everyone. After twelve months you pay $8 - $12 per month, per box. What's the average number of TVs per home these days? You do the math. The marketing piece also suggested calling Cablevision to reserve your digital cable boxes. This was simply a ruse so their CSRs could upsell you on Cablevision services you did not already have. Clever, and annoying. I wonder if this initiative has anything to do with the fact that Verizon's FiOS service has recently been given permission to provide service to my community to break up this Cablevision monopoly. Regardless, after twelve months Cablevision should see a nice spike in their revenue stream as a result of this move, so this revenue boost, and increase in cash flow, will only further line the Dolan's pockets.
Speaking of Mr. Dolan, he actually said something profound a month or so ago. No, not when he asked the convicted sexual harasser Isiah Thomas to court LeBron James for the Knicks. No, no, not when he asked the aforementioned Mr. Thomas to join the Knicks as an advisor, without first speaking with his GM of the Knicks. It was when Cablevision was in the midst of programming fee battle he actually said a la carte cable pricing may be needed to offset the high cost of programming fees being demanded by content programmers! Who needs 800 channels anyway, especially as Over The Top and Cable By-Pass strategies gain traction. Note to Mr. Dolan - kids coming out of college who can't find jobs can not afford $150 cable bills. This technically savvy audience, who grew up creating PowerPoint presentations for school before they could write in cursive, will migrate to alternative solutions, and fast.
MediaFlo a No Go. Qualcomm has decided to cease sales of its FloTV device and is looking to dispose of the assets of the business. Not a surprise to me (I've blogged about this before). Why launch a single function device in a market where single device functionality is expanding? Your mobile phone is really a mini-computer with a phone application. Plus video. Plus camera. Plus whatever other app one downloads. Made no sense, especially for a technology company that specializes in IP licensing and chip development and who has no Consumer Electronics experience. One company, and only one company, has crossed this divide, and its named after a fruit. Luckily the spectrum Qualcomm purchased is valued in excess of $2.0B, so Qualcomm should be able to recoup its investment in the business.
Earth to Apple. Build a damn broadband enabled TV already and stop futzing with a tiny $99 ITV box to stream video. Your current Macbooks cost the consumer as much as an HDTV with internet access to Netflix, Hulu and other services.
Tablets. Latest figure I read said 18, yes, 18 tablet devices will be available for your holiday shopping pleasure. And you were confused about which smartphone to buy? Seems like consolidation will occur around the OS more than the specific device itself. But in the meantime, you have some homework to do before shopping!
Two cool apps/products. Line2 from Toktumi (phonetically, "talk to me") offers the first VoIP service for the iPhone that bypasses the AT&T network, and your allotted monthly AT&T (soon to be Verizon) minutes, when placing the call. As long as you are in a WiFi hotspot your call goes over the internet and not AT&T's network. You can conference up to 20 people into the same call. Cost for unlimited phone and text is $10/mo. Droid version is coming soon.
EpicMIX. A new social media app from Vail Resorts. Download this app to your smartphone and you can track your ski experience at any Vail Resort property. This app is enabled by the RFID chip located in every Vail Resorts lift pass. The scanners at the mountain track your lift access, allowing your location to be identified in real time. You can also connect this with your Facebook account so you can track the location of friends who are also on the mountain to coordinate meeting locations for lunch or a little apres action. And parents, you can track your children's location on the mountain as well, assuming they "friend" you. This functionality can be disabled at any time and is not available for children under 14 without a parent's permission. Its similar to Garmin's Connect sharing service for their workout devices that allows you to post your running or cycling experiences online to share with friends. Can't wait to try this app!! Let it snow, let it snow, let it snow!
And to all of the technology companies in the mobile phone space filing lawsuits against each other for alledged patent violations. Can't you just get along? You're acting like children in a sandbox. I know, I know, you own the patents and the value of the patents is to a) provide a competitive advantage and b) to be paid for your IP when used by others. When you dig into the details I imagine many of these patents are very close in use and functionality, so just pool the IP and battle in the markets, mano e mano, rather than spending millions of dollars of shareholder money battling in the courts that will ultimately, and usually, lead to a cross licensing agreement and payments flowing both ways.
That's it for now.
Last Home Passed – FiOS puts on the Brakes
In case anyone missed it, Verizon announced a few weeks back that they will soon halt the rollout of their FiOS network and will focus on the installation of only those customers whose homes have been passed by the initial rollout. Por que?
Verizon will have passed almost 20 million homes when they cease further deployment. The cost to pass a home is estimated to be $750. It costs another roughly $500 to acquire a subscriber of each home passed. Thus the total acquisition cost per sub is close to $1,250. Not cheap. If Verizon passes 20 million homes and signs up 50% of those homes passed FiOS will end up as one of the top 5 cable program providers in the USA. Not bad. But why stop now?
Easy. It costs much less to subsidize a smartphone and to convert their 91 million mobile phone users to smartphone users, who have a higher average monthly bill than traditional mobile phone users. And, with the mobile phone becoming a true convergence device, able to not only connect but entertain a user, there is more revenue and profit in converting wireless subs to smartphones, and battling for more if the rumors of a CDMA iPhone are true, than digging up streets and expanding the FiOS network. Plus, the government seems intent on subsizing the buildout of fiber optic networks in rural areas, so why not let them [the Government] pay for the deployment while focusing on a more lucrative market.
I saw a similar strategy implemented first hand by the former Bell Atlantic in the mid 1990s. The battle du jour between the cable companies and the telcos was the ability for each to offer phone and video services to their customers. When the phone companies realized the capital cost to upgrade their networks was greater than the ROI of jumping into the long distance business, thanks again to a change in government policy, they abandoned their video investments, or at least tabled them, and pursued the more lucrative and less capital intensive long distance business. This led to a cavalcade of mergers and acquisitions in the telco industry creating the bohemoths who now operate in the USA.
FiOS is also battling local municipalities over franchise rights and terms. This is ongoing in my own community which has a rural population outside of the core downtown area. It costs a lot of money to run fiber down each and every one of those long driveways in the "back country". Not something Verizon is keen on doing at this time. Who needs this headache when a better "investment" awaits.
While many consumers were looking forward to having an alternative to their existing cable service, perhaps at a much better rate, if your home has not been passed yet chances are it will not. And for those of us whose homes have been passed let's hope a connection is made before Verizon packs up it fiber and focuses its attention on the iPhone.
U2 VUDU?
I wasn't surprised to read of VUDU's stategy change to focus on the development of its video aggregation and distribution platform for established devices and to cease from manufacturing the VUDU STB. I've used VUDU and like the service, but its a tough slog to convince consumers to pay for a second box to receive TV shows, movies and other entertainment features when consumers are shopping for Blue Ray DVD players, and soon 3D Blue Ray DVD players. Others, like AKIMBO, reached the same conclusion and the yet to launch ZillionTV might want to reconsider. I'm not sure why Boxee is pursuing this strategy. I'd love to see the market research that leads them to the decision to launch their own device.
Strategically it makes sense to integrate VUDU's platform into CE devices and game machines that have a higher consumer demand and household penetration. I've made this argument before in prior blog posts. Its not an easy road as the integration into DVRs, DVD players or game machines must wait for device development cycles and lengthy testing processes. So one can expect anywhere from 9 months to close to 2 years between the time the first conversations occur and the device is on the market.
Additionally, this move puts VUDU squarely in competition with the likes of HULU, BOXEE and Netflix, among others, as an alternative source for aggregated content delivered over internet. The race is on to partner with CE manufacturers and to capture market share. I can't imagine the CE Manufacturers would sign exclusive deals with one aggregator, so look for lots of testing and shuffling of services as data from consumer choice and consumption becomes available.
I am still trying to figure out the benefit for the CE Companies. Have they negotiated a revenue split on advertising? A percentage of the rental fees for the content viewed? I can tell you one thing from my experience this weekend while shopping for a TV for my in-laws. Not one salesman mentioned any of the aforementioned services in their sales pitch. They are still pitching LCD vs Plasma attributes, 1080 vs 720, and glare on the screen. I had to bring up the hertz rates (240 is the latest rage, especially for sports buffs) and the move to 3D TV. And the sales guys are still pitching price. What does that tell you about the early success of these online services? If you are looking for VUDU or Netflix while shopping for your next CE device, know what brands and models include your favorite service as chances are the salesman will not.
If you've read my earlier blog posts you know I believe consolidation and platform convergence are the keys to success in this arena. Sometimes it just takes a while, and a lot of VC money, for people to see the light.
Was a new 3-D TV on Your Shopping List?
Welcome to CES 2010 consumers. If I can have your attention please I'd like to kick off this year's show by telling you those HDTVs you've purchased over the past 3 years, the ones that were required to meet the Government's HD conversion requirements and to allow you to view enhanced content on DVDs and Blue Ray - they're obsolete!! We now have this hot new format for your entertainment pleasure called 3-D TV that is a MUST HAVE!! While those LCD and Plasma HDTVs still work, you won't be able to view any 3-D content on them. You need this NEW and IMPROVED TV that only costs a few hundred dollars more THEN THE TV YOU JUST PURCHASED FOR CHRISTMAS!! We know, we know, we read the quote in the WSJ by the CEO of Vizio that the "technology is not that difficult" to include in the TV. I guess we could have incorporated it into the current sets a year or so ago and saved you the incremental cost of buying yet ANOTHER flat panel TV from us. Our bad. And we read the quotes by the Director of the 3-D@Home Consortium stating that "3-D TV is here to stay" and that consumers "don't have a choice". To quote Roger Clemens, I believe the director "misspoke". Consumers do have a choice, a choice of many different models of 3-D TVs from CE Manufacturers! You also like wearing glasses to watch TV, don't you? If not, you'll just LOVE the new models and styles we have for your viewing pleasure! This 3-D TV thing is not just about technology, its about fashion. Did you not see Jay Z on New Year's eve singing with Rhianna, wearing dark shades? Did he not bring it? That's how you will look watching 3-D TV in the dark in the comfort of your home. Sans Rhianna. And our stylish shades are only $50 - $100 extra!!
I seriously doubt CES will open this way, but it should. The CE and Entertainment industries have invested billions of dollars in 3-D TV and are not about to turn back now. Unfortunately your flat panel TV will not be able to display entertainment in 3-D, so if you are enthusiast and must have the latest technology for your viewing pleasure, open your wallet, again.
What really confounds me is the apparent lack of understanding of consumer desires, industry trends and what might best help consumers have a more valuable entertainment experience. Anyone who reads the papers or listens to the news knows the country is struggling to exit a recession, people are losing their jobs, have limited disposable income and other entertainment providers are raising prices (ask Time Warner Cable subscribers how the Fox resolution impacted their cable bills). Yet the CE and entertainment industries are promoting a new technology that will cost more money and that creates obsolescence in the living room of a recent TV purchase.
There is also a trend towards integrating social network sites and functionality into the viewing experience. Do the 350M people using Facebook not indicate something about consumer interest? Some TVs offer access to social networks via partnerships or through 3rd party boxes like Roku and Boxee, but not your TV as a standalone device.
At the same time smaller companies are trying to help consumers by developing solutions and devices that allow them to access content, via computer but moving towards the TV, to by-pass exorbitant entertainment costs, especially cable TV bills. Two of the most recent offerings are by Popbox and the new Boxee STB. If you have read prior posts you know I strongly believe that the CE industry has the ability to incorporate the necessary technology into a TV to permit direct access to the WWW, not just specific sites like Netflix or Amazon.com. I even asked the former CTO of Panasonic, who is now the President and CEO of Cablelabs, why, if I can access web video content on my mobile phone can I not do the same on my TV? He felt the market would not support the incremental cost of a TV with this functionality, yet techies everywhere are spending $500 or more to develop their own workaround solutions, usually a combination of digital broadcast TV and online services like Hulu, and ditching cable TV.
And was it really important for Panasonic and LG (I believe) to incorporate Skype into a TV set? People are paying $150 a month for Cable service and Panasonic wants you to be able to do free video calls in your living room. Awesome!!
Don't get me wrong, I'm a technology nut. But I'm also a business person who is asking where are the marketing hats at these companies and what was their input into these product decisions? Did they perform any market research to support consumer demand for 3-D TV? Having worked at Panasonic, knowing their limited marketing budget and how product development works at that company, I can tell you, with comfort, they did not do any research. Market research for Panasonic consisted of those 4x6 inch cards that came in product purchases that you were supposed to return to "register" your product with the company. The business model in the CE world is quite simple. Engineers in Asia factories build it, the merchandisers in the USA push inventory through the sales channel. The old "build a better mousetrap" mentality. Along the way the CE companies battle in format wars and spread money around like water trying to convince targeted partners in the entertainment industry to jump on board. Its how Panasonic won the VHS battle and how Sony won the Blue-Ray battle.
When push comes to shove, CE companies are hardware companies, not solution providers. They have limited, if any, expertise in software development which is why integrated companies like Apple excelled in creating portable media playback devices and now dominate the digital audio category. Not one device from a CE company has been successful.
The ultimate test of a movie or TV show, in any format, is its ability to inspire and entertain, to drive emotion and tell a story. If the entertainment industry can not produce content to do this in 2-D, 3-D is not going to save them. 3-D technology can provide depth of viewing experience, not depth of emotion.
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