The third screen
The next war in the internet arena may be for the last screen silicon valley hasn’t conquered: the one sitting in your living room.
The landscape so far
To date, many technology companies have tried to go after the TV screen as a market to conquer and most have failed. For example, Microsoft has, for a long time, tried to create a Media Center edition of their popular Windows operating system but outside of a few computer geeks, that concept never really took off. On the hardware end, companies like Boxee, Roku, WD (with the WDTV), Apple (with the Apple TV) and Google (with Google TV), have tried to offer a system that would connect users to a variety of internet content. Roku and Apple have had some early successes in the market, largely due to their pricing strategy.
On the provisioning end, companies like Netflix, Hulu and Amazon have started working as aggregators of streaming content that is delivered straight to your TV, without the need of a computer. Their strategy has been to work with consumer electronic companies to embed their players into DVD players and televisions. Along the way they have solidified their position in this market, going beyond early adopters and far into the mainstream.
And yet, something may have been missing from the equation to make internet TV a business that is as viable as computer or mobile software.
But things could change very rapidly.
A second wave for the third screen
In today’s busy media attention environment, there are three fundamental screens: your computer, your mobile, your television. The technology sector has successfully navigated itself in a position of control over the first two but a grasp of the third one has remained elusive. Consumers were mostly not interested in adding new devices to their entertainment centers, leaving even Steve Jobs to consider his own company’s attempts in the space as nothing more than a hobby.
But if recent rumors are true, the war is about to heat up again. A couple of weeks ago, Google announced it would acquire Motorola mobility. At the time, most people viewed it as purely a patent play. However, buried inside Motorola is a little extra reward: the second largest player in the TV set-top box provider in the United States (the other is Cisco). So if a cable TV box has the name Jerrolds, General Instruments, or Motorola on the front, it will soon be a Google box. And right now, those brands represents almost a third of all cable boxes in the world, giving Google a very strong foothold in the living room. The challenge for the search and mobile giant will now be to find a way to upgrade all those boxes to support the Android Operating System.
Meanwhile, there have been rumors that Apple is going to start building its own television, embedded with the iOS and all it supports. The rumors seem to be corroborated by a few facts.
In a January investor call, then-COO and now CEO Tim Cook mentioned that the company had secured access to supplies that were “focused in an area that we feel is very strategic.” In February, Apple paid close to $4 billion to secure supply of LCD screens for the next two years: at the time, the general consensus was that it was to cover iPhone and iPad screens but why make that assumption? It seems that some of those LCD agreements could be linked to the development of a TV set line, long rumored by Apple watchers and I would venture than when it comes out, it will be called the iTV (for Internet TV), explaining why Apple’s current set-top box product does not carry that moniker.
The revenue opportunity
Interestingly enough, when you look at Apple vs. Google, and some of their moves towards the living room, you seen pieces of their DNA show up. In Apple’s case, it’s all about optimized supply chain management combined with a piece of hardware that they will probably sell at a premium compared to the rest of the market. For Google, it’s about a subsidized hardware that is given for free or almost free to its users but generating through another channel (probably advertising).
At the same time, in both cases, the attempts will be towards trying to integrate their other offerings (for Apple, the iOS ecosystem and for Google, the search engine and Android) with the TV screen. In order to do so, they will not only have to work on ensuring a smooth transition from one screen to the other but alos provide development platforms and tools for others to build on their offerings (Today, for example, Roku, which initially was focused on streaming media, is offering a box that can now support casual games). I suspect as soon as the AppleScreen and GoogleTV start getting more mindshares, we will see more videogame offerings pop up on those devices, eventually upsetting Microsoft (with its Xbox), Nintendo (Wii), and Sony (PS3).