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).