This week’s announcements of pricing around the Google TV offerings, combined with some of the first deliveries of AppleTV boxes, have kicked off a new salvo in the war for the third screen.

TV and web pre-history

Before I go into more details as to why I think this is important, I need to give newer readers some background in the history of the many failed attempts to merge the web and television.

In the early 1990s, in an era that is considered mostly pre-internet (that is, before the internet became mainstream), then vice-presidential candidate Al Gore talked about the “information superhighway,” a concept that highlighted a universe where most interactive data would move to your television. The TV screen has always been the main screen in American household and, unless you were a computer geek, that was largely the case in the early 1990s.

As the 1990s moved on and the commercial internet moved to the center of public consciousness, there were several attempts to marry the internet and the web (12 years ago, I was even involved in a failed effort at creating a standard web model for bringing TV to the web). The basic idea, at the time, was to bring TV content to the web and enhance it with some extra juicy bits from the web. This meant, for example, being able to push web content that would provide more info on a broadcast (for example, related news stories). The concept wasn’t new in that it had been embedded in a lot of British television since the 1970s as teletext, passing extra content as part of a broadcast.

Set top boxes wars

At the time, a group of engineers and product managers who had worked for Apple left the company and started a new offering called WebTV. WebTV was a new type of set-top box allowing its users to surf the web on their television. The company also introduced a set of specialized tags that web developers could use to create pages that were formatted to fit this new TV paradigm.

Others looked to the same concepts and, in the late 1990s, the set-top boxes became a new competitive arena for distributing content in a digital form (In order to disclose my biases, I must point out that I worked on a consulting basis for Nokia’s set-top boxes group, an effort that ended up having an impact on some of the thinking behind podcasting)

WebTV networks was acquired by Microsoft and much of its technology ended up in the Media Center edition of Windows, which powered the next wave of TV/web marriage.

Starting with Windows XP, Microsoft offered a Media Center edition of their Windows platform. The idea was basically Windows, on your TV. Unfortunately, the assumption that the PC experience could translate to a large screen proved to be mostly wrong (this, by the way, is a mistake that Microsoft also made on mobile devices, assuming, until recently, that the windows metaphor could transport itself to other experiences).

As the dotcom boom led to a dotcom crash, much of the intentions to merge the web and TV disappeared. The concept of converged content moved from the web to gaming stations as a delivery mechanism  (in fact, around 2006–2007, I was considering the Sony Playstation as an attempt to get BluRay to defeat HD-DVD instead of an actual delivery device). In the midst of a 3-way war between Sony, Microsoft, and Nintendo for gaming supremacy, Appled announce its first foray into the TV space with iTV (later to be renamed AppleTV). While they didn’t look at games as a space at the time, their model of attaching a device to the TV was no different then than the model they have today: the set-top box as a way to buy content from Apple. In that sense, the fact that the company hasn’t changed direction points to their belief that this is the right model (though I personally think that, in the long run, they will end up opening the marketplace further, in a fashion similar to what they did with the iPhone).

Internet Everywhere: 5, 15, 50

Over the last few years, as more video content has become available, the internet has moved back to being discussed as a delivery mechanism for many types of devices.

I call that the 5, 15, 50 paradigm, since internet content is now being offered on devices that have 5 inches screens (mobile devices), 15 inches screens (computers), and 50 inches screens (televisions).

Netflix has had pretty good success with their strategy of getting their player integrated in a lot of devices, thus allowing their content to be streamed pretty much everywhere if a connection is available.

Apple vs. Google

But now that the war is moving to that new ground, two players in the computer and mobile space have decided to fight for that corner of our digital lives: Apple is re-tuning its AppleTV box to be more competitive on a price level and Google is gearing up for a larger attack on the living room. In this case, however, I think that Apple has an early lead with some critical flaws.

The reason I believe Apple has an advantage here is that their offering, from a product standpoint seems to balance the right feature vs. price compromise. The Netflix and YouTube offerings are no-brainers but the reliance on iTunes as the delivery mechanism for your pictures and movies is annoying: I think that’s a critical flaw in that most people do not want to have to turn their computer and iTunes on in order to have access to that content. Apple should offer a way to attach a network drive (maybe a modified version of their time capsule) on which a user could drop pictures and movies, leaving them there for use from the Apple TV (or mac, iPhone, and iPod) at any time.

Google, on the other hand, is introducing a product that is just a more modern version of WebTV. And I’d warrant that, at this time, the keyboard interface approach is the wrong metaphor for the big screen. The keyboard on the first devices (Logitech Revue and Sony Internet TV) to follow the Google strategy are just too big (as the owner of a Logitech DiNovo Mini, the keyboard that’s modified for logitech’s enhanced offering, I can tell you that most normal people get confused by such an offering). This, in itself, would not be a killer as Boxee has demonstrated, with the remote for their boxee box, that a remote can have two sides, allowing for the complexity to be simplified.

Keyboard aside, however, GoogleTV will have a problem the price point ($299 for the Revue), which is too high for most consumer. Considering that Apple is pricing the AppleTV at $99, consumers may question what they get for the extra $200. Geeks like myself may end up buying something like the GoogleTV box but I suspect that the vast majority of the public will not.

Meanwhile, the incumbents in that space (cable companies, as well as Microsoft, Sony, and Nintendo) are not sitting on their hands and smaller players (Roku, Boxee) are looking to get a share of the market too.

The next set of battles will be waged for your living room and they are gearing up to be interesting as, for the first time in a very long time, TV may become more about the consumer than it is about the advertisers.

Tristan Louis is the founder and CEO of Keepskor and writes the influential tnl.net weblog, where this was initially posted under the title The revolution will be televised. You can follow him on twitter here or receive his weekly newsletter by subscribing here.

Mobile

Last year, I declared that video would be big in the Internet space and this year, I believe that mobile will be a major focus.

The devices

While mobile devices will continue to grow on the existing curve, adding more processing power and more memory, they will also add a number of features with are significantly different from the ones we’ve been accustomed to see on a mobile phone. Cameras will increasingly become just a tick on the feature list and location-aware devices will become more prevalent (they will sport a GPS chip).

The new features will come in 3 key areas: first, more mobile devices will be able to multi-task, allowing users to use functions on their phone while making a call at the same time. The multi-tasking will extend to wireless services too and people will be able to surf the web or use internet-based application at the same time as they are making a phone call. A key hardware change in those mobile devices will be an increase in the number of phones (and other mobile device) that not only have a GSM or CDMA chip but also sport a WiFi receiver. This will allow the devices to run across a variety of networks. I suspect (and am probably going out on a limb here as my guess is that this would be early) that some of the devices will conform to the 802.11n WiFi standard, and will use that technology as a bridge to 3G because 3G deployment in the United States will be slow.

The second big hardware innovation in mobile devices will be the presence of RFID readers and chips that will allow users to use them for person-to-person or person-to-business commerce, turning mobile devices into electronic wallets. Deployments in Near Field Communications for credit cards have already started to happen on a trial basis in cities like New York.

The third big hardware innovation in mobile devices, in my mind, will come from the fact that some devices will be DNLA certified, allowing them to exchange, photos, music and videos with other devices in your house.

The services

This year, the rise of mobile services will be powered by a sharp drop in the price of data service offerings from mobile operators, with some operators offering flat-rate all-you-can-ear services to their customers.

In the content arena, the most popular type of service will be near-CD-quality audio downloads. There may be some offerings in the streaming audio market but I suspect that those will be very limited. The second most popular content service, in the mobile space, will be mobile video, with TV and user-created content (mobile YouTube and competitors) filling that gap. Those services will be advertising supported, with revenue sharing agreement between the mobile operators and the content providers.

Map services will also enjoy some level of success. The recent introduction of Google Maps on the Treo platform can be seen as an example of that trend and location-aware device will offer richer experiences in that space, with live traffic info, weather, and maybe some advertising being part of the offerings.

However, content will not take the forefront on mobile services, which will still be dominated by communication as the primary type of application. In that space, though, regular phone service will not be the predominant form of communication. SMS and MMS will be integrated with instant messaging platforms and email, to provide a complete communication package. Expect features like the ability to send text messages to multiple parties at once to start appearing, allowing for chat-like interfaces on phones.

As a result of those changes, social networks will also start integrating mobile applications more closely this year. MySpace and other networks like it will offer integrated solutions for mobile blogging, podcasting, and vlogging, as well as integrated chat and location aware social networking services. Dating services will be another arena to go mobile with the ability to identify matches within your general area.

Wrapping up the offerings will also be limited trials in the videophone space, leveraging off new next generation 3G infrastructures. The videophone trials (and 3G in general) will still be limited offerings by the end of the year, due to the high premium charged for such services.

On the voice end, the introduction of WiFi on some mobile devices will give rise to VoIP mobile applications. If the devices sport 802.11n receivers and such infrastructure is deployed, services around that space could eclipse traditional voice traffic.

Apple

Due to the added power mobile phones now have, the iPod is threatened. Apple makes a defensive move by unveiling the Apple ecosystem, centered around use of media in general and of the Apple iTunes store in particular. With the introduction of its own offering in the mobile space (an iPod with phone functionality and not a phone with iPod functionality) and in the living room (the already pre-announced iTV components), Apple presents a strategy that allows for simple integration of all their components into a digital lifestyle offering.

In the non-media space, Apple bundles blogs and wikis with the new version of OSX and starts offering Web 2.0-like functionality on its Xserve servers, in a bid to get a spot in enterprise racks. They will also merge in social networking features in their calendaring and address book applications, allowing for a more integrated experience.

In another bid for enterprise positioning, Apple will include virtualization of other Operating Systems natively in the next version of OSX, allowing their computers to run Windows and OSX applications side by side under OSX. The feature will take some of the existing Apple bootcamp attributes and turns them into an equivalent of Parallels.

In a surprise move, Apple will also announce that it has signed a partnership with Google, which will offer the Google Apps for your domain as a replacement for the .mac service offered by Apple. The service will now be available either as a free ad-supported service, or on the same premium service offering as before without ads.

On the hardware end, Apple will endorse 802.11n as their standard for media distribution, equipping all new computers and the iTV device with receiver cards so it can leverage off the higher speeds offered by that standard. Because of its long-standing relationship with Sony, the company will also decide to side with BlueRay as their standard for next-generation disks, equipping their new laptops with drives following that standard.

Microsoft

Microsoft’s oft-delayed Windows Vista will finally be released but adoption of the new operating system will be lackluster as few of today’s computers can support it. The same will be true of the release of Microsoft Office 2007, as most users feel perfectly OK with the version of those products they have running on their desktops.

With the major release of updates to the Windows and Office platforms behind it, the company will focus efforts in other areas. In the console market, Xbox 360 will become the dominant game platform, due to slow adoption of the PS3 platform. Microsoft will innovate heavily on that platform, leveraging its positioning in the living room to offer more movies, more TV shows and other types of services around it. Meanwhile, the company will also work on a major revision of their Zune offering, offering a new version of the iPod competitors that will be better received than its predecessor. However, Zune 2.0 will not make a major dent into the iPod market. On the web end, Microsoft will consider the acquisition of either Yahoo! or AOL as a way to shore up its MSN offering and adopt a more aggressive stance in its fight for online advertising revenue.

Virtual Currencies

There will be more talk about the digitization of money this year. Microsoft will use its Microsoft points as a new form of currency that can be used not only on the Zune marketplace and the Xbox live marketplace but also as a way to pay for goods and services online with approved merchants. This will be followed by support for a payment solution (like Google Payment or Paypal) in a stake to get a stronger foothold in that space.

Google will continue pushing its Google Payment engine, moving it to an international base before year end. Meanwhile Paypal will continue expanding its lead in the space and will start offering virtual credit card numbers that will be usable on any system and tie back to Paypal on the back-end.

But the big stories in the virtual currency space will be around the rise of virtual worlds like SecondLife and others, which will see their own virtual currencies rise against the dollar. Their will be discussion about the power those virtual worlds operators have over money flows and calls for regulations of those currencies (and possible taxation of revenue made in those virtual worlds) in several countries around the world.

Virtual Worlds

Speaking of virtual worlds, there will be a continuing explosion in the growth of this phenomenon. By year end, SecondLife alone will have over 15 millions residents, but will be experience growth pains. At least one other major virtual world operators will appear in the space but most corporations will rush to SecondLife.

The initial hype that started appearing in the mainstream press about SecondLife will give way to a number of negative stories, probably talking about some of the darker aspects of the virtual world phenomenons, including gold farming, the sex trade, and gambling. Some politician will use the negative press as a way to grab headline by calling for a government inquiry in the dealings of virtual worlds operators.

While I declared 2007 the year of mobile, virtual worlds will come of close second in terms of highlights for the year. I suspect that LindenLab will surprise people by announcing that it will open up its platform and present the underlying components as a new standard for the web. The company will then start offering their grid software as a standalone application that corporations can install on their own servers if they want more control. LindenLab will also allow companies to use customized version of their thick client that could be branded with company destinations and other goodies.

Due to LindenLab’s strength in the space, many companies will consider acquiring it but many will be turned off by all the negative press and potential for government involvement.

Media

Mainstream media will continue trying to co-opt successful bloggers and will also turn its attention to successful podcasters and vloggers. New stars will emerge online, develop followings there and make the jump to mainstream media, while the reverse path will be taken by mainstream reporters and actors, who will increasingly start vlogging and podcasting (they’re already blogging).

Pressured by lower viewership in their traditional timeslots, TV stations will start posting more content online, with at least one TV station offering all its primetime slate online in and advertising supported fashion. Smaller video distributors, in the meantime, will start investigating using bittorrent for distribution of their content. Some old TV show will see its archive fully posted online and will start receiving a new stream of revenue as a result of that online appearance.

Meanwhile, ad revenue will continue to shift to web, and media will reluctantly follow. By year end, most newspapers will have combined their print and online newsrooms, and many will be cutting back on print to focus more on their online presence. As part of this shift to online, we will also see increased reliance on user generated content, with some newspapers offering blogs to their readers and encouraging active participation in making the news.

However, most of those efforts will not generate the expected returns as Google gobbles up increasing share of overall internet ad revenue, and starts expanding to audio and video. Discussion in the traditional media will start shifting to whether Google is too powerful for everyone’s good.

Death of the website/webpage

Another important shift in the media space will be the death of the concept of traditional website or web page as a result of increasing consumption of content via RSS or through distribution of widgets that can be embedded in other people’s sites. People will move away from the term web site and start talking about web properties. Because content will not necessarily be consumed in the creator’s site, there will be discussions of a new for new advertising/revenue models for such content and a need for new metrics to identify reach and audience. This will present a new opportunity for companies in the web analytics space.

As the web page is no longer seen as the best way to measure the success of a web property, the CPM will be on its last gasp as a model for selling online advertising, replaced largely by cost per click (CPC) and increasingly by cost per action (CPA) as the way to sell ads online.

Web 2.0

There will be increasing verticalisation in the web 2.0 space, with social networks, search, and web service offerings becoming more focused this year. However, this will also mean that many companies that were only single features will not be able to adapt and will die. Others will continue to be acquired for sums in the under $100 million category and few, if any, will go public.

Tagging will become more and more implicit, with less and less users actually doing the tagging and more and more tags being generated algorithmically. More applications will start looking at people’s behavior and creating the appropriate tags or making the appropriate modifications in the background.

But it’s not all doom and gloom for web 2.0 as Enterprise 2.0 becomes a reality. Use of blogs, wikis and VoIP behind the firewall commonplace at most large corporations and other technologies introduced as part of web 2.0 (AJAX, podcasting, etc…) will become more common in Global 100 corporations.

And speaking of the enterprise space, enterprise search will be huge, with Fast and/or Autonomy being acquired by Oracle, HP, or Microsoft. More focused will be paid on creating strong search solutions for the unstructured data on intranets and IBM will be a major player in the space.

Conclusion

At year end, many of those predictions will be wrong but a few will be correct. In the meantime, I’ll try to keep everyone up to date and hopefully will keep providing great content throughout the rest of the year.

I think 2007 will be another banner year and believe that we are looking at another existing set of new developments. Feel free to comment below and tell me what you think I may have missed (or point me to other prognostications, as I haven’t had time to get to my aggregator since Christmas).

Tristan Louis is the founder and CEO of Keepskor and writes the influential tnl.net weblog, where this was initially posted under the title 2007 Predictions. You can follow him on twitter here or receive his weekly newsletter by subscribing here.

So yes, Google is paying $1.65 billion for youtube, Ebay spent $2.6 billion on Skype (making the Google/YouTube deal look like a cheap deal), and News Corp. paid $580 million for MySpace (making them look frugal compared to the other two big deals) but the truth is that, across 20 major deals, those 3 stand out as the exception and not the rule. It appears that, on average, deals are generally below $50 million and, in most cases, lower than $10 million.

Bubble 2.0?

I’m sure people are going to call me out on this because I’ve previously warned about the possibility of a new bubble being created. However, at the current time, it seems the data does not support that conclusion yet.

What it appears to support, however, is an interesting calendar anomaly: it appears that major deals generally happen in the 4th quarter of the years (either that, or I got my data set wrong)

Another interesting point is that I haven’t found any other chart of that type around the net. So I figured this page can be a starting point. Hopefully, faithful readers will help me fill this chart with more data points so we can do more granular analysis

Tristan Louis is the founder and CEO of Keepskor and writes the influential tnl.net weblog, where this was initially posted under the title No Bubble 2.0 yet. You can follow him on twitter here or receive his weekly newsletter by subscribing here.

If you look at the introduction of iTV as a set-top box connected to your TV set, you might notice a few features missing: no DVR –like or TV tuner capabilities. In my view, this is not a technical oversight, in my view but is part of Apple’s strategy to become the center of the media universe and expand the control they have acquired over the music industry to the video one.

The marketing

iTV is no different that Microsoft’s offering of the Windows XP Media Center extender but Apple seems to have a knack for making their products look like innovation when they are just fast followers.

First, there’s the name. While I doubt the final name will be iTV (due to the fact that there is already a TV network in the UK by that name and the fact that it’s a name that has been used as a standard for interactive TV), I suspect that Apple will come up with a similar sounding name, one that wil evoke a certain amount of coolness and connectedness. It will not be as jargonny as media extender. Apple is very good at marketing and it is clear that they now have their eyes set on the living room. As a result, the new name will evoke something that works as a natural in the living room.

Programming

People who have been tracking Apple’s effort in the space closely know that the company is now offering TV shows in a downloadable format either on a per episode or on a per-season basis. With today’s announcement, Apple is extending this model into the sport arena, with a partnership with the National Football League to offer season passes similar to the ones offered on DirectTV. This represents an interesting move into the sports arena and I suspect that announcements will eventually come for similar deals with other sports leagues. This is an interesting move in that it puts Apple clearly in a strong position as to TV programming and ensure that it gets a portion of revenue that could have gone to traditional broadcasters. What we may start witnessing here is Apple’s attempt to redefine television as a model where TV shows are sold by the show or by the season and not as part of a traditional channel offering or with advertising sponsorship.

This is an interesting gambit that flies in the face of existing business models for media distribution and it may impact traditional local broadcasters and TV networks. If Apple manages to disaggregate the content from a channel offering, the value of individual channels could eventually drop. Why watch ABC, CBS, NBC, or Fox when you can program your own channel. This is almost a natural progression in the media landscape changes that started with the introduction of DVRs at the beginning of this century.

Furthermore, if Apple is successful in its move, it may end up converting traditional cable companies into simple pipe providers, which would undermine the ambitions of players like Tim-Warner, News Corp., and Comcast in the integrated walled garden space. By moving content of IP based network, Apple would succeed and wrestling control of the channel distribution from those providers and force them to distribute their content over its store, picking up a fee for every show that is distributed.

… and then there’s Madison Avenue. Right now, a substantial portion of the revenue for television comes from models based on advertising. If Apple manages to convince a substantial portion of the public that buying a show from them is a better allocation of their entertainment dollars than subscribing to advertising-supported cable, we could see a major portion of advertising revenue evaporate. This would force TV station to focus more on live type of events, maybe even driving the broadcast networks away from a traditional mix and towards a more focused model, either centered around sports (which doesn’t necessarily work as a download as more people still want to see games live), news (with ample “from-the-field” type of coverage) and entertainment shows like “American Idol” where a low level of interactivity (“call this number to vote for your favorite star”) is tied to the programming, ensuring a required “live” showing. Sitcoms and TV dramas, as programmed type of entertainment, might be nearing the end of the advertising supported model. If you look at it in historic terms, this is part of a trend that was started by some of the pay channels like HBO and Showtime when they started producing original TV series. Because the series were more “edgy” and turned out to be quite good from a creative standpoint, people didn’t mind paying an extra $10 a month to watch them. Eventually, those series became available on DVD and found new audiences in that way. Apple took it to its logical conclusion by breaking them down to episode level, which allow you to get a taste, and season pass, which mirrors the DVD model but ensures that Apple gets a portion of the revenue.

Movies

And then there’s today’s announcement regarding movies. The movie downloads, while expensive, represent an interesting move into the video-on-demand arena. I suspect that, as time goes on, the price of downloads will drop and that Apple will extend their FairPlay DRM to establish a 24 hour or X number of plays model for a lower price. Because Apple has insisted on being able to release the movies in their store at the first time as they are released on DVD, it gives Apple a slight edge over the pay-per-view or cable TV model. Traditionally, Hollywood has distributed movies in theater first, then a few months later on DVD,then a few month later on pay-per-view, and finally on TV, traditionally on pay channels first and then broadcast ones last. Apple has managed to insert itself in the closest position to the theater release. Granted the price is high (in a lot of cases, equivalent to the price of a DVD with none of the added value and production cost) but I don’t think that Apple is looking at the DVD market right now.

They are trying to beat out the pay-per-view market for now so the release window is more important. If they successfully implement this strategy (and here again, the partnership with Disney makes sense as Pixar makes content that kids will want to see again and again in a variety of form, possibly getting parents to agree to purchase the movies online instead of DVD because they may be portable from one Apple device to another one), Apple will start impacting another revenue for traditional cable providers. As they do so, they might see more people buying movies, which will give them more power in dealing with the movie studios, which will result in their dropping the price first to $10 a movie and eventually to somewhere between $5 and $10 for a 24 hour or single play rental.

The Ecosystem

As I mentioned earlier, there is no DVR or traditional TV tuner built into the device. I believe that this was not due to a technical limitation but rather as part of a wider play to create an eco-system around the new device. Much like Apple initially allowed other companies to develop components that played well with the iPod, I believe they are trying to get a new ecosystem built around the new device. This will allow them to gage innovation in the space and identify which opportunities may be best for future integration or as components to add to the system. The initial connection will probably happen over the USB 2.0 connection on the device (which portends more connectivity options. Integration could also happen through some network type of interface connecting either wirelessly via the 802.11 connection (and notice here that they did not specify which flavor of 802.11 they were using) or the Ethernet connection.

This also could represent another revenue play for them as they license out a “made for iTV” (or whatever the final name is) certification model that would allow them to receive a portion of revenue on every device that plugs into the new box. This is a strategy that has worked well for them in the iPod arena and could be reproduced around the TV screen.

Why announce early?

Most surprising in today’s news was the fact that Apple pre-announced this product. There can be one or two reasons around this.

The first one could be that the announcement was added in the last few days because Apple was looking to announce more partnerships with movie studios but failed to get the contract signed in time to make the announcement (rumors have been that negotiations between the company and the movie industry have been tense, as studio heads want to avoid a repeat of what happened to the music industry and also fear ostracizing existing players in the DVD distribution world while Apple insists on making movies available through its store on the same day as DVD release). If you look closely, all the movies released in this launch are produced by Disney, which had little choice in the negotiations since its largest shareholder is Steve Jobs (as a result of the Pixar acquisition.)

Another possibility is that this is a pre-emptive move to stunt the arrival of Microsoft’s Zune product line. Microsoft has made it clear that Zune is part of an integrated device strategy that will allow them to take on the iPod. Considering that Microsoft already has multiple ways to get into the living room (Xbox, Media Extender, Windows Media PC edition), Apple may be worried about ceeding ground in that space and is working on a pre-emptive strike, announcing a product that will deliver everything the public want before Microsoft can make their announcement. The irony, if that’s the reason behind Apple’s announcement today, is that this is a typical Microsoft play: leverage a position of power in one market to spread fear, uncertainty, and doubt in another one, therefore stunting the potential growth of new competitors as the public waits for your offering (Om Malik seems to agree with me on this). By doing so, Apple may also be buying itself more time to force stronger negotiating positions with the movie studios.

Let the Living Room Start

So the war is on with a number of different strategies: Cable providers are trying to leverage the power of their set top boxes to protect their de-facto monopoly in the living room.Sony is trying to leverage the power of its PlayStation franchise to get people to adopt its BlueRay technology and use the PS3 as the new center of the media world. Microsoft is taking a throw stuff against the wall and see what sticks approach, offering up multiple products ranging from set-top boxes to media center to Xbox to Zune. Apple is trying to take the approach it took with the iPod: late to the party but providing better design, a better marketing message, and an interface that has less feature but is easier to use.

All and all, it’s hard to figure out who will win out this one but I think that, so far, Apple may be taking the right approach and could extend its dominance in the audio space to a whole new arena.

Tristan Louis is the founder and CEO of Keepskor and writes the influential tnl.net weblog, where this was initially posted under the title Apple Aims for the Living Room. You can follow him on twitter here or receive his weekly newsletter by subscribing here.

Size of the market

When talking about virtual worlds, I am focusing on the new space created by the gaming industry that allows to create online avatars and interact with other players in a fully immersive environment. From an economic standpoint, estimates range from around 100 millions to a high of US$1.5 billion a year. These are not insignificant numbers and they point to an emerging phenomenon and potentially the rise a new industry, with its own set of marketplaces, gathers, owners, creators, and marketers.

Marketplaces

To understand virtual worlds marketplace, one must first understand what si going on in those virtual worlds. When a player sets up an account, he’s given a basic set of skills. As he or she progresses and interacts with the virtual world and its denizens, the player gains more and more skills and goods. However, this type of interaction requires time. Some people have figured that, because time is money, the amount of time spend in a virtual world could be converted into real hard currency. Thus was born the concept of Real Money Trading (aka RMT), whereas players go to specialized sites and buy virtual goods with real financial currency.

The action initially started on auction sites like Ebay, where characters or other virtual goods range in price from a few cents to several thousands of dollars. Because the trades were largely unregulated, some companies, like Sony, decided to set up their own exchange while others (Internet Game Exchange, Massive Online Gaming Sales, Tek Gaming Supplies, Swag Vault, and Gamers’ Loot) have created specialized marketplaces to cater to this new phenomenon. This, in turns has led to the rise of two new classes of activities: informational ones that provide analysis on the financial going ons in those worlds and arbitration, whereas companies use people in the developing world to build up assets they resell to people in the developed world. Let’s go deeper in those areas.

Information Sites

There is now a nascent information industry surrounding the costs of goods in virtual worlds. For example, Eyes on Mogs is a shopping search engine for virtual goods. All the attributes of other search engines are part of it, including comparison shopping, comparisons of the different vendors, pricing, delivery date, and buy it now info. GameUSD tracks the financial value of virtual currencies over time, providing price trends across not only the provider but also the alternative marketplaces. MMOfx claims to track “over 18,000 price quotes daily” and provide information on the fluctuation of virtual currencies.

Arbitration

Another type of economic activity to have arisen out of the marketplace phenomenon is the arbitration of virtual work. As the primary pursuit in these worlds is the acquisition of wealth, status or levels, an emerging market has arisen to give people with real money a chance to bypass the time investment required to acquire those things. For example, Chinese workers get paid between $75 and $250 a month to work in World Of Warcraft, in 12 hours shifts, “killing onscreen monsters and winning battles, harvesting artificial gold coins and other virtual goods. Affluent online gamers who lack the time and patience to work their way up to the higher levels of gamedom are willing to pay the young Chinese to play the early rounds for them.” Similarly, Romanian players can make a living wage (the ABC News story I linked to says that $200 is a good wage for Romania) on the same kind of activity.

Edward Castranova, the leading economist on the subject of money in virtual worlds has been quoted as saying that “They’re exploiting the wage difference between the U.S. and China for unskilled labor.” What is basically happening here is that these companies have found a niche on the global marketplace to accumulate goods at a low cost and resell them at a premium. This type of arbitrage has been the way a lot of developing markets have revolutionized industries, from the export of manufacturing capabilities in the 20th century to the export of some service jobs nowadays. It’s a natural phenomenon and shows that those marketplaces are starting to develop a high level of maturity, which should be noticed by a lot more people.

Virtual Goods Ownership

Beyond the buying and selling of virtual goods in virtual marketplaces, there is also an emerging trend in the real estate business, which can be broken down into three main groups: real-estate owners, creators and integrators, and marketers.

Second Life is a virtual world more focused on the social aspect of virtual environments than on the goal oriented aspect of missions and war-craft. Fortune Magazine reported last year about the interesting case of Anshe Chung, a character created by a German woman who has accumulated more than US$200,000 in virtual land holdings in Second Life. She rents the property out to other people, after having developed the property. Similarly, the BBC reports that a 23-year-old spent £13,770 in Project Entropia and recouped his investment in under a year. In fact, the land rush has been so strong that Second Life has build a model around land use fees, generating a nice chunk of income in the process.

While visiting this world, I’ve talked to people who had few problems paying $75 per month to Linden Labs for those fees. This is pretty incredible when you think that all they are buying is portion of disk space on a server. In a way, the real estate market presented by those virtual worlds can be seen as a hosting fee in a 3D environment and could represent a high growth market (in a future entry, I will look at the opportunities in the Virtual Spaces in more details).

The Integration Model

Another nascent portion of this new industry is the integration game. As with any new technology, developing and managing something in a virtual world is an endeavor that requires specialized skills. New companies like The electric sheep company and Space Think Dream have emerged as developers/integrators, offering their services to other companies. Their main business is to use the skills they’ve acquired to help existing companies experiment in these new worlds. This is, in a way, similar to the type of work that was done by early web design agencies, treating virtual worlds as a new interface either to existing systems or to create a new value proposition.

Other companies have emerged with the sole purpose of selling digital goods in those worlds. SLexchange is a virtual market where people can buy and sell such goods. Similarly, the Electric Sheep company has created SLBoutique as a competitor to SLexchange. What is interesting here is that there is a whole ecosystem building around Second Life, allowing other companies to prosper based on this new platform. This is similar to what has happened with Ebay and allows us to better understand SecondLife as a platform for e-commerce rather than just a game, a fact that Philip Rosedale, CEO of LindenLab and the power behind Second Life, likes to emphasize. This explains why the company has received investments from people like amazon.com CEO Jeff Bezos, Lotus founder Mitch Kapor, Ebay founder Pierre Omidyar, and Microsoft CTO Ray Ozzie. Those people understand that this a new emerging platform and could see potentially high return on their investment.

Bridging the gap

The development of virtual worlds as a new platform is starting to take shape. Companies and organizations like American Apparel, the BBC, Major League Baseball, NASA, The American Cancer Society, Amazon.com and Wells Fargo are starting to experiment in that space. Increasingly, virtual worlds are becoming not only a new way to market but also a new integration point for e-commerce.

Some of the virtual worlds (Project Entropia, for example) have even gone as far as issuing ATM cards that allow denizens of those worlds to take virtual money and trade it for real money that they can use for regular economic activity.

Conclusion

With large amounts of real currency already moving through virtual worlds, we are looking at a major new economic phenomenon that parallels the initial development of the commercial web and the rise of software as platform in the last few years.

With a new ecosystem forming around some of the virtual worlds, there is a fair amount of incentive for a lot of people to see this phenomenon succeed. SecondLife will probably be an early winner in this race, largely due to how quickly it has managed to get other companies to rely on it. A few more established companies are also early in staking ground in this new space and will probably reap rich rewards for their efforts, expanding their brand into those virtual spaces.

While it may appear that this is largely a subculture of gaming, the phenomenon is much more widespread. In my next entry, I will go through the demographic profile of denizens of those virtual spaces, showcasing a rich and varied texture to this phenomenon.

Tristan Louis is the founder and CEO of Keepskor and writes the influential tnl.net weblog, where this was initially posted under the title Economic Activity in Virtual Worlds. You can follow him on twitter here or receive his weekly newsletter by subscribing here.

It seems every time Apple or Google introduces a new product, the buzz is high. For example, Apple recently introduced a $350 speaker and, while the reaction was more tepid than it has been for other Apple products, no one seem to point that the emperor was looking very very naked. Yet, Microsoft keeps throwing out new products and few people seem to be very interested (no matter how Scoble tries to browbeat us into thinking of Microsoft as cool).

Similarly, today, Google introduced a finance section that mimicked much of what yahoo! finance has been doing for years. It has a couple of nice AJAX-based features but, all and all, it’s not enough of an improvement to be considered like something that could potentially dominate the tech news cycle. And yet, every major tech pub or mainstream publication has covered the release.

why?

Trying to divine the source of coolness

What Google and Apple seem to have understood is that there are ways to make oneself look cool. I’m going to try to lay out some of the things I’ve seen (and I hope that others will chime in in the comments):

Rumor Mill

First, let the rumors float or give the appearance that you don’t want rumors spreading. Google Finance has long been a rumored product (as is Google payment, for example) but no word ever came out of the company about their intentions. In fact, Google is relatively stingy in terms of providing advance information about their products. They have learned to let the rumors run wild, leaving their competitors tearing their hair out trying to divine what Google will do next.

Apple takes a different approach to this. In the past, the company has been relatively ruthless in its attempts to shut leaks down. However, it seems that, when leaks are presenting compelling products and the company doesn’t really have anything to announce, Apple is happy to let the rumor mill run wild. So, before the release of the iSpeaker, uh, iPod Hi-Fi, Apple did not crack down on rumors about a new video iPod.

The two approaches speak to two different traits: one is to be extremely secretive about your action and the other is to let rumors go wild as long as they paint a picture of your company that is far cheerier than its reality.

The one feature

When selling technology, there are two publics to serve: the early adopters, and the general public. The early adopters are a fickle bunch but they can have some influence on the general public. So giving the early adopters one feature that they will like is an important feature of creating good buzz. Similarly, when dealing with the general public, emphasize the one feature that makes your product different. It doesn’t have to be something that is actually innovative (many companies were making MP3 players years before the iPod; many companies have offered services (other than search) which did what Google did in categories like mail, web hosting, classified, news, etc..) but it has to be presented as such. The early adopters may groan but they are eventually drowned out by the masses.

Thus, Apple did not release a featureless MP3 players without a screen, they released the “Shuffle” which allowed people to get a little more randomness out of their music collection. Or Apple didn’t release a $350 speaker, they release a Hi-Fi system that will work with an iPod (iPod sold separately). Similarly, Google did not release a Geocities rethread, they released pages, a cool online web editor and page hosting service. They did not release a me-too version of finance: look at the cool graphs they have.

I may sound a little cynical in that last paragraph but I believe it is this kind of cynicism that infuses the marketing of cool products. They may not be the top technology in the market but they are different. And emphasizing that they are different gives a chance to the users to feel like they, too, are different.

Cool by association

The next item on the list, in terms of generating buzz is to create an appearance of exclusivity from the get-go. Thus Apple does not complain too much when the police report rise in theft of iPod, due to the high visibility of the white headphones (see, our product is so popular, people steal it). Similarly, Google did not offer a free web-mail service for all, you had to receive an invitation.

By creating a certain level of exclusivity or belonging to a certain tribe, Apple and Google have managed to go beyond the product. They’ve created an aura of cool in being associated with them. When a new product comes out, you have to check it out or you will be out of the loop. The trend folds on itself, ensuring that future product launches benefit from the buzz of previous product launches. Over times, the duds are forgotten, and the companies are seen as innovative.

Look! Feel!

One of the other things to consider, when creating some level of buzz is the fizz and whiz of look and feel. Apple is known for designing beautiful computers (in the mainstream PC world, only Sony puts as much thought into how their computers look). The energy they put into the design allows them to bypass some of the technology issues that other vendors would encounter.

Similarly, Google has become an expert at using AJAx for their interfaces. As a result, new products generally look more polished than the competition. In the case of Finance application, it was interesting to see comments by people in the financial space on the performance of the product in terms of delays giving stock quote prices, etc.. However, few users would drill in and discover that stock prices were about 20–25 behind, or that

What value does buzz have?

At the end of the day, though, much remains to be seen about the value of such buzz. While Apple generates a lot of buzz about its computers, it still only retains between 5 and 10 percent of the market. Similarly, while Google has generated much buzz for all its new products, its bread and butter is still revenue from advertising on the search engine. So the question that still needs to be considered is whether buzz has value beyond the introduction of a new product and what that value translates to in terms of real dollars.

Tristan Louis is the founder and CEO of Keepskor and writes the influential tnl.net weblog, where this was initially posted under the title Building Buzz. You can follow him on twitter here or receive his weekly newsletter by subscribing here.

Software

The first thing I’m taking a look into is what are the software packages each offers:

So it looks like we will be dealing with three different types of digital right management systems, making it difficult to actually have content play on every single device. If only Apple, Microsoft, and possibly Google, could sit down and agree on a standard way to handle this, it would make everyone’s life easier. However, because they all want to lock-in users, we will see an increasing amount of incompatibilities pop up. This becomes more visible in the portable space, which I’m highlighting below:

If my analysis is correct, Apple is using its dominance in the iPod space to try to gain power in the living room; Microsoft is using its dominance in the living room to try to get traction in the non-PC world (and gets an early edge as it will play on the Sony Playstation Portable and works on the Treo 700w); Yahoo! is hoping that an alliance with Nokia, which has a strong position in the mobile phone business, will help it in that space. This makes for a future battle in the portable video space with Microsoft getting an early hedge.

What content and how much?

But all the discussion so far has been one of technology. The real question is what content is available and how much it will cost. Let’s look at what they will offer:

Apple has done a good job in capitalizing off its early lead in the space to get music related content and some TV content. However, it is weak in the news, weather and sports arena, which could be an issue (I’ve actually heard from people at several large content providers of those types that they fear the power that Apple has in that space and, as a result, are wondering whether they should offer content to Apple at all because they are afraid to be led down a path where Apple would be in the lead, with them getting little input into price and strategy).

Also of note here is the fact that none of the portal is yet offering movie download. I expect Apple to be the first out the door with such an offering. Google and Yahoo! may also enter that space but Microsoft will not (as some of its partners like MovieLink, CinemaNow and Starz, are already offering such things) and AOL may only offer Time-Warner content (other studios will probably not want to offer their content through a competitor). Yahoo! will probably hedge out Google in that area too, largely due to the fact that its management has deep ties into Hollywood.

Last but not least is the amount of user-content. Google and Yahoo! are playing with the long tail, hoping that user-generated content will help them fill some of the pipeline. This will be an interesting test as to how compelling that content can be and there may be some tricky issues relating to copyright but it seems to be a risk those two players are willing to take.

The next question is how much this will cost:

In this space, it is interesting to see two different business model collide: on one side, you have companies that are looking to offer advertising supported content to the masses and charge a premium for some of the content. The charging model on the premium content is also divergent from player to player: Apple is looking at a fixed per unit price, while AOL and Microsoft are looking at an all you can eat price for a larger fee. Although Yahoo! has not announced much in this space, they look primarily to the advertising supported model as the way to go. Google, on the other hand, is going to try to create a marketplace based on variable rates, and will probably use something similar to an AdWord for Video type of program to subsidize their own free content.

Update:

I’m making a few changes to the tables (primarily in the Google columns) based on the latest information I’ve received.

Tristan Louis is the founder and CEO of Keepskor and writes the influential tnl.net weblog, where this was initially posted under the title Portals and Video — An Overview. You can follow him on twitter here or receive his weekly newsletter by subscribing here.

Broadband penetration

Broadband penetration will continue to increase in the United States and Europe. Large scale deployments of city-wide broadband efforts in several large cities will start making internet access similar to phone or electric service, widespread and the type of thing few people think of. On the bleeding edge of the Internet access development world, some large scale networks, most probably coming from phone companies, will break the 10-Mbps barrier and close in on the 100-Mbps speed, making internet access on par with regular local network access.

The downside of this widespread deployment of high-speed internet access will be in the phone industry, where next generation (3G) rollouts of high speed wireless networks will prove costly and offer lackluster service considering its high price. This will force a drastic reduction in prices towards the end of the year or early 2007, in an attempt to recover some revenue from the large investments.

Implications of increased broadband penetration

The increase in broadband penetration will have several large implications, including the rollout of more voice over IP services, video services, and the infrastructure security.

Voice Over IP

Voice over IP will continue to see widespread deployment and large phone companies will start migrating their full networks to IP-based traffic. This will make VoIP the primary form of telephone communication for wired lines by the end of 2006, though few people will be aware of the change as it will largely happen behind the scenes, not touching people’s independent system.

Telephony services will increase as the VoIP phenomenon continues to increase. Expect early efforts in video telephony to start rolling out and becoming more mainstream towards the end of the year. Also expect to see the rise of wireless devices that can bridge the gap between computer and regular telephony, providing access to the network in a number of different ways.

Video

Video over IP will be very hot in 2006, with several major changes in the industry. First will be the announcement, by Apple, of its new mac-mini intel-powered platform designed specifically for the living room. Following on the success of the iPod, Apple will market the device less as a computer and more as a video consumption tool that will include stunning high definition resolution and will offer direct access to the iMedia store (formerly known as the iTunes music store) where one will be able to download movies and TV shows, as well as content created by amateurs.

Google, in partnership with AOL (and its sister companies within the Time-Warner world), will offer a pay-per-view system, mirroring some of the iMedia store offerings. The system will be available both in the AOL closed garden client (where it will use some level of acceleration to speed up delivery) and on the web through a new client package offered by Google and largely developed by the AOL client software team. The strength of the move will generate enough positive buzz for AOL that Time-Warner will be able to spin-off the unit and will be considering an IPO towards the beginning of 2007.

Seeing their advertising revenues eroding, TV stations will start offering more content online, also sponsored by advertising. New types of online video ad insertion and tracking system will be created by several companies, with Google, Microsoft, and Yahoo! offering aggregated model based on something similar to Google AdWords but offering not only targeting based on keywords but also based on certain demographic information.

New video aggregators will start appearing, offering a way to customize your own TV station. Some will be acquired by the major portals (unless the portals themselves have already developed that capability by the time this trend manifests itself). Meanwhile, Tivo will recast itself as one of those portals and will be acquired by Microsoft and merged with MSNTV (unless it is acquired by Sony, and merged with the PlayStation 3, or Panasonic, and kept as a standalone.)

Having lost in the bidding war for Tivo, Yahoo! will decide to acquire NetFlix and merge it with some of its video offerings, providing not only distribution of DVDs but also online streaming of content.

On the strength of revenues from online ads, some small cable or local TV stations will start offering their complete programming slate online, for free, and adverting supported. This will rankle a few of the cable companies and syndicators who looked to those companies as another revenue stream. Meanwhile, on the same basis, most local TV news will be available online for free through an advertising supported model. During one major story, a local TV station’s feed will compete with the national networks in terms of reporting, as more viewers flood its website than watch the same story unfold on television.

The competition for those types of stories will continue to increase, as citizen journalism provides raw unscripted video of events. Videocasting, following on the success of podcasting, will start seeing some traction with a few podcasting and vidcasters signing deals with traditional media. Traditional media will look at it as an interesting set of development but one that ultimately won’t be trusted by the public because they do not have the right seal of approval; their prediction will turn out to be wrong.

Infrastructure

The rise of broadband and the increasing numbers of basic services running on the internet infrastructure will give rise to fear that the infrastructure is under-protected. From a technical policy viewpoint, electronic infrastructures will become a major national security matter with fears that the very openness of the internet could represent a large security risk. This will be seized upon by the network providers (phone companies, cable companies) and some security consultants as a way to push for policy that will allow those incumbent communications services to administer their networks with tighter control, with decision as to what they are willing to let run on the network and what they are not willing to. A subsequent battle will ensue as VoIP companies and media companies will complain about the network providers squeezing them out. No decision on any of this will be made in 2006 but the debate will continue through 2007 and beyond.

Growth and Scalability

2006 will be an explosive year in the Web 2.0 sphere. Explosive because it will see triple if not quadruple digit growth in number of users but also explosive because it will see several popular sites unable to deal with the capacity issues relating to that explosion.

On the RSS end, the explosion in growth will really start when Internet Explorer 7.0 becomes a priority upgrade on windows stations. The inclusion of some RSS feeds as defaults in the browser will prove to be too much for some sites which had not expected the onslaught of millions of new hits. Readership from RSS readers will increase as more users realize that they can get their favorite sites delivered to them instead of going out and checking to see if they are updated.

As more people discover RSS, more of them will start valuing blogs and many will start their own. However, the concept of becoming a professional blogger will decrease as many people who thought they could make money off their blog will find that the effort in doing so was higher than they had expected and will abandon their blog.

Meanwhile, other web 2.0 subjects will fail: Tagging services like del.icio.us will be see as too complicated by the general public (although they will continue to thrive in the more geeky world) but tagging of pictures (as in Flickr) will continue to grow. Most blog networks will fail to attain the amount of traffic required to play seriously in the advertising world and will be forced to either merge or shut down. Meanwhile, companies offering only a set of web services with the idea to generate revenue solely from advertising may find themselves in a bind as advertising revenue will fail to grow at the same pace as the new offerings.

Implications of Growth

The explosive growth in traffic see during 2006 has implications across a number of players in the blogging world and metadata space. It also has implications in terms of scalability, business, and trust.

Blogging, podcasting, vidcasting

As blogging takes better hold in the mainstream (your parents WILL be blogging), the number of subscribers per individual blog feed will drop into the low teens, with blogs being read by close family members and friends only. A few breakout blogs, specializing on particular narrow subjects will manage to increase their readership but the world will largely consolidate around less than 1,000 major blogs: of those, the vast majority will not be from any members of the Technorati 100 or any other such list. The vast majority of those mainstream blogs will be the ones created by mainstream media outlets, which will use their existing reach to heavily promote their own blog.

Radio stations will increasingly start offering podcasts and TV stations will offering vidcasts. Most, however, will do so through centralized hosting capabilities provided by their parent companies. Smaller podcasters and vidcasters will have a hard time to compete with those larger companies as they are forced to look into ways to support their own bandwidth costs and will sign contracts with hosting services promising a share of advertising revenue in exchange for doing the hosting: that share will largely go to the hosting service with many podcasters/vidcasters finding they are not really making more than a few 100 dollars a months from all their hard work.

Crash and Burn

One of the hosting services will crash in a major way, taking with it a few days worth of the hard work of thousands of people who were hosting on it. The provider will initially recover but suffer a subsequent crash that will seal its fate as a doomed company. The majority of its users will leave and join one of the larger hosting services provided by Yahoo!, Microsoft, and Google.

Beyond the hosting world, scalability will also be a hot buzzword as more services, ranging from RSS hosting providers like FeedBurner to search engines like Technorati and Feedster to analytics providers like Google and MeasureMap will experience temporary failures and growth pains.

The cost of upgrading the service infrastructure will be too much to bear for some companies, which will be forced to shutter their door, sell out, or merge with a similar service. Meanwhile, many web-based service companies will fail to generate enough advertising revenue to continue upgrading. A flurry of mergers and closures will happen over a few months, leading people to wonder if this is bubble bust 2.0.

The downside of all those fears about a bust will be in the increased number of negative stories about technology in the mainstream media. Stories will mention the hubris of web 2.0 founders and will showcase Google as a typical example of this hubris, highlighting its free lunches and other things that were thought cool in 205: As a result of all those negative stories (and others but more on that later), Google will loose several billions (possibly even tens of billions) of dollars from the high of its market capitalization, shedding anywhere from 10 to 25 percent off its high.

After the consolidation, there will only be one or two independent players in each of the following (notwithstanding the fact that there will also be offering from the bigger portal players): blog hosting , vlog hosting, podcast hosting (WordPress and Typepad will either be the two in these three sectors or will have merged), blog search, social networks (speaking os social networks, Yahoo! or Microsoft will buy LinkedIn (if it’s Microsoft, LinkedIn will quickly be integrated with Outlook and offer Plaxo-like features).

Meanwhile, a sector which will have been decimated will be tagging. Following slow adoption by the mainstream, largely due to the complexity of adding tags to pages, many tagging companies will fail. Tagging, as a concept, however, will remain and be adopted by most major search engines: as Metadata entry is simplified with the introduction of Windows Vista and Office 12 (both of which will be delivered by Microsoft to a relatively lukewarm market), and tagging becomes a browser feature, it stops being a differentiator.

Trust is hot topic

Fear of Google knowing a little too much about people will bring a slate of bad press for a company that was the darling of the mainstream media in 2005. The introduction of its Google finance service, hooking up into people’s bank accounts and payments systems will be seen as the company becoming too large a player, with fear of it becoming a monopoly. The backlash will first start in silicon Valley, with many tech luminaries starting to tear down the company. It will continue with publications that were once its biggest cheerleader becoming its biggest detractor. As a result, many of the companies that relied on Google for key services (advertising, analytics) will try to distance themselves from it and start looking for other providers (meanwhile, companies looking for funding will excise Google from their business plans, in order to avoid being associated with it by VCs). Yahoo! will pick up some of the adsense/adwords business, along with Microsoft, which will offer a similar service.

Meanwhile, in the analytics space, new companies will be formed and attract a lot of venture capital. Many of them will offer ways to opt-out of their tracking and some will offer added incentive to people willing to provide them with more information. New models in the space will emerge and at least one player will provide a revolutionary approach that will change the analytics landscape.

In the blogosphere too, trust will be a major subject as some of the top bloggers will grapple with issues surrounding defamation of character, libel, accuracy, and reliability after a top-name blogger is sued for something he/she said or linked to. Furthermore, some of the top bloggers will grapple with issues relating to invasion of privacy as they become more famous in the mainstream media.

On the Wikipedia end, anonymous editing will be abandoned after the revelation of a major hack altering minor facts over several months in an automated fashion has rendered a core version of the wikipedia unusable. The wikipedia trustee will revert wikipedia to an earlier date, erasing all changes performed during that period of times and destroying several significant entries on 2006 current events. The mainstream press will pile on about the inaccuracies of wikipedia, bringing back earlier scandals as proof that no information on the internet can be trusted unless it comes from a reliable source (incidentally presented as being a member of the media establishment).

Conclusion

In late 2006, a substantial portion of these predictions will be wrong and some may turn out to be dead on (although most of the ones mentioning companies by name will most probably be wrong).

Meanwhile, on a personal level, 2006 will be a year of big changes. However, I promise it will also be a year of continued writing on TNL.net, even if it is at the same substantial post every week or two rate that readers have gotten accustomed to. I hope you’ll join me for the ride.

Tristan Louis is the founder and CEO of Keepskor and writes the influential tnl.net weblog, where this was initially posted under the title 2006 Predictions. You can follow him on twitter here or receive his weekly newsletter by subscribing here.

Size matters

My first thought, when I read the specs, was about the size of the device. My Shuttle computer, is 6 inches high by 8 inches wide and 12 inches long (yes, I had to pull out the ruler on that one). By comparison, the Mac mini comes in at 6.5 inches square and 2 inches high. Something tells me that there is more to the dimensions that pure aesthetic design. For comparison’s sake, I decided to take a quick look at my entertainment center: 2 inches happens to be about the height of my VCR (yes, I still have one) and my DVD player is taller than that.

I then decided to look around the web. Tivo 2 boxes come in at over 3 inches in height; The smallest Windows Media Center edition machine (from Hush Technology) comes in at 3.9 inches in height. In fact, I could find very few items that would come in at the same size. Somehow, I don’t think it’s a total coincidence or has much to do with design.

It seems to me that the play here is for the living room and not just the living room but right there under the TV. I would not be surprised if a future version comes in slightly larger but with things like a TV tuner built in or what not.

But the entertainment center is just the first place where a Mac mini would fit. It seems perfect for a car too. Apple has been courting a lot of car companies about integration with the iPod. What if the play is larger than that? Somehow I don’t think BMW, Mini Cooper, Mercedes-Benz, Volvo, Nissan, Alfa Romeo and Ferrari are only interested in the iPod. What if Apple has showed them something more? Something like a Mac mini as in-car entertainment center. The power input seems to be external to the mini itself, something that not only save space but is also unnecessary if you already have a power converter (as cars do).

Since Apple is currently playing the consumer card (hence the iPod strategy), why not take it all the way. The size seems to point to more than just the desk (so we can already assume the entertainment center). The car partnerships have one thing in common: generally higher end (luxury) cars. These are the types of cars that usually sport in-car entertainment centers (DVD player, television, GPS navigation, integration with cell-phone, etc…) so it seems that it’s a solid high end consumer market.

Price point

Which makes the price point all the more interesting. It’s a small computer so you’d expect to pay a premium but no. Apple has decided that this is their new entry point price, selling the machine at under $500. Why? Well, for starters, it makes it easy to go after the switcher market (they have monitors, keyboards, mouse, etc… already) so Apple plans to capture people that have bought iPods (or lust after one) and get them to check out the Mac. Cool… and obvious.

Less obvious, however, is the price to retailers. If you think that the average price on an in-car multimedia is around $500–800, then it starts to makes sense. About $400 for the machine, throw in another $150–200 for LCD screens and GPS navigation and you’ve got a good car system. All it needs is an interface.

The Interface Conundrum

So the iPod is nice but its interface is very text-centric, a bad thing if you’re sitting across a room. However, it’s simple and Apple has learned a lot about how consumer use electronic devices in the process. They are now learning about the mobile phone market, observing through their partnership with Motorola. With all this experience, they’re refining. I remember talking to the WebTV management team when they were getting started. One thing that always stuck with me was that they had all worked for Apple at one time and that they had all worked on set-top boxes. It means that, for almost a decade now, Apple has been playing around with the concept of entertainment centers.

The simplicity of the iPod interface was largely due to the fact that it was designed outside of Apple. However, the simplicity lesson may be one they learned. Look at the Shuffle and realize that they have seen how to “simplify” interfaces to the point where they become ubiquitous.

Ubiquitous computing or Apple as consumer electronic giant

Ubiquitous computing has long been a dream but Apple may be working on it. Notice how they tend to look at the PC world: ugly boxes, bad design, etc… The only company that seems to scare them a little is Sony. Why Sony?

Well, because Sony is a consumer electronic giant and that’s where Apple wants to play. At the end of the day, Steve Jobs realizes that the days of Apple as a computer company are numbered. However, the company can reinvent itself as a consumer electronics giant.

This is where the mini goes. It’s not really a computer but it may be the second front in the battle for consumer electronic supremacy.

I can already hear nay-sayers going “But Steve always says that there is no play for Video…”

If that’s truly the case, explain the work on Quicktime? Explain why the company continues to invest in products like iLife and Final Cut (and its express version)?

The truth is that up until last week, Steve Jobs was on the record poo-pooing the flash MP3 player market (that is, until he introduced an Apple branded one.)

At the end of the day, what he’s building with the mini is a platform, not just offering a new product.

Apple vs. Microsoft

When talking about Apple, the elephant in the room is always Microsoft. This is where it gets interesting. Apple and Microsoft are going after the same market but looking at it from different standpoint. In a way, Apple is the revolutionary storming the castle, offering a view of the world that is shaped around creating and sharing digital content (hence the iLife products and their higher end counterparts). Microsoft is about receiving content that has been created by others (hence the Windows environment, where the focus is on being able to record television, buy music, etc…) That’s the commonly expressed view, anyway.

However, upon closer inspection, Apple is trying to lock more down. Their strategy is an end-to-end one: we have the software, the music store, and the devices to play the music on. Microsoft is more egalitarian in its approach: we build the environment, what people do with it is up to them and we hope some good software will help us sell more.

Both companies offer DRM but with a difference. Apple keeps its DRM to itself. Microsoft sees their DRM offerings as respecting boundaries. I’m not sure I fully buy into the Microsoft argument or the Apple one but I know that I will be writing more on all this soon.

Tristan Louis is the founder and CEO of Keepskor and writes the influential tnl.net weblog, where this was initially posted under the title The Mac Mini platform. You can follow him on twitter here or receive his weekly newsletter by subscribing here.

I know mac users will probably flame me for this but I believe that the direct result of this is the need for Apple to start taking a serious look at more of a cross-platform approach. Before you send me irate emails, however, realize that I am a mac user (we have several macs at home and I use an iBook as my primary machine, largely due to the small footprint factor (there are previous few 10 inch screen computers in this world and I am among the list of oddballs that prefer that form factor when it comes to portables)) and that I only want to see the best for Apple, a company that exudes coolness when it comes to marketing and design but one that may be losing the war in the consumer space.

Why I feel now is the time for Apple to consider a change

Over the past few years, Apple has made great headways in the music business, first with the iPod, which now holds a substantial lead over all of its competitors, and later with the iTunes Music Store, which has solidified the company’s position in the emerging world of digital music. Much of that success, I believe, stems from a smart decision to look beyond the mac and start offering like-for-like products on the windows platform. First, it was an iPod that could work with Windows, and then it was iTunes for Windows. Historically, Apple has had many successes on the Windows platform. Look, for example, at the success of Quicktime, which still represents a dominating force in the world of digital video. I believe the embrace of either Windows or Intel as a platform (in the examples I’ve given, it is the combination of both) always benefits Apple as a company. Every time Apple has offered a product on those platforms, it’s been successful. Let’s look at different combinations and the advantages and/or pitfalls of that approach.

Apple and Intel

It’s hardly a secret that Apple has switched CPU providers in the past. While their relationship with Motorola sustained them through the 80s and 90s, the move to the G5 architecture showed a willingness to switch provider. In that case, the provider became IBM, ie. the other provider of PowerPC chip. Who’s to say that Apple could not start holding discussion with Intel, looking to them as a provider of chips for their platform?

One of the possible combination here would be to port the Mac OSX operating system to the Intel platform. The bottom line would be a new market for Apple software product and a third alternative to Windows and Linux on the Intel platform. Darwin, the underlying core of OSX, is based on BSD. It has already been ported to the Intel platform and BSD itself has a rich history of distributions running on Intel processor.

The advantage of this approach is that it would make OSX available to a much wider public. This could translate into higher software sales for Apple (which provides a more end-user focused product than Linux at this time and a more secure product than Windows at this time) and could allow for a rise in the number of developers for the OSX platform as the potential of a larger market could enlarge the whole eco-system. One could foresee a time when iLife would be offered on that platform and Apple could use this as a seed for their new product offering.

On the downside, is the competition presented by Windows and Linux. By some accounts, Apple is now in danger of becoming the third most popular Operating System, behind Linux and Windows. However, one could look at this approach as a way to stem some of the losses. Another downside would be that Apple hardware would no longer be tied to the OS itself so people who want the features of OSX would not have to buy Apple hardware.

By offering their operating system on Intel processor, Apple could find itself with a growing market again in the OS world, providing a solid mainstream consumer alternative to Windows. On the downside, it could be cannibalizing its own hardware sales.

Apple and Windows

All this brings me to part two of the Wintel Strategy: Windows machine from Apple. It is undeniable that the look and feel, the design, and the marketing of Apple hardware exude coolness. The hard work that the Apple design team puts in its products is a large part of the company’s continued relevance in the market and few companies (Sony and Alienware are the only ones that come to mind) in the industry have the kind of following that Apple hardware enjoys.

If Apple started offering hardware that ran with Transmeta CPUs and could run Windows software, one could see an upsurge in the sales of laptop and desktops as part of the Apple business. For the last few years, sales of macs have been sluggish at best and I believe that part of the problem is a skittishness on the part of consumers to be locked into the Apple world, forced to use only Apple hardware and software. With the software being liberated, Apple could look to a slow migration of its hardware platform to Transmeta processors (AMID or Intel could also be contenders).

Why Transmeta? Well, my thinking is that the Transmeta approach is to do software-based processor units through code morphing. If they were to offer a G5 equivalent of their morphing software. This would establish a base line in terms of offering equivalence with current hardware. The next step would be to offer the same hardware but with the Transmeta Intel-based chips, which could then run the windows or Linux platform (or any other Intel-based OS). Users who want to experience the coolness factor of owning a mac would be able to do so and still run the apps that somehow kept them from moving to OSX.

On the downside, Apple would not necessarily hold much of a lead with the operating system. As more and more Intel-like systems go out the door, Apple could loose some of the remaining market share they hold in the operating system. Another potential downside would be the commoditization of the hardware platform. However, I believe they would still be able to hold patents on their designs and continue producing products that look cool.

Sounds crazy, doesn’t it?

Some people will probably dismiss these concepts as plain nuts and I have to admit that it takes quite a leap of faith. To me, however, that leap of faith was made by Apple with the iPod and I believe that they can make it again as a way to increase their overall market share.

The overall downside of this strategy is that it might anger fans, who are notoriously devoted to the company. However, Apple has not really worried about this much in the past. In the 90s, the company started OEMing their hardware platform but decided to pull back when some vendors started representing real competition (remember PowerComputing?)

The question is whether Apple wants to remain a niche player in the computer market. Based on the last quarterly report, it seems that most of the growth is coming from the music business. So maybe this would be a good way to reinvigorate the computing part of the business.

Tristan Louis is the founder and CEO of Keepskor and writes the influential tnl.net weblog, where this was initially posted under the title Why Apple should consider Wintel. You can follow him on twitter here or receive his weekly newsletter by subscribing here.

That’s a lot of things, if you think about it, for a single device but it points to a variety of possibilities. For starters, it makes it pretty clear that gaming consoles are growing up. With this device, Sony is signaling its intent to take its leadership in the gaming world and extend into a more widespread all/media space, serving as a home server for any bits that gets into the house.

The broadband connection, combined with DVD burner, hard drive, and an interface that includes video seems to point to the possibility of their offering a video on demand service in the future, as well as music on demand or something similar. The presence of the memory stick slot increases that chance as people could buy music online, burn it on the memory stick and play it in their Sony Clie or other Sony MP3 player. Alternately, this slot could be used to upload pictures from cameras that have a memory slot (and those cameras are made by… Sony)

The demonstration on the interface video seems to also point to the possibility of integrating video and music. Could it be the beginning of an integrated suite that would allow people who bought a Sony video camera to quickly edit their films, add some music from the Sony music store, and then burn it to a DVD or ship the movie over a broadband connection?

The presence of a TV tuner and hard drive should definitely send shivers down Tivo’s back, as it points to a built-in digital video recorder being pretty much a sure thing with this. With the DVD burner, one could easily then copy the shows to a DVD too!

There seems to be so many possibilities. Considering the fact that Sony owns movie studios, music studios, and gaming companies, it will be interesting to see how they shape their business model around this. Furthermore, it’s going to be interesting to see what Microsoft will try to do as a counter-move.

One question remains though, why is Sony coming out with such a device in late 2003-early 2004, when it is supposed to come out with the PS3 in 2005. Is there a chip in there (or maybe there’s something in the software) that would eventually allow for an automatic upgrade to the PS3 engine? Or could it be that the PS3 will be delayed to late 2005-early 2006, leaving this box as a stopgap measure before Microsoft comes out with Xbox 2?

Tristan Louis is the founder and CEO of Keepskor and writes the influential tnl.net weblog, where this was initially posted under the title Sony to Introduce Media-centric Gaming Box. You can follow him on twitter here or receive his weekly newsletter by subscribing here.

As many of you already know, the game station is a small box that attaches to your TV and on which you can play video games. However, the firepower of new generation boxes now on the market is now equivalent or higher than that of most computers. The main logic behind this was that gamers wanted a more realistic experience and crunching 3D representation in an ever-changing environment required more and more processing power.

Playstation 2 opens the gate

Last year, Sony introduced the Sony Playstation 2, a new gaming system that included a built-in DVD player and a 3D graphic engine that made computer video card look ridiculously outdated. At that time, Sony admitted that their goal was to go beyond games and control the digital living room. Recent partnerships with Macromedia, AOL, and Real Networks seem to show that Sony has established a clear roadmap as to how it would get into the online market. And with a growing installed base of (8 million so far, and an expected 34 million by 2004), Sony could become a major online player.

Microsoft unveils the Xbox

Having survived the browser wars with Netscape (Internet Explorer now controls 80% of the market), Microsoft is starting to worry. If one could download music and exchange videos via a gaming station, as well as play video games, where would the home PC go? And where would that leave Microsoft’s ambitious .net strategy?

As a result, Microsoft had to play in that field and to do so, it went to game developers. After much discussion, the result is here for everyone to test: it’s called the Xbox, and is essentially a PC packaged as a gaming station. If you read the documentation, the Xbox becomes more difficult to classify as simply a gaming box. For starters, there is a DVD player, which was added just to match Sony’s Playstation 2 DVD player. But Microsoft goes further by building a Dolby decoder within the system as well as adding parental controls to the box.

The second thing they added to the box is the ability to put in a CD, play it, and burn it onto the built-in hard drive (through what they call a music manager). All of a sudden, the Xbox becomes a music stereo box.

Going further is the matter of the Ethernet port and the mysterious broadband network touted by Microsoft. Early inside reports point to the first broadband gaming network that might go beyond gaming. At the current time, there are rumors of a network that would also allow for Internet browsing, email, and instant messaging, as well as gaming.

The messaging portion is an interesting one since it would include and optional plug-in for the box called the communicator, a headphones and microphone device people would use to communicate either via IM, or while playing online games. The unit includes a wireless headset with microphone, which could easily be used to make phone calls if Microsoft uses some of the technology it is currently building into the Microsoft Messenger. Long term, the Xbox could become another entry point into MSN, and into the web as a whole.

Moving forward: the Playstation 3

Sony, however, is not resting on its laurels. Now that Microsoft is entering its turf, the company is seeing its dominance on the digital living room being challenged.

With the PS3, originally slated for mid 2003 but possibly being released earlier, Sony plans to integrate offerings from its music and movie divisions into the system.

Considering the fact that the company already offers a suite of MP3 players, it is easy to see that the company will build that functionality into the next box.

Rumors are that the company will build a large hard drive within the box, which would make it a perfect storage area for an MP3 collection.

But going beyond music, the company is also looking at packaging a digital TV recorder within the unit, turning it into a device that would compete with Tivo and Replay in the market for customized television.

Also built into the box would be a TV tuner, and rumors has it that the system would also include a satellite TV decoder. In order to counter the online capabilities of the Xbox, Sony will release an online pack for the PS2 but will build that functionality directly into the PS3 box.

The unit would be offered in two different version: a light version, which would focus on gaming and be sold for around $250-$300 and a more expensive full featured convergence version which would retail for $400-$500.

Games Only: The Game Cube

Meanwhile, Nintendo believes that games and only games is what consumers want out of their boxes. As a result, the GameCube is a smaller, less pricey gaming box. However, this does not mean that it is offering less performance. It’s just that it’s a different take on the world. As far as Nintendo seems to see the world, gamers will want to pay no more than $200 for a gaming box but may be willing to pay extra for new features.

In a concession to Microsoft and Sony, the box will soon sport two different modem adapters: a 56k module for people who use a phone line and a faster broadband module for people who have a network at home. Rumor has it that Nintendo is preparing a membership network with services like online video game, full Internet access, and the distribution of music data. Since the GameBoy advance can interface with the GameCube, it seems that Nintendo is working on a hardware strategy that will make the gamecube a connecting station into the home, while the GameBoy will become a roaming device that can get updates from that box.

Convergence is here

Based on those recent developments, it seems pretty clear that hybrid boxes are now starting to pop up and that we will soon see more applications (initially in the gaming world but eventually in other areas) become the norm. I would strongly recommend that TNL.net readers who are involved in developing online consumer applications pay attention to the gaming space as it is the next arena for which we might have to format our outputs. Based on early showing, I would say that Playstation 2 will keep its predominant position for the next year or so but may be getting some competition from the new underdog in this arena: Microsoft.

Tristan Louis is the founder and CEO of Keepskor and writes the influential tnl.net weblog, where this was initially posted under the title The Convergence Game. You can follow him on twitter here or receive his weekly newsletter by subscribing here.

AOL started moving further on its AOL Anywhere Strategy by announcing partnerships to deliver its Instant Messenger services on the Bell South and Sprint PCS network and to equip Neopoint, Nokia, and Motorola devices with the necessary software to do this too.

Microsoft announced partnerships with Nextel and Airtouch to deliver MSN to their networks. This follows recent announcements by Microsoft that its technology would be integrated in Sony and Quallcom wireless devices.

Meanwhile, Palm Computing announced a deal with Sun Microsystems to make Sun’s iPlanet service available to Palm VII users.

But with all the hype, one has to wonder whether wireless is truly here and what hurdles it has to overcome. From this issue on, I will take a quick look at some of the issues facing wireless web implementors these days, adding wireless as a new category of coverage. We will start with the formats.

WAP, WML, HDML, PQA???

It seems the wireless space in adept at developing a new set of standards. While this world is just burgeoning, a number of implementations have already surfaced.

WAP

: As defined by the WAP Forum, WAP is the Wireless Application Protocol. Think of it essentially as HTTP for the wireless crowd. Backed by the W3C, the IETF, and the ECMA, as well as most large wireless industry players, WAP has become the de facto standard for wireless delivery. However, some companies (NTT comes to mind) have tried presenting alternatives to WAP and have so far been relatively unsuccessful. However, I doubt that WAP will go very far as it limits the number of characters that can be sent to about 1600. For stock quotes or weather reports, it’s a great think but beyond that, I doubt that anyone will use it for Ecommerce or content.

WML

: WML stands for Wireless Markup Language and is an XML based subset of HTML. However, a war as broken out in that space, with phone.com (one of the early pioneers in the wireless space) striking out on its own and developing a competing standard called HDML.

HDML

: HDML, or Handheld Markup Device Language, phone.com proposal for a new markup language. At the current time, the W3C has worked with phone.com and other markup language partners in an attempt to resolve the incompatibilities between the two offerings. With the cachet of WML increasing over the past year, phone.com has started supporting both format but offers HDML has a language with new tags that allow it to extend WML applications. Because it was an early player in the field, phone.com has taken a lead and could be the Microsoft or Netscape of that space. As a result, the extensions they are providing can’t be ignored.

HTML 4.0 mobile

: Last year, with the introduction of HTML 4.0, the W3C made some recommendations in terms of supporting HTML for wireless devices. Throwing further confusing in the wireless space, the W3C decided that HTML 4.0 and its successors might be the way to go, throwing more oil on the wireless fire. While no recommendation has been made yet on an actual standard and in spite of the W3C’s claim that it is working to resolve disputes with the W3C, expect some serious in-fighting between the different groups as they try to position themselves in the next hot web application space.

PQA (Palm Web Clippings)

: A couple of years ago, I pointed out that the Palm OS could be a potential Java competitor in the non-PC devices space. As could be expected, Palm went out and introduced the Palm VII, a wireless device with connections to the web. What was surprising, however, is that instead of going out and supporting either WML, HDML, or even HTML, they decided to introduce their own format to distribute web content: PQA or the Palm Query Application language. PQA is a paired-down HTML version that allows you to distribute content on the wireless Palm platform. Since services like OmniSky plan to offer wireless access to Palm devices other than the Palm VII, and since Palm already has an established footprint in the PDA space, expect PQA applications to pop up left and right.

A lot of format but what do I implement for?

At the current time, it seems there are no clear winners in the space however it seems clear that WAP has a strong lead in the delivery space for small bits of data. But WAP will not be the way to do Ecommerce or content as a clear character limitation makes it fairly useless for this. On the markup front, I’d strongly recommend looking at WML as it has received support from some of the larger players (Microsoft and Sun, among others) and seems to be the basic level of functionality. However, you should also look very seriously at the PQA format because of Palm’s extremely large footprint in the PDA space.

Tristan Louis is the founder and CEO of Keepskor and writes the influential tnl.net weblog, where this was initially posted under the title Wireless: A confusing Landscape. You can follow him on twitter here or receive his weekly newsletter by subscribing here.

So what does AIBO do, you’re wondering. Well, think of a pet that doesn’t require any upkeep (no need to worry about walking them out, feeding them or cleaning up after them).

That’s essentially what AIBO is. But, more to the point, AIBO is also the first cute robot companion to hit the market and may be the father of a new trend in robotics.

For the techies among us, AIBO is a 64-bit, 100-MHz RISC processor running Sony’s proprietary Aperios operating system, 18 motors, a gyroscope to keep it stable, diode eyes for detecting color and distance, and a removable Sony Memory Stick (which, I can’t figure out why, goes under his tail). The unit can run for about an hour and a half on a rechargeable battery (however, it will not move back to its bay to recharge itself), understands basic sound commands (although you have to use a special device to communicate with it) and has very basic learning mechanisms that allow it to evolve and develop a mini-personality.

However, a text description does not do it justice: the genius of Sony is that it has created a cute robot and, while it is not as furry or talkative as a Furby, it does go a long way toward making itself likable.

It’s preprogrammed antics also do help, as does the fact that it seems to move like a dog. At the current time, there are only about 5000 AIBOs out there in the world and they’ve all been sold. However, keep an eye on this little robot: it just may be the first of many…

Tristan Louis is the founder and CEO of Keepskor and writes the influential tnl.net weblog, where this was initially posted under the title Aibo, Your electronic pal. You can follow him on twitter here or receive his weekly newsletter by subscribing here.