Mereja

Author: Paul Sweeting

  • Google TV Is Ready to Change the Game

    Google TV has the potential to be a game-changer in the pay-TV business, by bringing web-like search navigation to traditional channel surfing, according to a new report I wrote for GigaOM Pro entitled Google TV: Overview and Strategic Analysis (subscription required). I also foresee an eventual clash between Apple’s App Store and Google’s search-based platform for supremacy on connected consumer electronics devices.

    I expect a slow initial ramp-up for the Android-powered Google TV devices, due to the high cost of implementation and uncertain consumer demand. The Intel Atom-based system-on-a-chip and software licensing costs are expected to add a significant premium to first-generation Google TV-enabled devices, including the Logitech set-top box and Sony HDTVs and Blu-ray players announced at the Google I/O conference. Consumer interest in surfing the web on a big-screen TV is also yet to be proved. If Google TV does prove popular with consumers, however, it could pose a highly disruptive challenge to traditional video service providers, set makers and competing TV app stores, according to the report.

    “Google TV’s integrated search, combining results from the web and from traditional sources in a single user interface, encourages the user to separate the content from its source, or at least to treat the source as irrelevant,” I note in the report. As more content becomes available on the web, that dynamic will increasingly pose a challenge to traditional video service providers, whose business model is based on bundling content into high-margin subscription packages. “Search, by its nature, is the enemy of bundling,” it concludes.

    Google TV could be a boon to TV set-makers by providing the software-driven functionality that spurs sales of Internet-enabled devices, the report states. On the other hand, adopting Google’s non-proprietary platform could rob manufacturers of a key point of differentiation for their products.

    More on Google I/O

    The Google TV announcement also comes just as fledgling TV app stores are starting to find their footing in connected devices, including the Yahoo Widget Channel, Vudu, DivX and the Roku Channel Store. While those providers obviously will be challenged by the arrival of Google TV, the report suggests a potential for market segmentation, with app stores dominating low- and mid-range connected TVs and Google TV reserved for premium models, particularly early on, given the higher costs associated with implementing the Google platform.

    One app platform unlikely to concede the high end of the market to Google, however, is Apple’s iTunes App Store. Although Apple has not disclosed its plans for the digital living room, the report calls an eventual assault on the $53 billion pay-TV business “inevitable.” When it comes, it’s likely to involve extending the iTunes App Store platform to the TV, either directly, through an Apple-branded HDTV set, or through a set-top box.

    In the report, I also envision a seamless, cloud-based version of the iTunes platform that will enable access to video and other content from Apple TVs, iPads and iPhones. At that point, the battle between Apple’s app-based and Google’s search-driven models for content acquisition and distribution will be fully joined.

    Check out the full report, Google TV: Overview and Strategic Analysis, on GigaOM Pro (subscription required).


    Atimi: Software Development, On Time. Learn more about Atimi »

  • Amazon vs. Apple: Round 2

    Having gone toe-to-toe with Macmillan Publishing over e-book prices last month, only to retreat in the face of a consumer backlash, Amazon is once again talking tough with publishers. This time, however, the stakes are even higher for the Kindle-maker.

    According to a New York Times report, Amazon is threatening to remove the “buy” button from major publishers’ e-books if they don’t accede to a detailed list of its demands, including that it not be undersold by other e-book retailers. Although Amazon agreed in principle following the Macmillan dust-up to let publishers set retail prices for their Kindle books while it collects a 30 percent commission, the retailer is apparently keen to maintain its most-favored nation status vs. other e-book sellers, including Apple.

    The immediate bone of contention, according to the Times, is Amazon’s demand that publishers sign three-year contracts guaranteeing that no other competitor get lower prices or better terms than it does. Publishers are said to be reluctant to commit to three-year deals when prices and consumer behavior are still in flux.

    Amazon’s demand also puts publishers in a tight spot with Apple, which is insisting on most-favored nation status for its iBookstore.

    While Amazon may have picked the wrong fight with Macmillan, and then overplayed its hand, the outcome of the  latest battle really could be critical to the Kindle-maker’s long-term strategy, not because of what it could mean for retail e-book prices but for what it could mean for the Kindle platform.

    Both Amazon and Apple share the same long-term e-book strategy. Each wants its device, the Kindle and iPad, respectively, to emerge as the dominant e-reading platform. As Apple itself demonstrated with the iPod and iTunes — a strategy deliberately aped by Amazon — controlling the distribution platform gives you control of the value chain. By locking both iPod users and the record companies into the iTunes platform, Apple was able to capture the lion’s share of the value from online music (mostly by selling expensive iPods).

    The key to Apple’s success in music wasn’t just the relatively low 99-cent price of individual tracks but that the value in using an iPod for music was competitive against other consumer options, including illegal downloads and other MP3 players.

    For both Amazon and Apple, then, it’s critical that the value of using a Kindle or an iPad for reading remains competitive against all other options, especially at this early stage of the market’s development when consumer habits are still up for grabs.

    That means not just keeping a lid on e-book prices but making sure you’re the lowest-cost provider of e-books in the market. In this case, most-favored nation means most likely to succeed.

    As for how publishers should respond to Amazon and Apple’s mutually exclusive demands for favor, the situation presents a paradox. Normally, supplying both sides in a war is an enviable position for a vendor. In this case, however, the battle is over driving down prices, which is not a fight most vendors want to find themselves in.

    Their best strategy is to hold the line with both and hope that no clear winner emerges quickly.

    Paul Sweeting is analyst with GigaOM Pro and the author of The Evolution of the e-Book Market (sub. required).