HP exits MCE business, continues with Apple inspired line - analyst opinion

Posted by Rob Enderle, Principal Analyst, Enderle Group

Hewlett-Packard (HP) announced that it will be exiting the dedicated Media Center Edition (MCE) business – surprising news since the company was the clear leader in boxes built for this purpose.  HP follows Gateway who exited some time ago and leave behind a struggling Sony and Alienware, which probably is the only major vendor (they are owned by Dell) to actually come close to getting the Media Center right. 

They also leave behind a number of smaller companies who build relatively high priced products that specialize in this space and are targeted at the more lucrative side of this segment.   Let’s take a look at what the MCE should have been and what the Touchsmart laptop and desktop are this week.

Media Center Edition:  80% of a great product

From a hardware perspective the systems were too complex, they needed a receiver to work and that resulted in multiple remotes for TV, Media Center, and Receiver. Only Alienware promoted a product that had the needed Class A amplifier.  Compared to the direct-selling Alienware, retailers didn’t want to give up receiver sales and so they wouldn’t accept a complete hardware offering. The software wasn’t complete either; what was needed was an appliance like experience, but the weight of the OS bled through too often and required users to stand very close to the TV screen to properly configure or update the device. 

In addition, you couldn’t watch networked DVDs, and if you wanted high definition content you needed Cable Card, which the Cable Companies made very difficult to get (up to three visits from a technician to get it to work) and charged a premium for.  Finally, after getting premium content off of Cable, you couldn’t move it across the network or to portable devices because of artificial system restrictions placed on the product by the content owners.  

Strangely enough, the new Xbox Elite edition comes closer to what the Media Center should have been than any mainstream MCE ever did. 

The MCE that never was

Both Palm and Apple have demonstrated how to bring out products in a new segment.  Both did the basics very well and while the handheld computer market is being replaced by smartphones (with the iPhone getting all of the visibility), the MP3 player market is still defined by the iPod, which has slowly gained features but remains favored largely due to Apple’s unwavering focus on keeping it simple and easy to use.
  
The MCE should have started out this way, as an appliance doing a few things like music and TV time shifting well and then adding movies from on-line services, video games, and finally broad local and remote network and internet content. 
The closest product I’ve found to the ideal first MCE is the Kaleidescape , which is used in the homes of some of the most powerful people in the PC hardware business and is in George Lucas (Star Wars Creator) own home. 

Granted it is very expensive and currently the company is being sued by the DVD CCA for creating a product where you can rip DVDs (something the MPAA has been arguing about for some time), but it is simple to use and they have sold a lot of them given they cost a whopping $20K each and go into home theaters which start at around $100K and go up from there.  

The Media Center can do most of what the Kaleidescape does, both simply require more effort (or cost as someone typically has the Kaleidescape professionally installed and configured).  The opportunity was to create something that could do what the Kaleidescape does, but do it at an affordable price.
 
Now take a look at the new Xbox 360 Elite Edition. It looks closer to this ideal than the MCE does, doesn’t it?  (And it even plays games!) 
This will be an incredibly active space as we move through the year.  We have Apple TV but it clearly anticipates content that probably will come with Leopard (which apparently has been held back until October).  

HP’s Touchsmart PCs:  Apple inspired, HP designed and built

HP continues with two very innovative and unique products called Touchsmart PCs .  The desktop product, Touchsmart IQ770,  is an update on the iMac all-in-one product and embraces touch screen technology, a lower (more family friendly) center of gravity, a more modern color scheme (even Apple sells more black now when buyers get a choice) and a unique touch centric user interface.  

This interface is what defines the product and points to how more OEMs should be working around Microsoft’s offerings.  Microsoft does a good job with interoperability and, in most cases, compatibility. But when it comes to the user interface, Microsoft typically just doesn’t get it done.   This is the second product I’ve seen HP do a UI for and others seem to be catching on: Modifications like this can make the difference between a marginal me-too offering and a hit.   In fact, if you check out that link, you’ll see what actually could be a Microsoft based iPhone killer that only gets there because the vendor redid the UI.  

The second Touchsmart product, which I’ve been messing with this week, is an AMD based (both are AMD based) ultra light Pavilion tx 1000z laptop.   For a product in this class it has a lot of power as you can get it with a 120 GB drive, an AMD Turion X2 TL-60, and an NVIDIA GeForce Go 6150.   You can also get a built in camera, fingerprint reader, and Microphone.   And, of course, it also has the Touchscreen so you don’t need a pen (this is one of the big features of the iPhone and doesn’t exist on any selling Apple product yet. I bet that changes in October.)   Finally, you can get it with a Lightscribe drive which goes beyond the Apple Superdrive (but only Apple does the slot due to reliability issues).  The product is actually rather nice, it has a DVD mode and you can spin the screen around to watch movies comfortably in coach.  

However, what makes it most interesting is that it feels very Apple like and makes me think of the next generation of Apple products that are on their way to the market.   What many do not realize is the reason HP products are looking more interesting: Marketing and product design are now heavily staffed with ex-Apple folks. As a result, you are seeing a huge Apple influence in HP’s products. This has been a slow process, because a lot of the HP old timers have been resisting change. But you have to admit that being the number one in a market coupled with having some really innovative products suggests the Apple folks are winning and the result is the most Apple like products out of a PC vendor since NeXT (and they weren’t really a PC vendor). 

The Touchsmart PCs are two of the three products currently in the market designed specifically for Vista.  The third is the Toshiba RM400 which is a really sweet product as well, and is shows strong Apple influence as well. 

These products are the first of a wave of products designed for Vista which will show up around August and continue going forward.  Better looking, more powerful, and able to leap tall buildings with a single bound. Also, I spoke to the Voodoo guys today. Wait until you see what is coming out of HP in a few months.  I simply don’t have the words to describe it (and can’t anyway).  Makes you almost look forward to back-to-school doesn’t it?  
 
It is about time we started to get away from watching the vendors see who could build the cheapest crap and back to building things we can get excited about.  Of course, next we need to work on naming, Apple has the iMac and everyone else seems to have names that are sentence fragments with numbers and acronyms. 

 

Rob Enderle is one of the last Inquiry Analysts.  Inquiry Analysts are paid to stay up to date on current events and identify trends and either explain the trends or make suggestions, tactical and strategic, on how to best take advantage of them.  Currently he provides his services to most of the major technology and media companies.