2007 is slated to become a big year for media in the home. Every major technology vendor with even a toe in the consumer segment will be going after a market that could easily create the next iPod-like wave of products and growth. As we wrap up 2006 the year let's take a look at what a media center device needs to look like and who is likely to come closest to the mark.
The important questions to ask in 2007 are "What is a media center?" and "What should it be?" - and, depending on the vendor you approach, you will get a different answer. What it should be is the device you use to store all of your digital media from music to movies, from snapshots to filmed family memories. From this "center", you then serve out this media to the various rooms of your house, your personal music players and - the one place most seem to forget - your car.
The devices aim for the mainstream right away and, as a result, have to be very easy to use in order to be successful. Rather than promoting disruptive change, they have to embrace what they are displacing: In the living room they have to replace and enhance the receiver; in your pocket they have to either embrace the iPod or successfully replace it; in the car they have to work with or replace the car stereo; and in the rest of the home the solution has to replace and embrace the various devices we use today to enjoy music.
In effect, even though we generally talk about this class as a device, in reality it is an entire system of devices and services that encompass the customer in their media, and if done right, enhance the way we enjoy listening to music, watching videos and browsing through our family pictures today. If done wrong, media centers are a recipe for disaster that fosters frustration and creates a massive barrier to adoption.
Major players with Handicaps
Microsoft is unmatched as an infrastructure company; however, their efforts so far have been disjointed and largely incomplete. Microsoft is only one of three players that have pieces in all three critical areas and, like one other, have embraced gaming as the fourth battlefield. The products are integrated to a certain degree, but the firm recently stalled the Plays for Sure effort by bringing out Zune and, in the fourth quarter, actually moved away from its goal, rather than towards it. Being in constant tension with its partners and customers, Microsoft is both the company with the most potential and the one most likely to waste that potential by simply not doing what needs to be done to achieve success. Microsoft seems unwilling to focus, meet commitments, or complete offerings and, unless that changes, they will miss this opportunity as well.
Sony, as a product company, is unmatched with hardware in all of the critical areas and an historic reputation for quality that was, before 2006, relatively solid. It is second only to Microsoft in potential. Unfortunately, Sony is at war with itself. Its PC-based Media Center products actually work best with Microsoft's offerings; Sony seems to think they are Microsoft and can drive industry standards but really can't (see Blu-ray). And the critical PlayStation division doesn't seem to want to be on the same team as the other Sony players.
Even more troubling is the fact that Sony's significant content resources have turned out to be a disadvantage rather than an advantage by driving unique DRM-based solutions that have been incredibly difficult to use and integrate policies (such as the infamous rootkit) that were and still are customer hostile. If Sony could get out of its own way it could do something incredible here. But the company would have to consider some hard choices, which it appears to be unwilling to make.
Apple should be overmatched by the first two players. In terms of resources, they simply can't compete with either Sony or Microsoft. Fortunately, Apple doesn't get or read those reports and, though limited, has been happily kicking both Microsoft's and Sony's backsides with its iPod, which easily moves from home to car to pocket to bedroom with a variety of media with the help of a massive number of partners (which they treat very poorly).
While nowhere near as elegant as the solutions either Microsoft or Sony are capable of, the iPod has one huge advantage: It is in the market and it actually works. This showcases the difference between having potential and using it and having potential and wasting it. While Apple is overmatched, it is executing at near 100%. The other two are at fractions of their potential. In the end, the market doesn't buy potential. It buys products and Apple has the products and accessories the market wants to buy. Still, the market they want is currently controlled by CES vendors and retailers and the fact that Apple isn't at CES suggests one of many vulnerabilities they are not yet addressing.
Cisco is the dark horse of this tale. They haven't really even entered the market yet and they cast a shadow over everything else that is here. With capabilities that rival both Microsoft and Sony in the critical network space, the company is executing at near Apple levels in its core business. Cisco acquired Scientific Atlanta and are expected to bring out what may be the perfect storm product. Its products, under the Linksys brand, while not Apple easy, have been well received and they are number two in the set top box space behind Motorola. They lack both automotive and personal offerings, but that shouldn't slow them down much and they seem to get the content side as well or better than any other player. Also, like Microsoft, Cisco can drive critical standards. But, on the other side, the firm lacks a strong CE marketing capability and that may be its critical shortcoming particularly against Apple's strength.
HP is the remaining big company player. It lacks the CE breadth of Sony, but it has Microsoft as a partner and learned at Apple's knee (a very painful lesson) in the personal music player space. HP's networking capabilities fall just behind Cisco's. The company has been very active in the media creation space and its connections into the studios appear to be on par with the strongest in this group. While HP is a complex company, the current executive team is weaving together the various company parts but, as yet, their attack on this market segment has not fully formed. I have yet to see a companywide "media center" vision form and - without such a vision to set the goal - the firm won't have the focus it needs to reach it.
CES MacWorld 2007: Battle joined or imagined
As a CES Judge over Media Center products, I've had a chance to look at a number of offerings that typically don't get much coverage. The big white elephant that will likely capture much of the discussion at CES but won't actually be at the show is Apple's iTV, which looks to be very well thought out. At CES, you'll see the emergence of a new CE product, which (I can't describe in detail at this time and) for lack of a better name, is a media server and may be the closest to what will emerge as a true home media hub. However, with a fast connection, the server might be better as a service and you'll see a number of these announced as well.
One interesting product that made it to market just before the end of the year was that Alienware came out of left field and brought out this media center, which is as good as it gets from the Microsoft camp. With a sharp consumer electronics industrial design and a built in Class A amplifier (retailers have resisted media centers with amplifiers for fear of losing receiver sales), this product is both stunning and sets the pace for similar offerings running Windows Vista next year. The fact it was based on an AMD Live! Media Center concept suggests that players behind the scenes may be as important as those on stage. Intel is rumored to be behind Apple's offering as well and this behind the scenes activity could pay off big in 2007.
One thing to remember (a cautionary comment for all players) is that last years' best music distribution product was Sonos, the best true media center was the Kaleidescape , the best PVR is still the Tivo, and the best user interface still comes from Digeo (interestingly enough owned by Paul Allen, co-founder of Microsoft). These companies aren't using Microsoft or Mac OS (they either are using embedded Linux or a home grown platform) and each came out with a better product than any of the majors. While they lack the marketing clout of a major and some are priced outside of the market, if any of these firms was to merge with a larger more capable firm, they could change the overall market dynamic.
I left out one topic - home automation. While the initial wave is all about media, the second wave will undoubtedly be about automating your entire home and moving beyond music to mood, security, and power conservation. A company to watch here is Smart Labs, but we'll save that for another time.
Finally, content remains king. The best product is worthless without content. That's what makes products like the Kaleidescape stand out: They creatively deal with content to provide the experience that buyers demand. As eyes turn to CES and MacWorld to see who can come closest to matching the hardware, the user experience, the content, and the price to create the next perfect storm we may have to consider that the right answer to the question of which major vendor will get it right might be "none of the above".
Rob Enderle is principal analyst for the Enderle Group. He can be reached at firstname.lastname@example.org.