The Digital Home Dream

[Commentary] The Digital Home Dream

By Eydie Cubarrubia

Without cooperation among tech purveyors to drive consumer demand, the digital domicile remains a fantasy.

Reprinted from Red Herring, July 24, 2006.

On the premiere episode of The Osbournes TV series, British heavy metal legend Ozzy Osbourne struggled with what looked like a mini tablet PC and complained, “You’ve gotta have f****** computer knowledge to turn the f****** TV on!”

Despite years of promising a connected nirvana, getting TV, computer, DVD recorder, music system, and other devices to work together over a network, the digital age has remained too complex for regular folks, let alone the addled Mr. Osbourne.

The digital home was supposed to tie it all together, putting everything under the spell of a single control system easily accessed at home or away. Indeed, Hewlett-Packard, Sony, NDS, Microsoft, and others have all rolled out products hoping to convince consumers that a connected home is not a pipe dream.

“I think there’s a general consensus in the marketplace that everything’s coming together in the home,” says Rob Mustarde, vice president of marketing for wireless connection startup Ruckus, based in Mountain View, California. Certainly the different pieces are coming faster, even if there’s little agreement on how fast they’re coming together. According to research firm iSuppli, annual shipments of entertainment consumer electronics with built-in networking technology will grow more than sevenfold, from about 21 million units in 2005 to 154.5 million in 2009. Networked televisions and set-top boxes for cable, satellite, and Internet Protocol TV (IPTV) will reach 10 million units by 2009, iSuppli predicts.

But until devices become cheaper and easier to use, and on-demand movies and downloadable music are mainstream, the digital home will remain beyond the reach of average consumers.

Digital home technology research firm Parks Associates estimates 82 million homes worldwide had installed home networks, wired and wireless, by the end of 2005—and that number will rise to about 145 million in 2010.

In theory, anything with digital controls and a clock can be linked up, but Mark Kirstein, vice president of multimedia content and services for iSuppli, predicts the networked home will be a long time coming. “Home automation will be the last to develop and the last to converge,” he says. The exception, he thinks, could be South Korea. But whether consumers want to automatically turn on their coffee pot from their computer—or at least pay for the privilege—is still far from clear.

Van Baker, vice president at research firm Gartner, isn’t sure automation is even a viable market. “The average consumer is happy turning the light switch off and on manually,” he says, adding that most consumers have little in what he calls “home control.”

Of course, if everything worked easily together, attitudes might be different. Device makers, network software developers, and content providers can’t agree on a single set of standards. “Interoperability across the board is essential for a meaningfully diverse ecosystem to exist,” says Sheau Ng, vice president of broadcast and consumer technology for NBC/Universal.

While standards are debated, digital home players race to roll out products, hoping to set standards others will adopt.

Menlo Park, California-based Zensys, for example, makes remote controls that use radio technology dubbed Z-Wave, and sells starter kits to control several devices for as little as “a few hundred dollars,” according to CEO Tony Shakibi. With partners like Panasonic and Intermatic, a lighting company, Mr. Shakibi claims enough devices are embedded with Z-Wave now to “fully trick out a house” for $2,000. “We want to make Z-Wave the de facto standard for home control.”

‘Too Many Standards’

He’s in for a fight. “There are too many standards,” complained Peter Lee, Walt Disney’s vice president of business development, at Parks Associates’ digital home connection convention in Santa Clara last spring. “So many groups pop up and say they’re going to be the ones to define it.”

Meanwhile, another quarrel rages between electronics makers and the PC and gadget players. “Standards have never been that crucial for [consumer electronics] players,” says John Barrett, director of research at Parks Associates. Indeed, iSuppli’s Mr. Kirstein says analog interoperability was always simpler to begin with. “The CE industry in general is much less coordinated than the PC industry,” he says.

But both sides have to get along. “Consumers are expecting the best of both worlds,” Mr. Barrett says. “They want products as flexible as a PC, as reliable as a stereo, as easy to use as a DVD player, and they want them all to be interoperable.”

Digital home technologies, whether set-top boxes for movie downloads or remote-controlled thermostats, are still in their infancy—and no one can be sure what form technology will take. The concept of an all-controlling magic box running everything has already given way, for example, to the idea of media PCs, set-top boxes, and other gadgets working together, rather than vying for control of the home.

Hyun Park, vice president and CTO of South Korea’s LG Electronics, told the Parks Associates conference that Korean developers were installing LG’s home network products in buildings as the government has set a unified standard. “Some users only have PCs and some only have set-top boxes; we provide options for both,” he said. “We started with integrating home control aspects and only now are [focusing] on entertainment.”

Media PCs—personal computers by HP, Dell, and others with high-end graphic capabilities ideal for watching videos and playing games—haven’t caught on at current prices. They’re expensive, topping $2,000, and become obsolete fast, leading Gartner to suggest the devices will probably morph into media servers for storing music and videos, rather than a full-fledged entertainment device. “This is a niche market and likely will remain that way,” says Mr. Baker.

Average Consumers Uninterested

This could explain why Apple hasn’t touted its Mac Mini—a small box that comes without keyboard or monitor—or its widescreen iMac as answers to the digital home. But that aside, Apple’s Front Row suite gives both machines a home theater feel that could give either Mac the lead in the home market. When Apple released the Intel version of the Mini earlier this year, Piper Jaffray analyst Gene Munster saw a breakthrough. “This is the first real chance of getting computers into the living room,” he said. “They did exactly what they needed to do—have a remote, and make it so that it’s easy to move media around the home.”

But even Alienware, the gaming PC maker recently acquired by Dell, knows average consumers aren’t interested in media PCs. “The media center’s form factor was its own worst enemy,” says Alienware Marketing Vice President Mark Vena. “Maybe a bachelor wouldn’t mind having a PC in the middle of the living room, but not female heads of household.”

Mr. Barrett notes that, unlike VCRs, PCs haven’t been as reliable and easy to use. “Grandma still has trouble booting up the computer and it often crashes once she gets it going.”

However, Keith Laepple, Microsoft’s director of hardware engagement for the company’s Media Center software, says more than 10 million PCs with the Media Center suite have been sold worldwide since 2002. (The software allows computers to download, play, and store multimedia content.) Mr. Laepple claims consumers use the loaded computers, priced as low as $500, for storage of personal media even if they don’t have TV functionality or other high-end features.

Hewlett-Packard uses Media Center software on its media PCs and Jan-Luc Blakborn, director of digital entertainment at HP North America, says the company plans to make the most of its prowess in printing and imaging to build sales. “Digital television is another aspect we decided to enter,” he says.

As it is, HP’s Media Smart technology, available on its 37-inch LCD television, now allows TVs to “talk with other devices,” accessing digital content from anywhere in the home, Mr. Blakborn says.

United Kingdom-based NDS, which makes chips and cards for set-top boxes, focuses on entertainment content. Steve Tranter, director of U.S. interactive and broadband delivery, says his company has between 60 million and 70 million units in homes worldwide, adding up all its cable, satellite, and IPTV clients. These boxes allow users to download digital content and watch it on a television—and there’s evidence they are catching on. For the quarter ending in March, NDS reported earnings increased 69 percent to $28.1 million on sales of $149 million, up from profits of $16.6 million on revenue of $127 million the same quarter a year ago.

Mr. Tranter says the set-tops make content transmission and storage secure, unlike more hacker-friendly PCs. NDS also longs to be a standard setter. It started the SVP Alliance and got members like 20th Century Fox and Texas Instruments to agree to use an NDS processor to control how content is viewed and stored. “This could, for example, enable the NFL to allow you to store the Super Bowl for a week,” Mr. Tranter says.

Tighter content security should please Hollywood, which has played its part in holding back the digital home. It’s never been convinced digital distribution made business sense. “Hollywood studios make no money in Korea,” says Amy Heller, Paramount’s former vice president of international home entertainment. And that’s despite the country’s dense broadband network. “Compatibility-wise, we’re not sure they have got it together,” she says of hardware makers. The future lies in gadgets that can play all content, regardless of the technology, she adds.

Range of Solutions

A variety of solutions may be the best bet for ensuring content viewing is all nice and legal, says NBC/Universal’s Mr. Ng. “We wouldn’t think of using the same lock for everything from our basement vault to the kids’ piggy banks,” he says. Ditto for digital content. Anyway, he adds, situations could change. Broadband distribution of content could be spurred by soaring storage capacity and falling costs—which in turn will require security policies still not in place.

Ms. Heller says that despite its ties in the States, Hollywood might want to focus first on smaller markets like Spain and Canada where digital distribution has been profitable. They certainly have taken to digital music downloads. “Worldwide Suicide” by rock band Pearl Jam, for example, became the first song to top Canadian music charts last spring solely through online sales.

Music is the vehicle to capture consumers and “graduate” them to other content and, more important, to new hardware, or so goes the theory. “The advent of Napster and other P2P file-sharing services resulted in the proliferation of digital music, which paved the way for MP3 players and the iPod,” Mr. Barrett points out. “In international markets, a similar phenomenon is occurring with video.”

So along with new listeners interested in buying his music, Ozzie Osbourne could end up with an online market for old episodes of his TV show. Whether he’ll have the wherewithal to figure out how to turn on tomorrow’s TV set is another question.

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For years, electronics companies turned out home computing gadgets that were supposed to work together. The problem was, they couldn’t talk to each other. Wi-Fi could bring the digital home to reality.
“Everything’s becoming a connected device and everything will connect to the Internet,” says Rob Mustarde, vice president of sales and marketing at Ruckus, a wireless network equipment startup based in Mountain View, California. “The last-to-be-answered question is what will connect everything. It’s our belief the connection of choice is Wi-Fi.”

Also known by its scientific designation of IEEE 802.11, Wi-Fi uses radio technology to create small (the size of a home, apartment, or coffeehouse) wireless networks that hook into the Internet. The market has proved to be lucrative. According to research firm In-Stat, Wi-Fi chip sales were $1 billion in 2005 and are projected to jump 64 percent to $1.64 billion next year.

The market for 802.11-related equipment increased from $1.54 billion in 2003 to $3.12 billion in 2005, says iSuppli analyst Jadish Rebello, who notes that home and home office users make up 65 percent of the Wi-Fi market.

The home market is what Ruckus focuses on and it’s already overcome problems plaguing today’s off-the-shelf Wi-Fi technology—such as inconsistent signals—according to President and CEO Selina Lo. Fluctuation may be irritating for those moving around with laptops, but it’s fatal for video. Ruckus makes signals solid enough for downloading or streaming high-definition video, she says.

The company recently partnered with Aruba, just down the road in Sunnyvale, California. Aruba makes Wi-Fi networking equipment for large business environments, but with Ruckus, it plans to tackle the home. “More and more companies are encouraging telecommuters,” Aruba founder and Marketing Vice President Keerti Melkote explains, “so they need to make the home office part of the enterprise network.”

Aruba and Ruckus, past Red Herring 100 winners, won’t have a product for several months, but other wireless technologies that support smaller networks, such as Bluetooth, have been gaining adherents for a while now. Bluetooth supports exchanges among handsets, digital cameras and printers, PCs, and PDAs.

Entertainment tends to be very broadband-intensive, but household appliances need little bandwidth, and here two competing companies, ZigBee and Zensys, look interesting. The former is like a low-power version of Wi-Fi, while the latter uses radio waves to control a variety of devices by a single remote control.

Wireless won’t solve all digital-home woes, of course. Steve Rago, a networking and optical communications analyst at iSuppli, says wired network cables are still the best insurance against interrupted downloads. They can also guarantee connection between rooms divided by concrete too thick for Wi-Fi signals to penetrate.

Even while wireless may be best for computer users out on the porch, real-time television programs like sports championships will—at least for the next few years—be best served on wires. “If you’re watching the World Cup, you want to watch it live, not after the fact,” Mr. Rago says.

Contact the writer: Eydie@RedHerring.com