5 Connected Consumer Companies to Watch in 2011

1Executive Summary

While many grumble about how close CES is to the holidays, an upside to the big consumer tech conference’s timing is that it gives us a pretty good idea out-of-the-gate about which trends will help shape the market over the next 12 months.

This year was no different. Coming out of the show, it’s pretty apparent some of the biggest technology tail winds driving the consumer space in 2011 will include connected entertainment devices (in particular, TVs), over-the-top video, real-time and/or video communication and continued integration of social software into entertainment platforms. Combine all this with rising consumer confidence and we can expect an action-packed year in the connected-consumer market.

There are many companies in the space that will no doubt make themselves heard over the next year, but I think the following ones will be particularly interesting to follow:

Facebook

In 2010, Facebook further solidified its position as the social network kingpin by growing its user base wider through continuous improvements and lock-in features that are so well done the consumer doesn’t even know it. By vertically integrating important communication and interaction functions (continuing its path to becoming a consumer-facing web operating system, something Google undoubtedly understands), and by extending Facebook Connect to tens of millions of sites across the web, Facebook is planting seeds for continued fast-growth in 2011.

But even as the company’s growth on the computer and mobile screens is almost a foregone conclusion in 2011, Facebook knows that it needs a three-screen presence, particularly as more TVs go from dumb to smart and competitors like Google establish early platform-centric efforts.

Last year proved that Facebook is interested in becoming more central to a consumer’s choice of entertainment content. Currently, the company is talking to media companies as a traffic-aggregator and authentication engine; in the future, we predict Facebook could be much more. Envision content from large-media on a large-screen TV wrapped in a Facebook UI and personalized by a Facebook users’ own social graph.

We can also expect Facebook’s TV efforts to eventually include a paid-content component. The company has already established a payments business to monetize apps, and Facebook followed Apple’s lead in creating interesting ways for consumers to load up on Facebook credits to buy digital goods. If Facebook does make a bigger play for entertainment content and a third-screen presence, it will also want to allow consumers to transact around this content.

Cisco

Cisco has long held aspirations of becoming an important player in digital living room, but the company’s biggest hurdle has been itself. Despite acquisitions of Linksys (home networking), KiSS Technologies (connected CEs), Scientific Atlanta (set-tops), Pure Networks (home-network software) and Pure Digital (maker of Flip cameras), the company hasn’t quite gotten these mainline injections of digital home DNA to take root in its bloodstream.

The reason for this is, quite simply, is that it’s hard to take a company so focused on serving enterprise-IT departments and make it a consumer-oriented marketing company. Sure, the folks from Linksys and Pure Digital were scrappy marketers when they came in, but even the savviest consumer marketers who come to Cisco have trouble building outward-facing branding campaigns that resonate with the consumer.

With that context in mind, it pays to look at Cisco’s two big bets for 2011: Umi and Videoscape. With Umi, Cisco’s consumer telepresence product, the company is betting consumers will pay a premium for high-fidelity video chat — a big gamble, given how notoriously fickle consumers are about paying for consumer services.

At the heart of Videoscape, announced at CES, is Cisco’s belief that it can be an arms merchant to video providers looking to answer the threat to OTT platforms like Google TV and Apple TV. Much of the initial software set for Videoscape is built on assets from the company’s Extend Media acquisition. Those assets are combined with various client- and network-based video delivery assets that Cisco has already in its arsenal.

It’s too soon to know whether either find much traction in 2011. My initial feeling is that Umi will struggle unless Cisco significantly alters its pricing model, especially given the strong adoption of Skype-based video chat by TV OEMs. Videoscape may perform better, particularly since Cisco is already positioned well in the pay-TV space and operators are looking for ways to counter the OTT threat.

Both endeavors could prove to make or break Cisco in the consumer market. The biggest challenge for the company will be seeing if its hardware-centric view of the world can provide truly innovative software solutions that help service providers answer to software-centric powerhouses like Google.

Redbox

Poor Blockbuster. Given the double-lapping waves from a rising crimson tide of Netflix and Redbox, it’s no coincidence the leading DVD-rental shop’s ship is already half-sunk in a sea of red ink.

No doubt the biggest threat to Blockbuster’s fate is online streaming. With cheap and unlimited streaming from services like Netflix Watch Instantly, high-priced DVD rentals are now a bitter pill to swallow for consumers.

OTT services, on the other hand, are not a full replacement for DVD rentals today, largely due to their limited libraries of newly released movies. This is where Redbox comes in. The company’s ubiquitous kiosks offering dirt-cheap, $1 movie rentals is both highly addictive for consumers and provides a nice augmentation to limited online video libraries. And perhaps because of this, pundits have long-speculated about Redbox’s digital strategy. The company was cagey about what exactly it would do in online streaming, but it did indicate discussions with potential partners.

Expect it to do something big in digital in 2011. Cheap, pervasive DVD rental kiosks and online video streaming is a powerful combination; if allied with the proper partner (or even acquired by the proper partner), Redbox could be a significant force in consumer entertainment for the next decade.

Rovi

Rovi, formerly known as Macrovision, has long been pigeonholed as a DRM company, even after an acquisition spree that picked up grid-guide leader Gemstar, DLNA software provider Mediabolic and metadata player All Media Guide. The company’s vision, which is not a bad one in theory, is that it would become an indispensible provider of content recommendation and connectivity software in the age of connected-consumer electronics.

While Rovi took many various features and delivered new products that fuse them together, the overall traction for new-media and connected-CE wins for Rovi’s showcase guide and discovery software, TotalGuide, has been limited. One of the major reasons Rovi saw resistance to TotalGuide was that many CE OEMs felt that outsourcing the consumer-facing UI was something they weren’t willing to do, particularly since the UI is such a critical part of a CE’s brand identity.

Given the feedback from the market, Rovi shifted its strategy slightly and put many of the various assets — recommendation and search technologies, data and advertising services — together into a suite called the Rovi Media Cloud.

The end-result is a new white-labeled media service suite that will help CE OEMs deliver branded services for TVs or other connected devices.  Combined with an OTT platform gained through the DivX acquisition, the combined offering should position Rovi as one of the key software platform providers in the connected entertainment space in 2011.

SoundCloud

While music streaming services such as Spotify were the biggest news of 2010 in digital music, it’s likely music sharing and distribution using social cloud-based storage will be the story of 2011. Of all the new cloud-based music distribution services, SoundCloud looks to have some of the most heat, with its app-centric/open API approach to music publishing. The company already had, as of midway last year, 1 million users. Its software integrates with most of the big blog-based publishing platforms such as Tumblr, and it has created apps for Android and iPhone. Expect more consumers, aspirising musicians and web publishers to migrate to Soundcloud in 2011.

Bonus: Acquisition Predictions for 2011

Cisco/Rovi

Given Cisco’s lack of software mojo, it could benefit from a software-centric acquisition that targets many of the same boxes it is after. Rovi’s cloud-media push and considerable assets in the form of guide, metadata and OTT software platforms could make it the type of big play that Cisco needs to be a serious contender in consumer media and entertainment.

Boxee

While Boxee will likely be successful as an independent OTT platform, there is a chance that a CE provider like Sony or Samsung could look to snatch it up on the cheap. The company’s rabid fanbase, combined with an innovative platform that grew out of the open-source community, will likely be enough to entice a buyer in 2011.

Sonos

Sonos is firing on all cylinders, if its recent hiring spree and continued expansion into Europe are any indication. The leader in network audio likely has enough revenue growth to go along with a leading consumer design and UI esthetic to make itself attractive to one of the many CE laggards finding themselves challenged in the era of connected media.

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Michael Wolf

Chief Analyst NextMarket Insights

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11 Comments Subscribers to comment
  1. Certainly some new angles to consider here for me. Not so sure about Boxee being picked up by a big OEM though, unless its purely for technology. The OEM’s are still in phase of trying to capture eyeballs and brand identity with their own connected TV worlds. Picking up Boxee would run against that. We are in the beginning of the beginning though and I would see acquisitions of all types start to ramp up in 2011.

    1. Ben, I agree, the UI is key branding real estate, but it could be that CE OEMs may see Boxee’s underlying software platform as valuable enough to acquire it. Building out a software framework with an accompanying ecosystem of development environment and eager application developers is not easy to do, and Boxee could provide a shortcut for some hardware company looking to get there. Another potential option would be a white-label software player who wants to offer Boxee software to CE OEMs.

  2. Interesting predictions indeed.

  3. Lots of great insight Mike.

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