Connected Consumer 2011: What Not to Expect


Some major trends will drive the 2011 connected consumer market for players big and small: continued growth of connected consumer electronics, cord cutting, land-grabs by big platform players across three screens and the increased integration of social into entertainment.

But just as important as what will happen is what won’t happen in the space, as it’s important to dispel potential myths and market misunderstandings. Below are a few trends we’re not placing bets on for the connected consumer marketplace in 2011.

Paid Video Chat Finding Traction

While tens of millions of connected TVs will present a huge greenfield opportunity for video chat in the coming 12 months, don’t expect consumers to actually cough up any money for services.

Why? Quite simply, most consumers are notoriously cheap when it comes to Internet services, and generally will pay very little for products they can essentially get for free (or near-free), even if quality is sacrificed.

A potential analog is video entertainment. There is no doubt that video quality of a Netflix or Hulu stream is vastly inferior, in most cases, to that of a Blu-Ray DVD. But those who have chosen to subscribe to, say, Netflix Watch Instantly will gladly take a lower-quality version for near-free over the cost of a $5 rental of a VOD purchase.

This is, of course, bad news for Cisco, who sees potential for a market for both higher-priced video chat (or telepresence) gear. In reality, of course, the vast majority of those who do see value in TV video communication will take the lower-quality Skype or Google chat over a more expensive service.

PayTV Operators to Roll Over on Cord Cutting

With cord cutting  starting to impact their bottom lines, video operators are likely to double-down on their efforts to counter (or at least co-opt) the over-the-top revolution.

What exactly will Comcast and other carriers do to fend off OTT services clogging their networks?

First off, expect them to continue exploring usage-based broadband. While the recent spat between Level 3 and Comcast shows that ISPs could impose tolls where they can, there’s a chance that end-users who are heavy users of broadband video streaming, for example, could see higher fees in the future, particularly since the recent net neutrality ruling by the FCC doesn’t prevent it.

But besides straightforward defensive measures, there’s also the simple fact that big players will start to put greater pressure on content owners to “be with us or against us” through negotiating exclusive digital rights for key content under the guise of TV Everywhere.

Lastly, the power of the checkbook should not be underestimated. The threat of OTT could potentially cause greater  vertical integration. We’ve seen this with the Comcast NBC-U acquisition. Other large acquisitions of key premium content providers, such as Disney, could also be in the offing.

Apple TV Will Own the Living Room

While the arrival of the new Apple TV was heralded as the death-knell for upstarts such as Boxee, and early sales are promising, don’t expect Apple to recreate its smarpthone dominance in the living room.

The reasons are many. Lack of an app store, no video chat functionality and strong competition are a few, but perhaps the biggest disappointment may be the lack of the rumored subscription video package.

And don’t hold your breath for one. The “big-play” that Apple is rumored to be working on may not materialize, mainly because most content owners are reticent to work with Apple, a company whose controlling market power in digital music has been highly instructive for those in Hollywood.

But in the end, Apple may not care that much, since the company’s believes that second screens are becoming hugely important for video. With the rapid growth of the iPad, the company may simply put most of its efforts into creating compelling video content offerings for its tablet device.

Google Rules E-books

Many in the tech world predict Google’s browser-based approach to e-books and strong Android device momentum to eat heavily into Amazon’s market share. It won’t happen.

Why? To start, Google has never created a native consumer content effort or storefront that has been very successful in paid content. The company’s one major success for consumer content, YouTube, was an acquisition, and even there, Google has never been able to crack the paid-content nut.

Beyond its payment woes, Google has shown that, for all its disruptive technology and vast resources, it often ends up playing second fiddle to fast-moving incumbents. Amazon, who has shown it will react lightning-quick to new threats, will no doubt push out its own browser-based Kindle reader in response.

E-book storefront success comes down to whether customers will be willing to establish a billing relationship with a given company, and Google has not been able to show, Android and elsewhere, that consumers trust it with their credit card. Google’s best shot may be to explore new models for e-books, such as ad-supported models.

Relevant Analyst

Michael Wolf

Chief Analyst NextMarket Insights

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