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Why Apple Won't Buy Netflix (or Sony or RIM or …)

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We're like Media. Squared.

I enjoy pondering the question of “who should Apple buy next?”  I think it’s probably best answered in this Quora post, which conveniently includes a history of most of their recent acquisitions, then followed by all sorts of fun guesses.  Some of the companies mentioned include: Square, Pandora, Sony, Amazon, RIM, and many more.  PaidContent lists Apple as a good future home for Netflix.

I’m sure on paper many of these are sound acquisitions.  Some bring good IP. Others good cash flow.  Others good branding and distribution vehicles.  I’d surmise that many a financial analyst could put together very solid plans, and would even wager the discussions happen within Apple from time to time on the topic.  But I don’t think Apple’s buying any of them, and for a vastly different reason, one that won’t make any spreadsheet or pro forma statement anywhere.  It’s about the DNA transfusion.

If there’s one thing Steve Jobs created over the past decade-plus it’s a certain DNA.  It’s a company-wide culture that transcends from product to marketing to customer service to building design.  And inserting hundreds of product managers, engineers, QA staff, designers, etc who come from radically different types of DNA will result in exactly one thing: Brundlefly.

How about an iMinidisc player? Or adding UMD to next-gen Macbook Airs?

My money is on Apple continuing their pattern of only absorbing companies who are either:

  • Small – smaller teams who are tightly focused can have their developing culture be absolutely subsumed by Apple’s
  • Non-consumer facing – ingredient technologies (chips, algorithms, infrastructure) tend to need less of the consumer product dogma that guides the “Apple way” and have less impact on culture

The exciting thing about an Apple acquisition, in my opinion, is watching them take little pockets of technology and turn them into big consumer products far down the road.  Although I would say, of all the companies named above, it certainly does seem like Square could be a good fit from a product, market, *and* DNA perspective, but that’s just from outside appearances.

Quick Hits: Sony Remote Monstrosity, Early Revue Reviews, Android #1?, iPhone-to-TV, Congrats Foundry Group!

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Sony Remote Monstrosity
Engadget got a sneak peak of the Sony/Google TV remote control.  It’s either hideous, or simply an internal prototype used for them to develop with.  I wish it was the latter, but bet it’s the former.  Over on the Stage Two blog (I’ve been doing a lot more blogging there recently, it’s not just us pushing client work, give it a read!) I go into specifics of what’s wrong with it, and also tangible steps on how to improve it.

Early Revue Reviews
Saw a quick hit on CrunchGear today, I’m in complete disagreement with everything they say that makes it “good”.  My highlight nitpick is their closing remark: “As we said before, the real initial value will come from the camera that Logitech is selling for video chats on the TV.”  The real value of a $299 device is that you can hook up a $149 camera to it to do video chat?  Really?  That is going to move the needle on Revues?  Hint: no way.

Elsewhere, my friend Harry calls it the Swiss Army Knife of Internet TV products.  I’d say that’s a great analogy, but follow up with my biggest concern: the TV is the one place we don’t want something like a Swiss Army Knife. See, those Knives are handy to have around in a pinch, but in every way fall short of being really useful for a long period of time.  Yes, it’s cool to have a philips head screwdriver in your back pocket when camping, but I wouldn’t put together IKEA furniture with one, that’s when you need the actual screwdriver – aka the single purpose product that works really really well.

I’m maintaining my position that Google TV 1.0 is not ready for consumer primetime, and neither the Sony nor Logitech solutions are compelling to the mainstream.  Sorry to my friends who work at those companies, but this just isn’t what it needs to be for a big win.

Android #1?
I saw one of those big flashy attention-grabbing headlines today “Android Most Popular Operating System in U.S. Among Recent Smartphone Buyers”.  Beyond my general disdain for Android (though I will freely admit the HTC Incredible running Android 2.2 is leaps and bounds ahead of my old Eris, but still has lots and lots wrong with it – for another time), I hate headlines like these.  What would be MORE interesting?  What is the popularity of Android specifically on AT&T?  That’s at least apples-to-apples comparison (pun fully intended). Of course Android is going to hit the top spot, this is inevitable, not interesting.

Now what would be interesting?  Well, since this is arguably all about a landgrab for developers to adopt platforms, how about an analysis that talks about which platform is making the most money to developers? Until Android/Google makes the process of buying (and selling) apps easier for everyone, the money is still flowing to Cupertino.

iPhone-to-TV
The newest version of Netflix for iPhone enables watching the movies on a TV, rather than on the phone itself.  Very cool, nice novelty feature.  But when I see a phrase like “Who needs an Apple TV now?” I get reminded of how often people in the industry aren’t thinking these things through very much (no offense to the author of that particular blog post).  To be clear – a phone, even an iPhone, does not replace a TV dedicated device, now or ever.  Wrong device for the wrong purpose.

What if you need to make a phone call mid-movie?

What if your phone runs out of battery?

What if your phone drops the signal (apparently those iPhones are known to do that from time to time)?

What if you want to put the movie on, then sit 8-10′ away from the TV, and, say, pause or rewind the movie?

etc.

Congrats Foundry Group!
Just wanted to take a second to congratulate Brad, Ryan, Jason, and Seth at Foundry Group for raising their latest fund! I’ve had a long history with the guys and a lot of their investments, and since they are one of the few VCs who love the consumer gadget space, wanted to give them a little shout out here.  Keep up the great work, and keep finding the cool gadgets!

Thinking about Googling my TV

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Google, Intel, and Sony have apparently teamed up (and Logitech too) to develop an Android-based platform for interactive television. Let me start my post with some important background points and disclosure:

  • I was a cofounder of Mediabolic, a startup who built a platform for connected devices.  While there I designed about a dozen “convergence” products (one won a best-of-CES award), and the company eventually got acquired by Macrovision.
  • I was an early employee at Sling Media, where I was responsible for developing the Slingbox (another best-of-CES award).
  • I once interviewed at Google for a position in a “google TV” role, but didn’t feel it was a really great fit for me personally (not to mention the commute).
  • I am currently involved with Boxee.TV, a startup in a highly-related field. There is some amount of overlap here, though that is in no way related to this blog post.
  • I’ve also worked with VUDU, Clicker.com, DivX, and others on “future of TV” systems, services, and products.
  • I was on the original working group committees for UPnP (AV) as well as DLNA (even before it was called that).

Through the above experiences, I have seen a lot of failure and some success in the “connected TV” space.  But mostly failure.

It’s a space where techies dream, entrepreneurs try, and companies fail. The list of failed convergence companies is notably longer than the list of successes. It’s a field where even Apple, the current king of the world when it comes to entertainment technology, can’t get a reasonable foothold in the home.

Most of the failure is due to deeply entrenched systems heavily controlled by huge corporations with little interest or need to innovate.  While we can yell and scream about how bad a job the Cable/Satellite companies are doing at future planning, the blunt reality is it’s hard to argue that it’s necessitated.  These megacorporations can drag their feet, and deploy mediocre DVRs and HD services, and consumers (for the most part) are satisfied with their experiences.  Further, due to their current business structures, the concept of opening up the market to third-party devices, content, services, or applications is not just daunting, but likely unprofitable.

When I consider the opportunity in the digital home, I am convinced it cannot come about by directly competing with traditional broadcast models. Broadcast TV, and all the services with it, are generally easy to use, convenient to pay for, and effectively “good enough” for most people – making “better than current TV” offerings a significant challenge to bring to market.  Historically, the only thing to attract the attention of consumers beyond their existing entertainment solutions are:

  • Transformative content playback experiences. From VCR to DVD was one example, and from standard definition to HDTV is another.  The key word here is transformative – it can’t just be “better quality”, as evidenced by virtually all other introduced formats and technologies based around content.
  • Notably difference content offerings. Again, moving up to HDTV-enabled set-top boxes was a natural flow, game consoles are the other shining example of a successful category.  Boxes that simply deliver “more of the same” or “stuff you can get elsewhere, now get it here (e.g. digital pictures)” are typically not big hits.  Consumers have to see some kind of service that’s worth the extra money.

Everything else has failed to make a dent.  Most “Internet Set Top Boxes” have been, and will be failures.  The typical logic that brings these products to market goes something like “consumers are about to cut the cables for their Internet content, and really hate watching it on their computers.”  The evidence behind this claim?  It’s in the same folder with the WMD evidence the government started a war for (zing!).

I’m very curious as to the potential from Google, Intel, and Sony.  Intel has wanted in on the “connected TV” for a long time (disclosure: they were an investor in Mediabolic), and has never really executed very well.  It’s not to say they can’t, but it’s safe to say the space is far far away from their core DNA.  Sony too has stumbled frequently in this space (here’s their version of a convergence device). Logitech? See Sony. And then there’s Google.

Part of me thinks Google believes that all devices are effectively the same, and their (limited) success in the phone market implies opportunity in the TV market.  Another part of me thinks Google is just so big they take on any sector they see opportunity in.  But most of me thinks Google wants to get firmly entrenched in the biggest advertising market there is – television.  And as hard as doing phones might be, doing TV boxes is much much harder.  Here’s why:

  • Phones play highly restricted media types.  Converged TV devices are expected to play all media types.  This topic alone is probably worthy of a blog post, but trust me when I say – it’s hard.
  • Consumers buy new phones on a recurring basis (multiple times a year in some countries). Consumers replace TVs infrequently, and buy TV “accessory” devices only a couple of times per decade. While the market is huge, it’s hard to get new devices into the home.
  • Carriers are motivated to push new devices and services into the hands of their customers, it’s part of their business model.  TV service providers are not motivated to do so (as discussed above).
  • As much as phones are “closed systems”, a manufacturer is able to purchase equipment and get a device certified and get it on the network without too much involvement by a carrier.  While the path is actually similar (CableCard Tru2Way certification), the realities for both the manufacturer and, more importantly, consumer are much much worse.
  • Again, as stated above, consumers are generally dissatisfied with their phones (a problem unlikely to go away) and are excited about new ones.  Consumers literally dread changing equipment in their living room – even us geeky dads with cool quadrophonic sound.

Now with all that said, I’m truly excited about the future of converged entertainment in (and out) of the home. I remain mostly cynical about seeing any real change anytime soon.  I think there are a few companies who have built the right foundation to make some inroads, but I’m hoping everyone involved is prepared to win their “realist” and “slow and steady wins the race”  badges over the next few years-to-decade (or longer).  Can Google be the catalyst of change, or will they just be the next in the long list of companies who tried and missed the mark?