The Ruckus Room

What Swallows What and Why

When it comes to electronics in the home, consumers want less, not more. 

Everyone bitches that there are just too many devices to hook up, configure, troubleshoot in order to take advantage of all the cool content being digitally developed. It's true, but it doesn't have to be this way.

Basically computers do everything a consumer needs.  They can accept virtually any kind of digital content, they can encrypt, decrypt, process, store, forward, play, and accept almost any type of input.

As new digital services and content, like IPTV, get delivered to consumers over broadband networks, there a good chance that different devices - such as TVs, set top boxes, networking devices and PVRs- will all converge into a single device. 

More and more of the content coming into and out of your home is digital, encoded  compressed, encrypted and wrapped in IP (the cable guys aren't quite moving yet on the IP piece for video...but they will). So to access the content you need to take the IP header off, decrypt, decompress and decode it. This is what computers do today.

And given where things are headed with content providers making their TV shows available digitally on demand, there just seems to be too much momentum in the market for this "convergence" (at some level) NOT to happen. The question is when and how much.

Until now it's been almost impossible for TV's to swallow stuff like media receivers, hard drives and Wi-Fi. There have been no clear standards for encoding and encryption, open interfaces that allow digital inputs in to the TV and middleware that supports control protocols for things like electronic program guides, channel changing and video on demand. Plus the cost of integrating these functions into the TV has been a non-starter. But that was then.

Today, AT&T just announced they'd spend $4.6B to offer IPTV in 15 to 20 U.S. markets by the end of this year and available to over 19 million homes by the end of 2008, will be compelled to make it so.

These new services require TVs (and other device in your home) to accept and process digital content. This is what set top boxes essentially do (and one of the reasons Cisco purchased Scientific Atlanta).  So what will happen and when?

In the near term, there will be two areas of integration in the home: one at the demarcation point where services enter the home and the broadband gateway sits and the other at the end points (e.g. TVs). 

At the ingress to the home, we will begin see a new class of residential gateway that will act as a service "platform."  These devices will absorb a bunch of stuff like next generation networking technology (Smart Wi-Fi), QoS support, video support, VoIP ports, remote management, security (eg. firewalls,802.1x, encryption, etc.).

At the TV, we'll first see the integration of smart Wi-Fi into set top boxes.  Then we'll see this combo go directly into the TV - possibly along with a hard disk to provide PVR-type functionality. Even fancy multi-antenna arrays can be built directly into the housing of the TV.  The solidification of standards will compel manufacturers to do this.

While there remains a huge number of obstacles in the way of making your iMAC the TV of the future, there now seem to be too much motivation to stop this from happening.

Do you think Steve Jobs understands all this?  Uh......yeah. 

The Gorilla Wants Into Your Residence

At pretty much every company we've ever worked at (as a collective of Ruckus high-techers), we get asked the question: "Well what about Cisco?" (it's basically the question people ask when they don't know what else to ask). And our answer inevitably is a sarcastic "well, what about them?"

Although very cliche, Cisco's biggest strength is its biggest weakness (this holds true for almost any company and any person).  But the thing with Cisco is, they understand this.

So what is Cisco's biggest strength?  It's BIGNESS. It's very big.

Dominic Orr, the now CEO of Aruba Networks (a company certainly in Cisco's cross hairs) put it the best when in 2000, leading Alteon WebSystems to the promise land, said "Cisco isn't anyone's competitor, they are an 'environment' - like the air we breathe. If you want to be successful in the networking space, you need to learn how to live, add value and thrive in that environment." We agree. We sort of have to....he's our chairman (WAS our chairman).

It's widely understood that Cisco is no longer the breeding ground of technical networking innovation, but it doesn't have to be.  In fact, at this point, it's probably best that it isn't. Yet despite what anyone thinks of them, they've got moxie (I'm not allowed to say 'balls'). And they put their moxie where their mouth is. 

Today, they use their buying power to be aggressive, dominate new markets and drive innovation. They are extremely good at admitting when they are wrong. We're not talking about their public PR puppets, we're talking about their undeniable actions that speak volumes over the rhetoric.

In the beginning (1993) Cisco (credited with popularizing routing) purchased Crescendo, a switching company. This purchase ultimately made them Cisco. Then they bought StrataCom for $4 billion to get into the service provider market (not a great acquisition but it did put them into a new market they needed to be in). Other notable buys included Arrowpoint for more than $7B (to capitalize on a new era of networks that look deep into packets); Linksys for $400 million (a relatively small price to pay to quickly build a consumer brand and mass market distribution engine); and Airespace for $450 million (really ballsy when the entire market for wireless LAN switching was nowhere near being worth $450 million for the next several years). And perhaps their most aggressive (and to some surprising) act was to purchase Scientific Atlanta for some $5 billion.

Each of these acquisitions demonstrates the willingness to take risk (and we're not kissing up here, we've already tried that...it didn't work). Cisco sees.

They grew up building IP networks for corporations and became famous (and rich) doing it.  But that market is saturated and, despite changes in enterprise network and security architecture being driven by Wi-Fi, the enterprise market isn't the growth market it was.  So where will IP networks need to be built?  The home.

Cisco needs new top line revenue growth and sees the home as the place where it can duplicate what it did for the enterprise - built IP networks for them.  Broadband providers will force IP services down the throats of consumers whether they like it or not. And they will be so competitively priced and marketed that consumers will just simply consume them.

Scientific Atlanta now gives Cisco a footprint in the home and the ability (and credibility) to build a "residential platform" that will enable the "next generation of whatever."

Whatever.

Texas: A Model for the Future?

Folks are watching, of all things, Texas.

When Verizon recently rolled out it's FiOS TV service in Keller, Plano and Lewisville, the incumbent cable company, Charter, quickly dropped its prices.

A subsequent study of the Dallas area by the American Consumer Institute (ACI) found, among other things, that half of those switching service providers reported significant savings on their cable bills - which now averaged about $22.30 per month. The report concluded that such competition expands the total size of the cable TV and video market and provides "immense consumer benefits."

This statewide video franchise framework (SB-5) that Gov. Rich Perry (R) recently signed into law now lets telephone companies and broadband providers apply once (in Austin) to rollout video services anywhere in the state.

This means that video service providers in Texas can now offers digital TV services (read IPTV) without having to negotiate local agreements with and pay franchises fees to each city. Seemingly unfair to cable companies who've already had to do this, this idea is much needed to spur competition and is long overdue. Other states such as Indiana and Virginia have also enacted similar legislation.

And on a national level, the House Commerce Committee recently voted in favor of similar legislation that grants national franchising privileges to telephone companies. On May 1, the Senate also introduced a bill (S.2686), the Communications, Consumer's Choice, and Broadband Deployment Act of 2006, that aims to "aims to reform existing communications laws to promote competition, cost savings for consumers, and the speedy deployment of broadband services to all Americans." This guy has an interesting opinion. And here's a good story that gives a quick view of everything.

This is a HUGE win for telecom companies and will most certainly speed services like IPTV that have become a huge hit overseas. There's no question that IP-based voice, video and data service, will completely change our world (just like the Internet did for data).

Looks like a new bubble is being blown.