Profitless Prosperity?

One thought on “Profitless Prosperity?”

  1. Om, I have always enjoyed your commentary… and have been doing some bit of thinking about the ‘revolution’ in the digital home that is underway, at least if one were to believe the surge in press coverage.

    You are right about hardware – Apex is the best example. A four year old company, roughly 100 people, $1.5 billion in revenues. More importantly, it is the largest seller of DVD players in US. As prices for hardware continue to shrink, hardware companies will have to learn to live with single digit margins, perhaps even less.

    However, in the past few years the gap between houeshold electronic devices and desktop computers, in terms of processing power/memory/storage, has shrunk. Just look at the evolution of Palm, from that bulky equipment w/ monochrome display to the sizzling Wi-Fi-enabled Tungsten C, and you will have an idea of what I mean. This processing power is now finding its way into the consumer electronic devices; there are HDTVs that run on linux! The short of it all is that the digital home of tomorrow will be populated with devices that 1) have enough processing power and storage to host more-than-rudimentary software applications, 2) are part of the home network, and 3) the network is wireless. Thus, the digital home will be made up of numerous devices that are not only intelligent as stand-alone entities, but can also talk to each other through a wireless network.

    And the innovation will be in using software to integrate such devices to make my life at home easier. If some one is going to integrate all my consumer electronics into one ‘home media network,’ why not let the individual control other household devices – airconditioners, lights – through the same interface. For example, just before retiring for the night, I don’t want to be walking througout the house shutting off lights; why can’t I use my handheld to access the ‘home server’ and tell it to do that. As there is a SAP for the enterprise network, there will be a SAP for the home network.

    I agree that it will take a lot – software will have to extremely reliable (which it will be, as I will no longer install third-party applications on any of the devices; it is usually the third-party apps which are the source of unknown conflicts and render a PC unstable); prices for hardware will have to drop, which they will etc; houses undergo rennovation once in fifteen to twenty years, much longer than the three/five-year cycle for corporate IT purchases. But I do see all of that happening, if gradually.

    In such a case, the consumer will start paying for software, not hardware. Hardware has been commoditized(?), but software is still years, if not decades, away from it. To give you an example of that, both Rio and iPod depend on a system-on-chip from Portal Player, but it is the software that Apple has written for that hardware that lets them charge me more. As long as Apple keeps improving its software, a task made all the more easier by the commoditization (I am sorry, I could never spell that word correctly without a spell checker) of hardware, I will keep upgrading myself and adding to that company’s bottomline.

    In my view, we have just begun an extremely interesting phase where automation / computing spreads into an individual’s life. It is not entirely impossible that sometime in the next two decades, the ‘digital home’ that Bill Gates built for himself in 1990s will be sold as a commodity item.

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