Darren Herman

It’s a fairly bold statement to make.  I am coming to the realization that any device that has a screen and can display digital media (content) should either be subsidized or given away free.

Razors and blades.  P&G and other razor companies basically give away the razors because they make their money on interchangeable blades.  They know that they will sell X times as many blades as they will sell razors, but no one will buy blades without razors.  So, with that said, drop the price and get them out into the market.

Video Game Systems.  Interesting area.  Game systems themselves are worthless (PS3 plays BluRay, Xbox plays DVD) without their games.  Your digital entertainment center can exist without game systems because you can buy BluRay and DVD seperately.  Game systems start to derive complimentary value when you have content for them such as games.  Without Madden, Halo, GTA, Forza, or whatever your game of choice is, the system itself is pretty much worthless.

Televisions.  My latest Samsung television is black and sleek, but it won’t replace my Eyvind Earle/Keith Haring on my walls.   I walk by the television everyday when getting ready for work and notice that it’s thin (LCD) and large (52″) but unless it’s on, there’s no real value to it.  When I turn the television on and put on SportsCenter or The Wire, I derive a lot of value from it.  Without great shows, the television is worthless.  I don’t know many people who would hang a television on their walls without any content for it.  Do you?

Mobile.  Would you carry around a device that was roughly the size of a deck of cards that really had no usecase other than looking sleek?  Probably not.  Without great applications, the mobile device would be worthless.  Look at RIM/Blackberry - the software is what makes it powerful.  Apple’s iPhone - the simple software rocks.  Sony PSP/Nintendo DS - the games/software is why you buy it.

Hardware companies should keep this all in mind and get their units out into the marketplace, gain significant hardware marketshare and then release powerful applications.  At CES 2008, it wasn’t just about the technologies, but it was about the content deals and partnerships that hardware manufacturers were announcing.  Comcast, NBC, and other major content networks announced hardware partnerships that should help them with monetization and distribution.

Look at the televisions that are becoming “digital.”  Widgets on your television screen.  The screens are worthless without these applications.  Worthless may be a strong word but they are of marginal value.

Is this a new equation that we should be looking at?

pV=dC+D+T+P

• pV= perceived value
• dC= desired content
• D= device
• T= time
• P= place

Remember, value is NOT a mass term.  Everyone assigns their own arbitrary value to a piece of content or unit.  With digital technologies, we can now serve relevant content to a particular person so content can now be ‘desired.’  Mass “prime time” viewership is declining and the desired prime-time is emerging.
We’re not too far off from hardware/content companies coexisting as one.  Not saying that this is the best business model, but it’s a model I’m sure we may see a lot of.  Sony has a video game system and a publishing unit (SOE).  Microsoft has a video game console and a game studio (Halo).

I’d rather sell ten games at $49.99 than one device at $250.  It doesn’t take an MBA to agree with this.