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.
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January 16th, 2008 at 11:12 am
I think you’re about 80% spot on here about where the future of hardware and content is going. Nonetheless, I also think that public airways will continue to be important and public broadcast television (the spectrum, not the station) will remain — and should. The Internet will and should remain open as well, so our computers will mostly remain separated, from a cost perspective, from the content they serve, minus the Apple case.
I could be totally wrong here, but I do think that open mediums will persist and that with open mediums we’ll have hardware which costs near full value.
January 16th, 2008 at 12:02 pm
[...] Check out Darren Herman’s post pronouncing that “Screen Devices Should be Subsidized.” [...]
January 16th, 2008 at 12:14 pm
Great, Thought Provoking Post Darren! In the case of a BlackBerry or an Iphone, Who is creating the Buzz? Its RIMM and Apple, and not so much Verizon, AT&T and others. Or who is more important, the device ( Rimm ) Or the Provider, lets say Verizon, do we really care on the provider. On the TV Side, yes, like yourself, I find My tv very sleek and a nice complinmet to my living room, but its really nothing until i turn it on. Now, my choices on content can be Cable ( and in some areas, you have more than one choice ) Or Satellitte. But why did i buy the tv is the question? I bought it because I thought it had the best picture, and i fell in love with it. I actually think its the Cable Providers or Cell phone Co’s which should be Subsidizing their services. Take the Fure Google Phone, Will it be the Free Phone that would be most appealing or the Cheaper Services. I dont know the answer, but it can make a good debate on who should Subsidize their services.
As for the video gaming consoles, it absolutley makes sense for Sony, Nintendo and Microsoft to give away or at least heavily discount their systems… it really is nothing without the games, and they have the deals with the EaSports of the world ( so they are somewhat controlling the content a consumer can buy )
Sorry for the rant here… I really enjoyed your post here, and hope others do also
DH
January 16th, 2008 at 1:23 pm
[...] Screen Devices Should be Subsidized Razors and blades. Video games. Televisions. There are similarities. (tags: content media digital technology nextny nextnydigital device economics) [...]
January 16th, 2008 at 1:43 pm
It’s thought provoking, Darren, but let me voice a contrarian view. History has shown that garden walls come down over time. This is true of Prodigy, AOL (and the erosion of $125B of value in the process), Windows, IE, mobile device companies on-device portals, etc. The subsidy seemingly would make a case for walls going back on. The person who subsidizes gets to live in the garden. What do you make of that viewpoint? (Not specifically the one I hold, but the first one that conjured up in my mind).
January 16th, 2008 at 11:16 pm
Maybe, but maybe not. If they give away the decide, they’ll have to put restrictions in place to tie you to their content and services. My cell phone was subsidized, and now I’m stuck in a year’s contract, can’t install what I want on the phone, and pay high monthly fees. I’d rather just pay full price and have the freedom to use it the way I use my PC — as an owner, not a subscriber.
January 17th, 2008 at 8:53 am
David, Howard, and Nate - thanks for participating in the conversation. You all have brought up some extremely interesting points. The goal of my writing of this post was to spark conversation and so far, I’ve accomplished that (in my mind).
To answer some of your questions, lets start with Howard’s dead-on analysis of Walled Gardens. Prodigy/AOL/Windows/IE, mobile devices, etc all have been down that road and have lost. As Nate affirms, remaining ‘open’ is where everything is going.
I don’t disagree at all. I do think, however, that not all content is equal and neither are partners. Even with a fully open network, there are favored nations. I’m predicting a little consolidation of both hardware and content companies but even then, the hardware platforms may remain open (not put up those walls).