Seven Years Later…
It appears my supposition from 2006 will prove to be correct. There are was article in Forbes recently about Intel’s set top box (STB) initiative. I will save you from reading the article by quoting the key paragraph:
“This set-top box, said by industry insiders to be available to a limited beta of customers in March, will offer cable channels delivered “over the top” to televisions anywhere there is an Internet connection regardless of provider. (Microsoft Mediaroom, for example, requires AT&T’s service, and Xbox has limited offerings for Comcast and FiOS customers). For the first time, consumers will be able to subscribe to content per channel, unlike bundled cable services, and you may also be able to subscribe per show as well. Intel’s set-top box will also have access to Intel’s already existing app marketplace for apps, casual games, and video on demand. Leveraging the speed of current broadband, and the vast shared resources of the cloud, Intel plans to give customers the ability to use “Cloud DVR”, a feature intended to allow users to watch any past TV show at any time, without the need to record it ahead of time, pause live tv, and rewind shows in progress.”
If we assume this is true, the success or failure is going to be predicted on the pricing. As someone who spent a few years in the nascent VOD (video on demand) market in twenty-naughts, I know enough about triple play and quad plays and which content is more valuable. It is all about the price of the content and I wrote about this before here. Prior to that post, I wrote the following in 2006 if you do not want to read the post from May 2011.
“The emergence of the pull economic model is driven from the desire to leverage the internet to manage growing uncertainty in the chain of commerce. The conceptual objectives of the pull economic model is focused on exploiting uncertainty by enabling collaboration between the participants involved in an economic transaction to complete the transaction immediately. The resulting structure of increased controls placed upon companies executing push models has been to constrain resources, dictate process, lengthen decision making, and delay economic transactions. In the push model, the demands of the end-user is analyzed and anticipated by a central decision making process who by definition is at the furthest point of immediate knowledge from the end-user conducting the economic transaction. This is the process by which old regimes are formed from revolutionary companies. Old regimes are formed when they lose control and knowledge of market share.
Pull economic models place the initiative to complete the economic transaction within the dictates of the end-user through collaboration. By rapidly and collaboratively placing the power to complete a transaction at the point in the market wherein transactions occur, it obsolesces the need to anticipate demand by central planning. Braudel observed that long distance trade produced enormous profits because the chain of commerce supported a long chain of commerce in terms of time and density in the number of people required to deliver the goods to the end-user. Long-distance trade provides an interesting base for contrasting the evolution from a push to a pull economic model. “Long distance trade certainly made super profits: it was after all based on the price difference between two markets very far apart, with supply and demand in complete ignorance of each other and brought into contact only by the activities of middleman. There could only have been a competitive market if there had been plenty of separate and independent middlemen. If, in the fullness of time competition did appear, if super-profits vanished from one line, it was always possible to find them again on another route with different commodities.” [see Braudel, The Wheels of Commerce, page 405]. Braudel’s observation that super profits between supply and demand occurring over a great distance was the product of information ignorance, implies that the internet and emerging pull model will couple geographic markets and thus shorten the information gap. Supply and demand will be closely linked and large variations of price will be limited as global consumers will have relevant, if not near real time, market data.
How will this affect the creation and destruction of markets on a global basis? Again we look to an observation made by Braudel. “One’s impression then (since in view of paucity of evidence, impressions are all we have) is that there were always sectors in economic life where high profits could be made but that these sectors varied. Every time one of these shifts occurred, under the pressure of economic developments, capital was quick to seek them out, to move into the new sector and prosper. Note as a rule it had not precipitated such shifts, This differential geography of profit is key to short-term fluctuations of capitalism, as it veered between the Levant, America, the East Indes, China the slave trade, etc., or between trade, banking, industry or land.” [see Braudel, The Wheels of Commerce, page 432]. The shifting and variation of profitable economic sectors is the essence of globalization. Instead of the shifts occurring over time, they will occur rapidly in a pull economic model. The shifts will not be in ignorance of the market – but rather they will define the market. The companies building businesses for the emerging pull economic model must have infrastructure, real time market data, and the capability to shift their business with the rapidity of the sectorial economic shifts.
Pull economic models are intended to accelerate the pace of transactions by matching the participants to a closely defined set of transaction criteria. For service providers, this is an evolution from packaged service plans to on-demand service plans. An example of this evolution can be prophesied for both cable and wireline service providers who are feverishly competing to enter each other’s core markets. Cable providers offer to their customers a flat rate package of selected channels. The more money the end-user wishes to spend, the more television programming they are offered. The premium channels are offered as part of the high-end package. This is a push economic model of service pricing by a cable company. They determine the market barring price for basic service packages and then build higher priced packages that include premium content. This model works well in a market structure in which demand can be planned for and there is no competition or competition is minimized through market share control. The evolution to a pull economic model will affect the ability of a cable provider to rely upon programming packages. How many channels do the end-users really watch of the 200 channels available? This is where a pull model affects the market structure. End-users will access the specific channels and content they desire, when the want it, to view the content or they will download the content and store it locally for future viewing. End-users will not pay for 200 channels, of which 35 they watch occasionally.” – Six Years that Shook the World, July 2006 Page 334-335
* It is all about the network stupid, because it is all about compute. *
** Comments are always welcome in the comments section or in private. **