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The Telocity ad on back of the phone-book sized CES exhibit guide piqued my interest. At the Consumer Electronics Show, that's usually a prime promo spot for a gadget that aspires to be the buzz of the week. So what was a DSL provider-with a booth in the far Siberian vectors of the Las Vegas convention center-trying to accomplish?
This was more than bragging about Telocity Inc.'s intended merger into Hughes Electronics Corp. As it turns out, the Telocity ad-just like the DSL Forum's promotional pavilion-was a proselytizing exercise. The DSL vendors want to acquaint retailers, hardware providers and the world at large with the opportunities in high-speed Internet access.
But-as with many demos at CES-there's the risk of raising expectations at a time when the market is floundering toward expansion. Plenty of products seek a place in the consumer and SoHo (small office/home office) market, but the integration of hardware and services is still very fuzzy. The overload of options will take some time-a double-edged situation. Early movers could sway the market in their favor, but alternatively potential partners might just sit it out until a successful solution emerges.
At the very least there's still a vast chasm in the relationship between broadband service providers and retail dealers-a gap that has barely been explored. Telocity's CES presence focused on its video-on-demand trial, unified messaging and home networking capabilities, but the underlying (and unanswered) issue concerns the way that retailers tie into these services.
Based on their profitable years of collecting a bounty from cell phone and PCS sales, dealers are becoming addicted to the annuity triggered by blending a hardware sale with a residual revenue stream. Digital broadcasting satellite sales furthered their craving for ongoing income and assured subsidies for equipment sales.
It's one of the ways that digital business is done, and it's a hard habit for retailers to break.
So far Internet service providers have tiptoed around reseller pacts, although America Online is tied into Circuit City and Microsoft Network has a Radio Shack alliance (including DSL); @Home and Road Runner also have tested retail relationships. Nonetheless, there is no strong precedent for how this collaboration is supposed to work. Indeed, it's probably not necessary at this stage, when early adopters are willing to go to a bit of extra effort to get hardware and connectivity into place.
But as DSL and cable modems-plus the looming wireless broadband offerings-expand in the market, these reseller relationships will grow in significance. One of the featured goals of the DSL Forum was the self-provisioning capability, suggesting that the day of true plug-and-play is nearing. When it comes, the retail bundle of hardware and service will become critical.
Amidst the great gadget glut of CES, however, it's easy to overlook the barriers that will arise as high-speed access proliferates. Nonetheless, the avalanche of Internet appliances-with their array of access options-underscores the retail-carrier crisis ahead. Then there's the matter of integrated "convergence" devices. For example, Zenith and Panasonic are the first two companies to announce plans to put a TeleCruz chip into their sets for Web access directly through the TV set (i.e. no outboard set-top box). The chip is a Trojan horse of TeleCruz's companion company, Transcast, which will offer ad-supported Web access through the chip. In essence, this sets up a walled-garden for a preferred roster of sites that can be transmitted over-the-air or via cable and stored locally; the TeleCruz/Transcast arrangement does allow full access to the Web.
Another convergence TV set, the EspriTV Internet Television, is going the dial-up route. The start-up company is negotiating its fist "preferred ISP" connection and it doesn't appear to include high-speed access in the first iteration. There will be a fee, and EspriTV might duck the retail split by selling its sets through infomercials or other non-store channels in the early rounds.
Meanwhile, CES provided the first glimpse several set-top boxes allegedly aimed for retail distribution. Hidden in a distant tent (or "temporary structures," as CES organizers insisted on calling big tents) was the Nokia media terminal, a Linux-based "infotainment centre" (as the European-based brochure explains). Like many other set-tops previewed during CES, the Nokia box has a hard disk drive (at lest 20 gigabytes in this case), making it ready to handle Personal Video Recorder capabilities plus software for content protection and parental controls. In other words, this all-purpose box is ready for interactive TV and Internet access-and it doesn't even have to be DOCSIS-compliant because customers could hook it up through its Ethernet connector.
Nokia offered no price or retail strategy for the media terminal, but the company clearly would like to peddle this new breed of device via the extensive retail presence it has set up to become a major mobile phone vendor. Without carrier alliances, however, and in the uncertain digital environment, the retail viability of such a box is anyone's guess.
Motorola's Streamaster 5000, the latest version of the company's broadband multimedia box was a reminder that the interactive market is deploying earlier and faster outside the United States. There was a domestic spin to Motorola's pitch: the box will be used in the video-on-demand test soon to roll out from Enron Broadband Services and Blockbuster. But the box is also being used in Australia and Atlantic Canada, although both those ventures also seem to involve carrier deployment of the devices. In other words, they'll avoid the retail gauntlet-at least for now.
But that retail challenge lingers. The Internet access device market transcends the Federal Communications Commission's mandate for retail sales of cable set-top boxes, albeit future boxes will inevitably carry video and data.
Broadband's retail future is inevitable. The confrontations raised during CES underscore that the broadband and retail sectors have a lot of relationship-building to do.
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