Old word, at least in the Valley. The meaning has shifted over time; we no longer say digital convergence: everything is digital now, precisely the reason why the convergence concept arose in the first place. Everything being reduced to zeroes and ones, to bits, all sorts of information, media, content (all much abused words) would now be stored, networked and rendered, played together. As a result of this uniform digitization, content would be ‘repurposed’ thus providing ‘business model extensions’. In a plainer English example, celluloid movie libraries are now be sold as DVD, on cable TV channels or iTunes downloads, Netflix rentals and streaming.
A not so casual note and a big tip of the hat: Netflix is a rare company: it started with a DVD rental by mail business model and managed the exceedingly rare feat of successfully ‘dematerializing’ its business model. You now have a choice of conventional mail delivery or watching rented movies ‘streamed’ directly to your PC, or to your TV using a networked Roku or Blu-Ray player. If you go to netflix.com and look for the company’s Board of Directors, you’ll see several happy VC from Technology Crossover Ventures, Foundation Capital and IVP. Blockbuster, an older, more traditional video rental competitor, hasn’t managed its aggiornamento so well and now sits with a market cap one tenth of Netflix’s. See here and here.
Netflix’s successful business model conversion aside, there isn’t much convergence here, unless you count watching rented movies on your laptop.
For us venture investors, business models, new, extended or repurposed mean investment opportunities – or craters. One of these is what we now call Loser Generated Content, for the more polite UGC, User Generated Content. Look, all the people want to share their production, let’s set up an Internet vanity press and ‘monetize’ their need to expose themselves. So, depending of one’s perspective, that’s how YouTube (and its less moneyed competitors), MySpace and Facebook (and there struggling imitators) were born. They all have ‘traffic’, with Facebook getting the best of MySpace for social networking and of Google for simplicity and quality of infrastructure. The latter phrase meaning the service works well even as the number of users, now more than 175 millions, keeps going up and up. So, yes, you can see all sorts of LGC on these sites, from music videos to essays, but no cash-flow positive business models. Google doesn’t need one for YouTube, MySpace is owned by Sir Rupert and Facebook, on its own, is growing so fast we all think they’ll find a way to pick advertisers’ pockets or, who knows, users’ once they’ve made themselves irreplaceable in our lives. We’ll see if that converges.
To be clear-er: I’m willing to bet on Facebook’s success. Yes, they try dirty moves from time to time, see the recent ruckus over new and improved ToS (Terms of Service) giving them a perpetual right to our data, even after we cancel our account. ‘Faceberg’ first tried a lame explanation, no takers; the company promptly backed off. But they’ll try and try and they’ll find a way to profitably pimp our data, our lives.
More intriguing, I think, is IP TV, television carried over IP (Internet Protocol) packets. Not to be confused with digital cable television. Manufacturers such as Sony, Sharp, LG and Samsung now offer TVs with a Net connection. I’m uncomfortable with that approach unless… But let’s look at the current implementations first: the poor TV is saddled with an embedded computer running a customized version of Linux providing Net connectivity and a browser. How do you fix bugs, update the software, fight viruses and worms? All these unpleasant questions are left with the vaguest of answers. It’s hard enough on a netbook with a keyboard, mouse and a well-known user interface.
There is more: today’s television might be digital, but it’s not real IP TV, not in the way HTML streams to our browsers are. An IP packet carries a lot of metadata, data about the data, on top of the ‘payload’. For example, an email packet carries information about the sender, the nodes involved, the client and server software and so on. Go to your email client and ask for the message headers for a taste.
Digital TV isn’t that sophisticated. Today, it’s just a dumb digitized data stream between the cable ‘headend’
and the ‘set-top box’ in our home. It kind of works, barely at times as cable (and satellite) operators cut corners and compress data often making a joke of ‘full’ HD.
But this will change.
Connect a PC to your TV, say a Mac Mini as it does a nice job of automagically detecting the HD TV it’s connected to and run Firefox: you know you’re watching the Net, not TV. Cookies remember where you’ve been, you have a browsing history. Now, do two things: go to YouTube and look for HD content such as this and then set your browser to full screen. For a moment, you won’t know you’re watching the Net on your TV. With a big difference: Google knows what you’re watching, who you are and what you’ve been watching before – if you let them. You see the next steps: show more relevant ads, offer recommendations (the latest fashion, in two meanings of the phrase), provide services such as replay, bookmarks for that jump shot, ‘sharing’ through Friend Connect, getting tickets when the team comes to town. As the slogan says, truthfully this time, the possibilities are endless.
This is the kind of convergence we have in mind, a convergence where assets ‘lying around’, such as tickets to basketball games or T-shirts can now be monetized more efficiently.
Going back to the discomfort stated above, I’m still not crazy about a $1,500 HDTV made obsolete by a crappy embedded computer. Crappy? You should see how long my (admittedly cheap) Mitsubishi TV takes to boot. I’m still more comfortable with two separate devices, a TV and a Mac Mini or a Windows PC I can buy on eBay for less than $500, its obsolescence won’t make my more expensive HDTV obsolete.
But here is another way: picture Android and Google’s Chrome browser running on the TV’s embedded computer. I have a lot more trust in Google’s ability to remotely update client software (OS and browser) running on my TV than I have in Sharp’s or Samsung’s ability to do so. The latter are great companies but software isn’t their ‘thing’.
Now, a TV with a Google Inside label isn’t more horrible than a laptop carrying Microsoft and Intel stickers. But will competitors and privacy advocates let it happen?
We, the VC, wouldn’t mind as such a convergence platform would create opportunities for new business models mixing entertainment not generally watched on laptops with commerce, social networking and information services. Think of video chat on a large screen with your doctor, an Ikea technician to help you assemble furniture, or your mother-in-law… All without a computer. — JLG
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