CES 2007: Digital Ecosystem Needed To Drive PC-CE Convergence

Some believe standards and products will negate the need for a channel in the consumer realm. But the creation of a digital ecosystem -- a chain of consumer device and PC manufacturers, software companies, peripherals vendors, online service providers, content producers and service integrators -- is critical for the industry to flourish, they said.

"No product can be a stand-alone island. All devices have to be connected, not only to each other but they also must fit into the digital ecosystem," said Tim Bajarin, president of research firm Creative Strategies, who led the CES panel, held Monday. "This is the biggest trend, the need to have software, services and hardware fit together in solutions."

Bajarin, who discussed the connectivity crisis with top executives from Intel, Hewlett-Packard, Zoran and NXP Semiconductor at the panel discussion, agreed that the lack of standards is one problem. He said consumer electronics, like PC products, must come with built-in IP addresses as well as links to online service providers and content providers to participate in the digital era. And while there are business issues that must be solved, "understanding the digital ecosystem is critical for the success of consumer electronics," Bajarin noted.

Many vendors demonstrated new products at CES this week that will ease the integration between CE devices and PCs, yet solidifying an ecosystem is equally important, the panelists said.

It's not clear the extent to which digital integrators will participate in this ecosystem -- if at all. Intel and Advanced Micro Devices have aggressively pursued system builders and integrators to back their respective Viiv and Live! digital media platforms, but Microsoft -- which in the last two years attempted to work with integrators -- has fallen off the map.

"I don't know what's happened. It's very quiet," said one digital integrator at CES, who asked not to be named. "They want Best Buy to do it."

Gordon van Zuiden, president of cyberManor, a digital integrator in Los Gatos, Calif., likens the digital integration market today to that of a business VAR in the 1980s: in its infancy, but poised for explosive growth. He should know: Van Zuiden has built a $40 million business called PC Edge that caters to the enterprise market.

Intel, for its part, claims that it started pushing vendors to solve the product and business integration issues at last year's CES. And though the issues are far from resolved, the company is pleased that manufacturers on both sides of the aisle -- and online services firms and content providers -- have stepped up to the plate.

Steve Dallman, general manager of Intel's reseller organization, said the chip giant predicted the marriage of the PC and TV at CES last year but noted that he's surprised at the fast pace that this trend has taken. "It has happened in spades, especially over the last few months and weeks. Media is coming down from AOL.com, MSNBC and others. Consumers can take online programs and watch them over again," Dallman said. "The vision that the PC can be the best entertainment vehicle in the home is coming to fruition."

At CES, representatives from CBS, Disney, Fox and Hollywood flew in to discuss deals with online service providers and announce pacts with IT companies, including Microsoft and Intel.

Jeff Kussard, vice president of strategic development at Russound, which makes home media and audio systems for digital integrators, said it's still early in the game for the channel. But the development of an ecosystem is critical.

"There has to be a commitment to partnering among all vendors, because the integrator has to be educated and the technology providers have to be willing to participate in the educational and marketing process to support it and partner with companies like ours that serve the integrators of the tech world," Kussard said. One reason why problems persist is a lack of standards. Confusion over which wireless standard or high-definition DVD format will prevail -- HD DVD or Blu-ray, for example -- is stalling consumer adoption in the same way that the standards wars in the PC industry thwarted the growth of products in the 1990s.

Some believe the integration headaches will be resolved by CE manufacturers. But Kussard said vendors are wrong if they think standards and product improvements will negate the need for a services channel. "No, it's not the case," he said. "Look at what's going on in home networking with the Geek Squad [from Best Buy]."

The problem is simple, but the solution is extremely complicated, according to panelist Frans van Houten, CEO of NXP Semiconductor, formerly Phillips Semiconductor. He said consumers want one integrated solution for their home entertainment needs, not a mishmash of incompatible products from various vendors. But creating such a solution won't be easy.

"It is possible to create the right products," Houten said. "Hardware alone is useless. People need compelling solutions that have the right content and are affordably priced, reliable, easy to set up and operated simply. And the content must be interoperable so products can be exchanged without hassle. It's all about the value proposition to the user."

The integration problem will likely be solved by manufacturers, yet some political and business issues -- ranging from digital rights protection to corporate clashes -- are also creating a big disconnect, said Eric Bergan, an executive at El Dorado Ventures, a venture capital firm in Mountain View, Calif., while he rode the monorail en route to a CES 2007 hall.

In addition, cultural issues have thwarted the formation of a digital ecosystem and growth for the PC and CE industries, said panelist Satjiv Cahil, a senior vice president at HP.

"We are experiencing the emerging of the coming age of the digital entertainment industry, and the computing industry as we knew it is no longer the same," Cahil said. "The [PC] ecosystem as we knew it, with application vendors and display manufacturers, was the world. We had little to do with consumer electronics companies."