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Is The Digital Convergence Honeymoon Over?

The D&H Distributing's Mid-Atlantic Show last week was a hubbub of new digital technologies, but VARs expressed concern that the market may be slowing down. However one company may be able to save it - Apple.

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At D&H Distributing's Mid-Atlantic Show in Hershey, Pa., June 6, several solution providers and digital integrators noted that the sales of digital products haven't approached the massive hype applied to the digital market a couple of years ago when vendors from both markets clamored to get their products out as quickly as they could. Now some of those same vendors seem to be scaling back their convergence efforts. Most recently, Hewlett-Packard suspended production of its Digital Entertainment Center (DEC) line of Media Center PCs.


Slide Show: Divining The Digital Future
At The D&H Technology Show

CRN assembled seven channel executives at the show for a roundtable discussion to talk about the future of digital. The executives agreed the market hasn't lived up to expectations but said there's no single reason why convergence hasn't been more successful.

"I think the forecasts were wrong for it. The industry saw a tidal wave of expectations, but it's really more of a rising tide," said Ted Houser, general manager of Glick Audio and Video, a Lancaster, Pa., integrator. "The tidal wave of anticipation you're looking at is why you see vendors backing out."

Houser added that the services industry hasn't been able to keep up with the technology as well.

"The product is a commodity. The real solution is our skill. That's what has hindered growth. There's not a whole lot of skill and ability out there to sell these solutions," he said.

But all the executives were bullish on the digital future in the long term, including David Kaplan, executive director of Digital Delivery Group, a consortium of regional digital distributors.

"My experience is that things happen quickly in their own sweet time. It's just a matter of time," Kaplan said. "Maybe we're moving glacially, but we're moving from the attachment to the TV world to the network world. There was a time I said products don't converge, they diverge. But I have come to the conclusion that it is an absolute, an inevitability."

Mike Halasz, president of Northshore Technological, Erie, Pa., said the true success of digital convergence lies not in the hands of vendors or analysts, but in the integrators and dealers selling the solutions.

"It's us. We're the only ones that are going to make it stick. It takes a unique skill set to pull disparate products into something that works together for a customer's needs," Halasz said.

He then cited statements made last month by one vendor CEO that convergence is not going to happen.

"He said convergence is a violation of the laws of nature. It's entropy. Things want to move apart. What does that mean for us? HP just pulled DEC because it's not in their best interest. They're all going to act in their own best interests. There's not enough altruism."

But at least one panelist, Jon Layish, president of Red Barn Computers, Binghamton, N.Y., said he has found his services niche with a big help from a vendor in his local market. He's developed a relationship with Time Warner Cable to install home theatre PCs and Internet service into the homes of consumers.

"We've really been excited. We've got major support from Time Warner. They're giving us quite a bit of free advertising to push the concept," he said.

Several of the panelists said the one vendor likely to jumpstart the convergence revolution is Apple, and more specifically with its upcoming AppleTV box. "I give those folks at Apple credit. They are capturing the imagination of the market and elevating the whole concept. Apple TV has been done by Tivo, done by Media Center, but if Apple can do a better marketing job they will capture tremendous market share," said Mark Friedman, vice president of Custom Audio Video Distribution, South Plainfield, N.J., and president of Digital Delivery Group.

"Apple holds the future in its hands," agreed Lee Rambler, director of custom home, at WeeBee Audio, Lancaster, Pa. "AppleTV will be the biggest thing to do what Vista was supposed to do. People feel comfortable with it. It's trustworthy, and oh, it's also cheap. AppleTV for $400 with a 160 Gbyte hard drive? How can you sell anybody any other media server anymore?"

It appears that marketing and education of the solutions to end users also lies in the hands of solution providers, said Darryl Nicolas, owner of ColorBAT Computer Services, Millersville, Pa.

The solutions sell to wealthy individuals and more progressive businesses, but the untapped market is immense and vendors haven't been much help tying all the pieces together, he said.

"People don't have the knowledge to know its important yet. We sell to two to three percent of the population that understands it. The other 90-plus percent don't know how to tie strings, let alone run a convergence center in their home," Nicolas said.

Another dynamic forcing market resistance is the possibility that there may just be too many immature technologies trying to come together at once. It makes more sense, several panelists say, to tackle one technology at a time. For example, consumers aren't ready to tie their heating and air conditioning to a PC network that has failed in the past.

"The entire system is vulnerable, your lights, heating, audio/video, if it's all tied to a central brain," Houser said. "If anyone does any one of those things wrong, is it in [who's] support contract to get it back up and running?"

Added Layish, "There's a lot of fully-developed pieces of the puzzle. But when you talk convergence, that's things coming together—structured wiring, home audio, IP automation. Each entity has a lot of maturity, but I don't think it's all come together."

Even within the same product categories, the products need to mature, Friedman said.

"I don't think that product market will fully hit until we see that happen. We're missing cable cards, satellite cards [working in PC networks], robust enough 802.11 to take high-definition from room to room—wirelessly—and an affordable high-capacity hard drive," Kaplan said.

Content providers, the last to embrace the new technology, slowly are coming around but the movement is slow, the executives said. Layith noted that TV networks now tell you immediately after a show airs that you can watch it again on the network's Web site.

"Pretty soon they will drop this legacy method of delivering TV. Right now, everybody's bellies are so big they can't see their toes and it's hard to manage that transition," he said.

The element to get mass market appeal now lies on the content management side, Friedman said. "You can't minimize the ability to download any movie you want while sitting on a couch. You see people like Amazon, Apple, pushing that technology out. And we will be able to move around the house wirelessly in HD. That's what the goal is. Any manufacturer worth its salt is looking for his stuff to be CE perfect."

And when the content providers and hardware manufacturers get their acts together, the channel will be ready, they said.

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