Our broadband future

During the Internet boom, all eyes were on the United States as we were the first to leverage this new medium and create some amazing companies and uses of the Internet from ecommerce to search to online dating. Many of these companies did not know how they were going to make money except that they would figure it out. Over time the business models evolved, some became profitable and some simply went away. Entrepreneurs in Europe and Asia were able to learn from our successes and failures to launch their own modified clones of many US web companies. Today, the tables have turned. When I think about our broadband and wireless future, we in the US can look overseas for models that work and fail. Europe and Asia are clearly ahead of us in terms of deploying 3G and real broadband pipes to the home. As I think about how wireless and broadband will change how we live and the applications that will drive thoses changes, I would be foolish not to dive deeply into how it has impacted countries like Korea, for example. Peter Lewis of Fortune has a great article (unfortunately password required) in this past week’s edition outlining the impact that wireless and broadband has had on the country. A quote in Peter’s article from Hung Song can really open your eyes to the possibilities of broadband.

Hung Song, vice president of business development at Samsung, takes his broadband with him wherever he goes. On the drive home from work at 9 or 10 p.m., says Song, a tall, thin in-line-skating enthusiast, he uses the phone to check traffic. Because phone carriers can track the location of his third-generation (3G) phone to within a few meters, he has access to a location-based service that monitors real-time road reports and displays alternative routes around traffic jams. (The system also lets him call up a map showing the location of his children, who carry location-based mobile phones too.) If Song gets stuck in traffic anyway, he can always use the handset to watch television news, or go over his next day’s appointments, or download music (Koreans spend more on downloaded music than they do on audio CDs). More likely, though, he’ll do his banking or log on to his computer at the office to check e-mail. As Song drives his Renault Samsung sedan across the Yeongdong bridge, over the broad Hangang River that bisects Seoul, his phone buzzes as nearby restaurants automatically send text messages offering discounts to tempt him to dinner. Some restaurants even let him pay his tab by beaming a code from his handset to a scanner and punching in a PIN number.

“My life has changed” because of broadband, says Song, especially because of his mobile handset. “It’s essential to my daily business and my personal life. Even in the office I have instant access to almost any information or service without having to sit at my desk. I don’t have a checkbook anymore because I don’t need one. I can pay bills with my mobile phone.”

While there are cultural differences between the US and Korea and Europe, it is still helpful to look at the new pioneers of the digital revolution for ideas that will work here.

A personal server for everyone (continued)

Jeff Jarvis has an updated post on a “place for my stuff” furthering the “stuff as a service” paradigm. On my thought about having a personal server in the home, Jeff goes on to say:

I still don’t agree because: (1) Consumers won’t understand why they should make a capital investment and it will be a hard sell — witness the trouble TiVo has had getting going. (2) Consumers hate installing anything. (3) A service is more efficient — it can offer you a terrabyte of storage but no one will use it all. (4) A service can constantly update itself with new software. (5) If the storage sits in the cloud, you can play your stuff on any device in the home — or anywhere else — without having to network anything; if you store your stuff on a home-based server in the den, it’s not going to be easy to get to yourself from the bedroom TV. (6) It’s possible — possible — that an in-the-cloud service can deal better with copyright issues. That is, you can store a legal copy of (or link to) a show or song among your stuff in the cloud and play it anytime anywhere and copy it onto limited devices (a la iPod) but not endlessly duplicate and distribute it.

Jeff makes a number of good points advocating the service over the personal server. I have no doubt that today the service is a better opportunity, and that there are a number of constraints such as what Jeff outlines above. However, in response to his points I believe that technology will continue to change rapidly, prices will continue to drive down, and ease of use will constantly improve (plug and play all-in-one devices will become a reality in a couple of years-just look at the growth of wifi in the home as an example of how fast a new technology can spread). As for the practicality of an in-home all-in-one device, having an IP address for your personal server would allow you to get it from anywhere including your bedroom TV (no different from getting it from the Internet, especially if your home network has a faster connection). So it is not an either or proposition-the personal server idea will take time but it will happen in the next couple of years and be yet another viable option for the consumer. As for what opportunity is bigger, sure the service side will be, but that does not mean a service and personal server are mutually exclusive business models. Why couldn’t Comcast give away Mirra personal servers, charge consumers a monthly fee, and have a cloud-based backup in addition to the backup on the home personal server. In my mind, that is probably how this will all evolve.

UPDATE: The personal server space is heating up in real time. Along those lines, Linksys today announced a deal with Maxtor to launch a wireless hard drive for easy network sharing with features similar to the Mirra personal server. While Mirra is a nice product, it will be hard to compete with the Linksys brand and distribution channel.

A personal server for everyone

Jeff Jarvis writes about having a place for all of his digital stuff. He goes on to say:

: I want a place on the Internet where I can store all my stuff so I can get to it from anywhere on any device to consume, modify, store, or share. This stuff could be anything — my movies, music, to-do lists, shopping lists (for the family to update), contacts, documents, search history, bookmarks, photos, preferences, voicemail, anything, everything. And it should come with the functionality necessary to execute all those verbs I listed (e.g., a nice little list-making ap).

I want the ultimate — in the words of George Carlin — place for my stuff.

Count on this: It will be a big consumer business. I said below, in the middle of another post, that this could come from phone or cable companies, from Google or Microsoft or Yahoo, or from a new company (VCs: pay attention!). A server for everyone and everyone on a server.

I totally agree with Jeff about having a place to store all of my stuff, but I am not sure if I want it all stored on the Internet. Rather I want it stored at home on my personal server but accessible through the Internet 24×7. As you know there is a battle that has begun over the ownership of the home networking market. Lots of companies are jockeying for position to be the digital entertainment hub for the home. Will the hub or personal server be the PC, your Tivo or cable box, or some other consumer electronic device? As more and more of my precious data is in digital format, I have become incredibly paranoid about backup and recovery. Currently I am using a Maxtor 250gb One Touch device to back up all of my files. This is nice, but wouldn’t it be great if I could put an IP address on it and layer some other applications to share this data with others? Why do I need it hosted at Yahoo or some other web-based service when I can easily plug in a device and have my stuff accessible at 54mb over my home network and remotely over the web? I used to believe that the hosted model was the way to go for the backup market, but increasingly I am of the belief that everyone will have their own personal server at home and through a broadband connection be able to access and share their files with anyone in their trusted network. This takes care of privacy and security issues for me while also allowing me to have my stuff accessible from anywhere. Take a look at Mirra which offers a plug and play personal server that backs up all of your files and then allows you to share them or remotely access them through a browser. The Mirra can’t do it all but is certainly a giant step in the right direction. The consumer electronics space is a tough VC investment (see an earlier post) but the Mirra is a pretty cool device.

CES-Show me the money!

There has been lots of buzz at CES this past week. Trust me, I am a huge fan of all of the new consumer gadgets that are coming out in the market this year. I still, however, ask the question, “where is the money for the tech industry.” From a profit perspective, should we be getting excited about selling commodity products in markets characterized by heavy competition? According to Barron’s, Rick Sherlund from Goldman Sachs issued a report last week saying that “he doesn’t expect Microsoft to see any profit from consumer electronics over the next several years.” So if Microsoft, known for its high gross margins from software, cannot even generate a profit how are other technology companies selling Plasma TVs and other consumer electronics going to make money? Yes, I know I may be oversimplifying, but the point I want to make is that revenue does not equal profit, especially when many of the new growth areas that technology companies are pursuing have single digit margins as a starting point. In the same Barron’s article, Pip Coburn goes on to say, “There’s tremendous hype. The IT companies, with no growth in their current market, are pretending there’s a digital consumer revolution. But it’s very early, and a small part of the whole pie.” In my opinion, there is a digital consumer revolution-just look at the falling prices of plasma tvs and wireless networking gear to figure out who the beneficiaries are.

One further thought to add is that Intel Capital announced it was setting aside $200mm for funding new digital home companies. I certainly applaud Intel for its efforts and am a big believer in the digital home. From a strategic investor perspective this makes a ton of sense-more Intel chips in the home. So no matter what Intel Capital invests in, it is hard to go wrong if at the end of the day more Intel chips are sold. The digital home already has and will continue to be an area where VCs invest. That being said, we must go in with our eyes wide open as it is extremely difficult to make money selling consumer-oriented products. Sure, there will be lots of great innovation from new startup companies in home networking, but it will be difficult for these companies to truly scale as they will be entering markets traditionally dominated by large, global companies with established brands, channels, and cost advantages. Tivo is a great example-it is a great product with cult-like customer appreciation, yet it is still not profitable after raising about $200mm from its first round of capital in late 1997 to its IPO in late 1999.