Saturday, October 8, 2011

The Impact of Microsoft and Apple on Digital Media

Rated as the top most valuable global brands, both Apple and Microsoft have greatly influenced the world as it is today and reaped the benefits of network effects. Although it seems Apple TV may not pose a serious threat yet, both Apple TV and the second entrant, Google TV, can quickly become major competitors of the traditional media companies. Apple seems to continue its business strategy, of “providing products with superior ease-of-use, seamless integration, and innovative industrial design,” through Apple TV. This strategy of a one-stop shop is evident in not only Apple TV but also Google TV. Furthermore, Microsoft’s strategy of “writing the software with partners building the software” has been adopted by Google with Google TV. But are Google’s hardware partners, such as Sony or Logitech, disappointed by the less than anticipated sales of Google TV because Google moved too quickly without properly building the ecosystem[e1] ? Or will both Google TV and Apple TV be faced with a bigger challenge (of accessing content), as digital media content producers have seen the music industry suffer from the razor-and-blades model created by Apple with the iPod?

In addition to the channel and hardware layers, the content layer still remains very important. But how much value will continue to be generated and kept here? For example, with streaming from companies such as ABC, NBC or CBS, there is less of a need to purchase content from iTunes. And despite Netflix having a superior high-speed connection, the older content may not be preferred to the latest content available online from ABC, NBC or CBS. With Google TV entering, with the Microsoft strategy, allowing for various devices, experiences, operations, and even content, more of the value can be stripped from the content layer, where ad revenues make up a significant portion of total revenues.

It will be interesting to see how Microsoft’s “3 screens and a cloud” concept plays out: mobile, computing, and… the Xbox? Microsoft intentionally decided to go with an untraditional strategy of building its own Xbox, mainly due it being a niche device, unlike with other large volume devices, such as phones. As Microsoft CEO, Steve Ballmer, said not to expect a Microsoft branded phone[e2] because “we don’t want to cross the chasm in the short run and lose the war in the long run and that’s why we think the software play is the right play for us for high volume, even though some of the guys in the market today with vertically oriented solutions may do just fine.” So despite the increasing capabilities of the Xbox, will Microsoft choose not to open it as a one-stop shop digital media device? And will Balmer’s leader influence the strategies of digital media players, by encouraging them to stay within their niche markets or areas of expertise?

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