Google Loses its (STB) Network Edge

Gosh, somebody other than Cisco is doing M&A; that’s news in itself!  What may be even more interesting is that Google is selling off its Motorola Home business to Arris.  That creates a new competitor for Cisco, of course, but it may also speak volumes about how IP TV is going to evolve.

All the research I’ve done, and that which I’ve been able to glean from sources like Nielson, show that viewers who watch channelized TV (which despite the hype number in the great majority) would prefer to have IP video integrated with their TV delivery.  They want minimal technical fiddling to switch to viewing streamed video and they’d like to see channel guides integrated, with “personal virtual channels” that would contain offerings drawn from online programming.  The critical step of creating a unified platform would be most easily accomplished in the STB.

If an STB could “know” about online video in the same way that Roku, for example, does, then it could simply make streaming a “channel”, and it could probably also (with the help of cloud intelligence) make up a composite channel guide and virtual channels.  This would seem to be a great strategy for Google to follow, getting them to a position where they’d be able to drive streaming video, but clearly it isn’t. Why not?

First off, people don’t buy their own STBs.  They get them from network operators who are normally both their source of the Internet (unprofitable for the operator) and channelized TV (profitable).  So how interested are these operators in bridging the consumer to a new consumption model or offering features that let OTTs complete with operator VoD or PPV?

Second, the model of streaming supplementing channelized video isn’t nearly as attractive to Google or other OTTs as the notion (however unrealistic) that channelized video could be DISPLACED by streaming.  Does Google want to hold Comcast’s or Verizon’s hat forever?  Google TV, and Google’s FTTH venture, are aimed more at validating an IP-OTT model.  Motorola Home is a distraction.

Arris is likely to take the business in much the same direction Cisco has with Scientific Atlanta, and that offers a reason for Cisco’s interest in selling Linksys.  If you want to be a player in the STB space you have to stop thinking about the consumer and start thinking about the CUSTOMER, who happens to be the network operator.  So Arris will focus on cable infrastructure as an end-to-end ecosystem, as Cisco has.  That raises interesting questions down the line; can they hope to compete with Cisco without offering more transport gear than they do now?  And did Google make a bad choice by selling Motorola’s STB business or by buying Motorola?

Actually they apparently made a bad choice period.  I never believed that the Motorola deal was about Google getting patents, and now it seems maybe it wasn’t because Arris gets a license.  Was it about building handsets and tablets?  Not so far.  Underneath it all, Google is groping for a vision of the future just like Cisco is, just like HP is, and just like Apple is.  Buying companies is an expensive way to test the market’s waters.  Sitting on your duff is an expensive way to judge the pace of market change too—you’re too late if you get rolled over.  I think we’ve underestimated just how convulsive a period of market change we’re entering.  I think vendors have been particularly egregious in their misjudgments.  I think they’re starting to pay the price, and they’ll continue to do so through 2013.

Speaking of 2013, our Netwatcher Annual Technology Forecast issue will be released this weekend, and as usual this will have our forecasts for next year, a look at the world beyond next year, and survey results outlining what we found from business buyers of technology and services providers.  The winds of change can be seen in the surveys, and so they’re accommodated in the forecasts.  We may have a wild ride next year.

We will not be publishing on Monday December 24th, so I want to wish all my readers and clients the very best for this Holiday Season.  I’ll resume blogging on the 26th.

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