Commentary: Who'll conquer the digital home?

by Ted Schadler, Vice President

Over the next three years, 10 industries will fight an epic battle to control the digital home.

At stake: billions of dollars deriving from six new power positions--personal entertainment, intelligent devices, core services, immersive experiences, collaborative experiences and application-device combinations.

Who will win? Cable, game, PC and software companies have the upper hand. Retailers, consumer electronics makers and satellite TV companies are behind. Expect the battle to spur alliances between the likes of NFL and News Corp., Hewlett-Packard and Kodak, Apple Computer and TiVo, Best Buy and BancTec, and Sony and Clear Channel.

Digital home technologies open the door to competition in television, communications, devices and Internet access. The result is that consumers' loyalty to traditional suppliers is withering. To re-establish loyalty in the digital home era, companies in every industry must build new cross-industry applications, which we call power positions. Forrester sees three key power positions emerging in the digital home:

1. Personal entertainment. Consumers will become loyal to video content tailored to their individual preferences--a profile-driven program guide, a custom video-on-demand (VOD) catalog, or viewer-selected camera angles on sporting events.

2. Intelligent devices. Intelligent devices act on the preferences that consumers dictate, whether on or off network. Consider the value of a set-top box that contains a searchable program guide or a phone that can switch automatically to the cheapest network available: cellular, Wi-Fi--or landline.

3. Core services. Services like home network installation and support, security management, and file backup and storage are required to keep the digital home humming. Consumers haven't yet figured out that they should pay for these services, but they will as soon as they lose a year's worth of photos to a hard disk crash.

Who'll win the battle for control?
There is no winner-take-all industry in the battle for the digital home. But some industries have a better chance at controlling the new power positions than others, based on their current skill set, product direction and competitive strengths. We break the combatants into three categories: leaders, challengers and long shots:

• Leaders: Cable, games, PC, software. Leader industries have the entrenched assets or native skills necessary to build and deliver intelligent devices or personalized entertainment. But these industries must improve their partnering skills and increase their consumer R&D to ward off competition and establish power positions.

• Challengers: Content, portal, telecommunications. Challenger industries have fewer skills or assets in place than leaders, but each still has a solid chance of gaining control over personalized entertainment or one of the other power positions. Telecom companies, in particular, have nothing to lose by partnering with Microsoft to gain a foothold in entertainment.

• Long shots: Consumer electronics, retail, satellite. These industries are farthest from gaining control over a power position. Consumer electronics makers must accelerate their product cycles and learn to build applications; retailers must establish an installation and service skill set; and satellite must build a back channel to handle custom TV delivery.

Strange bedfellows
No company by itself can control the content, networking and device assets needed to establish a power positions. Instead, companies must partner--usually with firms outside their industry--to build these applications. Over the next three years, we'll see acquisitions or strategic alliances like Google-TV Guide, Microsoft-SBC-BellSouth-Verizon, Sony-Clear Channel, Disney-Electronic Arts, and HP-Kodak.