Thinking about cord-cutting and over-the-top video like Netflix Case study #1. Megatrends: migration from wired to mobile unwired; broadcast & circuit switched to packet-switched Internet.

Verizon cut a blockbuster deal with Time Warner Cable and Comcast, essentially sacrificing the declining fixed-line residential business to try to gain a big edge in mobile.

  • Verizon bought out the spectrum the cable companies had warehoused to compete in wireless.
  • The cable companies agreed to resell Verizon Wireless as part of quadruple play TV, Internet, phone and cellular deals.
  • Verizon unceremoniously dumped its partnerships with DirecTV, which it used to compete with cable quadruple plays in areas where it didn’t have a TV offering.
  • Verizon stated they will not ramp up FiOS beyond its 18m-customer current buildout

Why did they strike a truce?

  • Verizon loses the massive capital drain of FiOS rollout
  • The high cost of the rollout, coupled with commoditization of Internet connectivity, increasing competition from over-the-top-services like Netflix may mean cable TV will not be as attractive as it was.
  • Verizon may gain a significant advantage in mobile network footprint. Their biggest competitor, AT&T, has a slightly older technology (3.5G GSM), a perceived network disadvantage with coverage/speed/dropped calls, and was just dealt a stinging defeat in the T-Mobile bid. T-Mobile and Sprint look increasingly like also-rans.

If it goes as planned, Verizon could be in an emerging duopoly with AT&T in mobile, with a network edge in footprint, bandwidth, and LTE 4G technology, and a distribution edge through the cable tie-up.

Case study #2. Megatrends: PC and client/server migration to tablet/mobile device/cloud.

In the future, we are going to do everything on mobile devices like tablets: communicate, read books, listen to music, watch movies, run productivity apps.

Who do you like in this world?

  • Apple is killing it. Apple’s edge is complex technology that is not just easy to use, but delights the wealthy, hip, tech-savvy, and those who aspire to be. But their control, and ability to extract all the profits, leads to no small degree of fear and loathing from carriers and business partners. Their moat is the brand connection with consumers, seeming ability to constantly raise the bar, significant technological lock-in through the App Store and network effects.
  • Google’s DNA is to digitize the world’s information, get a vig for access to information and consumers. They could ill afford to stand by and let Apple lock up the platform and charge Google a tax on every search. Android is catching up to Apple’s iOS. A Samsung Galaxy 2 is, for the first time, ahead in some areas (size/weight/screen, geeky features) and behind in others (Siri voice recognition, tablet form factor, number of apps, overall slickness and emotional connection, carrier crippleware). Google is activating more devices than Apple, especially in emerging markets. Google’s moat is the incredible amount of information they have, particularly about their users; incredible infrastructure; relationships with the advertising community.
  • Amazon’s DNA is the retail SaaS platform. They are trying to extend it into a media platform, with a big success in ebooks, more limited success in music and video. (Also stunning success in the cloud IaaS, PaaS space.) The Kindle Fire is, so far, looking like a defensive play to prevent Apple’s dominance (and margins) getting out of hand, and allowing them to seize the ebook space. The initial Fire doesn’t seem up to the task of a successful broad-front offensive in tablets and phones. Amazon is a dark horse, currently playing in a narrow-moat, low-margin ghetto, and trying to leverage ebooks, infrastructure, and consumer relationships to jump to the big time.

So you have a battle for the post-desktop (the lap?). Three different strategies, and three different business models. Apple makes money the old-fashioned way, by selling high-margin hardware, with an assist from media and software through iTunes. Google gives an incredible mobile/cloud platform to hardware manufacturers for free and sells access to the users. Amazon wants to own media distribution and retail on the device. They are basically a software as a service platform for retail and media distribution (and any online business through the cloud platform).

It’s far easier to see a 20-something without a landline and cable TV and PC, than without a mobile device. YouTube and Netflix are available over Internet, live sports are the only exclusive broadcast offering, and Internet sports packages seem like a foregone conclusion (e.g. Apple’s rumored-but-denied bid for Premier League).

  • Google and Apple: well positioned.
  • Amazon, Facebook: dark horses, not necessarily cheap.
  • Microsoft _ profitable has-been. No company that dominated one computing paradigm has been able to dominate the next one.
  • Intel: chips power the cloud servers, but lost the mobile client to ARM, which is a year or two away from possibly disrupting servers.
  • Cisco: interesting value, possibly lumped in with large-cap declining franchises. Yet mobile/cloud still needs network infrastructure and they have catalysts like VoIP, video, IPv6, etc.
  • Do not like: second-tier cable content networks that aren’t going to have success in view-on-demand and depend on cable per-subscriber fees.

It will be interesting to see what Apple has up its sleeve with iTV, and if one of these platform companies makes a strong play for Netflix, which seems wedged between strong upstream content providers and downstream cable networks, that both wish it would die.

Tech winds of change shift. Unfurl the sails, and try ride them to blue ocean, uncontested market space.