Institute For The Future

The Economist on the digital home

One of the great things about working at the Institute is that it's essentially an institutionalized mechanism for the production of what I think of Malcolm Gladwell moments-- those events when you suddenly see that several things you've been pursuing separately actually fit together in an unexpected way.

 

I spent much of the morning working on illustrations for a forthcoming article about RFID, the smart home, and ubiquitous computing; this after working until an ungodly hour last night on my end of cyberspace article, on a section analyzing why the much-ballyhooed "death of the library" and "death of the office" at the hands of computers and the Internet never took place. After sending the illustrations to Jean, I checked in on The Economist, and found an article on the digital home that blew me away.

 

Detailed explication after the jump.

 

The article begins:

Whether or not computer, software, consumer-electronics, telecoms, cable and internet companies are in fact out of touch with consumers may be the biggest question facing these industries today. That is because the "digital home", a concept and category hugely hyped in executive circles but still rarely heard in discussions among consumers, represents their greatest hope for revenue growth. Demand from corporate buyers of technology has barely recovered from the dotcom bust and is widely expected to be unimpressive for years. By contrast, the homes of consumers appear to technology vendors as a barely tamed analogue wilderness. Darcy Travlos, an analyst at CreditSights, a research firm, estimates the market opportunity of the digital home at $250 billion in America alone and $1 trillion worldwide in three to seven years.

"We view the digital home as critically important," says Craig Mundie, one of three chief technology officers at Microsoft, the world's largest software company. "The home is much more exciting than the workplace." Computers have already led to small revolutions in boosting productivity in the office and helping people to communicate and to be creative, he says, so "we're pretty confident" that computers will have a similar effect on the way people consume entertainment....

 

So there's plenty at stake. But if The Economist is right, we could see more money lost trying to make this work than disappeared in the interactive TV and tablet computing debacles (chronicled in Michael Lewis' The New New Thing: A Silicon Valley Story and Jerry Kaplan's Startup : A Silicon Valley Adventure, respectively) in the early 1990s.

 

What are the problems? The Economist argues that the industry's

first challenge in stimulating any sort of consumer interest is the difficulty of merely explaining what the digital home is supposed to be. [This reveals a] huge problem with the digital-home vision: the lack, among most consumers, of any sense of crisis about the

 

There are also some basic performance issues, some obvious, some subtler.

Outside the controlled environment of a mock home or conference demonstration, however, educating consumers tends to backfire. That is because real-world digital homes usually do not work very well. The premise of the entire vision, remember, is that heterogeneous devices talk to one another and readily transfer content to wherever the consumer wants to access it.

 

This point reminds me of John Seely Brown and Paul Duguid's discusson in The Social Life of Information about why offices still exist, and why we don't all telecommute. As I paraphrased in my review of the book,

[A]dvocates of home offices and "hot desking," the practice of eliminating fixed offices in corporate headquarters, assume that white-collar work is just "information handling" that can be done anywhere. But though home offices eliminate commutes and give workers more flexibility in their schedules, it can deprive them of the informal networks that help them create ideas and solve problems; telecommuters also absorb some of the substantial costs of computer maintenance normally borne by employers.

Hot desking, which is intended to promote innovation and cross-fertilization of ideas, keeps people from customizing their working spaces and tools and actually increases the need for "cumbersome formal learning and informing processes," that is, meetings. And both telecommuting and hot desking rely on the kinds of easy-to-use portable computers, flawless network connections and instantly accessible databases available only on the star ship Enterprise.

 

Another problem with the vision of the digital home is that it "requires compatibility - "interoperability" in the jargon - among vendors involved in two technological categories," neither of which are even close to being reality. The first is competing file formats, in which you have a mix of technical standards, de facto industry standards, and several competing company formats (e.g. Windows Media, Apple's AAC for audio). The second is digital rights management regimes, which are very closely tied to specific companies or devices. Essentially, 1) you have to actually know about DRM, which is a failure-point for many consumers, and 2) there's no guarantee that what you buy now will work on the next generation of devices. Markets respond poorly to ambiguous information. So do consumers.

 

Finally, The Economist argues, companies have to recognize that consumers buy devices differently than CIOs, and want different things:

"consumers don't buy as an IT manager does," says [Pure Networks head Tim] Dowling. "They buy spur-of-the-moment and hodge podge; they buy things, not systems." To the extent that the digital home is not a thing but a solution, he thinks, "the vendors are all fooling themselves."

 

Under such circumstances, a top-down, all-in-one solution is simply not going to be as attractive as ad-hoc, piece-at-a-time devices that you can string together. Stereo companies haven't been stupid enough to make their components work only with each other for years; other companies wanting to get into this space need to get smarter.

 

More broadly, I've been doing some work on the future of smart home (see this earlier blog post), and have concluded that the smart home doesn't look like it's going to emerge from the top down, but from the bottom up. It's more likely to happen if it can happen organically; if you can set some basic, stringent technical standards that everyone follows; but after that, let interoperability reign. Bringing some of the design philosophy of the Internet into the home would let the home get smarter, faster.

 

The final problem that The Economist sees is that there are several very well-funded players who will be willing to lay siege to the market and each other for years.

 

This leads them to imagine three scenarios for the digital home. The first is that "one company, or camp, wins," but only if "several companies and industries... make huge strategic mistakes," allowing a clear victor to emerge.

 

The second is that "the technology wars end with a truce, perhaps brokered by industry consortia that push open standards," which would allow consumers to buy with confidence. This is the model in which companies recognize, as I've said before, that no one makes money off standards, but everyone makes money because of standards.

 

The third possibility "is that the wars continue, but consumers continue not to care--" the high-tech industry equivalent of last year's National Hockey League strike, which elicited a giant yawn even among hockey fans (my apologies to Canadian readers). "As John Barrett, research director at Parks Associates, says, 'it seems that we've concocted a new variant of the 'paperless' office.'"