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CES 2005
By John Latta, WAVE 0513 4/1/05

Las Vegas, NV
January 6 - 9, 2005

Big trade shows are a pain. Places to stay are hard to find. Taxis are everywhere but hard to get. A 20% tip is greeted with disgust. Floor aisles are crowded. Everything is expensive. But at CES it is worth it. CES is Gary Shapiro, the President and CEO of CEA. Gary is enthusiastic, optimistic and loves technology.

So why is CES exciting? This is where the market action is. Innovation is everywhere. The market is huge - $113b in the US in 2004. Technology is the foundation for the market dynamics. Market share battles are like large battleships in combat in the night. Buzzing around in this combat zone are the start-up insects. They are great fun to watch. At any corner in the countless aisles of the show floor there could be something new and unique. This is like the old West Coast Computer Faire but on a scale 1000X as big.

The battleships are Sony, Samsung, Intel, Microsoft and many others. Only two things matter: Market share and growth. The market is big and gross margins terrible. The winners are frequently the innovators. Agile battleships are another oxymoron. Sony has sold 340m units of Walkman in 25 years. It is an agile battleship. Intel and Microsoft want to be seen as CE companies. Yet, they are still wantabees compared to Sony. The problem is that they both are still picking at the market. The CE market is not their core business while it is at Sony. With the exception of xBox, neither Intel nor Microsoft directly participate on the CE battlefield. With platforms, processors, software and “concepts,” the public does not directly buy the products of either company. One transformed competitor is not here – Apple. It has a low price CE product and is transforming the market. Innovation is the winner and neither Microsoft nor Intel has an iPod class innovation to point to.

All of this makes for a great spectator sport. CES is the amphitheater where the battleships maneuver.

Is PC and CE Convergence Real or Virtual?

Van Baker of the Gartner Group gave a talk on the CE/PC market entitled Consumer Electronics: An Industry in Flux. Not the normal pitch about how these markets will converge when everything goes digital. Van brought an interesting viewpoint worth consideration.

Van’s premise is that:

CE has just begun a fundamental restructuring.

This process will create new companies that appear to be
manufacturers and then face a rapid decline.

Many surprises lie ahead.

Van issues a challenge that this change is not just about analog to digital. In fact, he stated it is not about products, features or customer choice. The change is about business models. A key factor is also significant change in the impact of the channel. This is best seen in the light of the driving force that China has in the manufacturer of everything including CE. Taiwan is also a strong player from what it has learned in how to manage design to production in China. Thus, the ODM is a significant factor in the ability to produce CE. Virtually any company can brand products from a first class manufacturer. Thus, brand and brand expectations will be increasingly important.

The elements which will drive the new business model are:

Shorter product cycles;
Short development cycles;
Faster inventory turns
Off the shelf software tools;
Use of industry standard silicon and less ASICs

Van feels that the best example of the future business model of CE will be like the PC but he cautions that the PC industry will not necessary be able to displace the CE industry. It also does not mean that Intel and Microsoft will be able to control all the margin in the CE business.

He then addressed the question – who will win and lose? Because of the ODM model, many companies will enter the market. One example cited was WalMart – it can create its own brand and is, even today, not reliant on the brands of others. Here is an example where distribution and control of the channel is a significant advantage. He cautioned that the companies which expect the distribution channel to protect them will lose. That is, the traditional path to market, such as Best Buy will not be sufficient.

His predictions including the following:

There will be a near term increase in the number of major CE companies by at least 5.

Private label suppliers will proliferate but over the long term will not be sustainable.

Consumer confusion will delay the transition to HD and the change to digital television.

Home networking will be important but in the short term it will not gain mass market traction until the setup and use issues are fully addressed.

He forecast that the companies on the dark side include Philips and Thompson. LG can be added to the list as a Korean company which is not listening to these trends. It is not clear that Samsung gets it but Sony is showing signs.

Microsoft and Intel Keynotes

The keynotes by Microsoft and Intel were extravaganzas on how money can be spent. When in Las Vegas the mantra is to spend money the way the local casinos spend it. This is consistent with the big gamble of entering and gaining share in the CE market by a software and chip company. But there is more. We are drawn into a comparison between Microsoft and Intel, just based on the keynotes.

Microsoft is about platform integration – tying different platforms together: media, internet and cell phones. Some of the results were impressive and a strength of Microsoft.

With the notable exception of xBox, Microsoft is reliant on what others can do with its technology. The Spot watch is an excellent example of this. The content partners with IP TV is another example.

Intel has a global message. Its market message was much more global than Microsoft’s.

Intel is increasingly less reliant on Microsoft. Only a passing reference is made to Microsoft and all the software demos were with non-Microsoft products.

Intel can argue it enables an infrastructure with its communications products. The demo showing Las Vegas with WiFi and WiMax was very effective. No matter what Intel says about being complementary to competing markets this is largely noise. They are masters at concealing market aggression.

Intel was very effective at going between hardware and software demos. It can play both markets and technologies to its advantage.

Intel’s scope of market is very broad compared to Microsoft. In this respect the, the platform creation strategy at Microsoft is limiting – that is, relying on others to build products based on Microsoft’s software. For example, the China PC examples in the Intel keynote were quite good and the home care research by Intel excellent. Intel only needs to point the way and they benefit when their processors are bought.

Intel is putting money everywhere. When Robert Redford cited the Intel involvement in the Sundance Festival this was but another example where Intel is not just inside but everywhere.

In many respects both companies are seeking to be an enabler in the CE market and not a direct participant like Sony or Samsung. Taken from the keynotes only, the Intel message was quite broad in how it can be an enabler.

Logitech – The CES Press Event

Logitech is on a roll. Their news conference showcased 12 products of which 3 were new announcements. The star of the show is the Harmony 880 Remote Control. The result of acquiring the company Intrigue Technology, this is the first joint product. In spite of a price of $249 we were impressed.

Logitech used its booth to hold the morning press conference. They showed the following:

Lineup of Wireless Game Controllers
Cordless Headset for Xbox
Driving Force Pro
Play Link the Wireless Extension for game play
Mobil Freedom Headset
VideoCall
diNovo Cordless Desktop
V500 Cordless Notebook Mouse
MediaPlay Cordless Mouse
MX 3100 Cordless Desktop
2.4GH Cordless Presenter
Harmony 880 Advanced Report Control

They were most enthused about Harmony 880. It was claimed that the earlier product, Harmony 680, has, according the NPD, achieved #1 in sales in remotes above similar products by Sony and Samsung. It is really hard to justify a $249 price tag for a remote. Yet, the ID, functionality and integration was superb. The color display and the docking station were brilliant. The former president of Intrigue Technology and now the VP for remote control division at Logitech gushed about the impact of the acquisition on the ID. During the conference it was indicated that the design cycle was only 9 months.

During the announcement of the MX 3100 Cordless Desktop which includes the MX 1000 laser mouse it was stated that Logitech expects all their mouse products to go to laser.

Mobil Freedom is a Bluetooth headset. It has 7 hours of talk time and noise reduction from wind. However, the claim is that this is done with a WindStop microphone. As the press release states this is not a DSP based approach:

WindStop…surrounds the microphone in an “acoustical controlled porosity barrier” to reduce the disruptive effects of wind noise, enabling clear conversations in adverse conditions. What’s more, WindStop not only offers better wind-noise reduction than expensive DSP (digital signal processor) solutions, but also does so without adding weight, power consumption or expense.

VideoCall is still an experiment with a service business model. The pricing is at $6.99/month.

The MediaPlay Cordless Mouse was a very cute extension to the functionality of the mouse. This can be a normal mouse and it can also be a Media PC controller. There are buttons on the top and lights that activate when it operates in the controller mode.

The 2.4GH Cordless Presenter had one feature we were impressed with. One can program the controller to the time the end of the presentation. 5 and 2 minutes before the end the controller vibrates to tell the presenter the time coming up to end the presentation. Cool.

DEXIN – Can it Deliver on Glass?

The WAVE Report often probes the mouse business – we found an interesting one at CES. We note that the mouse business is in the process of another technology transition – laser illumination.

The booth poster claims are significant:

Navigates on most surfaces including transparent glass and plastic.

Getting details was another matter but the WAVE Report learned much.

DEXIN is a computer input device design and manufacturing company. They stress their technical depth including many with US engineering degrees. The company only sells as an ODM. Customers include Best Buy, Circuit City, CompUSA, Fry’s Electronics, Office Depot, Office Max, Staples and Radio Shack. Apparently the company is public in Taiwan.

The WAVE spoke with Paul Lu about the laser mouse.

DEXIN filed a patent in the US at the end of 2003.

There is no optics in the mouse. It uses a VSEL for illumination. The equivalent resolution is 1200 cpi.

Two chips are used – Agilent and either PixArt or @Lab.

The chips being used are not specifically designed for laser illumination. It was stated that the Agilent laser mouse chip will be available to all chip buyers in June.

The processing is done on the “wavefront” and this apparently does not track speckle.

It is assumed that the optical surface is not optically flat – by implication the variations of the glass surface are less than a wavelength of the imaging source. This seems to align with the wavefront comment.

The mouse only takes 20ma and will run 6 months on 2 X AAA batteries.

The wireless version runs at 27MHz.

There are four customers of the first production of the mouse. It will ship to Europe at the end of January. Two of the customers are OEMs.

Pricing is expected to be $12 FOB and $29 retail for the wireless version.

A Hot Company – Network Magic

Tucked away in the D-Link booth was Network Magic showing its product. This is a home networking software package to find and set up home networks. The demo area was always packed. This software will be included with the D-Link routers and there are many companies seeking to include it. It is available for beta download at:

http://www.networkmagic.com

Headset Audio Market

Jabra

Jabra has the signature product – BT 800. They call it the “the ultimate fully-featured Bluetooth headset.” It fits around the ear, has a display that will show the caller ID, has controls for jogging, answer and end, a mute button, the ability to be charged over USB and most importantly a DSP. DSP allows for dynamic noise reduction and dynamic sensitivity adjustment. The headset adapts to the environment. The audio/voice signal processing software is a key competitive advantage of this product. Firmware and feature updates can be accomplished over the Internet. It has been introduced in Europe and will sell in the US in January for $149.

One only has to look at this product and respond: Wow! With all these features it seems contradictory to keep it on one’s ear. Jabra told us this is the case. The best place to use it is to place it on the table or on one’s belt. When the phone rings, just pick it up to look at the caller ID. If one wants to answer the phone, hang it on your ear. Oh, yes, there seems to be a weak spot with all the functionality – one cannot dial the phone. Wrong. Use the phone voice recognition for dialing. The BT 800 is well suited for this because of its superior voice quality.

In context Bluetooth is a liberating technology. That is, once the cord is cut on the audio interface to the phone a whole new range of options are enabled. In a WAVE discussion with Jabra, we characterized this as a platform play. They could not agree more. This is how Jabra will go beyond their traditional market of just ear pieces. It is an ASP liberator. The potential for the BT-800 was stated best when they characterized it as:

This makes the phone an accessory.

“Motorola hates us but the operators love us.”

For those of us that like the cutting edge this is it in personal voice audio.

Where are PC Monitor Interfaces Going?

The WAVE was able to speak with Viewsonic about trends in monitor interfaces.

Where is wireless in the monitor space?

Viewsonic has no wireless monitors. A technology demonstration of a wireless display was being shown and this could be seen as an indication of the future. This was positioned as a large screen display that could be used for both a monitor or television. Yet, in spite of the fact that Viewsonic has no wireless monitors, wireless is important because we have a range of wireless media adapters. Another view is that wireless will be important even for the PC monitor and the driver behind this is set up. At Viewsonic we gat many calls on the simplest of set up issues and properly implemented wireless could be an improvement. But the move to wireless monitors has not happened yet.

How is the PC Monitor interface likely to change?

As discussed at Display Interfaces the potential future interface is NAVI. Today VGA is being used well beyond what it was designed for. There is no possibility for digital signals on the VGA lines but there are many options with NAVI. The real issue is if the industry will adopt NAVI. It is not clear, at this time, when and if this will happen. Certainly the push to higher resolutions will force NAVI but today’s resolutions, even to 1920 X 1200 as seen in the booth, does not require this transition.

The WAVE picked up the following:

There are no significant forces to change today’s PC monitor interfaces. Yes, wireless can change the set up but there is no need to eliminate the wire to the monitor as there is with the television set in the home. The distance between the A/V equipment and the television is frequently much greater than that between the monitor and the PC.

There is a standard in place called NAVI. This has much room to grow in support of more sophisticated monitor interfaces. But, at present, there is no market pressure to adopt NAVI. This will likely become an issue at the next VESA Display Interfaces meeting.

WAVE Comments

Product commodization results in brutal price wars, little to discriminate products by and the decimation of suppliers that cannot keep pace with the changes. At CES we also looked at the event as a sample of the impact of commodization. It is every where on the show floor. What is more important is that companies continually develop strategies to respond to commodization. We could see this in action in many of our booth visits and discussions. We surmise our insights as follows:

Commodization can be seen as the maturation of a market, the end of the market growth and/or the elimination of many suppliers. What was evident at CES is that many companies deliberately enter commodized markets or work to rise above the commodity level.

The evolution of products to commodization is frequently accompanied by increased market velocity. That is, the pace of change accelerates as the participants respond to the changes, the suppliers are realigned and market exits occur.

Failure to respond as markets are commodized is usually the end of market participation. The change in rules and price dynamics are such that the market is not longer viable to the slow movers who cannot adjust to the new market conditions.

Most important, at CES we saw that market commodization was the spur to innovate. This is a significant gamble but one that many companies feel they have no choice but to make.

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Page updated 1/24/07
Copyright 4th Wave Inc, 2007