November 15, 2013
Set against the torrent of cybernews that hurtles across the glass every day, it seemed like just another so-what headline: “Comcast Discontinuing Secure Backup Service.”
The October 7 story was that the largest US cable company had sent customers an e-mail message telling them it would halt a cloud-style personal data storage service as of December 1. Some customers who had paid to subscribe would get refunds.
Behind the announcement lurk bigger questions: In a digital applications world, can cable companies do products? Or should they even try?
Consumers haven’t exactly embraced cable company offerings. When’s the last time you (or anyone you know) chose a cable-branded digital application over a like-minded alternative from Apple Inc. (Nasdaq: AAPL), Google (Nasdaq: GOOG), Microsoft Corp. (Nasdaq: MSFT), Facebook or, in this case, a cloud storage specialist like Dropbox? Thought so.
That hasn’t kept cable companies from trying. In particular, Comcast Corp. (Nasdaq: CMCSA, CMCSK), has led the charge with products that have included a branded photo-sharing service (Comcast Photo Center), mobile text-messaging services (COMCAST4U in 2010 and Voice2Go in 2012) and an online video-subscription service (Streampix). None have achieved (at least yet) the level of brand recognition associated with trip-off-the-tongue platforms like Yahoo Inc. (Nasdaq: YHOO)’s Flickr, Netflix Inc. (Nasdaq: NFLX), or Google Voice.
Higher-profile efforts have fizzled, too. At the Cable Show 2011, in Chicago, Comcast Chairman & CEO Brian Roberts enthused about a new partnership with Microsoft to bring a high-definition, living-room version of Skype to Xfinity customers. It was shuttered in June of this year.
It’s not for lack of investment and creativity that cable has yet to press its way meaningfully into the application environment. I thought the Skype on Xfinity product was especially impressive. Comcast’s product development team had thought hard about the limitations and failings of Skype Ltd. as most of the world knew it: an often-cumbersome personal video-conferencing platform that was prone to stuttering and dropouts.
Comcast’s solution was a high-definition conferencing system that liberated users from the need to huddle around small laptop screens and shout into microphones. The Comcast product came neatly packaged in a stylish box, featured special light-sensitive cameras to account for low-light conditions in living rooms, and ran over a managed IP network that ran circles around the best-effort performance that frequently hobbled Skype sessions. It failed anyway.
What happened? I can think of three impediments that have hobbled cable’s efforts to play in the applications space:
Competitors never stop innovating. A year before Comcast rolled out Skype on Xfinity, Apple introduced FaceTime, a gee-whiz feature for its new iPhone 4. It was a handy way to conduct live video calls with fellow iPhone users by pressing a button. No equipment to install, no cameras to rig up, and it worked beautifully within an existing user ecosystem. If you had a new iPhone, you were in without having to do anything except use the feature. While it’s true that cable companies have made big investments in product and software development teams by hiring brilliant developers and giving them creative leeway to invent, these units are adjuncts to a much bigger and more complex business structure. For companies like Google and Apple, software and product design is everything. It’s what they do.
It’s hard to compete with free. Cable companies have a habit of wanting to synchronize new products with revenue streams, typically in the form of familiar monthly payments that jibe with existing billing practices. Comcast charged $9.95 per month for the premium version of its Skype service, competing with a well-established product that was free for most users. That’s the thing. Digital media and application companies like Apple and Google have a habit of offering new features as value-adding free applications. It’s hard to compete with the combination of really good and really free. Brand and reputation matter. In September, Apple supplanted Coca-Cola as the world’s top brand, according to Interbrand’s annual Best Global Brands list. Google, Microsoft, Cisco Systems Inc. (Nasdaq: CSCO), Intel Corp. (Nasdaq: INTC), and HP Inc. (NYSE: HPQ) also make the top 15. In contrast, cable, satellite TV, and telecom-video companies routinely score poorly in customer satisfaction rankings published by researchers, including scorings from J.D. Power and Associates and the American Customer Satisfaction Index. A perceived absence of competition and years of customer distrust hurt cable and other video providers in a product realm where revered brands dominate. Footprint limitations prevail. Despite significant geographic consolidation, wireline video and broadband companies still face footprint limitations that can prevent borderless marketing, and also may discourage customers from tying personal media choices to a land-locked provider. Digital media companies, whose products ride over any available network, don’t face similar restrictions. Why should cable bother with inventing new products? I think the strategic impetus is irresistible to forward-thinking cable companies, and thus will remain. It revolves around a changing world where myriad providers and applications vie for share-of-mind and share-of-wallet with consumers. The broadband networks that now prevail globally, coupled with a proliferation of digital end-user devices, allow for a near-infinite number of contenders to emerge with ideas and applications that appeal to consumers. But this very proliferation destroys, or at least challenges, the notion of differentiation that underlies scale. A key in this new world revolves around a customer relationship that is difficult to dislodge. (A less humanistic term is a “billing relationship.”) This is a differentiator that video and broadband providers possess. The ability to have conversations with customers, even if they happen to relate to service issues and problems, is a net plus in a world where thousands of voices seek to be heard. So too -- and this is commonly overlooked -- is the fact that broadband and television providers know things about their customers that others don’t, such as where they live, what their subscription tendencies are, and what their transactional histories look like. Finally, ownership and operation of network facilities provides, or ought to provide, a marketplace advantage that others lack. There are certain applications or product sets closely tied to network ownership and operation that should play to cable’s strength. In particular, the ability to manage and prioritize certain types of network traffic -- sorry, neutrality police -- should offer ways for cable companies to simplify and optimize user experiences in a way that provokes interest and product loyalty. Example: I recently played beat the clock at Boston's Logan International Airport trying to download an episode of Breaking Bad to my iPhone over a traffic-clogged WiFi network before the airplane boarded (I lost). A one-button, turbo-charged media download feature ought to be one area where cable and broadband network operators can rule. It’s impossible for cable business-development strategists to look at these assets and attributes and not conclude that they ought to be able to play a bigger role in technology-rooted products and applications. It’s figuring out which ones make sense that’s the trick. Remote backup and storage may not be the killer app for Comcast or any other cable company. A living-room variant of Skype may not be, either. But something else probably is. — Stewart Schley, Principal, Stewart Schley Content
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