Bingeing: a new media pattern

The first time it happened to me was "Six Feet Under". For three days, I was glued to the TV. I think my eyes became square or at least oblong.

I was reminded of this bingeing recently when I read a review on Hulu by a subscriber who claimed to have spent thirty continuous hours watching the entire first season of a TV show named "Cover Me".

It's a guilty secret, not often shared in public, but the availability of full seasons of TV shows offers new ways of watching TV. And the experience of watching a full season changes the way in which plots, character development, repetition and plot reviews are experienced.

Personally, I found the first season of West Wing almost unwatchable because of commercial interruptions. But when viewed without commercials, the series represents some of the best TV writing and acting ever put on television. I have watched the entire series twice. It's certainly one of my favorites, but only without commercials. When a show is this good, almost Shakespearian in its range, advertisements just don't work. Imagine Hamlet with soliloquies interrupted by advertisements. It just does not work.

I have my list of past binges. They include "The Wire", "True Blood", "Six Feet Under", "Dead Like Me", "Slings and Arrows", "MI5" to name just a few.

What does this mean for content developers? Perhaps that there is a emerging and strong appetite for long form drama where characters evolve and are transformed, perhaps even where main characters are regularly killed off, as happens so frequently and surprisingly to Americans in BBC dramas. The traditional advertising influenced plot structure of many TV dramas seems less compelling after the longer form dramas.

People underestimate change. Long form drama seems the opposite of our world today where people are described as having short attention spans.

Disruption and 4G

Reading a review of a 4G smartphone today in USA Today, http://www.usatoday.com/tech/products/story/2011-09-07/Droid-Bionic-finally-lands-and-its-a-winner/50296122/1, I was struck again by the strange nature of smartphone reviews.

The conventional wisdom is pretty standard. More features, faster speed, bigger screens are all desirable.

But unless you are grandfathered into an unlimited data plan, the merits of 4G for you as a consumer are somewhat questionable. Video and to a lesser extent music eat up the standard consumer 2 gigabyte plans very quickly. 4G makes a phone more responsive yes, but it also makes it easier to use up your entire allowance.

Only to the extent that that the IP technology of 4G increases the capacity of cell sites and delivers better service does it really provide significant value for most consumers and such a benefit is not likely to be immediate.

My guess is that 4G has much more value for the mobile user of tablets and laptops. And some people may end up substituting a mobile data plan for a fixed data plan, if and only if they have an unlimited plan (as is currently available on Sprint's Wimax network) or if an employer is paying.

Given current pricing models and capacity limitations, my guess is that it makes little sense to upgrade a phone to obtain 4G capabilities for most people in the short term. If 4G does not cost extra, then by all means buy a phone that includes the capability. Supporting this view is the speculation that the iPhone 5 will not include 4G.

For many consumers, a classic overservicing of needs may be occurring. The performance improvement of 4G may be exceeding the needs of many users, particularly those who don't use their phone as their primary data device.

The Cloud Opportunity for Storage

Executive Summary

Strategic analysis suggests that in the maturing hard drive manufacturing business, there is a significant and strategically critical opportunity for hard drive manufacturers to integrate forward into services for both the consumer and business markets while simultaneously offering outsourced storage management and service for businesses offering cloud storage.

A major advantage of offering a cloud based back up service to consumers is the annuity-like nature of the revenue stream. And because hard drives can be bundled with an optional or prepaid service offering, sales costs of associated back-up services are likely to be lower. A $100 hard drive with hard won profitability can be converted to an upfront purchase plus an annual service revenue that could run in the $10-40 range. Alternative revenue models might include an annual service based pricing model with an on-site hard drive as part of the service offering, in other words charge for service and give away a hard drive.

Incremental revenues from hard drive restoration represent an additional opportunity.

Introduction

One thing is obvious about storage. Most consumers can’t tell the difference between storage offerings. In other words, it’s a classic commodity business where the most effective producer will win.

But as industries mature, companies need to reexamine their value proposition and see whether the business model has or could change. What are the adjacent businesses that represent a low risk opportunity to add revenues, but more importantly are sufficiently complementary to create a differentiated advantage.

With consolidation having already occurred in the hard drive business and two dominant players remaining, Western Digital and Seagate, how might the future evolve?

One alternative would be to accept the carving up of the market. Competition between WDC and Seagate would be comparable to the classic end game in many markets where two dominant players squeeze out other smaller competitors. Coke and Pepsi come to mind. Apple IOS and Google Android. Windows and LINUX.

But there are alternative evolutionary models that could emerge. One traditional weakness of Silicon Valley companies is that they tend to be product oriented. They often are uncomfortable with services and solutions. But as products become more mainstream, businesses often wish to outsource; consumers on average become less knowledgeable than the initial adopters. Another driving issue is that as markets become more competitive, vertical integration often presents advantages. For example, in the highly competitive computer business, the current success story, Apple, has vertically integrated to create an ecosystem that includes content ownership (Steve Jobs’ ownership position in Disney as a result of the sale of Pixar), on line and physical retailing, devices (Macs, iPads, iPhones, iPods) and services (MobileMe, cloud services). This approach is a far cry from the traditional horizontal model where the PC industry consisted of horizontal competitors (Intel in processors, Microsoft in operating systems, Microsoft in productivity software, WDC and Seagate in hard drives, Sandisk and Samsung in flash memory).

One way of looking at the problem is a task oriented approach. A hard drive vendor is not selling hard drives, rather it is selling a solution to a particular problem.

For example, most computer users have been faced with the problem of their system becoming unreliable and needing to restore their system to the previous successful state. While Windows provides the ability to roll back the operating system to a previous version, the comprehensiveness of the roll back is less than having a snapshot of the full hard drive so that it can be restored. This restoration is no trivial problem particularly for heavy users of PCs who many have dozens of pieces of software to reinstall. Reinstalling software on a machine can take several days, a costly exercise for an individual and even more costly for organizations with multiple employees unless they have set up facilities for automating backup and restoration.

A second example is music. An avid music collector may have 20,000 pieces of music. Replacement might well cost $20,000. And while additional hard drives are inexpensive, back up tends to be unreliable and recent material gets missed. Mindless and consistently reliable back up has value to protect the value of the investment.

A third example is memorabilia. Digital photos can easily be lost with a high emotional cost to an individual.

A fourth example is record keeping. Even individuals today often find their financial records stored on unreliably backed up computers.

Cloud Storage

Clearly, cloud storage is an area that is being targeted by many companies. Amazon, Apple, Google, Microsoft, Adobe, just to name a few of the more visible companies are offering free or relatively low cost storage. The intent in most cases is lock-in of the customer relationship as part of an overarching product or in some cases services and advertising strategy.

It’s easy to predict that price pressures in this market will be extreme, leading to efforts by the cloud storage offerors to reduce their costs. But as in all areas of IT, it is the total cost of ownership (TCO) that matters. One way of reducing their TCO will be to outsource storage to the low cost producer. And the most capable manufacturer of hard drives is likely to be well positioned to vertically integrate and offer outsourced storage to these large players. A secondary advantage of vertical integration for a manufacturer is the resulting increased production volume.

If a hard drive manufacturer integrates forward into services, it will lower its manufacturing costs. As the two dominant vendors in hard drive manufacturing operate with low margins, it takes a significant effort to increase the volume and thereby improve or maintain margins. Vertical integration represents a significant opportunity with likely first mover advantages.

The outsourced storage option can be structured in several ways. For large cloud operators, the outsourcing might involve management of in-house storage. For other businesses and consumers, a more traditional cloud storage services model would work. There would also be opportunities for premium storage with additional security attached.

First Mover Advantage

Hard drive manufacturers are highly specialized organizations with value chains that normally ignore service opportunities. Adding the capabilities needed for forward vertical integration requires new focus, new skills and new management. But accepting the opportunity, understanding that services will drive additional volume means that these skills need to be added.

The first to adopt this strategy will quickly gain additional volume. Additional volume lowers costs and makes the forward vertical integration more profitable or enables faster acquisition of downstream customers. It is, as is normal in learning curve businesses, a competitive advantage goes to those who move quickly. What is perhaps less obvious is that the slower the rate of cost improvement, the more necessary it is to seek innovative ways to increase the cost advantage.

Does Downside Exist?

At first thought, pursuing vertical integration might seem to run the risk of alienating large buyers who are already offering cloud services. But if the storage offering is positioned as being available to cloud services and lowering their costs in addition to being available as a consumer service, the cost advantage should be compelling. Owning and managing the storage at a company site also offers a way of capturing hardware volume and minimizing communications costs.

The company that is probably the largest risk is Google. Their use of a proprietary file system and in-house assembly of servers means that they are likely to be most resistant to outsourcing management of storage.