TCS Daily

Vegas, Baby, Vegas: Pardon the Disruption

By Jim Prendergast - January 10, 2005 12:00 AM

LAS VEGAS -- The rumblings felt here at the Consumer Electronics Show this week were not the fireworks going off on the Strip. It was the sound of old business models crumbling under the weight of competition from new technologies. The disruptive nature of the new products and technologies announced here is a frightening development for long established businesses yet it provides tremendous opportunities for new businesses and consumers.

About 10 years ago, DirecTV and Dish Network began challenging cable for control of the pay television market. Since that time, over 23 million homes have begun to receive their TV from satellites. Not only is cable feeling the squeeze from satellite, but traditional broadcasters are under the gun as well. Satellite forced cable to reexamine its business model and make investments in technology just to stay competitive. Broadcasters are trying to roll out HDTV programming to give all those new big screen owners something to look at. Both major satellite companies announced new set top boxes that will give users video on demand options and the ability to digitally record programs using TiVo-like digital video recorders. No longer will you have to drive to Blockbuster to rent a movie or wait until a selected hour to watch your pay per view movie from your cable company. With the push of a button, you'll be able to watch the move you want, when you want.

Another satellite application, Satellite Radio is also making big splashes. Commercial free digital audio is catching like wildfire. And with the introduction of XM's portable receivers, radio junkies can listen to their favorite songs and talk radio hosts where ever they want. It's no secret that traditional broadcasters are worried by satellite radio and they have tried to use their clout in Washington to erect regulatory and other barriers to prevent satellite from succeeding. But that hasn't slowed down a company like XM. "The more they (broadcasters) focus on trying to protect their outdated business model, the better it is for us" said Hugh Panero, President and Chief Executive Officer. And he's right. Companies who look to maintain their position in the digital age, rather than look forward to the next opportunity will get passed by.

The music industry is learning that lesson too. While some would argue the recording industry still doesn't understand its customers' desires to only buy the one or two songs they really want as opposed to getting stuck with an album of one hit and 10 duds, services like Apple's iTunes and Microsoft's MSN Music have helped the music industry adapt to a new model. That model is predicated on customer choice and legal downloads.

Another company attempting to adjust to a disruptive technology is Kodak. Over 17 million digital cameras were sold last year and not one of them uses Kodak film. Kodak has broadened its company to accommodate the digital revolution. Not only do they now sell digital cameras, but they are looking for ways to help consumers manage their rapidly expanding digital photo collection. Whether it is printing supplies for those who print out photos at home, or providing online capability through its Ofoto service, Kodak still wants to very much be a player in the digital age.

One of the most disruptive technologies to hit the map in a long time is internet telephony or VoIP. Recent improvements in technology now allow people to make telephone calls over the internet for a fraction of the cost of traditional long distance calls. Not only are there savings involved but new technology will soon hit that market that will allow customers to do more with their phone than ever before. Motorola is showing a video phone that lets users see each other as they talk. The Baby Bells such as Verizon and SBC (not really babies anymore) are watching customers flock to companies like Vonage where they can save $20 and more per month on their phone bill. Recent rulings by the FCC and at the state level are allowing VoIP to grow without burdens like taxes on their service. The telephone companies now have a choice. Do they spend time and lots of money of lobbying and litigating to stunt the growth of VoIP or do they embrace the new technology and make it part of their business model? It will certainly be better for consumers if they choose the latter.

One of the amazing things about the technology industry is the pace of innovation. That coupled with fierce competition means companies must be on the cutting edge if they want to survive. The disruptive nature of some of this week's new product announcements will certainly put some more gray hairs on the heads of long established industry executives but it will mean a new wave of products for tech hungry consumers. Let's just hope that companies don't resort to tricks of old and try protecting their outdated business models with lobbying and regulation. Then we all will loose.

The author is Executive Director of Americans for Technology Leadership.


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