Boxee Business Model & Box Subsidy

The article on Electronista had me thinking on Boxee’s business model. Triangulating the recent announcements on Boxee being integrated by Viewsonic &  Iomega and the aforementioned article – is Boxee looking to make money by selling boxes (or licensing revenue per box?)  Boxee needs a large deployed base something that Roku has achieved (over 1 million devices, 1 billion streams and counting) in order to have a profitable business especially if they are targeting subscription fees as reported in blog posts from early 2010.

Whether Boxee implements a subscription fee or not, scale is critical**. And hence a affordable box**. Subsidizing the box is tricky especially if Boxee is not manufacturing the box itself – it will introduce two levels of overhead – one by the ODM who is manufacturing the box (e.g. in China or Taiwan) – and second by device maker such as D-Link. Simply speaking both entities need to make money. Now Boxee could hire & staff to have a team work with an ODM directly … so those costs need to be factored in to the business model.

Needless to say the amount to be subsidized is critical which is directly proportional to the cost of goods, cost of the box. The current Boxee box by D-Link retails at $199 compared to the retails cost of Apple TV at $99. Comparing Boxee box to Apple TV is probably not right, in the case of Apple TV – they are balancing cost with feature set – for example Flash 10.x is not supported by AppleTV (which does put requirements both technical and cost on the hardware to be used). Plus Apple is vertically integrated – it is their chip (A4), and they are getting it manufactured at the most optimized costing (evidence of optimized costing and supply is evident in their recent quarterly earnings conference call where they disclosed that they are using cash to secure inventory, an excellent analysis done by Asymco can be found here).

It makes more sense to compare Boxee box with products from Roku and WD. Roku has currently three products, all probably based on chips from Trident (technically from  NXP, whose STB assets were acquired by Trident) – Roku HD (MSRP $59.99), Roku XD (MSRP $79.99), and Roku XD | S (MSRP $99.99). Western Digital (WD) has three products as well – WD TV Live, WD TV Live Plus, and WD TV Live Hub. The last one from WD, the TV Hub, includes a 1TB Hard Drive [this is also competitive to the Iomega with Boxee]. There is no difference in the MSRP for TV Live and TV Live Plus at $129.99 (actually as of this writing, the TV Live Plus is at a promo pricing of $119.99 on the WD website). The TV Live Hub has a MSRP of $199.

The boxes from Roku and WD both are capable of 1080p playback, in fact, in my personal experience the WD Live TV plus does a fantastic job of 1080p and 720p playback of many formats. Boxee switched from Nvidia to Intel and the reason cited was 1080p playback. And agreed there are several nuances to the flavors, bit-rates of HD – making the selection of main processor harder. I think Boxee failed to implement the MVP concept for the Boxee Box***  or the Jobsian product philosophy of what not to do. Roku introduced an absolutely no-frills box when they started out with only support for Netflix. I suspect though, it was support for Adobe Flash that made them switch to Intel and now switching to another platform would be difficult as indirectly admitted by Boxee’s CEO Avner Ronen on this blog post:

“Having both Boxee-based devices running the same system-on-chip is also making life simpler for us, since we can develop virtually identical firmware for both.”

Boxee, it appears is trying to be everything to everybody but in implementation it is falling in the segment of “Early Adopter, High Tech Enthusiast and requires a PhD”.  Take a look at their forums the diversity of requests being made is mind blowing. I believe Boxee team is occupied with features and functions more than benefits.  They have taken on a task in equivalence to what the GoogleTV is trying to accomplish without the resources.

There is no doubt that Boxee needs to reduce cost of Boxee-enabled boxes being deployed by its partners – and in order to do that, they need to drive cost by focusing on the most important features. May be do a re-start of their product? The very first thing to do is to with right feature set the right System on Chip (SOC). It is not just the SOC pricing, but the implications (and hence the cost) on the rest of the box design.

Secondly the subsidy flow has to be thought through, I believe it may be an opportunity for Boxee to flip subsidy model on its head. Traditional subsidies are complex, or at least complex to operationally manage. Take the example of cable companies such as Comcast or Time Warner – they source their Set Top Boxes (STBs) from the likes of Pace, Motorola, Samsung, Cisco. However the consumer pay nothing for these boxes. The STBs are subsidized in lieu of monthly consumer revenue. And there is a system in place to handle it on the company accounting books.

Boxee has a wonderful technology, and beginnings of a great platform. It is, however, a very crowded market. May be Boxee needs to enable their technology to be a platform for non-Video services in the Digital Connected Home?

** GigaOm’s Om has an excellent post on what makes an Consumer Internet company successful – and all three factors are important for Boxee.

***I argue that the Software only version and the Box implementation are two fundamentally different products. The Boxee Software Only model is similar to Microsoft Windows, and the Boxee Box to a significant degree following an Apple product model.

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Boxee & Its Remote Control

The Boxee box had been waiting its turn to be setup since I got it just before Thanksgiving. I finally set it up last week, and here is what you need to know:

1. The shape is different, unique. It is sitting there on my entertainment center – quietly, the Boxee icon glowing. The box design makes it a contender to remain on top of the entertainment center rather than being tucked away.  The ID may make for interesting conversations.
2. The size is certainly very small compared to the other boxes using the Intel CE4100 such as the Logitech Revue.
3. Setup was not too difficult – especially compared to the GoogleTV experience. It rebooted twice to go through the upgrade process.
4. Apps have to be added – these apps bring video content to you. Roku calls them channels.
5. The remote control is also unique. But it also happens to be the disappointment. It is an attempt to have a minimalist design like Apple’s remote gone bad. Here are some observations on the remote control:
   • The remote is NOT IR – good news because you don’t need to point it anywhere, it is RF.
   • The remote has two sides. One side is the Apple-remote style (btw the functionality is identical to that of the Apple remote) and the other side has a small alpha-numeric keyboard.
   • On the Apple-style side the buttons are centrally placed – and the only clue on what side is up is the Boxee logo. The Logo is placed at the lower size of the remote and hence decides the Up, Down, Right & Left keys of the remote. When you grab the remote – you need to make sure that you are holding it the right side up. I ended up pressing the wrong keys many times and a friend of mine had a similar problem.
   • The arrow keys – the distance on the pad is a tad bit too much. In the age of Smartphones and Apple Remotes – the thumb is used travelling only so much when you are trying to click the keys. I had to stretch my thumb in order to effectively click the keys.
   • Similarly having the keys placed centrally – you do not have enough room to hold on to the remote like you may on the Apple remote.

 

 

 

Netbook Innovation: Dell + Litl + Boxee

While my brain is unusually active on ideas, I rarely write them down. Back in May in my post The Dell Dilemma – I wrote about how Dell needs to innovate. At that time I had an idea to propose, I never got around to writing about it. The idea can be best expressed by the seeing what this Litl startup has done. Dell needs to innovate their PC and Notebook lineup to better compete with HP. John Gruber of Daring Fireball makes very good arguments on why PC companies need to out of the box innovation here and here – and gives example of what Litl has done.

For now, Dell is trying to mimic IBM and HP with the acquisition of Perot Systems to compete with them. I think that is, culturally, a much more difficult move for Dell, not to mention it is not their core competency.

Dell should learn from Litl or may be even acquire them and come out with dual function notebook or webbook.  I would, though, enhance the Litl platform in the following ways:

1. A Dual-Mode machine = PC + Media Player

2. Install a Android-based OS (or may be even Ubuntu Karmic!) – increase the PC functionality on the current design of Litl

3. Make it a dual boot OR rather a dual-mode machine by providing a “dock” that has the HDMI connections to the TV

4. When the machine is docked, it would work as a Entertainment Netbook (the SW would switch upon docking)

5. Bundle a nice remote with the package (and of course the Dock)

5. License Boxee software and have it pre-loaded on the Book

6. When Undocked – it works like a PC with support for Google Docs or Open Office

Future editions could bundle the Amazon Kindle or Barnes & Noble Nook support to make it work like an e-Reader. The bottomline, though, is that Dell’s operational and supply chain expertise could bring down the cost of manufacturing and marketing and introduce a new category in the Computing Market.