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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Roku Channels – A Smart Strategy

 

Last few months have brought an onslaught of boxes promising the best video experience delivered via Internet to the consumer home – GoogleTV, the new AppleTV, and Boxee. Roku, one of the veterans in this space, has also launched new models. I think within the Over The Top (OTT) video boxes – Roku has a very smart strategy – it has managed to marry the old paradigm of (TV) channels and the new model of Ala-carte TV watching (consumer gets to pick their channel). Netflix is what made Roku very popular but interestingly enough they have tons of  channels.

 

Roku allows content creators to package their own content and deploy it as a channel – paid or free. This is, at least from the perspective of Content Producers, good. Each content creator/producer has the flexibility to retain their branding and experience. It, of course, allows for making niche or long tail programming easier. Consumers get to pick the channels that they want to watch.

 

As a company they are focused – they are not trying to introduce applications for gaming etc. – the Roku devices are video-centric – and continuing to add content to their devices, making it a wonderful TV watching experience [e.g. just realized WillowTV is available, goodbye Dish!].