In my presentation at SXSW on Saturday night, I picked Microsoft to win next generation because I believe that they will include Skype and a TV tuner in the next Xbox. They have told me nothing, but the progression from Kinect, to voice search through Bing, to the integration of smart glass has led me to consistently "predict" that the next generation Xbox will have a TV tuner built in. The purchase of Skype for $11.5 billion in 2011 was done for a reason, and the fact that Kinect has a camera makes integration of Skype into the next Xbox a logical progression.
Why are either killer apps?
Skype first--My detractors on this site (and there are many of them) are quick to point out that Skype is available on many devices, including just about any laptop with a built-in camera and any smart phone or tablet. What they miss is that Skype isn't generally available with a wide-angle camera lens, isn't generally available in the living room, and isn't generally very easy for grandma to use. The next generation Xbox cures all of these issues, and lets anybody call anyone else by merely talking to their always connected Xbox. Again, I don't KNOW that this is going to happen, but it makes a lot of sense that it will. Why is that a killer app? Because if you're a 16 year-old living at home, it's an easy hook to sell your parents on the next generation Xbox by convincing them that the entire family can call grandma every night and say goodnight. I think it's even a compelling reason to buy a console for grandma, so she can video chat with her grandkids, and it conveniently gives the 16 year-old something to do when he's forced to visit grandma. I don't know for sure WHY Microsoft bought Skype, but this seems as logical a reason as any. I think that living room to any phone globally is a lot easier than PC to phone, and I think that people with families overseas or far away will be interested in making calls easily (and cheaply) via Skype if the service is included in a plug and play device like the next Xbox.
OK, that was the easy part. The TV side takes a bit more imagination.
Adding a TV tuner isn't really that big of a deal. However, the WAY the TV signal is delivered is a big deal. If Microsoft were to sign with one or more cable providers, the signal would not come over cable or satellite; instead, it would come over the Internet. Internet service providers are an impediment to this working (will discuss below), but if data cap issues are set aside for the moment, a cable company would be able to offer IPTV beyond their FCC-regulated region. That means that consumers could get any cable TV service in any jurisdiction (yes, this is U.S.-centric, but bear with me for a minute). Right now, Comcast has around half of U.S. households who subscribe to cable or satellite; if they had no territorial limitations, they could go for all households. That is meaningful to them, and to the guys who they plan to take market share from, so it is only a matter of time before everyone will sign up with Microsoft for this, assuming I'm right. I've been saying this for close to two years, and I think the technology has evolved to the point where this can happen with the next console.
Assuming I'm right, there are two advantages to the cable companies: first, the Xbox replaces the cable box (or at least, the primary box); and second, the cable company can sell service outside of its regulated area, since it will be selling IPTV. Choice is good for consumers, so the government will favor this outcome. It's an open question whether Microsoft can route the TV signal from the Xbox to other televisions in the same household wirelessly, but it seems that they could do so by attaching some sort of dongle to the other television, and trick the TV into thinking it was connected to a cable box. The cable company saves capital (no cable boxes to build), operating expense (no installation or service call), and ultimately can attract more customers.
The trick to this working is to get the ISPs to lift data caps. That's a tall order, but for those of you old enough to remember, cellular service used to work the same way as cable television worked, with carriers assigned certain regions. That all changed a few years ago, and roaming charges evaporated as if by magic. In order for that to happen, the carriers had to agree to carry one another's service on their proprietary networks. It worked, and I think something similar will happen with ISPs if cable television becomes IPTV. The good news for ISPs is that IPTV will drive even greater adoption of broadband, and will make broadband more essential, so I think that if the next generation Xbox is an IPTV tuner, we'll see a lot of happy cable companies and ISPs.
Why is this a killer app? Because television can go from a static delivery with a handful of programs on demand to a fully on-demand experience. If people are willing to pay, there is no reason why every episode of every TV show ever broadcast couldn't be pulled up and viewed on demand. This can absolutely happen with IPTV, and if a cable company has the rights to the programming, it is likely to happen.
The essential component of all of this is that the cable company sees the potential to sign up its customers to a long-term, high subscription price contract. This is similar to what mobile phone carriers saw when smart phones debuted, where data plans averaged $100 per month, and users got a subsidized smart phone in exchange for a two-year contract. I think we'll see the same thing with the next Xbox (if I'm right about the TV tuner): a subsidized console in exchange for a two-year cable TV contract. Other potential sources of subsidies are Microsoft themselves (subsidized console for a two-year subscription to XBL, at $20 - 30/month but including IPTV, XBL Gold and Skype for free) and ISPs (maybe a two-year broadband contract at $60/month or more).
Again, the 16 year-old who talks his parents into extending their current cable TV subscription or their broadband subscription for two years will end up with a cheap console. That makes Microsoft the favorite (for now), in my view.
Some of you asked why I had "predictions" now, instead of waiting for all of the details on pricing, features, specs and launch date to be announced? The answer is that SXSW was last weekend, and I had to write something. I may be wrong, but it's my best thinking as of now. Once we learn the details of the next Xbox, I'll modify my "predictions".
Hope that helps some of you to understand my madness a bit better.
