The infant market for Internet set-top boxes for TVs may never grow up.
As the convergence between television and the Internet develops, some analysts and industry observers say a set-top box is just a small stepping stone to the day when all TVs will be Internet-ready straight from the factory. That shift could wipe out the development of set-top boxes just as the market starts to heat up.
Sanyo Electric, for one, already is introducing its version of an Internet-ready TV at Comdex this week. In addition, analysts say, television manufacturers like Sony, Thomson Consumer Electronics, and Philips Electronics are likely to be the first to ship Internet-ready television sets.
Even in the face of this seemingly daunting competition, the company that developed the technology for the set-top box says it's not fretting.
Bill Keating, vice president of worldwide field operations for WebTV, said that, even when Internet-ready TVs are ready for the mainstream, consumers who want the latest and greatest technology for television connectivity will still need frequent upgrades.
This presents a glitch in the theory that all TVs eventually will be Internet-ready. Because it is unlikely that consumers will buy a
Acorn Computer Group
Keating said the future of the set-top box market nevertheless lies in the hands of manufacturers that can make Net-ready television sets. The other winners will be those that create content that will give consumers a more interactive television experience.
For now, players in the Internet-TV arena include more than 25 manufacturers of set-top boxes, a handful of companies that make the technology that goes inside the devices, and a smaller number of Internet service providers. Analysts say it will be difficult to assess the market share of these companies until next year, because many products went into the channel only in the past six months.
As the set-top market grows, one of the companies to benefit inevitably will be WebTV parent company Microsoft (MSFT), said Will Strauss, president and principal analyst at Forward Concepts, an electronics market research firm. He predicted that the software giant eventually will make its WebTV Network service available to all set-top box makers.
"The service is what [Microsoft] wants to sell," Strauss said. "You can make money in the hardware now, but eventually the content will make the money."
Keating agreed. He predicted that once TVs are shipped Internet-ready, WebTV's
"The box is like the America Online disks. You probably have a drawer full of them," Keating said. "The goal is to have subscribers, and we are fairly indifferent about which way the subscriber comes on to the network."
In the near term, box makers like Philips, Sony, Mitsubishi, Thomson, Boca Research, and Teknema will benefit from the opportunity to sell the boxes to consumers who can't wait for Internet-ready television sets. The companies also will benefit from teaming up with ISPs.
Teknema, for example, signed up 100 ISPs to offer its product to consumers and enlisted a small army of marketing representatives to promote its product, said Sean Kaldor, director of consumer device research at International Data Corporation.
While they are rushing to get their products to market, set-top box companies must meet certain criteria to survive in the Internet-TV
That leaves the likes of Sony, Phillips, and Thomson, which owns RCA, on top, analysts said.
Sony's product, based on WebTV technology, and RCA's NC1020 and NC1010, based on technology from Oracle subsidiary Network Computer Incorporated, were designed for use with conventional televisions. These boxes are targeted primarily at baby-boomers, technophobes, and gadget-lovers.
"People will be interested in buying things that make their TVs more interesting, but just Internet access isn't going to excite that many people," said Joshua Bernoff, an analyst at Forrester Research.
Kaldor agreed that today's set-top box market is limited. "The focus today is not on entertainment," he said. "It is on information."
Bernoff pointed out that, even though information is their focus, set-top boxes should not be seen as an alternative to a personal computer.
"To think of it as a PC replacer is ludicrous," he said. "But think of it as an enhancement. You end up with an interactive enhancement for your television."