Herman: Content Co + Hardware Co = Cheap Hardware

January 16, 2008   

Do you feel like pondering what the future of hardware looks like? (I think most readers of this blog spend a lot more time gushing over software.) Check out Darren Herman's post pronouncing that "Screen Devices Should be Subsidized."

His thesis:

As hardware companies become more like content companies, or content companies begin to pump out more hardware, the cost of hardware is going to diminish towards zero, following models set in the video game market (which he's very knowledgeable of).

I think Darren is on to something here. After all, look at the cellphone market. With most new contracts you can get a "free phone" -- which is really paid for via the service, and we're even seeing a market where the hardware manufacturers themselves can benefit from this (Apple's iPhone is subsidized through their agreement with AT&T).

Apple, of course, is the perfect case study for Herman's thesis, more than anything because Microsoft had to do with their Zune in order to compete with the iPod (burn through $150 to sell each unit).

But I do see one BIG caveat with Darren's postulation:

Most mediums trend towards "open," and open mediums mean separation of content and hardware.

Even down to your television sets, there will always be a demand for content published and broadcasted in the open spectrum (believe it or not, NBC, CBS, ABC, and PBS will be around for a long time).

The relationship between openness of mediums and cost of hardware to access that medium is proportional.

Conclusion: Widening tiers of mediums

So I think Darren is right and that I am right ;-) As time goes on, the hardware like the AT&T-teathered iPhone and video game systems will get cheaper, while demand for open hardware will remain steady (and expand into markets like handsets -- as is happening right now) while its pricing levels remain steady.

Beyond handsets, I see personal computers and televisions maintaining large "open" segments of their markets as well. As for games, until there's a true convergence of games and the web, I imagine that market will remain 100% subsidized from a hardware perspective, but I have trouble imagining that down the line gaming systems won't become more standardized and open too.

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