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The Enemy of the Enemy is My Business Partner

Sony announced a new line of smart TVs this week that include Google’s flagship ‘Google Assistant’ voice interface. I hope Siri, Alexa, and Cortana aren’t too upset about it. The benefits to Google of such integration are obvious. The more interesting questions are why would Sony do this and what does it mean for the future of TV? Two thoughts.

1. Paper Covers Rock
In the economic struggle for survival and supremacy between companies, value chain positioning is the key source of power. Put another way, it’s not about who’s bigger today, but who’s better positioned to own the end-user tomorrow.

For example, who’s more powerful in the transportation industry today – General Motors or Uber? GM is obviously far larger and more successful in conventional terms, with annual revenues of more than $160 billion (vs. $5.5 billion for Uber) and 2016 profits of more than $12 billion (vs. an expected $3 billion loss for Uber in 2016). The reason the question gives one pause, however, is the difference between the two companies’ business models. GM depends on an oh-so-20th century model of manufacturing and selling consumers expensive vehicles for personal use. Uber, by contrast, is a platform that sells consumers vehicle-based transportation on a ride-by-ride basis from point A to point B.

In strategic terms, Uber has the clear edge because (1) it’s closer to the consumer’s real problem, and (2) a fully satisfied Uber user has no need to buy a car from GM (or any other traditional manufacturer). In other words, at sufficient scale the cleverness of Uber’s paper may well beat the brute force of GM’s rock.

What does this analogy have to do with Google Assistant inside a Sony TV? Plenty. Sony’s TV group (along with all the other traditional TV OEMs) is stuck with a very difficult business model that consists of manufacturing expensive TV sets and selling them to the end consumer for personal use. Unlike cars and trucks, however, selling TVs is today a low-margin, hypercompetitive business. TV makers have to run very hard every day just to survive, and thus are always hunting for anything and everything they can possibly find that will get the consumer to spend their hard-earned cash on a new set.

Google, by contrast, is in the business of organizing the world’s information and monetizing it via search. Google Assistant (along with its competitors Alexa, Siri, and Cortana) is becoming an all-purpose virtual assistant that uses cloud-based AI to provide a voice-based interface to pretty much anything a consumer could want. One of the things that consumers want, of course, is video content, which remains a dominant source of personal entertainment.

The ability of the Big 4 voice-based assistants (Alexa, Cortana, Google, and Siri) to organize and present TV content across multiple content sources is potentially invaluable to the consumer, and quite disruptive to the existing TV value chain. Let’s be clear. Sony knows very well that, in the long term, integrating Google Assistant into their TVs may be a deal with the devil. Nevertheless, Sony’s business model (along with its competitive vulnerability in the TV market) leaves the company little choice.

2. Picking Your Poison
Sony’s announcement with Google puts legacy players in a difficult position. This includes both TV OEMs as well as MVPDs. Given the inevitability of some type of voice-based search for video content becoming mainstream, three basic strategic options are available.

The first approach is for legacy TV players to develop their own voice search capabilities. We see a lot of effort in this area today, from players as varied as Comcast (via the X1 interface), Roku, and Samsung, which has developed its own “S Search” voice recognition capability. I understand the appeal of these apps, but they are ultimately doomed. Voice search limited to a single service (or device) is a classic stovepipe solution. The consumer wants to be able to search for anything across any service, something none of these device-specific assistants can offer. Comcast deserves a lot of credit for adding Netflix support to its X1 search engine, but let’s be realistic. Is any MVPD or TV OEM really going to be able to develop a voice interface that supports every possible video source (including YouTube and my NBA League Pass), much less music, weather, news, my lights and thermostat, and all the other things that the other virtual assistants can do? I seriously doubt it.

Alternatively, and as happened with Internet search, the TV industry could coalesce around Google as the de facto default search engine. The benefit of this move is that it creates a level playing field for search among legacy participants. The obvious problem with this approach is that collectively it gives Google unbelievable market power, essentially handing Google CEO Sundar Pinchai and Company the keys to the $70 billion US TV advertising market.

The third approach is to divide up teams and align with one or more of the Big 4 assistants. The reason this seems inevitable is that the consumer can only deal with one voice interface at a time, and most consumers will tend toward a single favored voice assistant. In this scenario, we end up with Team Google vs. Team Alexa vs. Team Siri vs. Team Cortana. Each ‘team’ has an array of third-party devices, as well as the core smartphones, PCs, and always-on home devices (e.g., Amazon’s Echo) provided by the Big 4 companies themselves. This seems like both a plausible and semi-stable future similar to what we see in many other markets. For example, the credit card market is a long-running battle between Visa, Mastercard, American Express, and Discover. As with credit cards, merchants (i.e., content providers like HBO, Netflix, the NBA, etc.) would have a strong incentive in this scenario to provide API support for all of the Big 4 assistants. That way, no matter which voice assistant the consumer favors, they can find the content they are looking for.

Sony’s partnership with Google is a harbinger of things to come. The Big 4 are going to dominate the market for voice-based virtual assistants and, sooner or later, the rest of the TV industry is going to have to figure out where they stand.

Stick with TDG and stay ahead of the curve.

Joel Espelien is the former Senior Vice President of Strategy at PacketVideo. Joel is now a Senior Advisor for TDG and serves as an advisor and Board Member to technology start ups. He lives near Seattle, WA.