When companies collide

(The following essay originally appeared as a Special Letter in the March 4, 2004 issue of STRATEGIC NEWS SERVICE, published by Mark R. Anderson. For more information on the SNS newsletter, please visit www.stratnews.com.)

Pop quiz: What is a computer? For extra credit: What is a consumer electronics device? What is a toy?

Or, more to the point: define what makes a firm a computer company, consumer electronics company or toy company.

This would have been an easy quiz a decade or even five years ago. Computer companies sold big, expensive ($2,000 and up) multifunction boxes with microprocessors inside. Consumer electronics companies sold single-purpose devices at sub-$200 price points. Toy companies sold stuff that was fun to play with, usually for under $100, and rarely had any advanced technology in it (unless, like me as a kid, you were fascinated with how an Easy Bake Oven could actually cook anything edible).

Those several years ago, you’d find computers at CompUSA and Computer City; CE devices at Radio Shack and Good Guys; toys at Toys R’Us and Kmart. Sure, there’d be some overlap, but when you looked at a toy, you knew it was a toy, and no one was going to confuse a PC with a Walkman.

Fast forward to today and the Alaska Airlines flight I took last month from Seattle to New York City for the 101st American International Toy Fair. On the flight were the usual business travelers, screaming babies, drunken passengers who took a bit too much advantage of a free upgrade to first class, and –- the best part –- the APS DigEPlayer 5500.

A DigEPlayer is a new, 2.4-pound device the size of a trade paperback book with a large LCD screen set in one side and a fold-out stand on the other.

When you turn the DigEPlayer on, up pops a menu of 10 movies (new and classics), three TV shows and hours of classical, pop and other music (including the intriguing selection “Alaska FM,” which turns out to be the music you hear when you board the plane). There’s also an Alaska route map and other information. Plug in your headset, play with the buttons and you’re set for several cross-country flights.

So is the DigEPlayer a PC? Must be; it runs something called MicroOS, has a hard drive and clearly has files to manage. Is it a CE device? Of course, as it’s a single-purpose “in-flight entertainment system.” How about a toy? Putting a game on it and plugging in a controller or using the four-position rocker switch on the front to play games would be, well, child’s play.

About the only entertainment the DigEPlayer can’t match is watching people squeeze by the food service carts in the aisles.

But the difficulty in classifying a device like the DigEPlayer illustrates the growing challenge in keeping clear divisions between what’s a computer, CE device or toy. Consumers themselves probably don’t care what categories a product falls into as long as it does what they want. Yet the increasing convergence of these three types of products creates headaches for companies, marketers and distribution channels.

The general trend is for personal computer companies and toy companies on the edge to migrate to the consumer electronics center. At the same time, traditional CE companies are expanding to encompass what they like in the PC and toy markets.

Motivating each firm is a desire for increasing profits and margin. (Though the PC business has razor-thin margins and sales in the $20 billion toy industry are slightly down, the CE industry is worth about $100 billion and growing, according to trade association figures.) But as these products converge, companies collide.

So let’s take a look what happens When Companies Collide (with apologies to the 1932 work of Philip Wylie and Edwin Balmer).

Leaving the PC crib

The convergence getting the most attention in the mass news media, and the one that smacks the most of desperation, is the lemming-like rush of personal computer companies into consumer electronics.

This isn’t necessarily a stupid move. Indeed, when it was first done with flair by Steve Jobs in 1998 it smacked of genius. Jobs rightly realized that PCs had become commodities when instead they could become fashion items. The iMac represented Apple’s return to style, a definitively non-PC personal computer for the 50 percent of U.S. households that had yet to purchase, and may never have wanted to buy, a computer.

Jobs followed up the high-priced fashion statement with a true consumer electronics device, the wildly successful iPod, in 2001. And then the floodgates opened: first, with much publicity, Gateway’s entry into plasma TVs and MP3 players; and subsequently, Dell, Hewlett-Packard and just about everyone else.

Nowhere was the IT industry rush to CE-nic surroundings more evident than at this year’s International Consumer Electronics Show in Las Vegas. And not every move was obvious.

Take photo printers. You may instinctively think of them as personal computer peripherals. But newer models let you take the memory card from a digital camera, plug it directly into the printer, view and adjust the image on the printer’s LCD screen and then print it -– all without ever using a PC. My contention is that makes it a consumer electronics device. I suspect Hewlett-Packard, which introduced even more models at CES, would agree. And with price points for a photo printer with an embedded LCD screen as low as $139 (thanks to a January sale at Costco), they are priced like CE devices as well.

Microsoft, of course, took to CES to announce, for a second year in a row, its Smart Personal Objects Technology watches, Now they’re called Smart Watches (and work like the old Timex Internet Messenger pager-network watches but add, among other things, the ability to sync with Microsoft Outlook). The watches are from Citizen and Fossil. The service, which uses the FM radio band, is called MSN Direct, and costs $10 per month. Ka-ching.

But some shifts from CE to PC made me wonder what the company was thinking. Epson introduced both a 47-inch and a 57-inch LCD HDTV at CES. Epson. A company best known by the public for its printers. And indeed, the new Epson Livingstation includes a built-in color inkjet printer for printing digital photos … via the remote control.

You’d be forgiven for wondering if this means that you have to change cartridges every three months to get the TV to display color properly. (I’m writing only partly tongue-in-cheek: old timers in tech might recall the ill-fated Coleco Adam, an all-in-one personal computer that stopped working entirely if the printer failed -– the power supply for the whole PC unit was in the printer.)

Perhaps more successful will be a mostly unheralded product from D-Link, the i2eye DVC-1100 wireless broadband videophone. This $249 device hooks to a TV set and broadband Internet connection via 802.11b or 802.11g (a wired version had been available earlier). What’s amazing is that this thing looks pretty good, with up to 30 frames per second –- good enough to be used, say, for a TV news reporter to do live shots from their home as long as there’s another DVC-1100 in the studio. Beats using NetMeeting. And no PC is required.

And Sony has taken the convergence a step further with yet another iteration of the Aibo Entertainment Robot, the ERS-7, which at $1,600 (or a mere $40 per month on a convenient payment plan) is an advanced personal computer masquerading as a toy.

Of course, CES saw everyone from Microsoft to TiVo to Salton (more on the last two later) announcing a home entertainment hub. And Hewlett-Packard did the deal to OEM Apple’s iPod and include the iTunes service on its PCs.

But the real story behind CES wasn’t the MP3 players, digital cameras or Windows Media Center PCs. It was that the efforts of traditional PC and IT companies to get into the consumer electronics business is much broader and deeper than it may appear at first blush, and a large part of it has to do with how new products are being designed to work either with, or without, a personal computer.

Knowing this, it should come as no surprise that, at 129,000 people, CES has far outpaced COMDEX as the largest technology-related trade show in North America. And it hasn’t just outpaced it. In terms of importance, it’s replaced it.

Digression: The problem of music

If there’s a single poster child that can represent products in convergence and companies in collision, it’s music. You might even be able to build a pretty compelling case that it was the wildfire-like spread of the MP3 file format that slapped the PC companies hard enough to wake them to the potential of the consumer electronics market.

As a result, consumers can now get digital music from a dizzying array of firms, from XM Satellite Radio to neo-Napster, to play on an equally dizzying array of devices, from PCs to flash memory portables to CD-audio players to in-dash stereos to rack-mounted stereo components to mobile phones.

But this near ubiquity of digital music files –- at least, to the technologically literate -– has a gaping hole.

A couple of years ago, at a nearly deserted Internet World in Los Angeles, an executive for Listen.com (before it, and its Rhapsody service, were acquired by Real Networks) posed a question to me. If consumers can get digital music streamed to them on demand at their desk, in their home stereo, and on their car stereo, why would anyone need to “own” music, such as on a CD? What was the point of having the right to burn or keep a music file on CD if you could access that music anywhere, anyway?

At the time, I said a good part of it was psychological (and marketing is, at its heart, only applied psychology). After all, people still want to “own” books even though they probably could check them out anytime from a library. While some societies are hunter-gatherers, we seem to be gatherer-hoarders.

The second point is that CDs are infinitely portable. If you’re not connected, they work. If you’re on the road, they work.

Now, we’re getting to the point where on-demand audio streams are a reality at home and at the desk. But there’s one missing link. While consumers are able to stream and subsequently save music to a digital player without ever having to worry about burning a CD (and thus “owning” the music) at home or at their desk, they still can’t do that when they’re not tethered to a PC. Sure, you can subscribe to XM Satellite Radio or Sirius Satellite Radio and listen to hundreds of channels. But you can’t save it in a digital format or listen, on demand, to the artists or titles you want. Sure, you can download MP3 tunes to your mobile phone, but try getting them out of your phone and into an MP3 player or your PC.

I can imagine a “Buy Now” button on my XM Satellite Radio receiver with the song instantly downloaded to a smart media card that I can then insert and upload into my MP3 player or PC or stereo.

That’s the missing link in digital music’s ubiquity: bringing on-demand streaming, and saving to flash memory, to people on the go. Once you have that, ownership is defined as having your music with you, connected or not, PC or not. And it’s very likely the end of the pre-recorded CD, except for audiophiles (the same folks who still buy pre-recorded vinyl).

The reverse CE commute

Some companies are edging in the other direction, from consumer electronics into personal computers. We’ve all heard about the Internet-connected refrigerator to the point where it’s become an archetype for IP excess.

You could add to that an entire line of network-connected appliances. Salton had just that at CES in its Beyond Connected Home appliances. The complete line includes, among other things, a Home Hub, Coffee Maker, and Icebox CounterTop kitchen entertainment center. The last is either a marvel or a monster of integration, depending upon your perspective, with LCD touch screen, TV, DVD/CD player, FM radio and Web browser in a die-cast metal base along with washable keyboard and remote control. The Icebox CounterTop’s ship date was delayed from last year to the second quarter of this year so it could be re-tooled to “talk” to the rest of the Beyond appliances. Pray they don’t plot to deflate your soufflé.

TiVo, too, inexplicably seems to be becoming more and more of a PC company. This is a questionable direction for its eponymous product, one with huge CE aspirations but one that is also struggling to gain a mass audience quickly. One big announcement at CES was TiVo allowing those who have purchased the Home Media Option (which enables sharing of TiVo-recorded media across a home network) to additionally buy third-party products to play music or display images from their PC through their TiVo. This has the unintended effect of turning the clean, consumer-friendly TiVo interface into one with command lines (indicating file/folder locations). Not a good idea.

Then TiVo announced its TivoToGo option, again for Home Media Option purchasers. This lets TiVo users transfer recorded TiVo video to a laptop or other computer. So far, so good. But it requires an extra-cost dongle -– a little intelligent plug that goes into the USB port that tells the device you have the legal right to use the content. Following a rather spirited conversation with a TiVo representative, it came out that the dongle was a defensive move on TiVo’s part to avoid being sued by the TV and movie industries. Clearly no one at TiVo remembers the attempts software companies made to require a dongle to run their software, also in the name of preventing piracy. It failed, due to widespread purchaser revolt. Also not a good idea.

I love my TiVo. I can’t imagine watching TV without it. But I also can’t figure out why TiVo, instead of broadening the horizontal appeal of its devices by adding more generally available, simple-to-use media features, rather insists on introducing complicated techie crap aimed at slicing the early adopter Home Media Option audience into increasingly thinner verticals. You don’t win the mass market that way. Guess what kind of idea this is?

Video display options shown at CES also portend interesting things for PCs. One example: Philips, best-known for really cool TV ads some years back featuring flat panels and Flipper, showed off two models of its MiraVision mirror TV. It’s a 23-inch LCD panel embedded into a framed mirror, oriented either wide or tall (when tall, it takes up the bottom portion), with 1280 x 768 XVGA resolution. When the TV is off, you see a reflection. This does have PC applications.

There are a couple of special cases of products firmly in the CE market: videogame consoles and wireless phones.

Videogame consoles are essentially personal computers masquerading as single-purpose CE devices. Nintendo realized this as far back as the early 1980s with the first Nintendo Entertainment System which, on its bottom, had a port for an optional keyboard. (That keyboard option was used only in Japan.)

But in the past year, we’ve seen the masks – and the gloves – start to come off. Now everyone, it seems, except Nintendo is embracing their PC heritage. Both Sony (PlayStation 2) and Microsoft (Xbox) have made it clear that the future of their systems is as a home entertainment hub. Sony has announced a hard disk drive for the PS2 with an integrated media player for music and photos, and has publicly stated, “We are departing from the status quo in an effort to broaden the in-home entertainment market.”

Mobile phones, on the other hand, seem to be expanding in both directions, toward PCs and toys. They have the problem of being the single-purpose device that really, really wants to be a multi-purpose device. But I do put them into the “consumer electronics” camp, as they’re voice communications devices first and foremost.

Unfortunately, the PC part has been a bit dicey. Anyone who has suffered with a WAP-enabled mobile phone realizes that the expectation for how a device should work is frequently more important than whether it does work.

So the mobile phone companies are trying to squeeze in anything that fits in the phone form factor, essentially moving from single-purpose CE device to multi-purpose CE device. MP3 player. Camera. Instant messaging or text messaging or short messaging service or multimedia messaging (you pick). FM radio. Games.

This has led to some spectacular failures. Nokia’s N-Gage, released last October, stumbled as a combination of mobile phone and handheld game system. On the plus side, it’s lightweight and looks cool: A mobile phone turned sideways with a color LCD screen.

But the negatives were deadly. The buttons are mushy and unresponsive for games, and you have to awkwardly put ear and mouth on N-Gage’s edge to use it as a phone. Imagine holding a phone like a taco to talk. For $299, the N-Gage is neither a decent game system nor a good phone. Nokia should have known better: a relatively empty Nokia booth at last May’s E3Expo trade show gave mute testimony to attendee reaction, and subsequent lukewarm reviews (which led Nokia to emphasize the European launch over the U.S. launch) led to even less spectacular sales.

But there are also promising newcomers. Wildseed this year launches its Smart Skins, intelligent wraparound faceplate-like shells that attach to mobile phones. The first Smart Skin–compatible handsets come from Curitel. Each Smart Skin, ranging in price from $20 to $50, contains a chip with games, ringtones, video clips, light effects and other software that all play off of a specific theme. And the first themes are definitely youth-oriented: Nelly, Hot Kiss and French Kitty. It’s a case of a CE device becoming, in effect, a toy.

InStat/MDR thinks that may actually be an undiscovered market, with an estimated 25 to 35 million potential customers. Of course, they call it the “youth market,” not the toy market.

Even phone cameras are approaching usability. This month, Vodafone introduces Europe’s first megapixel camera phone, the Sharp GX30. More are on the way.

Why are CE products starting to invade the PC space? It ain’t the margins. It ain’t the glory. It appears it’s simply for the same reason that it’s said rock stars date supermodels … because they can. And in many cases, because CE manufacturers want their products to supplant the PC as the most important piece of electronics in a home.

Digression: The baking soda trap

The tendency for some consumer electronics products companies is to continue to add features and try to be everything to everyone. But this can lead them to become nothing to no one. It’s what I called, back in 1997, the baking soda trap. I was speaking of PCs then, but it’s starting to apply equally to multi-purpose CE devices.

Try this. Stop at a supermarket, walk the aisles, and pick up the gold box labeled “Arm & Hammer.” Read it carefully.

You’ll see that baking soda can be used as a kitchen cleanser, carpet deodorizer, dentifrice, septic-tank additive, insect-bite salve, laundry freshener, foot soak, antacid, and, of course, for baking.

It is not unlike being able to use a mobile phone to snap photos, check e-mail, listen to music, organize a calendar and, of course, talk to friends. PCs and PDAs similarly have multiple functions, each seemingly of equal importance and varying in interest, depending on who you are and what you need.

But people don’t buy features. They buy benefits –- what a product can do for them. And marketing a laundry list of features requires that a consumer make several leaps before making a purchase decision: What does it do? Okay, what can I use it for in my own life? What about the other features -– do I want to pay for things I’m not going to use?

That’s why it should come as no surprise that baking soda, an incredibly flexible product since it was commercialized by James A. Church in 1846, has not pre-empted a number of more specialized and admittedly easier-to-use products like Carpet Fresh, Crest and Tums. Baking soda is thought of primarily as a refrigerator odor remover and baking additive.

It probably doesn’t help that properly configuring baking soda for other tasks requires more thought than ripping its top off and sticking it in the refrigerator –- for example, carefully measuring it (1/2 teaspoon to 4 fl. oz. water every 2 hours) for use as an antacid. It’s not unlike how some added features on mobile phones, PDAs and other increasingly multi-function devices are configured.

That’s why you’ll find that toothpastes, carpet deodorizers and other products put the benefits first, and are marketed as single-purpose products –- even though, in many cases, they may contain multi-purpose baking soda.

In the world of consumer electronics, consumers don’t want to think hard to figure out why a product is important to them, or work hard to get at the benefit. Smart companies stay focused on a single, tangible benefit and let the other features come along for the ride. Or they risk falling into the baking soda trap.

Toys look chip-per

Finally, toy companies are starting to invade the consumer electronics space. And there was a lot more evidence of that last month at Toy Fair.

A much-bandied-about stat estimates that roughly 70 percent of all new toys introduced last year and this year have some kind of technology in them, be it microchip, voice generation or sensors for motion, light and sound.

There have been previous abortive efforts by toy companies to get into the consumer electronics space, and even by PC companies to get into toys. (Remember Intel’s Intel Play division, which introduced several very creative tech toys, including a digital microscope, a PC camera that put kids inside games and a handheld digital video recorder -– before shutting down after only a couple of years?)

Just two years ago, Toy Fair had a TechnoPlay area specifically for tech toys. It had all of the activity of a long-abandoned Uncle Milton’s Ant Farm. Now, that area is gone -– not because tech toys are gone, but because they’re so ubiquitous, they’re all over the show floor. And since tech has taken over toys, some of the same toy companies are headed for consumer electronics.

MGA Entertainment is best known as the company behind the wildly successful Bratz line of fashion dolls. At CES -– up until now, an unusual venue for a toy company –- MGA showed off all kinds of Bratz-themed consumer electronics devices and home appliances under the collective name of Bratz Electric Funk. There were musical instruments, a VCR-TV combo and -– perhaps the first of its kind -– a tabletop boombox / fashion mirror combo.

MGA took its designs on the consumer electronics space a step further a month later at Toy Fair with Star Video, a new product due in June. Imagine a sleek video camera that includes a special-effects generator cartridge, tripod, video and audio inputs and outputs and a remote control. Plug in a VCR and a TV, and any blank wall becomes a “blue screen” onto which you can place yourself in a video. The price? $149. Expect to see it at Sharper Image stores –- not your usual toy retailer.

Perhaps it’s telling that MGA describes itself now, not as a toy company, but as the fastest-growing “consumer entertainment company” in the world.

LeapFrog, the top seller of educational toys, introduced a new version of its iQuest handheld for grades 5 through 8. Not only does it quiz kids on math, science and social studies, but it also has a notepad, address book and calendar. And it talks. The new, sleeker and lighter $50 device, due in July, has changeable faceplates … and looks suspiciously like a Blackberry.

LeapFrog also plans to enhance its $80 Leapster Multimedia Learning System handheld (think of a Game Boy Advance with a bigger screen and educational focus for ages 4 to 10) with electronic book cartridges this year, similar to the Broderbund Living Books of a decade ago. Essentially, a platform for kids’ e-books. Leapster was so well-regarded that it took honors for both Most Innovative Toy of the Year and Educational Toy of the Year at Toy Fair’s 2003 Toy of the Year awards.

Others are trying to turn your TV into the latest toy. Giants Mattel and Hasbro both unveiled toys that use technology from VEIL Interactive which allows TV programs to send information -– including action triggers -– to devices within 3 to 15 feet of a TV set by subtly altering a screen’s luminescence.

While Mattel’s plan is to have a series of three Batman toys (including a Batmobile) this fall that can respond to signals embedded in the next two seasons of the WB’s animated The Batman series, Hasbro’s approach is more CE-like. Its Tiger Electronics division in May will launch the $30 Wheel of Fortune Live Play handheld game, complete with LCD screen, keyboard and spinner. It uses VEIL (Video Encoded Invisible Light) technology to download a broadcast game in real time and let the buyer become a fourth contestant in Wheel of Fortune broadcasts.

There are limitations to VEIL: a company exec told me at Toy Fair that it only works with CRT screens, not plasma or LCD. But they’re working on both.

Another CE-like toy is Fisher-Price’s InteracTV. It’s a $40 touch-sensitive large tablet, due in July, that replaces the DVD remote. Pop in specially encoded DVDs (episodes from Sesame Street, Dora the Explorer, Barney, SpongeBob Squarepants and Blue’s Clues) and put an activity card on the two-handed wireless tablet, and pre-schoolers can play educational games and have the remote programmed for up to three different DVD players.

Deep in my gut, I think both the VEIL and InteracTV technologies are only scratching the surface of what they could eventually do, especially in the CE space.

Other CE-like toys were improved. Tiger’s VideoNow (a handheld $50 device that puts TV shows on 30-minute proprietary optical discs to play back a 1.7-inch black-and-white LCD screen) gets full-length films. VideoNow will get a companion product this fall, the $30 Play Now, which records 30 minutes of analog audio with a hidden jack that plugs into any headphone outlet onto flash memory for playback (and yes, it has file management, plus six games).

And music toys were everywhere, including last holiday season’s $80 Handband from KGI: a pair of rechargeable high-tech gloves for playing music without an instrument. You select an instrument by pressing a button -– guitar, drums or keyboard -– and when you bend a finger, sensors play a note that’s wirelessly transmitted to a small, wearable speaker. It takes a bit of practice, but it sure sounds and looks cool, since each note also activates a color-changing LED light.

As advanced technology gets even more advanced, what techies may sniff at as outdated becomes cheap enough to go mass market. And that’s what winds up in toys. Is it any wonder that toy makers are taking advantage of it?

The future

So pulling it all together -– what does this device convergence and company collision mean? It depends on where someone is in the product food chain.

For consumers, there will be some head-scratching over the next one to three years as companies best-known in personal computing or toys try to move into consumer electronics (or some CE players try to move into the other domains). This largely comes down to a matter of trust. Consumers want to be assured that the company really knows what it’s doing (e.g., Epson), is committed to the new category and won’t abandon early buyers.

Market researcher Parks Associates, for example, said in early February that over 70 percent of broadband households likely to purchase a media server preferred traditional CE brands over PC companies. More than half picked Sony as their brand of choice. That doesn’t bode well for PC companies thinking the home entertainment hub and server marketplace will be easy pickings.

For the channel, the biggest challenges may be business models and simply where to shelve converged products. (Having once served in marketing management at Egghead Software, I know distribution isn’t just a “detail.”) In the mid-’90s, efforts to get multimedia CD-ROM and other software titles into bookstores largely failed –- not because the content was incompatible, but in many cases because the business models were. Bookstores were used to buying product at roughly half the retail price and having unlimited return privileges. Software companies wanted to be paid right away and have limited or no returns.

The business models in PC, CE and toy distribution and retailing may be closer to each other than those of software companies and booksellers. But there may be some differences that, on the surface, seem inconsequential, yet turn into large stumbling blocks as each tries to get into the others’ stores.

Then there’s the interesting issue of where to put a crossover or converged device. Does Star Video go into the toy department or the electronics department? Does the D-Link i2eye go with the phones or the computer networking equipment or even the televisions? These aren’t trivial questions to retailers. Putting a product where consumers don’t expect it can kill sales. Remember enhanced audio CDs, music CDs with multimedia content? Music retailers had no idea whether they should be put with the artist or in a special software section. By the time they’d figured it out, a promising concept was dead. (Or, as once observed in a Saturday Night Live sketch: “It’s a floor wax. It’s a whipped topping. It’s both!” Not.)

For manufacturers, the biggest challenge will be identifying their market strengths -– what they’re known for in the minds of their customers –- and playing on that. They’ll need to resist the temptation to create a converged product just because they can (Epson comes to mind yet again). Ironically, the strongest brands in a category may be at the greatest disadvantage.

For devices, the day of the vaguely undifferentiated, multi-purpose device is numbered. It may still fly with early adopters who want something cool, or in the corporate / enterprise market, where buyers have time to do detailed, time-consuming evaluations before making a purchase decision. But on the consumer side (and to some extent, in other markets that act like the consumer market, such as small business), undifferentiated devices may be increasingly marginalized. A device doesn’t define the market; the market defines the device.

People want to know what a product can do for them, and do for them better than any other device that might claim the same features. Indeed, being “general purpose” is a benefit, but only to a certain audience. That explains why sales of PDAs and the penetration of PCs in U.S. households have slowed or stalled, with Jupiter Research projecting handheld PDA growth to slowly reach 7 percent of the U.S. population by 2008, and PC penetration stuck somewhere just north of 60 percent, last time I checked.

While devices such as PCs, PDAs, mobile phones and others may be able to do many things, smart companies will focus on what that device can do uniquely well for an audience. And every product having a chip inside will be the norm, not unusual. Eventually, the ability of every device to wirelessly communicate with other devices and with us, as appropriate, will be similarly expected.

Scott McNealy’s mantra, “The network is the computer,” almost has it right. The problem is scale. The “network” will eventually be the network in a home, made up of all of the consumers’ CE devices, communicating away to act like a computer.

In the meantime, the lines between computer, consumer electronics and toy companies and their products will continue to blur and move toward the mass consumer electronics center. And those companies that don’t know how to navigate the rapids will be sucked into the whirlpool … and disappear.

(This essay was originally re-published on Frank Catalano’s Byte Me Online blog.)