On Carve-Outs and Cannibalization
Thursday, May 28th, 2009
By Ross Rubin, Executive Director, Industry Analysis
Apple’s iPod led many to opine that the future of consumer electronics lie in the integration of hardware, software, and services, the so-called “CE 2.0.” I would certainly concur that “beyond the box” solutions — particularly software for unconnected devices that compose the vast volume of the industry — can lead to many benefits such as competitive differentiation and a better overall user experience.
However, looking at some of the singles and doubles by device startups in the past few years, a more identifiable trend can be seen. Let’s start with the Flip camcorder, which will soon enjoy a new future as part of networking giant Cisco. The Flip embodied four aspects of a carve-out that has served as a model for future products:
- It focused on a secondary application of products in the larger category from which it was derived, e.g., sharing versus archiving video.
- It had a clearly targeted demographic, e.g., moms and grandparents, that was often on the periphery of the parent category instead of trying to be all things to all people.
- Its design was driven by a focus on simplicity.
- It was disruptively priced.
Last year brought two successful hardware products that have followed the carve-out model, which is far easier to pursue than pure category creation. The Roku media player came into the market with the sole purpose of streaming Netflix movies, competing with just one of the features of Apple TV, TiVo, or Sony’s or Microsoft’s video game consoles. It focused exclusively on Netflix subscribers, and it was only $99, much less than any of the aforementioned devices.
On the portable side, the Peek e-mail device delivers only mobile e-mail and texting, just one of the myriad features that smartphones can handle. The device is also targeted at busy moms and is available at retailers for $99 or less. Even a monthly service plan hasn’t done much to dampen the enthusiasm for Peek, which is now starting to cautiously climb upwards with the Peek Pronto.
In contrast, let’s look at netbooks. As my colleague Stephen Baker has noted, there is a continuing struggle between OEMs and Intel and Microsoft to “contain” the low-priced netbook that is driven by fear of cannibalization. This is because — particularly when used with Windows XP — the primary netbook applications such as e-mail, Web access, media consumption and light productivity — are not differentiated from those of the parent category.
What will be the successful carve-outs in 2009? I’ve already blogged about the Avaak Vue, which is focused on telepresence and webcasting as opposed to the robust security applications that drive most of the high-end IP camera markets. And then there’s PogoPlug, a wall wart-like adapter that lets users simply share an external hard drive over the Internet. In contrast to pricey home servers and NAS solutions that can be priced above $500 and rely on multiple PC backup as their main selling proposition, the PogoPlug costs $99 (excluding the hard drive) and is useful to households with even one computer. Another interesting contender is SanDisk’s slotRadio, which lowers the barriers to digital music consumption and purchase with a completely offline usage model. However, the device’s price may not be low enough, relative to MP3 incumbents, to strike the value chord that many of these other devices are resonating.
Follow NPD on Twitter:
http://twitter.com/rossrubin and http://twitter.com/NPDGroup
Tags: Flip camcorder, netbooks, Peek, PogoPlug, Roku media player, slotRadio, vue
Consumer Technology | Ross Rubin, Executive Director, Industry Analysis | 
May 28, 2009 11:00 am
Subscribe
