IT killed the CE star

For a long time, proprietary consumer electronic devices ruled the home. But they could rarely talk to each other and were never upgradable. They had high prices, because of the high development and manufacturing costs of proprietary technology. Now there is a growing trend toward repurposing IT technologies for consumer electronics needs.

With increasing frequency, formerly IT-centric manufacturers such as Dell and HP are entering the consumer electronics market. They were preceded by TiVo, which took Linux and standard parts and created a new CE device category; ditto for Microsoft's Xbox game console, which has Intel and Nvidia processors. The result: affordable consumer electronics products with the heart of IT technology beating inside. (Note: BA Venture Partners has no investments in any companies mentioned in this article.)

An example of the old design model is the ReQuest Fusion, a home jukebox that can hold four iPods' worth of music. You might expect to pay $400 for such a device, but instead it costs $4,000—a price clearly determined by a much less efficient market.

The IT-repurposing trend is particularly striking in display technology. A host of technologies originally designed for computers compete to make the TV viewing experience more affordable and enjoyable. InFocus' crossover projector can deliver HDTV resolutions as well as standard laptop resolutions. The increasing affordability of these technologies—thanks to their deployment in the enterprise—will create a greater market for HDTV and video games as well as PC/TV convergence devices.

Two products, the Roku HD1000 and the LiteOn LVD-2001, exist solely to convert media formats such as DVD and Compact Flash to HDTV signals. Now media content that was locked up in the PC can be viewed on the TV. These devices are also cheap, as they ride the IT cost curve (the Roku box, $400 from the founder of RePlay TV, runs Linux; the LiteOn box, $150, comes from a longtime manufacturer of computer components).

You might expect to pay $400 for such a device, but instead it costs $4,000.

Home-automation devices' use of networking is stumbling toward fruition. One final example: a device from Global Cache bridges the Internet to proprietary serial or infrared hardware, providing a way to upgrade legacy audio-visual equipment. Devices such as these are critical to bridge from the expensive, one-and-done proprietary environment and into the upgradeable, open standards environment and to reduce the prices from those of luxury goods, to those of IT goods.

The final proof that the nerds have taken over the living room is the entry of IT-centric brands into the consumer electronics market. The largest seller of plasma display televisions in the U.S. is Gateway. Dell and HP have announced a wide array of consumer electronics products, from MP3 players to DVD player/recorders to wireless networking gadgets for the home. Even Cisco is creeping closer and closer to the consumer in its most recent products and acquisitions.

What will all this mean for the consumer electronics market? Much lower prices, certainly. Also, much more interoperability between devices you use every day. It will also mean a renewed emphasis on consumer design, not basic functionality, to determine the difference between market winners and losers.

What else will change the economics of consumer electronics? Send your experiences tofeedback@eb.reedbusiness.com.

Jim Jones and Sharon Wienbar are directors at BA Venture Partners (www.baventurepartners.com), where Jones covers system and component manufacturers tackling next-generation communications infrastructures and Wienbar covers enterprise software and Internet infrastructure companies.