Here's why I'm suddenly hopeful about the media industry: Because the tech industry is screwed too.
OK, let me explain.
It's considered a truism that "information wants to be free" -- a reality, aided and abetted by technology, that's destroying traditional media models. But it's increasingly turning out that technology itself wants to be as free as information. To get personal about it, your computer wants to be free! Your software wants to be free!
To give you some background, in late 2007, I tested the Eee PC, a mini laptop from Taiwanese laptop maker Asus. At the time, the "netbook" moniker hadn't quite congealed around this emerging category of sub-sub-notebooks, so when I wrote a column in January 2008 about my experience with the 2-lb. wonder, I didn't even know what to call it. But I knew then it was going to change everything. The $300 machine, I wrote, "has me contemplating nothing less than The End of Microsoft." That's because I tested a version that was Microsoft-software-free -- it had a simple customized interface built around Linux (the popular open-source operating system) and was obviously set up to encourage users to compute on the "cloud," using free web-based services such as Gmail, Google Docs, Facebook, etc. I totally didn't miss Microsoft's balky operating system or its pricey apps, because I was mostly using my new little buddy as a front-end to the internet (sort of like an oversize iPhone, with a real keyboard) rather than computing locally on my hard drive.
In fact, as the success of the Eee PC inspired basically every hardware maker to join the netbook fray, it turned out that Microsoft, which feared getting cut entirely out of this emerging market, had no choice but to offer hardware makers a bargain-basement version of its old operating system, Windows XP, because Windows Vista was way too bloated to run on netbooks. (Microsoft can charge manufacturers about $25 for the right to pre-install Windows XP on a netbook vs. $60 to $70 for Vista on a traditional laptop.)
In April, more than a year after I wrote that "End of Microsoft" column, Ars Technica published a widely linked story, "Microsoft earnings drop as netbooks take chunk of PC sales." And The New York Times finally got around to dissecting the phenomenon with a big story headlined "Light and Cheap, Netbooks Are Poised to Reshape PC Industry." Microsoft, the Times declared, "is particularly vulnerable, since many of the new netbooks use Linux software instead of Windows." (Nothing like getting your news 16 months late from the newspaper of record.)
Microsoft keeps on insisting that the next version of Windows will run well on netbooks. We'll see.
What should really terrify Microsoft, though, is not Linux but ... yes, Google. Last week at a computer trade show in Taiwan, Asus and Acer revealed that they're working on launching netbooks that run on Android, the free operating system Google originally created for cellphones.
As for hardware makers, well, they're as screwed as Microsoft. Because even though netbooks are a "hot" category, prices are inevitably trending downward as competition heats up. Dell, for instance, makes terrific netbooks -- but they generally sell for under $300, and there's not a lot of room for profit at that price. And in this recession, cheap netbooks are cannibalizing traditional, higher-margin laptop sales. No surprise that Dell just announced a 63% first-quarter earnings plunge.
By now you're probably wondering how any of this could possibly make me optimistic in any way. Well, I'll explain, but first I want to quote the rest of the "Information wants to be free" manifesto, which was famously delivered just a little over 25 years ago at the first Hackers' Conference by Stewart Brand, the pioneering publisher of the legendary Whole Earth Catalog. After he uttered those five words, he continued, "Information also wants to be expensive. Information wants to be free because it has become so cheap to distribute, copy and recombine -- too cheap to meter. It wants to be expensive because it can be immeasurably valuable to the recipient. That tension will not go away. It leads to endless, wrenching debate about price, copyright, intellectual property, the moral rightness of casual distribution, because each round of new devices makes the tension worse, not better."
At the time, 1984, those "new devices" were still invariably expensive. Now, like information, they're trending toward $0. What this means, I believe, is that consumer-hardware companies increasingly have to become media companies, and vice versa. If hardware becomes a virtually free commodity, hardware makers have to think and act like media companies -- which we're seeing already with cellphone carriers -- by bundling the hardware experience with a media experience. This past winter, to cite a nascent example, in selected markets Acer started selling one of its netbook models at Radio Shack for $100, provided you signed a two-year cellphone-style contract with its broadband-wireless partner, AT&T. Arguably, the hardware industry can't survive without shifting, at least in part, to such good old-fashioned subscription models -- the kind the media industry invented.
Now imagine another netbook maker marketing a cooler, more useful $100 (or $50 or $0) competitor, and carving out a niche for itself with a higher-priced monthly subscription fee for a tiered level of media access -- with, say, Hulu Premium, or a Kindle-like book-subscription service or Times Reader 3.0 from The New York Times.
In other words, hardware makers may have no choice but to turn their internet devices into multi-tier-subscription-based media machines, because there will never again be enough margin in the basic price of the hardware. And the more we get used to the idea of essentially subscribing to media as a way to pay for hardware ... well, the more hope there is for media.
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Simon Dumenco is the "Media Guy" media columnist for Advertising Age. You can follow him on Twitter @simondumenco