Trickle-Up Economics: How Consumers Turned Corporate Technology on its Head

Who’s Watching?
Who’s keeping an eye on all this widespread consumer technology? Video equipment manufacturers, cable TV companies, software developers, and smart corporate end users. They’re smart enough not to reinvent the wheel when someone has already made a product they can modify or use as is. So video distribution companies usually don’t design their own set-top box circuitry; instead they choose to use the boards and products already created for the cable and IPTV industry.

The boundary between consumer device and corporate development platforms is getting blurred too. Take the case of the iPhone. First introduced in mid-2007, this 4.8-oz. device isn’t just a smartphone; it’s a powerful handheld computer running a Linux variant and delivering a ton of features. These features include built-in wireless networking; a video camera, recorder, and player; audio recording and playback; motion sensors; GPS; internet connectivity; email; and application support. And yes, it can also make phone calls. Not including AT&T’s network contract, the latest iPhone sells for $199. If a business wanted to custom design its own portable mobile computing/communications platform with similar features from scratch, the per-unit cost would be upward of $1,000, and the initial design, development, and tooling charges would be huge. Oh, yeah, and the device would weigh 2 lbs.

Enter the U.S. military. After careful analysis, someone at the Pentagon determined that our soldiers in the field need a multipurpose handheld device with whole host of software applications to get their jobs done: tools such as mapping software, photo capture and viewing, voice recording, language translation, and drone and satellite data access. It turns out that Apple’s iPod touch, first cousin to the iPhone, can do all this, plus a whole lot more. Right now, someone sequestered deep in a military research lab is working on the software to turn this bad boy into a remote control for battlefield robots. Corporate America isn’t very far behind this trend either. It turns out that a lot of businesspeople could use a small, lightweight, inexpensive handheld computing/communications platform to help get their jobs done. Businesses are using the iPhone in ways Apple never dreamed of, and custom iPhone development shops are sprouting up all over the place. Whether you need to check your FedEx delivery, look at Oracle database reports, securely access medical data, or tap into your Salesforce CRM, there is, in the words of Apple, "an app for that."

‘Freeconomics’
Consumers have come to expect that any type of household digital technology should be 1) affordable, 2) darned cheap, or 3) free. While generally true, this isn’t always the case. Service providers like your cable TV company and mobile phone provider have several methods of making money while letting you think you are getting something for free or at a deep discount. In the case of cable TV, the cable box is rented so the cost of the unit is amortized over a 2- or 3-year period, and monthly charges are low. Entry-level cell phones are sometimes given away for free, but the catch is that you must either sign a 2-year contract or get a family plan. In both cases, high-volume manufacturing and tremendous economies of scale are at work to drive the cost of these hardware devices down. After all, the market for products such as cameras, cell phones, and music players is global. When a company such as Scientific Atlanta makes cable TV boxes, chances are it makes them in lots of 100,000 or so. At these volumes, Scientific Atlantic can play hardball with its suppliers and get the lowest possible prices on circuit boards, embedded software, power supplies, enclosures, and the like.

Most specialized business- or enterprise-class products (I’m not talking generic servers, laser printers, or copiers here) rarely sell in these volumes. Fortunately, however, the semiconductor and related technology used in high-volume consumer products may find their way into these business-class products. Take H.264 video decoding, for example. There are four basic platforms that can run the H.264 decoding codecs and algorithms. With software decoding, you basically put a single board PC inside an enclosure, load up the OS and H.264 decoding software or player, and away you go. Another approach is to use digital signal processors (DSPs) and field-programmable gate arrays (FPGAs). These inexpensive, high-volume digital components are widely used in both consumer and industrial products and can be programmed to perform certain specific functions, such as encoding or decoding video, doing image compression, or performing telecom functions.

Lastly come application-specific integrated circuits (ASICs). ASICs are custom-designed, high-density integrated circuits that fill a specific role, like a mobile phone processor or a car engine controller. Although the upfront development costs of ASICs are high (custom always costs more), the cost of each individual part is very low when purchased in high volumes. These parts are more likely to show up high-volume consumer products. But the same ASIC development process is used to build compact, efficient, high-performance business products. There’s no hardware to sell with a web service, so most free consumer sites such as YouTube or Pandora generate revenue through advertising and monetization practices. Consumers have come to expect that web services and apps are free. Taking this mindset with you to the business world, you might just bristle when it comes time to shell out several hundred dollars per person every year for enterprise software from Microsoft. Enter Google, with its shared, cloud-computing enterprise software called Google Apps. Like your cable TV box, you’re not actually buying the product; you’re just renting it. Google Apps comes with items such as Gmail for business, Google Docs, and even hosted Google Video; you can expect to see many more of these cloud-computing applications in the future.