By William Fellows
Venture capital companies are being short-sighted if they take a wide berth of the nascent information appliance market according to former Apple and HP appliance guru Donald Norman. The market for appliances – digital tools designed to meet specific needs – will be huge, but will also require very different kinds of business plans from the kind written to deliver results in two years, he says. The development of mass market consumer appliances will take many years of operating on small margins, he says. Not the kind of returns likely to get VCs hammering on the door. In any case VCs do not understand consumer product markets, he believes. The same thing is true for Silicon Valley high-tech companies in general. Computer companies don’t understand appliances because they don’t understand the consumer and may not be willing to absorb early losses. They sell technology, including the complex PC, a device that is totally inappropriate for consumers. It will be appliances that fit the bill, Norman thinks. Brokerage Merrill Lynch & Co, which thinks information appliances will be the next big thing, got Norman on the phone to try and gee-up some awareness and enthusiasm among the investment community. Borrowing loosely from Sun Microsystems Inc founder Bill Joy’s maxim expect innovation to happen elsewhere Norman says that although the technologies needed to construct appliances are almost there – chips, system software and design – we should expect appliances to be developed by companies other than those in Silicon Valley. Furthermore while companies such as Disney and Proctor & Gamble understand consumers, they’re unlikely to develop the devices themselves. Norman’s own consulting firm is backing a handful of start-ups building appliances; two in Silicon Valley, others in Boston, San Diego and Denver. He’s also been looking at technologies in the UK, in Edinburgh and London, but declines to name any until they go public with plans. Norman sees appliances being used everywhere, from whiteboards to fridge doors. Picking winners won’t be easy he says – if you’d have invested money in the first US auto manufacturer you’d have lost it. However the appliance market will happen. Even Eastman Kodak knows that digital photography is going to supersede chemical processes. Nevertheless all manufacturers are losing money on digital cameras. Why should a consumer pay $500 or more when a $10 disposable can do an adequate job?
Consumer-unfriendly
Norman is even skeptical that Java will be the building block for these devices. Potentially the great leveler, he says Sun’s desire to own and control Java is its undoing. He thinks the tendency for CEOs to align technologies too closely with their own egos is also likely to undermine the potential for their broad-based acceptance. He’s thinking especially of McNealy, Ellison and Jobs. Apple (his former employer) could be a consumer company but doesn’t really understand the market and is too fixated with its leader, he says. Why, asks Norman, create a perfectly designed consumer-oriented desktop computer – the iMac – but rob it of a floppy drive in favor of the little-used and little-supported USB bus connection. USB is the bus the industry ought to be using, but it simply isn’t happening yet, he argues. Look at Intel Corp’s new legacy-free Aztec consumer PC. Nice looking, but it still runs the consumer-unfriendly Windows operating system Norman notes. His last employer, Hewlett-Packard Co is simply too big to make quick decisions, he says. While it has some interesting scanner and digital photography technologies that could be applied to consumer products, there are 150 divisions competing with each other and none has the spare capital to go off and create appliances. Presumably why he’s not still there. Then there’s the 800 pound gorilla. Norman said he was with Microsoft’s Nathan Myrvold when Apple axed its Newton appliance division. The Microsoft technology supremo instructed his human resources people to hire the most talented people. Microsoft has also been raiding universities for computer science professors. On this evidence Norman says Microsoft’s determination to be a player in the information appliance market cannot be underestimated, even though there are few historical precedents for one company leading two technology waves, he observers. It’s even convinced one of his start-ups to switch to an embedded version of NT for its system software and add a pricey hard disk. He concedes the first appliances will have to share some affinities with PCs as they’ll be early adopters of the technology.
