Apple TV. Google TV. Boxee. These are the newest Internet set-top boxes (STBs) released in the last few months. Add the Roku box, and we have an intricate competitive landscape for a just-realized industry.

Steve Jobs claims that his Apple TV “hobby” has sold more than a quarter-million units, without getting serious about it. Logitech, which released a Google TV STB in October 2010, has upgraded its financial outlook for 2011, partly due to its expectations of the Internet STB’s popularity.

One of the main drivers for the increased uptake in these new Internet products is the growing consumer demand for access to content at any time. Content owners easily can deliver data directly or they can allow easy access to it through a Web portal via the Internet STBs. These devices will be the key to connecting all media, from a customer’s own personal library to cloud-based subscription offerings.

“Internet STBs will evolve depending on how the MSOs handle the devices.”

The critical question for multiple service operators (MSOs) is how they can leverage this increase in adoption into an opportunity before it becomes a threat. Remember TiVo? TiVo was supposed to be a companion to a cable box but, after a while, MSOs realized they were in a position where they needed to get into the same market as TiVo. The same thing will happen with these new Internet STBs. MSOs will have to leverage their customer bases to allow further STB ease of use by incorporating the features of the Internet STBs, including applications and Web-functionality components.

Internet STBs will evolve depending on how the MSOs handle the devices. If operators intend only to offer minimal Internet STB features on their current STBs, you can be sure the competition is willing to give consumers what they want. For example, integration with the Web will be important — not just simply being able to access Websites like YouTube, but allowing subscribers to sign on to a cable provider’s Website using their IDs and passwords. Allowing them to access online content makes this feature a no-brainer.

Such functionalities as billing can be an issue. Today, mobile billing is a challenge, but what if you can use the power and flexibility of the Web to manage it? Not only will delivering content to your customers be easier, but now you can increase your revenue with ease.

What is the next big play after functionality? Hardware. MSOs have realized that hardware is expensive. It is very possible that MSOs could abandon the STB hardware model and partner with Google or Apple and their manufacturers to create content channels. If a MSO’s channel were available on an Internet STB, why would the MSO want to sell or rent its own STBs to consumers? Why wouldn’t the MSO want to partner with a Logitech to deliver hardware for a fraction of the price?

MSOs should definitely be looking into a software-based model to deliver cable content. Customers who are interested in accessing cable content can do that through the Google TV application on their new televisions or with one of the various Internet STBs; any MSO could offer its channels to a number of Internet STBs along with the associated content. Finally, it may not even be necessary for a MSO to partner with anyone in particular. An operator could offer a software application allowing any device (even a tablet computer) to connect to its content offerings; this device then could store the content locally and deliver it to an internet STB to be viewed on a television.

Connectivity-and-delivery software vendors also will be a big part of this arena. There are many players in this emerging industry and many new opportunities. This is an exciting age for this market.

Ben Truong is a product manager and Brian Sathianathan is product director/video at Smith Micro Software. Contact them at btruong@smithmicro.com and bsathianathan@smithmicro.com.

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