Start-ups grab the lead in home devices market

Paul Festa

AS industry heavyweights alternately invest in and abandon the nascent home-networking market, a growing number of start-ups are testing the waters with products that integrate and manage media types in the home. Mediabolic, based in San Francisco, and Ucentric, of Maynard, Massachusetts, are among a handful of companies that have recently attracted venture capital backing to take on this uncertain market, amid fierce competition and the warnings of scattered naysayers. A home server is designed to consolidate and link various devices and media types through a single hub. The term “home networking” originally referred to a method of linking PCs sitting under the same roof, but it now is used more broadly to encompass the pan-media ambitions of home servers.

The idea has attracted the serious interest and financial muscle of Internet and media giant AOL Time Warner, which in April led a $67 million Series A investment round in Rearden Steele. That start-up, founded by WebTV inventor Steve Perlman, is building a home server, according to sources familiar with its plans. Despite some signs of life in the home-networking market, analysts are concerned because even small changes to the way people consume entertainment in the home have met with resistance. Even as analysts warn of consumer indifference, electronics companies are nervously eyeing computer-industry efforts, worrying they might get shut out of the game.

“Consumer electronics guys are trying not to be left out in the cold, but there’s a good chance they will be,” said William Bao Bean, analyst with Banc of America Securities. “They’re moving very quickly to put things on the shelves. But they don’t have the software to make it work. That’s where the opportunity is right now.”

Companies have some justification for worrying about consumers’ readiness to change the way they watch television and answer the telephone. TV-focused versions of souped-up set-top boxes have stalled in the marketplace. These include Microsoft’s recently launched UltimateTV initiative; TiVo, a struggling digital video-recording device company; and the recently restructured ReplayTV.

“Right now this market is nascent,” said Mark Snowden, analyst with research firm Gartner. “People are only just learning what TiVo and UltimateTV can do, and this home server idea is a generation beyond that. There are some bleeding edge sorts of consumers who are very interested in this, but you get past that tiny little slice of consumers and a company is going to have to come down a lot in price, a lot in complexity, and do a lot of education as to why this is the best thing since sliced bread.”

The wired home
Ucentric claims to have answered at least the first two of Snowden’s tests. Its software is written to tie together new digital appliances and legacy analog machines—including televisions, telephones, answering machines, and handheld and desktop computers—in a way that all these devices can interact with each other once they’re plugged into the Ucentric server.

In a Ucentric-wired home, instant messages and caller ID notifications flash on TV screens alongside traditional broadcast programming. MP3s and streaming media play on legacy stereo systems via unused FM channels. Unified messaging applications let people check e-mail remotely by telephone and forward analog voice-mail messages via IP.

All this, claims Ucentric, for roughly what consumers already pay their cable company. “This is going to bring more services into the home for the same or lower price,” said Rick Edson, chief executive of Ucentric. “We’re asking what people need and looking at what they already have today. We’re saying that people shouldn’t have to buy all new devices or learn new behaviors. They shouldn’t have to change the way they make phone calls.”

Ucentric has designed server prototypes and ironed out a hardware reference design. The company declined to disclose manufacturers with whom it is foging partnerships but mentioned Scientific-Atlanta, General Instrument, Pace Micro Technology, and Thomson Consumer Electronics as potential candidates.

With $27.6 million in two rounds of funding—a third round is planned for later this year—Ucentric’s war chest pales in comparison to Rearden Steele’s. But the 100-employee company does have the jump on its well-heeled competitor with a working product, which has a few hundred people testing out the service. Trials are under way in Seattle with the DSL provider Speakeasy and with Rogers Cable in Canada.

Complete entertainment
Running a close second behind Ucentric in the race is Mediabolic. Backed by Aurora Ventures and Spinnaker Ventures, Mediabolic is carving out a narrower space for itself in the home networking world, focused initially on entertainment audio, video and digital photographs. “We are focused solely on entertainment,” said Daniel Putterman, chief executive of Mediabolic. “We’ve also focused on core technology that’s small enough that it can reside in devices that come out in a very low price point. We’ve got our software to run in ridiculously small environments, down to 512k of RAM on a 22MHz processor.”

Whether any company in the new crop of home server start-ups succeeds depends largely on the whims of broadband service providers. Not only do the providers have the potential to boost technologies by adopting them, but many expect them to launch their own home networking products. “The cable companies and set-top box companies are well aware of this idea and are developing products aimed for it,” said Gartner’s Snowden. “And they probably have a better handle on the timing of when the market will be ready and they can make a business out of it.”

Even the most successful technology could wither on the vine while cable companies wait for consumer interest to ripen. Banc of America’s Bean said the wait could be anywhere from two to four years, which would test the patience of the most indulgent investor. Rearden Steele, Ucentric and Mediabolic appear to be approaching the home-server problem with varying degrees of thoroughness.

Rearden Steele, according to sources familiar with its plans, intends to provide a soup-to-nuts hardware and software system. Ucentric is leaving the hardware to its partners, but aiming for virtually all electronic media and communication devices in the home, or what Bean terms “the whole enchilada of next-generation cable.”
Mediabolic appears to have the most modest ambitions, focusing initially on audio and video entertainment and still photographs. Still other companies are tinkering around with home networking, including Simple Devices, which in June forged a partnership with Motorola and Sonicblue.

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