As HP’s Digital Entertainment Center exits the living room, Exceptional Innovation (EI) is inviting other manufacturers’ A/V component-like Media Center PCs over to hang out with its Lifeware home entertainment and automation software—but not without a few words about its most prominent marketing ally’s disappointing departure.

HP recently—and without a formal announcement—discontinued its line of Digital Entertainment Centers (DECs). Those Media Center PCs were designed to look like A/V components, leading to their description as “living room form factor” Media Centers. HP had been offering DECs for a couple of years, and the HP logo and the DECs themselves had been prominently featured in EI’s trade show booths and marketing materials since Lifeware began its major push into the custom channel.

HP’s Take

Ameer Karim, HP’s Managed Home product marketing manager, told CustomRetailer that HP isn’t abandoning Media Center, and that it’s still very interested in digital home entertainment and the custom channel; it just doesn’t see the need right now for a living room component PC to act as the center of the digital home universe. Instead of offering Lifeware-compatible DECs, HP will focus on Vista-enabled Media Center desktops, laptops and servers, network-attached storage and its MediaSmart TVs, which act more or less as Media Center Extenders but feature a unique user interface and some unique functionality as compared to Media Center. Karim didn’t rule out the possibility that MediaSmart TVs might use a Media Center user interface in the future, but said that for now, because the Media Center interface is so dependant on Microsoft, “we’re not able to modify certain things, we’re not able to accelerate certain things. Our passion in this space is very strong. We believe that the market is moving slower than it should be, and we want things to get accelerated. There are things that MediaSmart TV delivers that Media Center Extender cannot.”

HP remains committed to the Media Center and Vista platforms. “We have a whole host of products today, and we’re planning to announce a few more in the coming months that are going to definitely take further advantage of Media Center—Windows Vista Premium—as a platform,” said Karim. “It’s the living room form factor that we’ve decided to discontinue for the time being. [We plan to] take some of our great efforts and energy in promoting and developing what we are calling an end-to-end digital home strategy, or end-to-end digital ecosystem, which is that the PC will always be the center of the universe of how digital content gets managed and manipulated and archived, and there will be components throughout the home such as a MediaSmart TV that allow you to access content that resides in your PC [and stream it] over the home network and access it in the living room.”

Karim said sales of the DECs were not lagging, but in fact were “very promising, and picking up as we were continuing to build in the custom installer business and the CEDIA channel. The reason we decided to discontinue [DEC] for now is that we felt there were a lot of efforts that we could spend in building market awareness around distributing content using MediaSmart TV,” which can connect to a home network via Ethernet or wireless. HP even envisions the possibility of selling “digital media adapters” that bring MediaSmart functionality to other brands’ TVs. Essentially, it sees the TV as a client to a distributed home entertainment network, where they may be a centralized server or storage unit, or there may not be any centralization of applications or content. Instead of a living room PC hosting content and applications, HP sees the living room TV reaching out to the home network and streaming whatever the user wants. HP sees the physical location of the server on the network, Rakim acknowledged, as immaterial.

HP’s message to the custom channel is that it hasn’t abandoned the channel; it’s just abandoned the DEC for now. “We will continue to support the CEDIA channel in other products,” insisted Karim. “The custom installers, the CEDIA channel, are doing a great job. They go out and help consumers that are looking for these solutions, and bringing these high-end solutions and installing them professionally so that everything works great and they start enjoying the digital lifestyle. The traditional retailers are struggling with how do you do that in a retail environment.

“We’re working with partners like EI, the strong relationships that we’ve built now with the CEDIA channel and the custom install business, to help build market awareness, build the category up, build [on] the fact that PCs are here to stay, PC hard drives are growing in size, the processing power is growing in size, the user interface gets better and better. So how do we now get to a point where it’s less about features and horsepower and it’s more about the experience and the things that the PC can deliver for consumers?

“We’re committed to the digital home, the digital lifestyle and the digital entertainment business in a very strong way,” said Karim. “Come next CEDIA, you’re going to see a lot of emphasis on our making TVs even smarter, more intelligent, [with] more capabilities. A TV is a TV today, but what we’re trying to do is add a new dimension to it. It’s beautiful. Let’s not waste its power. Let’s use it as a digital photo frame—photos look beautiful at 720p and 1,080p. Let’s start bringing in some of the video content that’s available, whether you want to watch YouTube or something like that. It’s tying in what’s available to the marketplace today in an easier, simpler fashion.

Continued Karim, “We’ve just taken a step back and looked at some of the challenges that a PC could cause in the living room environment, and we’re trying to make it even simpler. We think having [Media Center-like functionality] built into the TV or having a lightweight client type of a device that sits and connect to a TV is a much easier install. And guess what? The CEDIA guys and the custom installers [are] running Cat-5 in the house anyway. So they drop a Cat-5 behind the TV and hook up one of these MediaSmart TVs or a standalone box that allows you to do basically the same thing the DEC was doing, except [the DEC was] a lot more horsepower sitting in your living room. We’re still going to deliver the similar experience, just not [by] having a PC in the living room.”

Karim said the custom channel can expect to see “tons of things” from HP “at the next CEDIA, the next CES show, EHX.” When asked whether HP’s level of commitment to CEDIA channel is unchanged, Karim replied, “Absolutely, no question about that. We believe it’s an excellent channel for us. As we’ve been building the relationship—we’ve been in that channel for many years, but the past two years have been the most critical ones—we believe it’s the perfect channel to bring some of the great digital lifestyle products [to market]. This is very important to us. We’ve invested a lot of time in this channel, and we’re very proud of what this channel is able to do for the marketplace and deliver to the consumer base. We’re going to continue to make a lot of investments and build further relationships in this channel. The consumers that are buying goods from the custom installers and the CEDIA folks are very keen on some of the solutions that we’re very much going to invest in. All I will say is stay tuned, because you’ll see great things from HP for this channel.”

EI’s Take

EI Vice President of Marketing Mike Seamons wasn’t caught by surprise by HP’s decision. “Being strategic with them, we’ve known about this for quite some time,” he said. “To be fair, the reality is they’re discontinuing one product. That’s the whole news. But from our perspective and from the channel’s perspective, it’s a little more significant of a discontinuation than just saying, ‘We’re getting out of that product line.’”

HP’s DEC departure, said Seamons, “leaves a big void in our opinion that needs to be filled. That void—and HP doesn’t have an answer for it today—is truly a Media Center-based environment where everything in my house looks and acts and smells like Media Center. HP is missing that center aggregator, the center console piece, that really becomes the heartbeat of the home for entertainment. That’s a pretty big void now that they’re lacking, and that’s definitely something that we’re concerned about for their product solution, because what we’ll do strategically on our side is [fill] that void with Sony and with Alienware and with Niveus [Media] and some of these other large CE manufacturers that are coming out with ultimate digital entertainment centers.”

Seamons said recent market and technology developments had rendered the DEC a behind-the-curve product. “It has not been a secret that the current DEC is not the ultimate digital entertainment center for Windows Vista. It doesn’t have CableCARD tuners in it, it doesn’t have HD DVD or Blu-ray, it doesn’t have a DVD library scenario. It was not the leading Media Center to run your whole house on, or to have be the center of your entertainment system.” The most recent DEC chassis, said Seamons, is based on the original DEC design. “It’s about a two-and-a-half-year-old product now, and they’ve just been refreshing the insides,” he said.

To support CableCARD, high-def optical and other new capabilities courtesy of Vista, HP would essentially have to develop a brand-new product, said Seamons—something it didn’t show much interest in doing. “In order to have a product ready to come to market in the Vista time frame, there was a lot of preparation and engineering work that would need to happen for that product to make it to market in time,” said Seamons. “As of early this year, it was fairly clear they wouldn’t be able to get that Vista/ultimate Media Center product out. We’d been in multiple meetings where [it came] up. One week, it was, ‘OK, we’re able to go back and recreate this entire product category,’ and another week, it was, ‘We’re not sure that’s something we’re going to be able to pull off in time.’ Product categories are all about timing, and all about having the right thing at the right time, and at this point, HP doesn’t have a product to compete with Sony and Alienware and Niveus. Their product is not competitive now.

“It’s bad news for HP that they have such a big void in their product line. It’s good news that Sony and Alienware and Niveus have products that are achieving better performance and have the right feature sets for the custom channel right there to replace it. So, literally, the replacement of the DEC is a product that is specifically designed to address the additional features that the custom channel needs, like CableCARD, HD DVD and Blu-ray and DVD libraries.”

Seamons isn’t enamored of HP’s MediaSmart strategy. “Their whole MediaSmart TV category breaks the paradigm of Lifeware completely,” he said. “It’s not a category that we are currently very interested in, because it changes the user experience from one TV to the other. If I’ve got Media Center in one room, Xbox 360 in another room and MediaSmart in another room, all of the TVs are going to look the same except for the MediaSmart television. We have a very big concern with that, just simply because we believe that consistency of the user experience has to go from every screen in the house.

“HP would like to believe they still have the end-to-end solution, and we would not agree with that. There’s a void in not having that center entertainment console, because that’s the place where it all aggregates down. You have to have a box [to which] the TV gets connected for high-definition cable, over-the-air and regular cable and SD stuff. You have to have a place where all of your media is aggregated, where it’s all being drawn from. That can’t be the machine that sits in my office—or any machine that’s connected to a keyboard and mouse for productivity, because it has far too much ability to be interacted with by the user in threatening ways.

“Our concern with MediaSmart is that it’s one hardware company’s version of entertainment,” said Seamons. “To us, it’s not a platform. It’s not something that all of these other products and manufacturers are being built to. There is no SideShow, there is no Web Services for Devices, Lifeware doesn’t live inside of MediaSmart at this time—it’s something that could be done, but not something we’ve done before—it doesn’t express itself onto touchscreens and onto handhelds and into desktop PCs and into kitchen appliances. It’s a standalone TV interface. Lifeware sees a much bigger picture than that. We want to see the same user experience on every screen in the house.”

Seamons said HP MediaSmart’s functionality is “repetitive. It’s doing the same things Media Center is designed to do, without the whole TV environment.” Seamons said MediaSmart’s most egregious lack of functionality is its inability to provide a full DVR experience.

“I don’t know if HP disagrees with this [criticism],” said Seamons. “It’s just that timing-wise, they don’t have the right product to drive that center piece into the marketplace right now.”

Seamons downplayed the loss of HP as a marketing partner—a relationship that had grown so comprehensive and, to some, so ambiguous, that some casual observers didn’t realize HP and EI were separate companies.

“You won’t see any change negatively to the EI Lifeware marketing campaign,” insisted Seamons. “You’ll only see growth out of it because our strategy does not have anything to do with the co-funding dollars or strategic use of another company. It’s always been a strategic marketing partnership [with HP], and that’s what we’ve tried to clearly communicate over the past couple of years. There is no investment that HP has in EI; there is no capital. It’s all marketing. We’ve proven to them that we can market the solution to the channel, and they’ve come and said, ‘Look, we want to be the exclusive Media Center/TV/entertainment partner for this,’ so we’ve co-marketed together in everything we’ve done. My phone’s been ringing off the hook from other manufacturers saying, ‘Can we take their spot?’ It doesn’t necessarily mean we won’t be doing anything with HP anymore. It just means that it won’t be exclusively with HP. You’ll still see HP products like their TouchSmart PC and their desktops and laptops and other products [at EI’s booths], but it won’t be a total HP end-to-end solution, because they just don’t have the end-to-end solution anymore.”

Seamons pledged that “the marketing energy and aggression of Lifeware will only grow. We’ve gone out and we’ve established the marketing campaigns and the marketing strategies for everything we’ve done, from CES to CEDIA to the EHX shows to all of these other big things we’re releasing this next year. We’ve gone to partners and said, ‘Look, we think you have a lot of value to gain in this campaign. Would you like to co-fund it with us?’ Sometimes they do and sometimes they don’t. Obviously, HP has in a lot of ways seen the value of doing that. If all of our partners said, ‘Not interested,’ we would still do the exact same campaigns. We believe in educating and driving the awareness of Lifeware in the total Media Center entertainment and automation ecosystem. We’re obviously highly aligned with Microsoft on this; they’ve been our marketing partner in this since we started the company. What you’ll see us do is not be aligned so closely with a specific product line, but with the platform at a level that we become ‘Switzerland’ to all of the other products in these solutions.”

Seamons addressed the predicament in which some Lifeware dealers who committed to the DEC platform now find themselves. “They’re saying, ‘Who do you recommend because of this?’” he said. “Some of them have definitely put their companies into the HP mechanism. HP has become a big part of their product line.”

EI, said Seamons, suggests those dealers going forward turn to its Lifeware Ready program, which lists other manufacturers’ Media Centers that are certified to work with Lifeware. “We’d seen this coming,” said Seamons. “Almost six months ago, we announced our Lifeware Ready certification, which [went beyond] HP and [catalogued] the other Media Centers that we endorse and we would recommend to our dealer base.” Seamons said the selection of Lifeware Ready PCs will grow, with more manufacturers and SKUs certified. “We’re treating Media Center now like we do lights, thermostats, security systems and all the other things,” he said. “There are multiple manufacturers that can make it happen. Different bundles of Lifeware solutions that are in the market will be attached to different Media Center manufacturers.”

As for existing DECs already installed by Lifeware dealers, Seamons did not express concern. “That’s the good news about a $90 billion company [HP] being behind [the products],” he said. “You can trust that [HP] will stand behind that product far through the end of the life of the product. You still have five years’ worth of parts and labor and support and warranties that you can get out of that from HP. I wouldn’t be looking immediately to switch out my products. If the DEC is not satisfying the features and the capabilities that I want out of the solution, then obviously, that’s a whole different animal. But if it’s just simply getting rid of it because it’s no longer a live product, I would never have that concern with a company like HP behind it.”

Seamons expressed confidence in other players to fill the void left by HP. “The best part of it is that there are two giant CE manufacturers and multiple niche manufacturers that are putting products in right now that will be shipping this month that will take Media Center to the next level,” he said. “Vista’s just launched. [The discontinuing of DEC] just impacts HP’s ability to be the end-to-end solution for the entertainment portion. It doesn’t affect the traction of Media Center as the entertainment and automation solution. It doesn’t affect Lifeware’s success in the marketplace.”

EI seems to be cozying up to another heavy hitter—Sony. “I have a lot of confidence in Sony’s product line moving forward,” said Seamons. “We’ve been working with them; at EHX, we had the XL3 in our booth—the new CableCARD solution. They’ve got a fantastic Media Center, and they have all the other goodies as well. They’ve got the all-in-one—the LS25—which is competitive which HP’s TouchSmart PC. They’ve obviously got their desktop lines. They even have ultra-mobile PCs, and their whole line of Bravia televisions. So Sony becomes a great solution partner for end-to-end product lines.”

That said, EI has its eyes open to other partners. “Alienware is coming out with their new Hangar 18, their full-featured Media Center with all of the capabilities they can put in from a high-end gaming perspective,” said Seamons. “You’ve got companies like Niveus and Inteset and others who have their next generation of Vista-based Media Centers with all of the right components.

“The power of a standards-based platform comes out in this type of a change,” said Seamons. “If any other company in this industry had decided to discontinue a core product of its total solution, it would pretty much just kill that company. But Lifeware is built on standards and platforms… It’s not contingent on one manufacturer’s success or strategies. It’s totally open to the whole market.

“The dealers need to realize that the whole advent of Windows Vista and all of the things that it’s bringing to Media Center is not changing and it has not changed because of this announcement at all,” said Seamons. “Media Center has taken that next step forward to be the ultimate entertainment system. The fact that HP is not making that Media Center for dealers doesn’t mean that all of those new features aren’t available through Sony and through Alienware and through Inteset and through Niveus and these others. We are more excited than ever about the capabilities of the entertainment side of our platform. You’ll see us make some major announcements in the next couple of months, both on marketing campaigns [and regarding] an end-to-end solution with other partners and with products that we’re bringing out to really make this the total solution for entertainment and automation.”

Niveus’ Take

Tim Cutting, CEO and co-founder of Media Center manufacturer Niveus Media, wasn’t surprised that HP pulled out of the living room form factor, much as Gateway did with a similar product years ago. To him, it’s a simple matter of economics.

“The volume for these big OEMs isn’t justified,” said Cutting. “It’s definitely a strategic move for them to build something like that.” Unlike smaller manufacturers that more or less build such products to order, a company like HP, because of its manufacturing structure, “builds them in Taiwan like DVD players,” said Cutting. “They build 50,000 of them, and then they bring them to the U.S. when it’s such a young market. You can imagine just the inventory cost of having all of that cash sitting around in product. It’s certainly a financial challenge for these big companies.

“[EI Founder] Seale Moorer put it best when he was saying that HP counts their velocity in a matter of minutes. ‘How many laptops do we sell per minute?’ Niveus and other vendors, a lot of CEDIA folks, we count our quantities by the quarter or the month. We’re lower-volume, higher-margin types of companies. Niveus specifically is in this market because that’s kind of our M.O., to build a high-quality, high-margin, lower-volume [product as opposed to] building ‘laptops for the world’ kind of product.

“I think HP made a mistake in a sense, because the market is just ripening right now. It’s always a long haul. When I got into this, I looked at it as being a minimum of a 10-year transition to this stuff being as common as digital cameras are. I still am bullish and believe it’s going that way.

“You’re going to have a lot of people trying to figure out what that home architecture looks like, because to me the final product that we’re really delivering to customers is this whole home system/entertainment network, if you will. There are a lot of pieces that make up that puzzle, and there are a lot of opinions about how the jigsaw puzzle should fit together. I think HP is saying, ‘We can no longer financially justify this piece of the puzzle, so we’ll focus on some other end points in the entertainment network.’”

But Cutting thinks HP is giving up a core piece of the puzzle. “The media server is a huge important piece when it comes to the TV tuner aspects of it,” he said. “It’s one thing to store your music; it’s another thing of, ‘How do you get your music into this home network, how do you rip your music, how do you burn back to CD or DVD?’ There’s a lot of interaction our customers do with our media servers that you don’t get out of a storage server and you don’t get out of a display that’s just going to let you play back the content. The one thing HP will be really missing out on,” he said, is CableCARD, which he said is “the only way to really take advantage of digital cable and get that into the entertainment network—to have a full-blown Media Center that is recording that conditional-access content.”

Cutting expects that by decade’s end, HP will return with a DEC-like device. “There’s the whole home automation aspect with EI, and there is this call to action around security, around home automation, home control, the media management that Niveus focuses on, and all of that does need a really smart brain in the home,” he said. “For the average consumer, that brain is already there. It’s their desktop PC. I think the fundamental problem with that is that it’s kind of like going into a data center and doing e-mail on a company’s backbone. It’s just not a good best practice. PCs are used in such general purpose ways that they become very unreliable devices. They’re like kiosks in the home where people pop on and off and do random things. They turn them off, they crash them, they play games. Certainly that’s not the backbone to my smart home that I want. I’m 100 percent convinced this home server will arrive. For some people, it will do it all—storage, applications, rendering, hook-up to the TV. For some people—where Niveus is headed—they’ll all be discrete devices, where storage is handled on its own device, the application and the TV tuning is all in [another] device, and the rendering is perhaps not even a separate device, it’s more embedded like an extender.”

Cutting bids a fond adieu to the DEC. “The HP stuff has really been a big deal to us as an opportunity,” he said. “We’ve really seen HP almost as a partner in the past, because we like to say we’re the step-up to HP. [They brought] a lot of dollars and awareness to the market, which is always a good thing.

“Right now, with them pulling out of the category in the way they are, it’s a great opportunity for us to really capitalize on some MDU and new home builder opportunities. We realized about six months ago that with some of these opportunities, Niveus was being spec’ed into the penthouses, but those builders and MDU owners would rather have one vendor that fit their sub-$1 million units all the way up to their multimillion-dollar units, just for the convenience factor of having one vendor to deal with. [We] set out to really build a product specifically for that market, and with HP pulling out, it’s bringing a lot of deals our way and really solidifying some of the relationships we had.”