Innovation, Apple, and the cable set-top box

In February, the Federal Communications Commission (FCC) launched a rulemaking proceeding to restructure the market for cable television set-top boxes. One of the primary reasons it advanced this initiative was the positive impact that competition would have on innovation.

In an interview with Variety’s “PopPolitics” on SiriusXM shortly before the proceeding went public, FCC Chairman Tom Wheeler said, “When is the last time that competition thwarted innovation rather than spurring innovation? And you are telling me that a locked down, closed system will have more impetus to be innovative, than a competitive, open system? I think that history shows that it is exactly the opposite of what happens in reality.” But the success of perhaps the world’s most innovative technology company—Apple—suggests that this linkage between competition and innovation is not as solid as Chairman Wheeler asserted.

Indeed, Apple may represent the best evidence against Wheeler’s rationale for the FCC’s set-top box initiative. Apple has excelled at developing elegant, user-friendly devices that now are vital in so many daily lives. The iPod, iPad and iPhone, along with the iMac and MacBook, clearly exemplify great product innovation and widespread consumer acceptance.

But they were specifically nurtured and brought to market through a locked down, closed development and standards systems. Steve Jobs, Apple’s late co-founder and CEO, was adamant that his company’s innovation cycle actually benefitted from this closed nature. Open versus closed is a smokescreen,” he argued. “Google likes to characterize Android as open and iOS as closed. We think this is disingenuous.”

The real question for Jobs was: “What is best for the customer—integrated versus fragmented? We think this is a huge strength of our system versus Google’s. When selling to people who want their devices to just work, we think integrated wins every time. We are committed to the integrated approach. We are confident it will triumph over Google’s fragmented approach.”

The current cable television consumer experience reflects the Jobs approach to innovation. Its technology was developed by the cable industry through an industry-wide cooperative venture, CableLabs. CableLabs’ research and development breakthrough was the development of the CableCARD, a special-use PC Card device (sometimes known as a digital set-top box) that allows U.S. cable subscribers to view and record digital cable television channels. As a proprietary technology, it is offered by a cable provider for an additional nominal monthly fee, which is regulated by the FCC. Consumers receive an integrated product that allows them to access cable programming on digital video recorders, laptops, and television sets without requiring each device to have its own separate device for tuning.

The FCC’s set-top box initiative would mandate an open-standard system to allow outside manufacturers to develop their own navigation systems that would be offered as competitive alternatives to the CableCard—and for outright sale as opposed to a monthly lease. Like Android, any developer would have access to the open standard. The FCC currently is seeking public comment whether to adopt rules that would implement this approach. But in doing so, it seems to be mandating a certain viewpoint on innovation in the name of competition. In effect, the acceptance of Chairman Wheeler’s historical explanation may result actually in less innovation since that concept would be reduced to what the government considered innovative—i.e., an open-ended system.

Apple created its innovation approach and products without any regulatory involvement. Given Chairman Wheeler’s recasting the relationship between innovation and competition, one wonders whether Apple itself would have developed as it did if it were regulated by the FCC at the outset, or what new products it would put in the pipeline for future development if open-system development was mandated by law.