Matsushita Electric Industrial Co.Õs futuristic HII (Home Information Infrastructure) House in Tokyo is a popular spot these days. Since it opened last November, many visitors - government officials, industry leaders, and academics - have flocked to the house to see the digital consumer electronics of the future on display. But the HII house, constructed as part of MatsushitaÕs Multimedia Center, is not the only showcase for advanced electronics, and other players - including industry giant Sony - have the digital dwelling firmly in their sights. Japanese consumer electronic firms once enjoyed global ascendancy with their high quality audio-visual (AV) products. From Melbourne to Milan, electronic aficionados would turn up their collective noses at cheap, non-Japanese knock-offs. But times have changed and manufacturers here are struggling to regain leading positions in the recently digitalized world with their next-generation digital AV devices, game machines, and portable multimedia terminals. Their goal? To be the leaders in the expected digital convergence of computer and entertainment electronics in the home market. Home entertainment goes digital Digital consumer electronics have been much talked about for the past several years. The MPT (Ministry of Posts and Telecommunications) estimated that the digital consumer electronics market will be JPY16 trillion in 2000 and JPY22 trillion in 2005. However, the exact composition of "digital consumer electronics" is still unclear. Answering a Nikkei newspaper survey conducted early this year, Fujitsu General said digital consumer electronics can be summed up in the "multimedia STB (set-top box)"; Matsushita stated that "networked consumer electronics" was the key; while Fuji Photo Film said the future was in devices with "PC functions, Internet access and large storage capacity." Clearly, the definition of the future is up for grabs. Chez Matsushita Nonetheless, MatsushitaÕs HII house quite successfully demonstrates that companyÕs vision of what digital consumer electronics are and what can be done with them. A cable or wireless (microwave) network connects all of the consumer electronic devices used in the house. Residents would be able to watch TV, study, work, shop, and transfer money just by clicking an icon or pressing a key. In addition, while sitting on the intelligent toilet seat, residentsÕ weight, blood pressure, ECG, and blood sugar levels are automatically recorded and displayed on the toiletsÕ panel. On the home video server, up to a weekÕs worth of TV programs can be programmed and recorded for later viewing on the 50 inch TV screen in what Matsushita describes as the "dream theater." Even outside the HII, residents enjoy digital intelligence: by calling from a cellular phone from outside the house, residents can verify the contents of the homeÕs refrigerator. Norio Wakayama, leader of Systems Square at Matsushita, said that the firm designed the house to demonstrate life in 2003. Matsushita has been developing the concept of the HII for the past few years. According to Tsutomu Asabe, general manager of the Business and Product Planning Group of Matsushita, there are two networks installed in the HII: one for AV devices and another for so-called "white" goods (refrigerators, stoves, etc.). Initially these two networks were separated and used different circuits. The AV network required a large transmission capacity and was provided with an IEEE 1394-compatible interface, while the white goods network - which does not require as much capacity - uses either household electric power lines or microwaves. But eventually, these two will merge into a single, integrated network based on IEEE 1394. At present, an IEEE-1394 network can carry data traffic over distances of up to 4 Š 5 meters. However, this meager capacity should be increased sufficiently to construct a complete in-house network in the next three or four years. Matsushita tie-ups In order to promote its HII concept products, Matsushita has tied-up with several firms offering key technology. In particular, in July 1998, the company announced a tie-up with Microsoft to jointly develop AV PCs and advanced STBs. In December, it announced a tie-up with Sun Microsystems to leverage SunÕs Java technology. By incorporating Java into its AV and consumer electronics, Matsushita is planning to provide new services. For instance, the firm is considering developing an "intelligent" microwave oven that can receive digital instructions for cooking food via telephone lines. This would be very useful in convenience stores - which are now offering hot fast foods - because they often vary their offerings to reflect customersÕ changing demands. Sukeichi Miki, Matsushita director in charge of Multimedia R&D, said that such services are technically possible, but the firm is still studying their marketability. "We will promote our study of corresponding technologies so we can grant [a] green light as soon as we find [a market]," he said. Here comes the Sun This past January, Sun released the full specifications of its new Jini networking technology, allowing PCs, consumer electronics, and other devices based on different OSs to be easily interconnected. This development alone holds the potential to radically remake consumer electronics. More than 30 leading firms worldwide have declared their support for Jini, including seven Japanese consumer electronics makers. But these seven have adopted different strategies towards Jini. Sharp Corp. has announced that it is going to release a new portable multimedia terminal incorporating Personal Java and Jini by the end of this year. Canon Inc. has declared it will develop a printer incorporating Jini, also by the end of this year. Oki Electric Industry Co. is going to develop new middleware (software) incorporating Jini which will let users deliver software easily via networks, and Toshiba Corp. will study the technology and develop devices for in-house use that leverage Jini, although the company has no plans to develop commercial products at this time. Jini was not included in the original tie-up agreement between Sun and Matsushita, but in April, Matsushita announced support for Jini. Perhaps the most dynamic of the Japanese players is Sony Corp., which has been actively ramping up development of digital consumer electronics, and the firm has announced tie-ups with Microsoft and Sun. When Bill Gates played golf with SonyÕs President Nobuyuki Izui near Tokyo recently to announce their joint plans for the Windows CE OS, the market reacted very favorably. Some industry watchers said that Izui shook hands with Gates with the aim of establishing a de facto worldwide standard based on incorporating Windows CE in SonyÕs digital consumer electronics. However, it now seems that Sony may prefer to use the firmÕs own Aperios OS for consumer electronics. SonyÕs strategy Sony maintains a three-pronged digital consumer electronics strategy: the Aperios OS, the Home Network Module (middleware), and the HAVi network standard. HAVi - for Home Audio-Video Interoperability - is being promoted by eight Japanese and European firms, including Sony. SonyÕs strategy is to equip AV devices such as VTRs and MDs with the Home Network Module interface, and these devices will in turn be controlled by SonyÕs STB, using the Aperios OS. One key feature is that SonyÕs STB will also be provided with the HAVi interface (known in the PC industry as FireWire), enabling it to be connected to other manufacturersÕ devices. But since Jini is winning large support, Sony has had to seek Jini partners as well. In late January, Sony, Philips Electronics - also a leading HAVi proponent - and Sun jointly announced a plan to collaborate in making HAVi compatible with SunÕs Jini. However, Sony later tuned up its strategy. On March 2, the company released the specifications for the PlayStation 2, the next-generation game machine based on the current multi million selling PlayStation. At the press conference to announce the PlayStation 2, Sony President Izui declared that Sony will use the PlayStation 2 to challenge Wintel dominance. His comments surprised many who knew of the previous close relations between Sony, Microsoft, and Intel. The following week, Sony announced a drastic restructuring plan that will see the firm remade into three wholly-owned subsidiaries - Sony Music Entertainment Inc., Sony Chemicals Corp., and Sony Precision Technology Inc. - on January 1, 2000, at the earliest. Under the new arrangement, Sony Computer Entertainment (SCE) - manufacturer of the PlayStation and PlayStation 2 - will also become a virtually wholly-owned subsidiary. Some observers think Sony is setting SCE up as the key business in the Sony Group, and will try to make the PlayStation 2 the core element in the firmÕs offerings of digital consumer electronics. ThereÕs some basis for this suspicion. The PlayStation 2Õs specifications far exceed the functionality of ordinary game machines. It will be designed to connect with PCs and other consumer electronics, and will be equipped with a DVD-ROM and USB & IEEE 1394 ports, as well as a PC card slot. In order to manufacture CPUs for the PlayStation 2, Sony will establish a joint venture with Toshiba (see "Finding the Gems at the Corporate Fire Sale" in this issue - Ed.). SCE will reportedly invest \120 billion in the new JV - twice as much as SonyÕs other investments in semiconductor production. Kenichi Fukunaga, a spokesperson for SCE, maintains a conservative stance. He said that although the PlayStation 2 will provide unprecedented advanced entertainment using high-end video and sound features, it wonÕt be used for trading stocks or banking online anytime soon. But he did suggest that when market penetration reaches a certain point, it might be used for these additional online functions as well. So far, more than 50 million PlayStations have been sold worldwide. "People have an image that game machines are cheap, but we will also target adults with the PlayStation 2," he said. Other manufacturers are gearing up their efforts to develop and market digital consumer electronics devices. Hitachi is developing a DVD recorder and an optical disk camera that will be able to handle video, while Sharp announced recently that it will increase the digital device ratio (ratio of digital devices among all of the firmsÕ consumer products) from the current 30 percent to 50 percent by the end of 2000. IBM Japan announced that it will provide key devices for STB makers via the OEM route. Meanwhile, back home Digital consumer electronics will not be constrained by your homeÕs four walls. Using a future cellular or portable multimedia terminal, home users will be able to enjoy as much digital entertainment outside the home as inside. Matsushita Communication Industrial Co. - the Matsushita subsidiary focusing on communications - released last fall a prototype of a terminal using W-CDMA, the next-generation cellular service scheduled to be launched in Japan early in 2001. Users of W-CDMA will be able to transmit data at 2Mbps when stationary. In addition, as a first step towards achieving W-CDMA services, NTT Mobile Communications Network Inc. (NTT DoCoMo) last February launched the iMode service. With the less-than 100 gram iMode terminal, users can transfer money, book an air or a movie ticket, and receive information, including headline news and weather forecasts. (See "Third Generation Mobile: Three Groups for 3G" and "Hello iMode" both in the April CJ - Ed.) In order to expand its iMode service and to prepare for launching W-CDMA, NTT DoCoMo announced a tie-up with several leading software houses, including Microsoft and Sun, in mid-March of this year. According to the agreement with Microsoft, both firms will develop Windows CE technology to be applied to their future mobile devices, and jointly develop a data center and support higher speed data transmission via PHS. On the other hand, with the Sun agreement, both firms will develop a prototype iMode terminal incorporating Java and Jini technology by the end of this year, and will release a new terminal next year at the earliest. Furthermore, both firms will explore application of Sun's technology to W-CDMA mobile services. These series of tie-ups are part of DoCoMo's strategy of transforming itself from a mere telephone company into a multimedia service provider. According to Takeshi Natsuno, media director at DoCoMo's Gateway Business Department, the introduction of Java technology will allow users to download applets (programs) into their portable devices. This will allow expanded functionality including, for example, playing games on the terminal, or splitting the screen to display news from three different online sources at once. The fielding of Jini, on the other hand, will permit users to shop using electronic money stored in the device, or withdraw funds from an ATM by pressing buttons on the phone keypad instead of touching the ATM's screen. Further, as part of its effort to revitalize the sagging "pocket bell" (pager) market, DoCoMo will provide pagers integral to digital consumer devices. For instance, according to Natsuno, a beeper user will be able to switch on a "beeper built into a rice cooker" by just making a call. Or perhaps a new recipe could be transmitted directly to the cooker and displayed on its LCD screen. DoCoMo's President Keiji Tachikawa often says that his firm is keen to provide cellular and PHS phones, pagers, and other portable terminals for any mobile platform, including cars, bicycles, and motorcycles. In the near future, for example, you can expect to switch on the air conditioner or a kitchen appliance - or check your grocery supply - using your vehicle's navigation system. The future is here The digital market is expected to be robust, but there are still many unknown factors affecting the fate of industry players. Unlike during the analog consumer electronics era, manufacturers now face new challenges from non-traditional companies like Microsoft and Sun, indicating that the market is converging. However, unlike in the PC market, a firm may not win even if it has a dominant position - like ownership of an OS. Although the future direction is difficult to divine at this time, all players have to devise a clear-cut strategy. And speed is now more important than ever. Yaeko Mitsumori writes regularly for Computing Japan. .

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