The theme of this year’s Consumer Electronics Show was “connected living.” Everything from wrist watches to toaster ovens featured ways to connect to the Internet. Why? Because they could. Do you really need your wristwatch to connect to the cloud? Well, I don’t know if “need” is the right word. In many cases, connectivity is a “nice to have,” not a “need to have.”

I like to say that there are only two kinds of people, and two kinds of devices: connected and not connected – apparently, that’s how the Consumer Electronics (CE) industry sees the world as well. But here’s the thing: hidden under the excitement of cloud-connected devices is the reality that the industry is changing, and changing fast.

If you know anything about the CE industry, you know that interoperability is not something big electronics firms are fond of. For years, Sony refused to use industry compatible SD cards in favor of its Sony Memory Stick. It even used an obscure type of Firewire connector, just to promote the sales and non-interoperability of its video and still cameras. Not to single out Sony, almost every CE company has its own proprietary ecosystem. And all of them hope you will choose their way of thinking if you want to interface with their gear.

This is not a consumer-friendly strategy, but some “old school” businesspeople believe it is the right way to do business. At one time, it may have been a good idea, but it’s over. Cloud storage, 3G, 4G, WiFi, h.264, .mp3 and other very common consumer standards have wrenched control away from big CE companies and handed it to consumers. Which begs for the question, can you market a successful closed system in 2012 and beyond? I’m pretty sure the answer is no.

If you walked around the show floor, one of the key takeaways would have been silos and unique proprietary systems are not making the cut. The consumers have won, and won big.

What was interesting at the show? Intel chips have enabled a new class of personal computers called Ultrabooks. They are all MacBook Air look-alikes, but they run Windows and they are inexpensive by comparison. This is going to be one of the big stories of the year. They are really going to sell and, I humbly submit, give tablets a real run for their money. Of course, the same technology will find its way into tablets and the arms race will continue. The winner … you! Consumers will benefit in every way. Faster, smaller, thinner and more connected personal computing experiences.

I also liked LG’s 55″ OLED TV. The picture is indescribably gorgeous and it’s about 4 millimeters thin. No price or specific delivery date, but look for it by the end of the year.

Samsung debuted a series of big, flat screen TVs that have motion sensing and voice recognition built in. Think of it as an Xbox Kinect without any extra boxes or cables. The demo was fun, but it’s not ready for prime time.

Samsung also showed off the Samsung Galaxy Note a 5.3″ Android phone/tablet crossover. Lots of people liked the size, some said it was too big, others said it was too small. Where’s Goldilocks when you really need her.

The most remarkable thing about International CES 2012 was the number of people doing business. There were fantastic parties, everyone had an optimistic, upbeat attitude about the future and the general consensus was that things are turning around.

Of course, it’s not business as usual, everyone is trying to figure out how to be more like Apple. From operating systems to hardware, almost every pitch included some reference to iDevices, iTunes or the iTunes store – and everyone is playing catch-up. This was not 2 million square feet of Apple Fanboys, this was a town full of electronics professionals wondering how they missed the mark and what they could do about it.

Lastly, if you’re wondering if Microsoft will be missed at next year’s show? The short answer is no. CES is not about any one manufacturer; it’s about an industry. Kudos to the CEA for putting on an amazing exhibition that included the best of the best in every category – this year was truly awesome!

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Steve Jobs

“I’d like to create an integrated television set that is completely easy to use,” Steve Jobs told his biographer, Walter Isaacson. “It would be seamlessly synced with all of your devices and with iCloud.”

Everyone assumes that Apple is working on iTV or whatever it will be called. It’s in his biography, pundits speak about it — the only question is when will it debut?

I will be hugely surprised if Apple markets a television set, my guess is that it will bring a new device to the marketplace that will offer a Jobsian way to consume video content, play games and interact in the social space. Calling it a TV will probably be pejorative or, at the very least, a misnomer.

That said, I am fascinated by the quote from Steve Jobs’ biography. “It will have the simplest user interface you could imagine. I finally cracked it,” mostly because it makes no sense. There is nothing in the world of technology simpler than turning on a television set. Flipping channels and adjusting volume are literally child’s play. It is a behavior exhibited by everyone over the age of three who has ever seen a television. “Simple as turning on the TV,” is the holy grail of modern consumer electronics design. Did Steve come up with a way to make it simpler? Doubtful.

But the interface, simple or not, is not the problem. That’s not the code that needs to be cracked. Where we need Steve Jobs’ magic is on the other side of the system – where content transitions from scarce (on TV) to ubiquitous (online). Find a codex that solves for supply and demand: Then, and only then, will the code be truly cracked.

Supply and demand is an immutable law of our human experience. If something is scarce, it is valuable. If something is ubiquitous, it is less valuable. I challenge you to identify any ecosystem anywhere in our observable universe where this is not always true. If you find an example, please email me immediately; you will be the first person in history to accomplish this feat.

If you want to reach the vast majority of television viewers in the United States, pick a Thursday night during November, February or May and buy airtime on ABC, NBC, CBS and Fox between 09:00:00 pm and 09:00:30 pm. It will cost you a few hundred thousand dollars on each of the networks and it will be worth it. Why would you need to spend this money on Thursday evening? Because the vast amount of American TV viewers are awake and watching TV at that time. (That’s why weeknights from 8pm – 11pm is called Primetime.)

And, more importantly, Americans get paid on Friday. So, if you want to sell them something over the weekend or call them to action (Come to my weekend sale, or come test drive my car and get 10% off this Saturday) the last time you get to reach them when they are sober and might have money in their pockets is Thursday evening. They will go out on Friday and Saturday and by primetime Sunday night they will have a hangover and be broke! (Please don’t send me hate mail about my insensitivity to alcoholics or suggest that I am promoting or condoning underage drinking – I’m not.)

This makes primetime Thursday evening between 09:00:00 pm and 09:00:30 pm a very scarce resource indeed. Now, take the same piece of video content, put it online (which instantly removes both the temporal and geographic restrictions). What has to happen to the price of the airtime? Remember — supply and demand.

There is only 30 seconds available between 09:00:00 pm and 09:00:30 pm on Thursday night. It’s scarce. Once the content is online, it can be seen by anyone, anytime, anywhere. Again, what has to happen to the price? (Answer: It must go down.)

This is the code that needs to be cracked. The interface is not the problem at all. If you can’t create scarcity, you can’t charge what you need to charge to create the content – if you can’t create the content, there is no TV ecosystem.

People often confuse TV the art form with TV the platform. The television (and movie) business is about packaging content, measuring the audience and selling that audience to advertisers. If you add in the dual revenue business (like cable networks and some broadcast entities) it is also about creating high-value content that attracts and maintains subscribers. In the case of the premium content providers, it’s only about subscription revenue.

Why would content owners whose content is good enough to be distributed as a scarce resource want to unrestrict the very access that enables their remuneration?

Now, you could argue that scarcity can be created with a cloud-based video distribution system over the public Internet. That’s stating the obvious. Netflix is just such a system. So are Hulu Plus, Roku, Vudu, etc. Why haven’t these systems destroyed the cable and satellite business? They are too expensive, too limited and too hard to use. Can that code be cracked? Sure, this is probably the part Steve Jobs had figured out. But, at some point he would have been faced with the code that can’t be cracked: How do you make something ubiquitous and valuable at the same time? Steve, I’m your biggest fan and I want to be wrong, but I don’t think you cracked it.

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