Transcript: Talking Gadgets with NETGEAR's CEO

This transcript is from a PodTech.net podcast at:
http://www.podtech.net/home/technology/1637/talking-gadgets-with-netgears-ceo

Guest: Patrick Lo - NETGEAR
Host: Robert Scoble - The ScobleShow

Robert Scoble - The ScobleShow
So, who're you?

Patrick Lo - NETGEAR
Well, I'm Patrick Lo.

Robert Scoble - The ScobleShow
What do you do, where are we first of all?

Patrick Lo - NETGEAR
Okay. We're right in Silicon Valley, in the heart of Silicon Valley, Santa Clara, California. We're right in the middle of a group of companies like Intel is just about a mile away, Cisco is about a mile and a half down the street and then Foundry Networks, Marvell and as well as (Inaudible) just about half-a-mile down, Yahoo! is just a stone throw away, Sun Micro is just in the back and WebEx is just another few walks away.

Robert Scoble - The ScobleShow
There's a hint to where we are.

Patrick Lo - NETGEAR
That's correct, yeah.

Robert Scoble - The ScobleShow
We're at NETGEAR.

Patrick Lo - NETGEAR
Yeah.

Robert Scoble - The ScobleShow
I know what you guys do because I have a NETGEAR at home.

Patrick Lo - NETGEAR
Alright, thank you.

Robert Scoble - The ScobleShow
You guys do networking equipment?

Patrick Lo - NETGEAR
Yes, we basically serve the networking needs of small businesses, as well as the home users. So, as you probably know everybody needs to connect to the Internet and in order to connect to the Internet, you need some networking equipments, so be it in the office or at home and we're there to provide all the networking equipment needed to connect you to the Internet.

Robert Scoble - The ScobleShow
You're the CEO of NETGEAR?

Patrick Lo - NETGEAR
Yes, I'm the CEO of NETGEAR.

Robert Scoble - The ScobleShow
Excellent, you just have a cube.

Patrick Lo - NETGEAR
That's correct, that's correct, we have a cube just like anybody else.

Robert Scoble - The ScobleShow
Tell me a little bit about what's going in the networking world. I'm seeing Wi-Fi going all over the place. I was just in Montana and there was a restaurant there in the middle of nowhere and they had a Wi-Fi sign on the door and I was like, "Okay, this thing has gone in the main real mainstream not just Silicon Valley mainstream, right?

Patrick Lo - NETGEAR
That's correct, that's correct. Networking has gone through multiple generations. When it first started it was Ethernet and you see some of the big thick cables those are Ethernet, but over the last, I would say five years Wi-Fi has taken over, no matter whether it's at home, at the airport, in the office it's Wi-Fi and because it gives you the flexibility and the mobility and also because Wi-Fi could fit into very small mobile devices, such as Laptops, such as Wi-Fi phones and all of that so that really helps. So, that's certainly the way that is sweeping everywhere. However, there are also other activities going on in networking that primarily want to connect up the, what we call stationary devices for example, (Inaudible) cameras, such as the electrical appliances at home.

So, there is another technology that's coming up called Powerline, which compliments Wi-Fi to connect up non mobile stationary devices. The whole idea was driving everywhere, everywhere is that okay, everything is connected and everything could be accessed at any time, anywhere through the Internet. That's why you want to find all kinds of mediums to connect the devices together and as you probably know, more and more devices are intelligent, refrigerator is intelligent, the light switches are intelligent and all that needs to be connected together, so people would be able to control it and see it, no matter what time it is, no matter where they are.

Robert Scoble - The ScobleShow
Right. What's the range of products that NETGEAR makes today?

Patrick Lo - NETGEAR
Usually...

Robert Scoble - The ScobleShow
Because, usually I see your name on something like that or one of my Wi-Fi access plate.

Patrick Lo - NETGEAR
We produce any one point in time about a 100 active products in the market, serving various needs of offices, homes or mobile people. So, that's generally the range and what we pride ourselves is helping customers to connect devices. So, when we started 10 years ago the primary device to connect is PCs, stationary PCs. Now, we've expanded it to multiple devices and of course most people know about laptops, connecting the laptops together, PDAs, but then we also connect phones, Wi-Fi phones or ordinary cordless phones to the Internet.

We're also connecting disk drives to the Internet. The latest one that we just introduced a product, which we probably can see later on, is to connect your TVs, your radios, your stereos onto to the Internet as well. So, as soon I load it to pretty soon will connect your light switches, your air conditioners, your refrigerators to the Internet as well.

Robert Scoble - The ScobleShow
Yeah the home automation is really about to take off. I just got my first light switch that's controllable and that's pretty interesting because now you can build interesting systems like, when your TV comes on or when you turn on your TV your lights down.

Patrick Lo - NETGEAR
That's correct.

Robert Scoble - The ScobleShow
Yeah.

Patrick Lo - NETGEAR
That's correct, or when the ring -- when the voice over IP phone rings and it detects that it's your wife calling then basically all the sound systems will come down for you to pick up the phone right.

Robert Scoble - The ScobleShow
What are the trends in Wi-Fi right now, because I know when I started Wi-Fi it was 802.11b and now Microsoft if you have an Xbox, they recommend getting 802.11n, I think.

Patrick Lo - NETGEAR
That's correct.

Robert Scoble - The ScobleShow
So, what's the latest standard that you're looking for the industry to support or adopt?

Patrick Lo - NETGEAR
The whole industry is working on a new standard called L2.11n, the standard is not here yet, there's a lot of discussion, a lot of engineering specification going on. We expect that standard is going to come out in 2008.

Robert Scoble - The ScobleShow
Wow!

Patrick Lo - NETGEAR
In the meantime we're already producing products that would mimic the technology of L2.11n and in other words that we're going ahead of the curve. We generally call it (Inaudible), but NSD is the mix standard. At the end of the day, what we're trying to do is, to ensure coverage, as well as the increased speed. People will live in brick houses, people will live in cement, concrete houses, we want to make sure that the wireless would be able to pierce through those walls, to cover every single corner of your house that's one. The second one, is people are getting faster and faster broadband link. Today, you probably knew the cable guys are kind of totaling six to ten megabits per second, Verizon is totaling 100 megabits per second, AT&T is telling 50 megabits per second clearly.

Robert Scoble - The ScobleShow
I don't get that to my house yet.

Patrick Lo - NETGEAR
I know, but when you talk to Verizon, you talk to AT&T, the two combined and committed to connect upto 30 million American homes by the end of 2008 with 50 megabit plus speed.

Robert Scoble - The ScobleShow
Wow!

Patrick Lo - NETGEAR
Now, there is a about roughly 120 million homes in the US, that means in two years time that about 25% of them will get anywhere between 50 to 100 megabits. So, clearly...

Robert Scoble - The ScobleShow
When I toured Microsoft's IPTV lab that would let them get 4 HD channels down at the same time, if you have that kind of bandwidth.

Patrick Lo - NETGEAR
That's exactly right, that's exactly right. So, meaning that you could have at least have 3 High-def TVs connected to the Internet and watch high definition video either from NetFlix or Movielink or from YouTube or from ABC. On top of that you could make phone calls, on top of that you could surf the Web, on top of that you could play (Inaudible) on the Xbox and all going on at the same time. As a matter of fact, in country such as Japan, Korea, Hong Kong and Singapore that's already happening.

Robert Scoble - The ScobleShow
Yeah. What's your challenge as a CEO of a hardware company? I talked to a lot of Web companies. I can understand the business model there, you get something that cost a very little money and put an ad next to it. Hardware has a cost. It actually costs money to buy the plastic and the boards and the gold even that goes into those things. Tell me a little bit about your challenges and what its like to be a CEO of a Silicon Valley Hardware Company?

Patrick Lo - NETGEAR
As a high-tech company, CEO that's in hardware, I think the biggest challenge is continue to stay ahead of the curve, to satisfy customers' needs. Customers basically need two things; one is the technology, two is the ease of use. And the two actually are contradicting each other all right. When you try to get the high-tech ahead of the curve technology products out, it tends to be a lot more difficult to use than the old ones. But customers don't like that, they want the latest and the greatest, but then they want the easiest. That's always the balance that we have to kind of compromise all the time to get it to the right mix of technology versus ease of use, so that our customers are willing to continue to buy it. As long as, we keep that right balance and stay ahead of a competition and to balancing them too, then we would be able to serve our customers better and in return, then they're willing to pay a little bit more to buy our products.

Robert Scoble - The ScobleShow
Yeah. How is Windows Vista, which is going to ship at the end of January, it looks like? How is that going to affect your business? Are you looking at coming out with products for that or tell me a little bit?

Patrick Lo - NETGEAR
Given the fact that Microsoft Windows Operating System controls more than 90% of the laptops and the desktops in the world today, we absolutely have to support every single version of the Operating System. So, Vista is another one and there is no exception, which means that and all our products and its installation software, is the software that help people to use them has to be upgraded, so that it will work compatibly with Vista Operating System. A lot of engineering effort goes into there, what we're banking on is that Vista as it promises, we'll make the whole experience of networking a lot easier, we'll make the experience of having entertainment content flowing through Internet to the home network and all the devices associated with it be it Xbox, be it your TV, be it your desktop or laptop a lot easier.

Now, if that's the case then it absolutely worth all the engineering effort to go with it, because, then you could really make a lot of people able to use it. Today, frankly home networking is still limited to a group of people, who is little bit more tech savvy, who is a little bit more affluent, but hopefully Vista make it easy, we'll change all that. So, we would be able to get the home network penetration in the developed world from about 20% which is very low to about 80%, which is what cell phone is, which is what color TV is. So, Vista is another little step towards that.

Robert Scoble - The ScobleShow
Yeah. How is HDTV going to affect your business? Like you said, if AT&T or Comcast brings a high bandwidth link into home, do we need probably new NETGEAR's all right to make sure that our HD is that we can subscribe to HD content right?

Patrick Lo - NETGEAR
Right, the whole tech industry has the model of you build it and they'll come and that's why we're going into these technologies of building 300 megabit wireless, 600 megabit wireless, terabit wireless, then it's all looking at, looking for an application. So, HD is the perfect application. So, HD would require at least 15 megabits per second to transmit one stream and if you think about that, if I mean the very ideal case that you have really high speed Internet connectivity into the house and you're not going to just have video from the so called IPTV operators be it AT&T, be it Verizon, be it Comcast or (Inaudible). The ultimate thing that would believe the motto is that HDTV content will be abundantly available on websites around the world.

Robert Scoble - The ScobleShow
Yeah, and I'm shooting you in HDTV right now and I'm not going to be able to put this video up for everybody to download and tape.

Patrick Lo - NETGEAR
That's it. So, then think about this we're talking about, okay one TV then one HD because you could have multiple windows on the TV, I mean we're talking about picture in picture right? So, if think about this in the past...

Robert Scoble - The ScobleShow
Yeah, Microsoft showed me a base plug in that they were displaying live with three different video cameras on top of the master camera. So, you could watch first basement, second basement, third basement and they guy at the home play or you could watch four different NASCAR race cars all at same -- all on one screen.

Patrick Lo - NETGEAR
Absolutely, I mean, for example, I can march madness you know about that right? You could open five screens; you could watch five different games at the same time. I think five is the extreme, but for most of us we go to college in place; we grew up in another place and then we worked in another place then it wouldn't be surprised that for people we want to see three college games going on at the same time. So, that's what the ultimate aim is. So, if that's the reality, then we would need a lot more than just a 100 megabit or even 200 megabit Wi-Fi and of course that benefits all of us, because as you probably see that the most law is that, the number of transistors will continue to increase and the price per transistor is going to come down. So, the only way to keep our average selling price constant is packing more power, packing more applications onto it. So, we still believe that over time our products will become cheaper; however, then it will be more powerful and hopefully the price erosion will be a lot less.

Robert Scoble - The ScobleShow
Yeah. Are you the US only company, or you're available worldwide aren't you?

Patrick Lo - NETGEAR
Actually, our business is selling to consumers as well as to small businesses. So, our business is mimicking to the population. So, as you know most of the people live outside of the United States, so that's why most of our business is actually outside of United States. Today, about two-thirds of our business is outside of the US only about one-third is in the United States.

Robert Scoble - The ScobleShow
Yeah. You run the entire company here or are you a subsidiary of some other?

Patrick Lo - NETGEAR
No, we're an independent company. We're listed on NASDAQ and we're happy that we are continuing to expand our business.

Robert Scoble - The ScobleShow
Why have you located in Silicon Valley if most of your business is outside the United States?

Patrick Lo - NETGEAR
Well, it's just like...

Robert Scoble - The ScobleShow
It's pretty expensive to be here.

Patrick Lo - NETGEAR
Just like everything else things are invented here. So, this is the center of the universe as far as technology innovation is concerned. So, we do it here, we build the products and we ship it elsewhere, as a matter of fact it's not like that. It's just us, like Hewlett-Packard, who is the probably the biggest on what Intel, right? Most of the sales is outside of United States as well, very few in the United States. Simply but it doesn't mean that the headquarters is going to move because at the end of day the buyers engineers are all here.

Robert Scoble - The ScobleShow
Yeah, what else do I need to know about NETGEAR? If I walk in to FRYS, or at Best Buy or a store where I'm going to buy that, why buy you rather than somebody else, I mean is it just price is that do I get features on NETGEAR, because it looks all the same, right? It does.

Patrick Lo - NETGEAR
That is true, I mean they seem to look all the same you could argue with automobile is the same too, I mean they all look pretty much the same. So, I think for people walking into a store, be it FRYS in the United States or PC World in the UK, or Kaafu (ph) in France, a Media Mart (ph) in Germany is the same thing. When they look at multiple products then they primarily look at a few things; one they look at what they call; the features or the specification. So, when you buy a car, you look at what's the gas mileage, what's the horsepower, and then the second thing you look at is the style. How does it look? So, those are the two things and the third thing you consider is the brand reputation, is the reliability good, is the service good and that's basically how people think, is no difference from buying a car.

So, that's why what we strive to do is, one on the specification piece we're always better all right. So, we have a little bit highest speed, we have the bigger coverage, so that's what we do and reports after reports, review after reviews from PC Magazine or PC World from those independent studies, our wireless routers just have better coverage, higher speed, so people know that and they could read it from the box specification.

The second thing is that our industry design of the box is so much better than our competition. We got awards on our design year after year. Recently we just get a, the most committed Industrial Design Award in Japan, we pitch against a lot of the Japanese guys we beat them all and so we are very happy with that. And then the third piece is of course is important for us to build a reputation that our products are very reliable and our after service is very good. So, those are the things that people consider, but if you're looking for price that generally will not be the case because our products generally is priced at or above our competition.

Robert Scoble - ScobleShow
Yeah. But the prices, I mean on a Wi-Fi router now, what is a Wi-Fi router cost at price it is amazing what you guys do in terms of driving cost down I remember a even in the printer world that I remember Steve Wozniak, who started Apple had a dye sublimation printer and it cost $40,000 in 1989. Now, a $70 printer does the better job and same thing with Networking Gear you can buy a really good 802.11 and router for about a $100 now.

Patrick Lo - NETGEAR
No, we can't do that. I mean you could do...

Robert Scoble - ScobleShow
$115?

Patrick Lo - NETGEAR
Yeah, $115. I mean from some of our competitors you could probably do it for $100, but for ours its about $150, but if it's different budgets right, so if you live in a relatively small condo or apartment and you have really low speed of broadband Internet coming in and lets say a DSL only about 750k and then you only have one laptop to connect to, or maybe even two, then you probably we'll make do, with what we call it an L2. 11g 54 Megabit Wi-Fi, that you could buy at about anywhere between $50-$60 dollars in FRYS or any other stores, but if you live in a big ranch house or sometimes when you live in big apartment, you have a lot of concrete walls in between, then you probably would like to buy our top of the range in which would cost you $150.

So, but anyhow, yeah I mean its amazing when we first introduced the L2.11b, which is very slow speed at 149. Now, with three times the speed you could buy it at $59 or $49, but its all relative though. Our aim is to make it even cheaper because $49 are not that bad in the US, but you when you translate it, let's says into Chinese Yuan; its 490 and $490 in Chinese Yuan is a full month salary for most people in China, so that's too pretty expensive, so its all relative. So, if you look at cell phone today the penetration in the US and Europe is like 80%, but in China it is still about 15%. The reason is, even though the cell phone prices come all the way down to $50, it is 500 Chinese Yuan. So, it's still beyond the reach of the lot of Chinese families.

So, the beauty of the technology industry is we continue to drive the cost down, so that we will able to proliferate it not only in the developed world, but also to the developing world and the more technology they get, the higher the quality of living that they will be able to achieve and that's the beauty of it.

Robert Scoble - ScobleShow
Yeah. Anything else you want me to know about NETGEAR?

Patrick Lo - NETGEAR
No, I think we've covered a quite a bit and then I think everybody over here is very passionate about what we do and the impact that we have on the (Inaudible).

Robert Scoble - The ScobleShow
You're going to the Consumer Electronics Show of course?

Patrick Lo - NETGEAR
Yes, absolutely we'll be there, yeah we'll be there in CES.

Robert Scoble - The ScobleShow
What are the big initiatives that you think are going to come out on the networking industry there? It seems like every year there's some big, I am going to try getting a link, what you are going to do?

Patrick Lo - NETGEAR
You probably know, there are a few really key trends. People talked about Voice Over IP for many, many years and last year we made a huge splash in CES by introducing our Wi-Fi Phone, the Skype phone which is doing very well. We introduced it, we actually volume shipped it in September and it's doing very well. And this will be absolutely a major category of what we call Wi-Fi enabled phones and you'll see a lot of them in CES with different flavors. You could have flavors like our Skype phone, you could have the flavors of a GSM plus Wi-Fi. You could have flavor that runs not just Skype, but also Google. You could have flavors that run just any other server. I'm sure that you'll see a lot of them, but then we're going to introduce more in that, come to our CES booth in January.

Robert Scoble - The ScobleShow
Excellent, thank you very much.

Patrick Lo - NETGEAR
Thank you so much, I appreciate it, yeah.

Robert Scoble - The ScobleShow
NETGEAR. So, where are we?

Patrick Lo - NETGEAR
Oh okay, so we are in the lifestyle demonstration room of NETGEAR and here we showcase some of our current products and very, very interesting products. I want to show over here and as you could see this is our Storage Central is very popular, people use it at the home, as well as in small offices to backup data or to share files. And this is the latest draft 11n router giving up, pumping up 300 megabits per second Wi-Fi covering around in the house. And then we have some what we call Voice over IP adapters over here that would enable you to connect an ordinary phone and then make free phone calls over the Internet.

Robert Scoble - The ScobleShow
Excellent, we all want the free calling the AT&T does like that too much.

Patrick Lo - NETGEAR
Don't tell too much about that. And then here we've got a TV that's connected to our latest box, the Digital Entertainer. So that now the TV is connected to the Internet, so you'd be able to watch YouTube, you'd be able to watch the videos that you download from the Internet.

Robert Scoble - The ScobleShow
Can you download them right to that box then or?

Patrick Lo - NETGEAR
Actually that box is connected over the Internet, over the wireless into the Storage Central. So, basically we use the Internet to download whatever video into the Storage Central and then you could watch it from there.

Robert Scoble - The ScobleShow
Okay. So, I could download the Rocketboom or is it to there.

Patrick Lo - NETGEAR
That is correct. Right in there and then that one will be able to pull it and stream it.

Robert Scoble - The ScobleShow
And how much do these two things cost?

Patrick Lo - NETGEAR
The Storage Central cost, it depends on what the disk drive's capacity. So, let's say if you put about 300 gigabyte into it then it cost you roughly about $250 and then the Digital Entertainer is about $200.

Robert Scoble - The ScobleShow
Okay, so $550-600.

Patrick Lo - NETGEAR
Yeah, that's correct, then you have a pretty good setup, pretty good setup.

Robert Scoble - The ScobleShow
And Hi-Def can go over the (Inaudible).

Patrick Lo - NETGEAR
Yes it's Hi-Def, yeah you could go anywhere from DVD quality to 720p to 1080i.

Robert Scoble - The ScobleShow
1080i?

Patrick Lo - NETGEAR
Yes, it supports all the way to 1080i.

Robert Scoble - The ScobleShow
Is there HDMI connector on that then or is it just a (Inaudible).

Patrick Lo - NETGEAR
There are two models. This model doesn't have the HDMI; it has only the component, the composite, but then the next model up has the HDMI interface into it as well.

Robert Scoble - The ScobleShow
Okay. And does that support 1080p as well or just 1080i?

Patrick Lo - NETGEAR
Just 1080i. The 1080p is a little bit tougher to support, there will be to follow on.

Robert Scoble - The ScobleShow
What difference do you think is between 1080i and 1080p, because I have a 1080i TV and some of my friends are getting 1080p TVs and it's really hard to tell the difference.

Patrick Lo - NETGEAR
There is no content yet on 1080p, there is no content. When the real content comes out then you could see the difference, but for most people, like me, whose eyes are not that good it's very difficult to tell the difference, is like Hi-Fi, right. Some people have good ears, some people don't I don't have good ears, so you can tell the difference. The major thing is that in the actuality for 1080i you actually only have 540 lines of display at any one time, but for 1080p you really actually get total of 1080 lines displayed at any one time, so this should be a lot cleaner. So it's a lot crisper, but there is no content yet.

Robert Scoble - The ScobleShow
Right, because it's hard to deliver that kind of content over that existing cable. I don't even have HD of any kind and I live in Half Moon Bay, which is just a few miles from Silicon Valley and we still don't have any HD.

Patrick Lo - NETGEAR
It is the equipment to produce the content that's gradually coming out and we will see 1080p content starting to come out sometime next year.

Robert Scoble - The ScobleShow
Yeah. Well cool. Anything else we didn't see in this room?

Patrick Lo - NETGEAR
No, I think this is cool; I'll get that duck over here.

Robert Scoble - The ScobleShow
Well, thank you very much for giving us a little tour and giving me an interview.

Patrick Lo - NETGEAR
Yeah. Sure, no problem.