Carburton Street, London -- Last week The Motley Fool met Daniel Harris, the Chief Executive of Alba (LSE: ABA), when he came to our office. This small company based in Barking, Essex has been around for some time as manufacturer of electrical goods, but it has been transformed in the last year by its development of an Internet TV. We were so intrigued by this novel product that we wanted to find out more about the company.
Mr Harris started off by recapping on the three core businesses the group has steadily built up over time. These are:
- Consumer electronics retailing under the Bush, Alba and Goodmans brands.
- Domestic electrical appliances sold under the Bush, Dirt Devil and Hinari brands.
- Power tools under the Power Devils and JCB brands. This is a new market for them and is only 5 years old. The JCB brand is a high specification product that has to meet JCB's rigorous standards.
Almost all the products are made overseas, mostly in Italy, Turkey and China.
However, he told us that two or three years ago the company was approached by ONDigital to help make digital TVs. To do this it used a software access card, developed by Canal Plus of France and known as SECA conditional access. Until this time Alba's products had been simple hardware. This new venture took it into software for the first time.
He said a key ambition of the group was to make a TV that could access the Internet. To do that it needed a browser, and Alba approached the E14 unit of Acorn based in Cambridge to solve this problem. The E14 team was the one that had developed the old BBC computers and had gone on to invest 400 man-years and £25m working with Oracle to develop network computers. Even though that never developed the technology was adapted to become the browser for the Internet TV and is the key to the new product. It was during development of this browser that Acorn sold its E14 unit to Pace Micro Technology (LSE: PIC) and Pace became its partner. It might interest some Fools to know that the device uses RISC chips designed by ARM Holdings (LSE: ARM).
So a year ago the company had a TV that could browse the Internet and it was intended to simply sell this clever box of tricks as another consumer electrical product. But then one of his advisors suggested that rather than just sell the box, it could get added value by providing software as well. Consequently, in double-quick time, a deal was done with Virgin to create an 80:20 joint venture in Alba's favour to market these TVs and run its own portal, bushinternet.com. By selling them at a subsidised price of £199 the aim was to acquire a whole new segment of the population that had not previously used the Internet. The joint venture is aiming to recover the full cost over two years by ongoing revenues from phone charges, e-commerce and advertising.
The TV is an analogue set with a 14-inch screen and no hard disk. The browser appears to be based on Netscape 3.2 and gives full access to the Internet and reads HTML and Javascript 1.1. Also included is a 128 Kbit SSL (Secure Socket Layer) encryption technology to enable secure transactions. Control is achieved through a remote control about one and a half times the size of a Nokia Communicator mobile phone, which opens in the same way as the Communicator to reveal a QWERTY keyboard.
Web access is free apart from local phone charges. The default page is bushinternet.com but there is no "walled garden", so users can change the home page easily if they wish. Overall, the total package is designed to be simple to use and focuses on leisure and entertainment. The news feeds, for example, come from the BBC, The Guardian and The Sun.
Although it is a small screen, the resolution will be midway between that of a PC and a TV, but Harris says the company is planning on making 21-inch, 28-inch and widescreen TVs in the future. Also in the pipeline is a second-generation version that will include a hard drive. Even so, the one being marketed now will be able to save e-mails and favourite sites on remote servers. Perhaps this presages the network computers that many have been advocating for so long.
The modem is a V34. Later versions will be DSL compatible and able to take advantage of faster connection rates. Mr Harris was keen to point out that they have tried to cover all angles. For example, it will have parental controls; it will have call waiting and the ability to hop easily between the TV and Internet. And it will automatically disconnect the call if the user is watching TV and forgets he is still logged on.
The size of the UK TV market is about 4m units a year, and Alba currently has 18% of that. For the new product the company has set a sales target of 750,000 for the next twelve months and has already taken orders for 500,000 from most of the high street electrical retail chains.
We asked Mr Harris about branding, because that was an issue mentioned on our discussion boards. Some were concerned about the budget image of their products. Many see branding as being very important these days, especially for the Internet and consumer goods. He told us that Alba has researched this topic and believes there are three categories:
- Aspirational, expensive brands like Rolls-Royce and Rolex;
- Brands no one has ever heard of;
- Brands that people have heard of, and are affordable and familiar.
Alba sees its products fitting into the last category.
He was adamant that Alba has a very clear view of its target market, and it is definitely not the high spending, but probably small, one targeted by Lastminute.com (LSE: LMC). Alba's market is much larger, but also more price conscious. In this respect it feels the link with Virgin is important because so many non-Internet users can identify with it.
To promote the new product Alba is using three strategies:
- Shelf space in retailers
- TV advertising
- Keen pricing
Although it will lose money on each unit sold, the joint venture estimates that the user acquisition cost will still be lower than those of competing ISPs.
After I had arranged the meeting, I posted a message on the Pace discussion board asking for questions to put to the company. One that was suggested was to ask how Alba found Pace as a business partner. Mr Harris answered that by saying that he found them very good and liked doing business with them very much. He went on to say that he thought them very commercial, in that they were aware of what needed to be done. They didn't seek to use technology for its own sake, but only what was necessary. A large part of that he ascribed to the heritage both companies derived from Amstrad (LSE: AMT), because many senior people at Pace and Alba had worked at Amstrad.
We asked Mr Harris what he felt were the major threats to his business. He is certainly under no illusions about the dangers he faces from other competitors. But he feels he has three advantages.
- A one-year head start;
- A clear view of the customers' needs;
- A means of distribution.
Perhaps the most important of those is the second point, the price-sensitivity of its customers. He told us anecdotes of the proverbial taxi-driver urging him not to make his products too expensive.
The only problem for investors in the shares is the low level of liquidity and the high spread. That is partly because the family own half the shares, which seems a pretty convincing point to end on.
Where Next?
• Talk about the companies on the Alba or Pace discussion boards
• Check out the service at Bushinternet.com
