I believe that the iPhone 4 will be remembered as the device that invented video chat. Just like how the iPod is often seen as the first real mp3 player. It wasn’t at all of course. There were dozens of mp3 players before it. But the iPod set a new quality bar which was so much higher than everything before it, that it redefined the space, and actually made it accessible to the mainstream.

Video chat is in a similar place today to where mp3 players were 10 years ago. There are lots of video chat solutions out there on the market. Skype is the most well known. I helped launch Google’s video chat system across Gmaill, iGoogle and Orkut during my tenure there. It definitely is one of the best on the market, and it’s still only appealing to early adopters. I mean “early adopters” in the classic Everett Rogers sense, which is to say folks for whom the extra value of the new technology outweighs the hassles of using it. This is a step beyond the “innovators” category, who are willing to bend over backwards debugging a brand new product just because they understand that it will be important later. Video chat has been available to innovators for a great many decades.

With iPhone 4, Apple will push video chat to the early majority category. Apple has a history of sitting on potential technologies until all the bugs are worked out, which is fundamentally what’s needed to appeal to more than just early adopters. I’m pretty sure FaceTime will be no exception. In 6 months, video chat won’t be this geeky thing that people put up with out of desperation. It will begin to be integrated into normal culture. We’ll start to see television dramas and movies incorporate it as just a way some people communicate, rather than as a way to demonstrate how high-tech somebody is. People who aren’t geeks will start to use video chat.

Video chat really matters

Those of us who have lived deeply with video chat understand its value. There is a ton of additional content transmitted in video that helps communication on many levels. It allows for a more nuanced informational discussion, but more importantly IMHO, it allows distant communication to be much more personal and emotional. Anybody who has tried professional collaboration with another team that is thousands of miles away knows that this level of communication is at least as important for business uses as it is for social communication. The first time you meet your collaborators in person, they become more real, more trustworthy, easier to talk to, especially about difficult subjects like problems that might arise in a project *gasp*. Video chat is certainly not as good as meeting people in person, but it is a huge step above email, IM or phone. (Getting drunk together I believe represents the highest professionally-accepted level of humanization.)

Human-to-human communication has always been the killer feature of computer technology. Video chat makes synchronous communication fundamentally better, and as such will become a major part of everybody’s life in the developed world in the years to come.

What does this mean for everybody else?

The history of technology innovation tells us that a couple things typically happen when an emerging technology pushes into the majority segments. First, established players will all get a boost. Apple will be doing a huge favor to Skype and Google Video Chat by removing the veil of geekiness from their products. Apple’s huge investment in making this product work well will make all consumers more willing to try alternatives.

Another common side-effect is that the space will get more difficult for new entrants. This usually happens as the technology standardizes. There becomes a “normal way of doing things” that people start “to get.” Before a technology can reach the majority, it will typically bounce around dozens of different modalities as everybody tries to find a way of doing it that resonates with the market. This uncertainty represents a clear opportunity for start-ups and the subsequent standardization is the closing of that opportunity. Another reason the space usually gets harder for startups is that economies of scale start to kick in as production levels ramp up to meet the larger demand. This naturally favors large companies, since it raises the amount of investment needed to compete.

Which Social Graph?

Another reason the space might get harder for newcomers is the natural monopoly of social graphs — consumers are better off if there is a single definitive place to keep track of their contacts rather than having to replicate and maintain a different list for each service. As such, social graphs are important assets to anybody in this space. But if Tim O’Reilly gets his way (which I hope he does) and we end up with a loosely-coupled internet OS, this won’t be a problem for startups, as they’ll just be able to draw from an openly available graph, say from a Google or Facebook.

I’m really not sure how this aspect will play out. My guess is that Apple will rely on the de-centralized social graph which is the contact list built into every iPhone. It’s a less useful corporate asset than if it were properly cloud-hosted, which will make it harder for them to expand the service to OS X machines. Perhaps they’ll make something useful out of mobileme here, but I have my doubts. But given the revenue they get from App Store sales, it’s not clear that the OS X machine is even a major part of their consumer strategy going forwards. If so, this would likely be a strategic shift for them, as the inclusion of web-cams on essentially every OS X machine for years was probably done in anticipation of making a major push into video chat at some point.

Don’t forget Cisco

In addition to the obvious players like Google and Skype, this is also incredibly important for Cisco too. Cisco has long been interested in video chat. Why? The same underlying reason Intel has been investing in multi-media since the late 1980’s. Multimedia on PCs needs lots of CPU power, and video chat needs lots of bandwidth. It’s called “primary demand stimulation.” To be very clear: Cisco wants everybody to use video chat because video chat uses lots of bandwidth, and when people are using lots of bandwidth, Cisco sells more big routers.

Cisco is in the final phases of buying Tandberg, who is the biggest supplier of video-chat hardware for businesses. Their aquisition of Flip last year seems strategically odd in isolation, but in this context makes perfect sense. They are building (buying) expertise in consumer-electronics which can handle high quality video. Take a Flip camera, add a network (like a linksys wifi box) and you’ve got a video chat terminal. I predict we’ll see such a toy out of Cisco in about 2012, as video chat fills the early majority segment and edges against the late majority.