The Squeezebox 3 (SB3) product from Logitech is a nice network audio player that requires technical skills to set up. If you have a large music collection this product can change the way you listen to music. If your collection fits on an iPod then an SB3 is probably unnecessarily complicated and you will be more practically served by an Airport Express and iTunes from Apple.

Overview

I purchased my first SB3 in October 2006 and now have three in my home. I have several thousand CDs which are now encoded as FLAC formatted music files. I paid Awaken to do this service about a year ago. SB3 makes it easy to enjoy all this music without requiring more time spent in front of a PC (though it's certainly possible to operate SB3 through the server's web interface). The cost of SB3 is reasonable compared with Apple and other competing network audio players (e.g. from Sonos, Roku, etc.)

Why SB3?

Supports FLAC	Supports many file formats including FLAC natively. This is one of the only ways to have better audio quality than MP3/OGG/AAC and the ability to transcode to whatever formats become popular in the future without ripping the music CDs all over again or re-purchasing the content. Logitech has a good guide to file formats
Network Interfaces	Supports both wired and wireless networks. I used wireless for awhile without issues, but find consumer wireless routers generally overheat and become unreliable after a few months in my urban environment. The SB3 wireless interface continues to work fine, but I switched to wired Ethernet after a few months
Open Source	When I purchased my first SB3 SlimDevices was a small company and I worried they might disappear. Since then they have been acquired by Logitech, so I am even more pleased that the server software is open source. Worth noting that the SB3 firmware itself is closed (a binary blob), but the SqueezeCenter server software is open source under the GPL. The server software itself is written in Perl (a language I dislike) and the forthcoming Jive remote control platform relies on Lua (a language I don't know), but I am certain that I will be able to add functionality should I desire to do so.
SqueezeCenter Plugins	There are many useful plugins for the server software contributed by users. I like the TrackStat and LazySearch plugins a lot
Synchronization	It is possible to synchronize audio playback across multiple SB3s located in different parts of the house. This works reasonably well for individual tracks, but not so well for net radio streams
Design	Many people find SB3 attractive, it also supports nice features like Wake on LAN (to power on a sleeping server), has a well designed remote, etc. It looks good in a stereo equipment rack
Support	All SlimDevices products are still supported, including the SlIMP3 from 2001. This is exceptional amount of commitment for line of consumer electronics products

Limitations of SB3

Technical Setup Process	Like setting up a wireless network, SB3 requires lots of other things to work well for it to work at all. If you have a working network with DHCP, wireless, and know your WPA/WEP passwords then setup could be as easy as installing SqueezeCenter on a PC and stepping through the network wizard on the SB3.
SqueezeCenter	Formerly called SlimServer, SqueezeCenter server software is both a great feature and a terrible liability to this setup. It is a resource hog (100-128MB of memory just for itself in my case), but has been stable in my experience (on Linux, BSD). The substantial resource needs make it hard to install SqueezeCenter on anything smaller than a full PC (e.g. embedded device, NAS, etc.). I do not bother to update SqueezeCenter with each release as it seems to work fine for me already.
SB3 is a (fairly) dumb client	The SB3 is simply an interface to the server-- e.g. when you press "pause" it relays the button press to the server, which stops sending audio and updates the SB3's display to say "Paused". This makes is easy to add functionality through SqueezeCenter plugins, but means that the server much be running for the SB3 to do anything more than listen to net radio
No support for DRM	Specifically, DRM protected files from iTunes do not play at all. SlimDevice/Logitech doesn't support Napster either, though Rhapsody works
No Sonos style remote control	The Sonos remote control is a key feature that is highly attractive to the gadget prone. It really is very cool. SlimDevices/Logitech is working on a competing product in the Jive platform but it is not on the market as of 2007Q4

Alternatives

Apple Airport Express	The Apple Airport Express is a better product for most users as it integrates well with iTunes and supports DRM "protected" files purchased from the iTunes store. iTunes does not support FLAC and requires a PC to operate
Apple TV	Apple TV provides an alternative interface to iTunes, and an attractive HDTV interface. It looks cool and works with a remote control
Roku	Roku SoundBridge is less reliant on its server software and can play music from iTunes or Firefly Media Server (formerly mt-daapd). It is cheaper than SB3 and has a more limited web interface than SqueezeCenter. Does not good support for synchronized playback across multiple players or have direct support for FLAC (needs transcoding to WAV using mt-daapd)
Sonos	Sonos Zone Player Systems use a sort of proprietary 802.11g based wireless network and supports a wireless remote control with an LCD display. The remote is the key feature and works well at parties. Sonos does not require server software except as an optional interface "controller", though it does need to access music using a network share. Like SB3 Sonos supports FLAC, has limited iTunes support, and can synchronize playback among multiple players. It also integrates with the world of Microsoft Media Player. To users enamored of the Sonos remote control, the SB3 is "obviously" inferior. The Nokia/iPod Touch web interfaces are something of a substitute. The Jive based remote control from Logitech should be a competitive solution if it becomes available. Sonos seems to have a more limited software ecosystem (plugins, non-Win/Mac support, etc.) than SB3 and higher prices.

User Base

Existing Users

Audiophiles	Need FLAC, thrilled that the Transporter is available, use outboard DAC with SB3, and willing to pay for a silent PC to run SqueezeCenter (e.g. Tranquil PC). No other products on the market compete with SlimDevices/Logitech on this area
Developers	SlimDevices/Logitech encourages development on their platform more effectively then other vendors. Source and documentation are largely open and the community is active. SlimDevices proactively supported developers and Logitech seems to be continuing this (so far). This means the SB3 has gained interesting new functionality over time
BSD/Linux users	SqueezeCenter runs well on Linux, BSD, and many other UNIX like operating systems. Roku SoundBridge is the only other product that can do this, and SB3 compares favorably against it
Early Adopters	Encouragingly, tech enthusiasts seem drawn to SB3. Like many things, it can be a bit beyond their capability to make it run reliably, but the forums are not too hostile to newbie questions
Pandora/Net Radio listeners	Many competing devices support net radio already and it doesn't require the server to run while the SB3 is switched on. Logitech call their offering SqueezeNetwork; it works, but I have not really used it much

Un/Under-served Users

Consumer NAS Owners	Some time ago there was official support for Infrant NAS devices, before they were acquired by Netgear. As with nearly all consumer NAS devices, the Infrant NAS was not well suited to running SqueezeCenter due to limited memory and the user experience was poor. There is strong demand among users to move SqueezeCenter "off the PC" to a "low power" or "embedded" platform that can run transparently. Some users set up dedicated PCs to run SqueezeCenter, and market solutions are tantalizingly close with the introduction of Windows Home Server devices, more powerful consumer NAS hardware, and free alternatives like FreeNAS/SlimNAS. These users will probably have much better choices in 2008
AV aficionados	Already have LCD or plasma HDTV, packaged "home theater" sound system with many speakers, want Blueray/HD-DVD players, etc. Network audio makes a powerful demo, and many want it once they see it in action. Sonos seems to lead this market with better distribution channels and a man-friendly remote control. No doubt Logitech will target this market soon
iPod users	Hopefully someone is working on this already. Better iTunes support would also be good
Media hoarders	Some already own NAS, the rest will soon because HDTV broadcast and movie files are huge. Windows MCE, Apple FrontRow, MythTV, and XBMC are common interfaces to these libraries. If SB3 supported UPnP AV directly (without SqueezeCenter) SB3 might be more interesting

Possible Directions

Universal Remote	Logitech already has the Harmony product, so this looks obvious
Home Automation Controls	Nifty in-wall switches and X10 type accessories are popular, and with a simple control dongle could provide another SqueezeCenter interface. Crestron does much of this already
HDMI	TV interface to SqueezeCenter, a la Apple TV?
Photos	The Roku Photobridge was an interesting product that never found a market. I would buy a SqueezeBox with HDMI and USB ports (SD reader too)
Video	Compete with Tivo and fight with cable operators, TV and movie studios?
Car SqueezeBox	With wireless and a hard disk this could maybe work
Commercial SqueezeBox	Ethernet is cheap and many network audio distribution solutions for commercial customers are expensive. SB3 already provides most of the functionality, and though this is not a large market it could have good margins and a consulting business
Recording	Transporter has audio inputs as well as outputs, so a SqueezeCenter-like webcasting platform might be possible. Other than as a glorified baby monitor, I am not sure how this could be marketed

The Future

It's unlikely that this market is large enough for Apple to pursue directly, but if they release an iTunes-enabled network audio player before DRM is discontinued then Sonos, Roku, and Logitech will be in a very different position. Presumably they will retreat upmarket.

The SB3 itself could live on for many years after it is discontinued due to its open source support software. The same could not be said of many other devices.

SqueezeBox 3, Year 1