Because change in this industry tends to be incremental and far more subtle than what can easily be reported in a newspaper article or a short television news report, we wanted to open 2007 with some of our thoughts about “what’s next” in the digital lifestyles industry.
Watching Trends and Opportunities beyond 2007
Kurt Sherf | Parks Associates
Because change in this industry tends to be incremental and far more subtle than what can easily be reported in a newspaper article or a short television news report, we wanted to open 2007 with some of our thoughts about "what's next" in the digital lifestyles industry.
The Constant Question
The question we hear most often after the Consumer Electronics Show (CES) is "What did you see that was interesting or 'cool'?" It's not an easy question to answer. The press coverage of the show lends itself to pictures and video of huge televisions, tiny mobile handsets, and strange-looking devices (robots, for example). For Parks Associates, however, it's not necessarily what we see that provides the greatest insight; it's what we hear during demonstrations and briefings with companies that clue us into some interesting developments. And, every year, we tend to hear much about incremental improvements to devices and services, including (but not limited to) home networks, mobile communications, broadband-related services, digital entertainment, television-related applications, gaming, home systems and controls, and consumer electronics.
Because change in this industry tends to be incremental and far more subtle than what can easily be reported in a newspaper article or a short television news report, we wanted to open 2007 with some of our thoughts about "what's next" in the digital lifestyles industry. Although we are continually tracking near-term opportunities (and helping our clients answer the question, "How do we build revenue in 2007?"), there are concepts underway now that certainly have some significant long-term potential.
We've outlined some top trends in bullet points below, with longer explanations and insight included for those who want additional insight. Opportunities in consumer technology continue to impress us as certain applications and solutions become more relevant each year. We are looking forward to a 2007 with great discussions, research, and conferences dedicated to advancing developments in this dynamic space!
Brief Overview: Trends and Opportunities
Insight into Trends and Opportunities
Convergence in Communications
Competition in service delivery (voice, video, Internet) will drive providers to innovate in how they blend services, and we see opportunities here for communications and entertainment convergence. Examples include voice mail on the TV, unified messaging with access to voice services through different devices, videoconferencing, and remote monitoring, which could be used in health applications such as keeping tabs on elderly family members.
Fixed and Mobile Convergence: Device or Network Level
Convergence of content, applications, and feature sets for fixed and mobile devices and networks will continue. This "platform portability" offers compelling benefits, such as new use cases for enjoying video content. For example, the TV set-top box may serve as the bridge between the fixed television and mobile viewing experience by transcoding content to be displayed on a mobile phone. We are likely to see convergence in content encoding at the network level, where it will then be made available for multiple networks (fixed line and mobile). In addition to the mobile phone, expect to see more announcements in fixed-to-mobile content transfers as consumer electronics manufacturers add value to their platforms by providing "hands-off" features (to a portable multimedia player, for example).
Another interesting area to watch is the use of the mobile phone as a personal gateway, allowing the storage of personal identification information and enabling microtransactions through machine-to-machine communications.
Enhancements to Content Delivery Networks
As "over-the-top" services such as Internet video increase to a projected $7 billion market by 2010, media companies and content distributors will actively investigate ways to reduce content delivery costs. Some companies, including YouTube and MySpace, have switched to Internet backbone providers such as Level 3 to reduce bandwidth costs. Others, including NTL in the U.K., AOL, and Warner Bros., are experimenting with peer-to-peer delivery. Additional CDN enhancements aimed at making network owners' existing content delivery mechanisms more efficient - including (but not limited to) switched digital video, IP multicasting, and statistical multiplexing - will bear watching.
"Over-the-Top" Integrated with Standard Services
Incumbent service providers will not want to stand pat while over-the-top content and applications providers threaten their existing businesses. We recommend that service providers bring Web features into existing services, at least in some limited fashion. For example, one possibility is a community-based weather and traffic channel that shows a feed from local department of transportation Web cameras, available so subscribers can anticipate problems with their morning commute.
An Opportunity for Set-top Alternatives?
The FCC's mandate for widespread retail availability of set-top boxes will spur the rise of alternative television receivers that leverage CableCARD and DCAS. Expect also to see greater implementation of embedded set-top box capability in TVs and other stand-alone CE platforms. Opening the set-top box market will usher in radical changes to the "walled garden" services that the traditional service providers have offered as content-receiving and storage platforms will offer new features, including the ability to tap into content stored locally in the home or from the Web.
Micropayments and Alternative Payment Models
As the markets for digital media and service provider features become more fragmented, a growing number of operators, content providers, carriers, and alternative providers will implement alternative payment models (micropayments, payments attached to mobile phone or broadband bills, ad-supported content and services, etc.). The gaming platform and PC may utilize these services first as the gaming community is seeking enhancements and other content through their online gaming arcades and other portals.
Micropayments may also be applicable to standard home computer software; consumers may actually begin to "rent" use of specific applications (for word processing, spreadsheets, etc.). The move to support alternative payment models will impact audience measurement and content protection and tracking (watermarking, etc.). Incumbent service providers can benefit from micropayments by providing business-to-business services to third-party content and application service providers.
Monitoring for Health and Peace-of-Mind Applications
Consumers are more proactive in their health care (and certainly for the care of aging parents) than in past years, and this trend will continue. At the same time, "home security" is evolving to include more peace-of-mind applications, such as safety monitoring (pools, for example) and environmental monitoring (carbon monoxide, water, gas, etc.), which will require Web cameras and other devices.
With digital lifestyle solutions in play, "wellness monitoring" will augment "healthcare." In addition to healthcare monitoring for such chronic conditions as heart disease and diabetes, solutions that provide constant tracking of wellness (as well as motivation) will play a key role in improving the overall health and well-being of consumers.
Convergence in Local and External Storage
The need by consumers to back up and secure their digital content (both high-value and user-generated) will lead to growth in the sales of attached and networked-attached storage platforms. At the same time, service providers and other third-party providers will continue to push developments in "storage-in-the-cloud" applications. There will be a greater emphasis placed not only on how consumers store their content but also on how they share it. Expect to see developments in portals, content tagging, and other methods to identify key content to be stored and shared.
A Growing Emphasis on Search and Navigation
With the rise of Web-delivered video and the convergence of many features and applications on a standard television service, helping consumers find and interact with meaningful content will be a notable opportunity for developers of GUIs and handheld remotes. The video-search space is still wide open, and none of the major text-search companies can claim dominance. To date, Google is still using rather rudimentary methods such as titles and descriptions provided by content owners for video search. Innovations are stemming from entrepreneurial solution providers, and several of them are gaining market traction. Blinkx, one of the pioneers of video search, recently received endorsements from MSN and Lycos and will serve as their video search engine. The market is ripe for consolidation as major portals and search engines improve their video offerings. AOL acquired Truveo in December 2005, and Google bought a face-recognition solution company called Neven Vision in August 2006. We anticipate more merger and acquisition activities in 2007 in the video-search market.
Online and Interactive Advertising to Get Even More Meaningful
Advertising revenues for Web services are quickly becoming a new form of transactional currency, particularly for Web-delivered content. Although Web video from such sites as iTunes and Amazon.com are available as user-paid services, content creators, broadcasters, and aggregators alike are experiencing solid returns for ads attached to their online video offerings.
The key to growing the online and interactive advertising space in 2007 will be in building the inventory of high-quality embedded ads that will help deliver higher returns to advertisers. Additionally, helping service and content providers improve audience measurement and better target niche audiences will be critical. The development of interactive advertising tools that don't overwhelm consumers but instead help them take specific purchase actions is now an important solution to companies advertising online. Development of interactive advertising for the IPTV and mobile communications markets will also be dynamic in 2007.
Home Controls Aim for the Middle Market
Home controls, traditionally relegated to the wealthiest households or providing only gadget-like features, have entered a new round of development. Technology advancements, consumers' increased familiarity with all things digital, and investments from tech giants - notably HP, Intel, and Microsoft - will help grow home controls beyond their high-end or gadget-only perch. Industry alliances and standards-setting bodies are nurturing ecosystems for the development of interoperable, easy-to-use systems addressing retrofit applications built around entertainment and energy management systems. Distribution channels from big-box retailers to home-improvement specialist are lining up to help build consumer awareness and provide customer support, which are critical to market development. Together, these trends point to broader adoption of home controls in the near term and a fundamental change in what consumers expect in the infrastructure of their homes in the long term.
The Need for Trusted "Digital Advisers"
As digital lifestyle technologies increase in complexity, solutions that allow for remote diagnostics and troubleshooting, not only for broadband- and home network-related IT products but also in consumer electronics, will increase. As service providers and vendors seek to offer more proactive customer support, vendors will build end-to-end monitoring, configuration, and CSR solutions. We expect services to grow beyond basic troubleshooting to include trusted digital advisors that can help consumers with product and service recommendations.
Emphasis on Holistic Solutions
Once upon a time, products and services divided mostly into "for work" and "for fun and entertainment." This division has been blurring ever since the introduction of the IBM PC. Today, more than ever, devices have a function in multiple aspects of a person's life. So, a PC is for a person as shopper, worker, family member, hobbyist, and gamer as well as for leisure time. This holistic capability will extend beyond phones and PCs to include virtually all electronic products. The TV, the bastion of relaxation and fun, may be the last to "cross over," but even in this domain, consumers will adapt to a device that addresses their whole lives and not simply isolated elements of a life.
About the Author
Kurt Scherf studies market and technological developments in home networks, residential gateways, digital entertainment, the housing market, and residential and building management and controls.
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