2.0        The Consumer Challenge in the Digital Home

2.1               Key Takeaways

In Q2 2006, Parks Associates performed a study titled Managing the Digital Home: Installation & Support Services. This project involved a survey of more than 6,000 consumers with home Internet service (in the U.S. and Canada) regarding their preferences, attitudes, and usage of support services for home networking. This study unveiled opportunities for service providers to improve customer satisfaction and monetize certain support services. Some excerpts from that study include the following key points:

• Home Internet users are most likely to report having home technology problems related to Internet security issues (viruses, spyware, and spam). More than 40 million U.S. households and 11 million Canadian households reported such problems.

• Approximately one-half of U.S. and Canadian home network owners with home networks reported that they have experienced a problem. More than one-third of respondents reporting home networking problems contacted their ISP for technical support.

• Consumers responded very favorably to a software solution ("dashboard") that automates basic PC maintenance functions and provides performance and status information.

• Although the demand for fee-based optimized broadband services and online storage/backup was low among all respondents, consumers who are active in multimedia experiences (music and video from the Internet and user-generated photos and home video) proved to be an early target market for such features.

• Later adopters of broadband services are a key target for digital home management solutions. However, longer-term users of broadband may also be important consumers of such applications as enhanced Internet security suites.

• The digital home problems for which consumers are most likely to seek professional on-site or remote assistance are those related to PC hardware and software issues and home networking maladies.

• Buyers of new home computers are likely to pay for additional protection features, such as warranties. In addition, significant percentages of likely buyers are willing to consider services such as help desk support, hardware installation, and damage protection contracts.

2.2               More Detailed Analysis

As residential and portable technology solutions provide end users with new ways in which to access and share content, they likewise create new challenges and headaches. Home computer hard drives often fail; home networking solutions are in many cases not quite as easy to install as advertised; and printers sometimes fail to print!

For a great many consumers, dealing with these problems has often been a case of "do-it-myself" insofar as they fixed them on their own or sought the assistance of a technically-minded friend or family member to solve the problem. This "self-help" approach is particularly prevalent for problems related to Internet security threats - viruses, worms, and spyware, in particular - where consumers are becoming more accustomed to finding new software to address these issues.

At what point, however, do "do-it-myself," the "family-and-friends" network of IT support, and additional software purchases and downloads fail to keep pace with the ever-increasing complexity of the digital home? When self-help fails, how do product manufacturers and service providers avoid creating huge cost burdens for their technical support centers when customers require their assistance? What key solutions are needed now to help customers ameliorate the complexity, confusion, and consternation with which they view their home technology products? Finally, are there business cases that can be built upon delivering digital home management solutions?

Figure 1  Key Home Technology Problems

Addressing these questions is more critical now than ever. With the many benefits provided by digital home applications - convenience, cost savings, expanded entertainment, enhanced communications applications, etc. - comes the peril of delivering services and products that simply do not work as promised, with the risk of alienating future buyers by disappointing them today. The need for more enhanced management and maintenance applications is driven by key factors, including:

1. The segment of consumers now using multiple computers at home and adopting home networks has exceeded the definition of "early adopters." The market is now in the majority. These consumers are less technically proficient than were those in the very early market, and they simply may not have the time or inclination to serve in an IT support role.

2. For end users, the ramifications of technological catastrophes such as hard drive failures are increasingly significant as they rely on their home computers to function more as "media servers." In addition to storing productivity content such as finances and addresses, , home computers are also serving as "entertainment hubs" - platforms to which consumers are downloading photos, music, and video. To lose an entire collection of this information is merely inconvenient; however, the loss of personal memories through a hard drive crash, theft, or household disaster can be heartbreaking. Consumers will need redundancy of storage, and this need presents another opportunity for both equipment vendors (developers of attached and network-attached storage, for example) and providers of off-site storage.

3. Service providers are examining ways in which they can reduce the complexity of services in order to mitigate potential customer service challenges, such as increased calls to customer support centers for questions related to home computer, Internet, television, communications, and home network complexity.

2.3               Opportunity for Digital Home Services

2.3.1               Security Enhancements

Overwhelmingly, consumers deal with Internet security challenges on a do-it-yourself basis, and they are not strongly interested in third-party security software that comes as part of a subscription. However, a security service can be perceived with greater value if it provides a truly holistic solution that incorporates features in addition to protection functions. Some of these value-added functions and features could include alerts, updates, and recommendations for both proactive preventative and reactive measures against Internet threats.

Figure 2  Consumers and Internet Security: Quick Stats

2.3.2               Automated Diagnostics and PC Performance Enhancements

When it comes to ensuring that home computers are properly protected from Internet maladies, a majority of consumers in the U.S. and Canada are doing a good job of regularly updating virus definitions and running virus and spyware scans. However, for other regular maintenance functions (in this case, cleaning out the Internet cache and running a disk defragmentation), the percentage reporting that they perform these activities on a regular basis drops precipitously.

Our study finds very strong interest in a "digital dashboard" feature that automates some basic PC and Internet performance enhancements and provides up-to-date diagnostics information that can be easily reviewed by the user.

2.3.3               Storage and Backup Services

As consumers acquire and create more and more digital content, they have growing needs for reliable, economic, and high-capacity storage and backup solutions. It is easy to put a price tag on commercial content, but personal content such as digital pictures and home videos are priceless to their creators. Right now, most consumers rely on hardware solutions such as CD/DVD burners, external hard drives, and networked storage devices for their storage and backup needs. We believe that such solutions are insufficient, and significant opportunities exist for broadband service providers to play an important role in improving them.

• Local storage devices are susceptible to physical hazards such as flooding and fire, and an added online element can help increase the level of data security.

• Many broadband service providers are already selling home networking solutions/services, and networked storage is just another node on the home network. The more touch points a service provider owns, the stronger the service relationship.

• Broadband service providers are in a unique position to link local hardware-based storage devices and online storage services and present consumers with a coherent and secure experience for storage, continuous backup, sharing, and remote access. For instance, they can provide a mechanism for consumers to easily rank the importance of their files (from one to three stars, for example) and then automatically perform local and online backup accordingly (for example, one-star-local backup only and three star-one local copy and two online copies)

• Broadband service providers can position storage and continuous backup as an insurance service designed for data and digital content.

• Our consumer data indicate that 8% of Internet users are highly interested in receiving an ISP-provisioned online storage/backup service, and 20% of these high intenders are willing to pay $15 per month for such a service (Figure 5-10). These are not small percentages considering that such services are not yet offered. The interest level among broadband bundled service intenders is even higher (Figure 3).

• Broadband service providers can also explore the possibility of including an networked-attached storage (NAS) component in the residential gateway. Broadband service providers can sell the service as part of the bundle and subsidize the box.

Figure 3  Interest in an ISP-Provisioned Online Storage Service

2.3.4               Home Network Configuration and Management Tools

In addition to some standard problems regarding the throughput and coverage of home networking solutions, other major problems reported by home network users are related to configuration. Specifically, the configuration of printers and drives as shared resources is a problem that at least 10% of home network users report. Software and support to solve this issue will be critical as consumers move beyond the use of the home network for such basic functionality as sharing a broadband connection to seeking more integrated and feature-rich applications that may include shared entertainment and multimedia content.

2.3.5               Remote IT Support

We were surprised by the consumers' strong response to the notion of paying for unlimited technical support. When you consider the strong interest in remote (phone- or Web-based) customer support plus the high rate at which consumers pay for extra warranty and damage protection contracts when purchasing a new home computer, it is clear that there is a business model for hand-holding. After conducting this quantitative research and some earlier qualitative work, Parks Associates has come to believe that consumers place a significant monetary value on a trusted resource (in-home, in-store, or remote) that can work with them to solve some of the complexity they are having with their technology. We sense that remote IT support services will soon improve leaps-and-bounds beyond simple remote desktop control and incorporate features such as automated diagnostics as well as reporting tools that assist a help-desk agent in proactively solving a digital home problem, rather than forcing him or her to play "20 Questions" with the consumer.

Figure 4  Consumers and Remote IT Support: Quick Stats

2.3.6               On-site Technical Support

The true value of having a trusted technical advisor or professional resource to help manage the complexity of the digital home is only fully realized after a customer has experienced a debilitating technology malfunction. From our Managing the Digital Home study, we are able to determine the areas in which consumers respond most-favorably to the idea of a professional technician's assistance (Figure 5).

The cases in which respondents are most likely to call in the professionals are those related to home computer hardware or software issues, home networking issues, or new home computer set-up and configuration. These responses reflect the market realities that Best Buy's Geek Squad® service has experienced in recent years, as much of its businesses has come from exactly these problems.

Figure 5  Interest in Professional Technical Support for Digital Home Problems

Figure 6  Consumers and On-site Technical Support: Quick Stats

2.3.7               Installation, Configuration and Training Services

For IT products such as home computers, consumers are willing to expend additional funds to purchase peace-of-mind features such as warranties and accident protection. In addition, significant percentages of consumers paid for professional installation and configuration of their home computers. Despite their standards-based architecture and widespread use in schools and offices, home computers remain technically complex for many consumers. The addition of home networks, peripherals, and other connected devices to the home IT environment presents a significant opportunity for support and services at the time of product purchase.

Figure 7  Consumers and New Product Purchase Support: Quick Stats

Consumers have paid and are willing to pay for home computer equipment set-up and configuration, as well as for professional assistance in a "break-fix" case in which a home computer and/or home networking equipment is in need of attention.

2.3.8               Digital Home Advisor Services

A key for solutions providers in this space is assisting carriers and equipment vendors, and other third-party players (remote IT support organizations, for example) need to understand the basic parameters of the digital home. At present, these entities are largely flying blind when it comes to knowing which devices are connected on a home network and how they are being used. With remote diagnostics capabilities and two-way reporting to a "knowledge database," carriers can benefit from more timely information about the configuration and use of digital home products and provide more proactive service if their customers have problems with equipment or services. Furthermore, the value of the knowledge database can be extended as consumers seek to add more devices to their home networks. In addition to recommending fixes, the database can be used to generate recommendations for compatible hardware or equipment. For example, the carrier may build internal case studies that would indicate that Wireless Bridge X works particularly well with Game Console Y, and could serve to recommend such a product when the customer is ready to link his or her game console to the broadband connection for online gaming.

Figure 8  Consumers and Digital Home Advisor Services: Quick Stats

3.0        Solving the Complexity of Managing the Digital Home

Given the challenges associated with using home computers, Internet services, and home networks, we anticipate significant interest among both home network equipment players and broadband carriers in deploying a host of more advanced products and services to help their customers overcome challenges in installation and use. These solutions will include the following types of applications:

• Internet security and parental control features that will increasingly come from a broadband provider (in addition to solutions sold at retail)

• Home computer utility solutions that help consumers automate basic performance utilities (disk scan, disk defrag, virus and spyware scans, etc.)

• Helping consumers more easily configure home networks, especially in setting appropriate security protocols

• Assisting consumers with resource sharing (drives, printers) on their home networks

• Providing broadband carriers with tools to better manage home network installation, configuration, and troubleshooting

We anticipate significant opportunities for hardware and software companies helping service providers, home network and home computer vendors, and CE vendors to develop more proactive customer help solutions, as pictured in Figure 9. Near-term opportunities include a potential market of more than 50 million U.S. households (broadband users) with home computers. These consumers can use any or all of the services and applications that relate to improving the security and performance of the Internet and home computing environment. Mid-term opportunities will center on making the home network more usable by developing easier ways for consumers to share resources and allow them to derive more functionality from their home connectivity solutions. This step will pave the way for longer-term digital home features, in which consumers are using the home network not only for data-specific applications (PC and Internet-related) but also for distributing multimedia content (music, photos, and video) and leveraging the robust and always-on broadband connection for other applications such as online gaming. There is a significant opportunity to improve the customer experience and begin developing digital home solutions that will evolve to meet consumers' changing needs and wants.

Figure 9  Hardware/Software Opportunities: Managing the Digital Home