CONSUMER DEVICES
A long-dormant market awakens
By JONATHAN BURKE
If you pick up a 1993 issue of The Red Herring, you will read that interactive TV is a $50 billion industry in the making. You'll also read John Sculley's description of the Newton as the "dawning of a $3.5 trillion industry." Well, today these consumer devices are zero-billion-dollar industries. The unfulfilled promises of the early '90s mean that once-hot startups like Eo, Go, StarSight Telecast, and General Magic have become little more than answers to Silicon Valley trivia questions.
But the Internet, like the philosophers' stone that turned everything to gold, may well, with its promise of linking any smart device to the Universal Network, repair even the fortunes of consumer gadgets and interactive TV. In fact, nearly all of the products we looked at in preparing this issue are Internet devices. They include smart cards (see "Cash to Ashes, Dollars to Dust"), DVD (see "Divxing Up the Market"), HDTV, digital cameras, a new wave of personal digital assistants, automobile navigation systems, chip-based tape recorders, smart homes, wearable technology, and--at the epicenter of activity--Internet-connected TV set-top boxes, video game consoles, and phones.
Although these products have not yet racked up significant sales, The Herring will risk future humiliation by predicting that 1998 will mark the start of a golden age for consumer devices. Market forecasters say that for the immediate future the PC will remain the dominant consumer digital device but that other devices will begin to sell in respectable numbers throughout the rest of the decade (see chart below).
Several factors are responsible for the resurgence of this previously disappointing market. Convergence of email, the Web, voice mail, and faxing has now been accomplished. After numerous misses, consumer electronics manufacturers have finally delivered a few products at affordable prices. And perhaps the most vital difference is that companies now see consumer devices as strategically important, even if they are not immediately lucrative. True, our VC Whispers column finds that venture capital, alarmed by history, remains nervous about consumer devices. Yes, the analysts in our Street Talk column document how PC makers have lacked the skill or interest to sell to consumers, and Internet appliance pioneers like Farid Dibachi, cofounder of the recently acquired Diba, describe great difficulties in co”rdinating efforts with ISPs and consumer electronics manufacturers (see "Uneasy Alliances"). Nevertheless, both entrepreneurs and all the important large corporations keep the devices coming, with business plans predicated on indirect revenues.
An example of this trend is offered by 3Com CEO Eric Benhamou, who told us that the PalmPilot--which 3Com, through its acquisition of U.S. Robotics, now owns--is an important asset not for what it directly adds to his company's bottom line but for its potential to spur demand for networking products. And in our interview with Scott McNealy ("Sun Inside"), the Sun Microsystems CEO makes no bones about pushing consumer-oriented Java in order to fend off a Microsoft monopoly and to sell more Sun servers and network software. Even the smart-card company Mondex was founded by the bank NatWest as a means to an end: banks, in the long term, hope to reduce cash-handling costs, but they don't look to smart cards as a real revenue generator.
The great exception to the rule that computer companies cannot directly profit by selling to consumers is the new generation of home Internet devices, which have the potential to earn their developers a king's ransom. As we have written before, @Home and new Internet set-top boxes could open a secondary revenue stream to cable companies that could rival their video market in size. The vehemence of the war of words between Microsoft's WebTV and WorldGate (see "Divide and Confuse") is testament to the high stakes of the battle.
There are other exceptions. Some companies, notably Bandai (see "Fashion Bug"), have enjoyed immense profits from unaccountably popular consumer devices like Tamagotchi, the mortal digital pet. In our own office, a singing Barney, which was developed by Microsoft and connects to PCs and VCRs, inspired a mix of ire and affection. It ultimately ended up in the arms of our general manager's niece--the spoils of seniority. |
