Smarter Appliances Reshape the Consumer Market

Electronic News, June 4, 2001 by Cindy Wolf

THE MARKET FOR SMART CONSUMER APPLIances -- non-PC devices that access the Internet as their primary function or to enhance their core functions-has been slow to get out of the blocks, but will soon accelerate and exceed 20 million units in use by 2005. Smart appliances include Internet radios, multifunctional A/V equipment, integrated Internet televisions, electronic picture frames, e-mail devices and Internet-enabled white goods.

In-Stat forecasts this market to grow an average of 101 percent annually from 2000 to 2005. Integrated analog Internet TVs will be the top-selling products in this market. Two analog Internet TV sets went on the market in Europe last year, and more will appear in India, Korea, China and the United States in 2001. Audio products will also be a popular segment, with new products allowing users to access streaming audio, record to a hard drive and play CDs and DVDs.

Initial sales in the audio category are likely to come from audiophiles and technologically hip consumers. Increased penetration of broadband, which improves Internet audio quality, will help to boost sales. However, other factors, such as features included in products already owned by consumers, and competing multimedia gateway products, such as set-top boxes and video game consoles, will hamper the market.

Most analog Internet TV sales in the early stages of the market will likely take place in third world or lower-income countries where PC and Internet penetration rates are low. And if costs are more than $100 higher than conventional TVs, consumers will be less likely to buy them.

Although the past year has been rocky for the Internet appliance (IA) market, many of the players that were in this space a year ago are still in it today. The number of players and new products is growing, indicating that manufacturers are not discouraged by the market climate.

Manufacturers have taken heed of the lessons from the successes and failures in other recent consumer electronic product introducdons and are focusing on specific features that create value, while Keeping price in mind. Nevertheless, they will have to educate consumers on the new capabilities of these devices because most prospective buyers are not fully aware of what these products offer.

Several innovative devices are now available or are expected to be available later this year. An example of these innovative IAs include: stand-alone Internet radios (devices that transmit Internet radio and MP3 audio from computers to stereos); combined streaming audio/video, MP3, CD and DVD players; stand-alone Internet-enabled picture frames; integrated analog Internet TVs; dedicated e-mail devices for less than $150; refrigerators and ovens that can download recipes and order groceries; washing machines that monitor and regulate electricity and water consumption; and alarm clocks that deliver customized news from the Web.

Some OEMs and manufacturers themselves need to be made aware of the value of Internet-enabling their products. For them, benefits include the capability to remotely access products for maintenance, easier upgrades and emerging business models based on e-commerce.

Facing small profit margins on these products, however, manufacturers are reluctant to add more features unless they. are convinced consumers will pay for them.

It almost goes without saying that the worldwide Internet penetration rate, including broadband connectivity, will have a large impact on the success of these products. As more consumers around the world become Internet-savvy, smart appliances will become more popular.

Cindy Wolf is a research analyst with Cahners In -Stat Group, Scottsdale, Ariz. She can be reached at cwolf@instat.com. Cahners In -Stat Group is owned by Cahners Business Information, the parent company of Electronic News.