From Here To Ubiquity - Industry Trend or Event

Industry Standard, The, June, 2001 by David Lake

LOW PRICES HELPED DVD SETA RECORD FOR NEW-GADGET ADOPTION.

In 1972, Sony introduced the first home videocassette recorder in the United States, the U-Matic. Two years later, the company logged sales of 34,000, with an average wholesale price of almost $600 -- the equivalent of more than $2,000 today. By 1988, the average wholesale price for VCRs had plummeted to $265 -- about $400 today -- and more than half of U.S. homes had purchased one. Now, of course, a VCR retails for less than $100. You can practically buy one at the checkout counter of your local supermarket. And 94 percent of U.S. homes have one.

The VCR is, in the language of the academy, an innovation that has fully diffused. It is almost as common as refrigerators and telephones.

Still, it took a quarter of a century for that to happen -- an eternity by today's standards. Consider newer technologies like the cell phone, which wormed its way into 10 percent of U.S. homes in nine years. Or think of the breakneck adoption speed of DVD, widely regarded as the most successful format launch in consumer electronics history.

Many of the devices generating media buzz today -- digital cameras, personal video recorders, MP3 players -- have yet to hit the 10 percent adoption mark. In fact, handheld computers and MiniDisc players aren't even tracked yet by the Consumer Electronics Association. And the road to ubiquity is littered with flameouts. (Remember laserdiscs?)

Why is it that some of the newer consumer electronics gadgets are catching fire faster than the older ones?

A key factor to consider is price. Manufacturers have yet to find a magic formula to tie price levels to product acceptance.

But the rapid acceptance of the DVD and many other consumer electronics is clearly related to an equally rapid reduction in price. The average wholesale price of a DVD player in 1997 was almost $490. Today, the average device sells for less than $200. Two years ago, just 3 percent of American households had one. That's increased fivefold, and analysts expect sales to continue growing rapidly.

Traditionally, the industry priced its wares based on development costs, including product research and manufacturing expenses. Those costs were passed on to consumers, slowing the rate at which prices fell.

As technology cycles accelerate, manufacturers no longer have the luxury of waiting a few decades to find the optimum price or to recoup initial costs. A different pricing model is gaining momentum. Instead of waiting to lower prices, the industry is taking an early hit on profits and setting cut-rate prices to generate enough demand to eventually make a profit.

Slashing costs to gain market share is nothing new. Says InfoTech Research analyst Ted Pine, "the Internet took this idea to a greater extreme." And as many Web pure-plays proved, such an approach can be a winner-takes-nothing strategy. If a company prices its product to the mass market and consumers don't buy it, that firm is out of luck.

Of course, if nobody wants the thing in the first place, price is the least of your problems.

                 DVD Quickly Reached 10 Percent, but TV
                       Reached the Masses Faster
                  Years for Devices To Reach Selected
                            Adoption Levels
                     10 Percent of U.S. Households
DVD                  4
Black-and-white TV   5
Personal computer    5
CD player            6
Cordless telephone   6
Cell phone           9
Pager                9
VCR deck            11
Color TV            14
Source: Consumer Electronics
Association, January 2001
Note: Table made from bar graph
                     25 Percent of U.S. Households
Black-and-white TV   6
CD player            9
Pager               11
Cordless telephone  11
Cell phone          12
Personal computer   12
VCR deck            13
Color TV            16
Note: Table made from bar graph
                     50 Percent of U.S. Households
Black-and-white TV   9
CD player           12
VCR deck            15
Cordless telephone  15
Cell phone          16
Color TV            20
Personal computer   21
Note: Table made from bar graph
                   Sales to Top $100 Billion in 2002
                 U.S. Consumer Electronics Manufacturer
                                 Sales
1996      N/A   $68.1
1997       6%   $71.9
1998       5%   $75.8
1999       8%   $81.9
2000      10%   $90.1
2001 [*]   8%   $95.6
2002 [*]   6%  $101.8
2003 [*]   7%  $108.7
2004 [*]   7%  $116.5
(*.)Projected Source: Consumer
Electronics Association January 2001
Note: Table made from bar graph
                   TV, Radio and VCRs Are Most Common
                 Current U.S. Household Adoption Rates
                         for Selected Products
Television         98%
Home radio         98%
VCR                94%
Answering machine  77%
Cellular phones    59%
Personal computer  58%
Home CD player     57%
Modem              55%
Pager              40%
Camcorder          39%
DVD                15%
Source: Consumer Electronics
Association, January 2001
Note: Table made from bar graph
                Many High-Tech Devices Have Yet to Reach
                          60 Percent of Homes
                U.S. Household Adoption and Manufacturer
                 Sales for Selected High-Tech Consumer
                              Electronics
                                Year Introduced  U.S. Household
                                                    Adoption
Device                           to Consumers         1998       1999
Gaming hardware                      1972             40%         42%
Personal computer                    1975             48%         54%
Computer printer                     1978             44%         49%
Modem                                1980             38%         51%
Cellular phone                       1983             44%         51%
Digital camera                       1995              2%          4%
Set-top Internet access device       1996              1%          2%
DYD player                           1997              1%          5%
MP3 player                           1998             N/A         N/A
Personal video recorder              1996              0%          0%
                                      Manufacturer Sales
                                      to U.S. [*]
Device                          2000   2000
Gaming hardware                  44%   $2.7
Personal computer                58%  $16.4
Computer printer                 54%   $5.1
Modem                            55%   $1.6
Cellular phone                   59%   $3.2
Digital camera                    8%   $2.3
Set-top Internet access device    3%   $0.2
DYD player                       15%   $1.7
MP3 player                        5%   $0.2
Personal video recorder           1%   $0.6
Device                          2001 (projected)
Gaming hardware                       $3.2
Personal computer                    $16.6
Computer printer                      $4.8
Modem                                 $1.4
Cellular phone                        $3.7
Digital camera                        $2.9
Set-top Internet access device        $0.2
DYD player                            $2.4
MP3 player                            $0.2
Personal video recorder               $1.0
Adoption of handheld computers and
MiniDiscs players not yet gathered by
the CEA. (*)In billions. Source:
Consumer Electronics Association,
January 2001
                     Americans Want Their DYDs ...
                   Percent of Consumers Likely to Buy
DVD                          17%
Digital broadcast satellite  12%
Interactive TV               10%
Web terminal                  9%
Portable handheld device      9%
MP3 player                    9%
internet gaming console       8%
                        But Not Electronic Books
                  Percent of Consumers Unlikely to Buy
MP3 player for car       87%
Electronic book          86%
Screenphone              82%
Internet tablet          82%
High-definition TV       81%
Internet gaming console  76%
Based on a survey of 1,000 U.S. adults
who rated their likelihood to buy each
device on a five-point scale.
Source: IDC, March 2001