Spring is in the air... The flowers are blooming, the birds are chirping,
the dust and pollen are awakening from their long winter's sleep, and I
can't stop sneezing. It's a good thing I'm not allergic to the reams of
information reaching my desk from the analysts at Cahners
The good folks at In-Stat have been very busy lately sending me
incredible amounts of market research and reports on industry trends. Much
of this information is very useful and I figured I'd share some of the
highlights from a few of their reports in this column. With market research,
as with most things in life, a lot depends on your perspective. Some of the
numbers might seem to be good, some bad, and some... well, it's too early to
classify. Here's a bit of what I found.
Death Of The Internet Appliance?
Perhaps one of the more disappointing news announcements in the last
month was the news that 3Com was pulling out of the Internet Appliance (IA)
market and discontinuing their Audrey line. While Internet appliances have
yet to make significant headway into the consumer space, there was hope that
3Com might be able to break through and develop a must-have product. I guess
not. Most people haven't even heard of this product and they're already
discontinuing the line.
So, with PC prices so low -- and heading even lower -- do Internet
appliances even make sense? I shudder to think how many development dollars
were spent on the production of this now defunct device. I have my own
nagging suspicions that if this device could have somehow leveraged the
installed base with connectivity to Palm computers, it just might have
become popular. (More on this issue later.)
However, my feelings and 3Com's disappointing announcement are in sharp
contrast to an IA report recently released by In-Stat who maintain that
sales of these devices will grow over 40 percent per year between 2000 and
2005. Of key importance to this segment are Microsoft's WebTV and AOLTV. The
introduction of the latter, they say, should thoroughly invigorate the
In summary, total IA sales will jump from $219 million in 2000 to $1.3
billion in 2005, with much of the growth occurring outside of the PC-centric
North American and Western European markets. Personally, I choose to
maintain some healthy skepticism regarding these projections. People have
forever underestimated the speed at which PC prices drop -- they are always
cheaper than you expect them to be. When the cost of a PC drops to $400, how
low can you price a Web appliance and still make money on it? Only time will
Can Someone Throw This Company A Map?
By the way, what exactly is 3Com doing with their company? Here was a
runaway leader in the corporate networking market, one who happened to make
the hottest handhelds in the business, to boot! With the inevitable
convergence of more and more disparate products and the future of computing
pointing to handheld devices, why would you give away your crown jewel and
spin off Palm as a separate company? As I mentioned, the Palm platform
provides a great deal of leverage. The question becomes even more important
in light of the fact that 3Com discontinued their enterprise networking
product line last year upsetting a tremendous amount of their installed
base. 3Com is the only company I know that is discontinuing their product
lines faster than it is launching new products. This company seems to have
lost its way.
Cable Modems To The Rescue
And yet, all is not lost. In-Stat reports that 3Com's market share in
the cable modem market increased nicely in Q4 of last year from 10 percent
to 19 percent; all this while Nortel announced they are gradually exiting
the cable modem market and Lucent is no longer shipping CMTS units to
Cable Versus DSL
3Com is not the only networking vendor finding it difficult to navigate
in the current market conditions. Cisco, for one, has had its share of
difficulties as well. In fact In-Stat reported that in Q4 of last year,
Cisco's ADSL CPE shipments declined by over 50 percent! And yet, DSL
deployment is still pathetically low. This is certainly an untapped
Consider that ADSL CPE shipment degradation was much less severe quarter
to quarter as compared to cable modem shipments. ADSL declined by less than
1 percent, where cable declined 13 percent over the last two quarters of
2000. According to In-Stat research, this is only the first quarter since
cable modems began shipping that levels have fallen. In my home state of
Connecticut, cable modems are king among consumers while DSL growth has been
rather slow. And still, neither technology however is keeping up with
consumer demand! Many people I work with would give away offspring for
broadband connections at home, and service providers aren't responding fast
enough. VCs, are you reading?
Internet Telephony, The International Cure
So where is Cisco looking to grow in light of this news? How about Internet
telephony (specifically, the service provider market)? Cisco has experienced
100 percent growth in this area recently. In fact, analysts cite Cisco's
market share in the service provider IP telephony market at 27 percent, a
full 50 percent more than Lucent, the next largest provider.
There is no question that Internet telephony is doing well, especially in
Latin America, where companies including Cisco are investing in IP telephony
service providers that are competing against incumbent providers in recently
deregulated environments. I recently met with some people down in Argentina
that tell me that Internet telephony providers are on fire in that country
-- laying down fiber rings and offering services and terms that make the
incumbent's offerings pale in comparison.
WHERE WIRELESS GROWTH LIES
As healthy as the international Internet telephony market appears today,
the wireless voice and data market was also being viewed a few years back as
"unstoppable." But as the economy slows (and the wireless market
with it) and the business market reaches saturation, where can service
providers turn to make sure they achieve maximal profitability?
"Business users have been first to adopt wireless data and Internet
services, just as they were the first to adopt cellular voice services in
the 1980s," says Becky Diercks, Director of In-Stat's Wireless Service.
"With a population of more than 250 million in the United States today,
however, the consumer market has barely been penetrated."
According to In-Stat, carriers will need to target user niches with
tailored applications and marketing.
Yet Again, It's The Applications
In-Stat currently estimates that in the United States, there are over 109
million wireless subscribers and over 60 million households with Internet
According to Diercks, "These numbers indicate demand for wireless
Internet should be significant, however, there are only slightly more than
consumer wireless data users in the United States today, representing just
one-half of one percent of all U.S. wireless subscribers."
To boost that percentage, providers must promote simple-to-use
applications that users find valuable in addition to offering flat rate
pricing. As an aside, I feel that someone has to provide bigger screens on
our cell phones to make wireless data/WAP access feasible. If the wireless
data market is going to grow quickly and we're left to access the data on
miniscule screens, I would suggest that now is the time to buy stock in
companies that make eyeglasses and contact lenses.
In-Stat points out that the primary draws for consumers will initially
come from such applications as instant messaging, location-based services,
news and alerts, and banking and financial applications. Successful
marketing of these services will not come from service providers alone, but
through service provider/content provider partnerships.
Provided all of the necessary ingredients are in place, consumer wireless
data subscribers as a percent of total U.S. wireless data subscribers will
increase from only 14 percent in 2000 to a very substantial 37 percent by
The research suggests that carriers will need to focus on four key areas:
Customer equipment; Applications; Services; and Market integrity. If the
carriers are able to do this, In-Stat expects the market to grow to more
than 36 million residential subscribers by year-end 2005, and that, dear
reader, is certainly nothing to sneeze at.
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