Internet Appliances Shaking Off Dust, Confusion

What’s in a name? When it comes to information appliances, high and unrealistic expectations, according to research by International Data Corp (IDC). But don’t expect the slump to last forever. The worldwide value of information appliance shipments will soar to more than $44 billion in 2005, an increase from $7 billion in 2000, according to IDC’s “Forecast and Analysis of the Worldwide Information Appliance Market, 2000-2005.”

“An inconsistent naming convention led participants to wrongly expect too much out of a market that is really led by handhelds and TV-based devices,” said Bryan Ma, senior analyst for IDC’s consumer devices research program. “Most of the discouraging news came from a very small and specific section of the market. The remaining categories of products, including gaming and handheld devices, have been performing incredibly well with very healthy volumes. So, despite tumultuous times, information appliances are here to stay.”

According to IDC, the enthusiasm for information appliances fizzled when poor sales performances in the Web terminal segment forced high-profile vendors Netpliance and 3Com to flee the market.

“The bulk of press activity was devoted to the early markets focused on self-contained Web-surfing devices instead of on the products that really drive the industry,” Ma said.

Once the bad press blows over, IDC analysts expect more established products, such as handhelds, iTV-enabled devices and Internet-capable gaming devices will propel the market with high-octane growth. Together, these products will account for 85 percent of total value of shipments in 2005. Web tablets, Web terminals and email terminals will make up only a very slim portion of the market. E-mail and Web surfing only scratch the surface of what a connected worldwide network is capable of.

“Internet appliances are about taking advantage of Internet connectivity in various new ways that are not achievable on the PC,” Ma said.

In terms of units, research by Cahners In-Stat Group found that shipments of smart consumer appliances (non-PC devices that access the Internet as their primary function or to enhance their core functions) will exceed 20 million units by 2005.

Cahners divides smart appliances into three main segments, including Internet-enabled consumer electronics such as radios, picture frames and analog televisions, Internet-enabled white goods and dedicated email devices. For this market, the high-tech market research firm forecasts a compound annual growth rate of 101 percent from 2000 to 2005.

“Although the past year has been rocky for the Internet access device market, most of the players that were in this space a year ago are still in it today,” said Cindy Wolf, research analyst with In-Stat’s Internet Access Device Service. “And the number of players and new products is growing, indicating that manufacturers are not discouraged by the market climate. Manufacturers have noted reasons for success and failure in other recent consumer electronic product introductions 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.”

Some manufacturers are awaiting technical standards for interoperability before venturing into the market, according to Cahners. The worldwide Internet penetration rate, including broadband connectivity, will also have a large impact on the success of these non-PC access devices.

Vertical markets for Internet appliances, such as the hotel, healthcare, education and financial services markets, will show an annual growth rate of 80.7 percent between 2000 and 2005, from 87,000 to 1,675,000 units, according to Cahners.

The healthcare market has a great deal of potential for Internet appliances, particularly Web tablets, which can be placed in patient rooms in hospitals to update medical records through wireless LANs. Internet appliances will also be seen in the home healthcare market, as an increasingly elderly population uses them to keep in touch with medical personnel. The education market will see the introduction of Internet appliances as alternatives to PCs in the classroom environment. The financial services market has seen the most significant Internet appliance sale to date — an agreement between Intel and Spanish financial services company, Banco Santander Central Hispano, under which Intel will sell 250,000 of its Dot.Station Internet appliances. Other vertical markets for Internet appliances include residential control and security and public space, or Multi-Public Unit Internet access, which includes areas such as airports, convention centers, train stations, hotel lobbies, cafes, kiosks and sports arenas.

“Overall, vertical markets for Internet appliances are in a very early stage, and results are likely to be quite volatile,” said Brian O’Rourke, senior analyst with In-Stat’s Internet Access Devices Group. “The Intel deal is an example, as that single deal is forecast to represent 65 percent of all Internet appliances sold in vertical applications for 2001.”