Spending Carefully or All Teched Out?

Preliminary results from a Knowledge Networks/Statistical Research (KN/SRI) study found that the spread of many consumer media technologies has leveled off. Is it the weak economy, markets reaching critical mass or are consumers just all teched out?

The “Fall 2001 Ownership Report” reveals that broadband Internet access and overall Web connectivity remain right where they were in the Spring 2001 study (9 percent and 53 percent, respectively), and that the proportion of households that shop online fell one point to 23 percent. These are some examples of declines among technologies that have seen years of consistent, substantial increases.

PC ownership in the fall survey increased one point to 61 percent since spring. Overall cellular phone ownership held at 59 percent, though the level of cell phones with the capability of Internet access increased from 12 percent to 16 percent.

Consumer electronic devices such as DVD players, which posted an ownership jump of 8 percentage points in the spring report, picked up a relatively modest single point in the fall report, reaching 17 percent. Wire cable, satellite and digital cable TV reception also grew in increments of one to three points.

“Technologies go through growth cycles — but we’ve never seen so many growth technologies hit a lull at the same time,” said David Tice, KN/SRI’s director of client services. “It seems as if a combination of saturated demand, an economic downturn and consumer uncertainty are to blame. Our next measurement will show more clearly whether this is a trend or a blip.”


Household Penetration of
Consumer Media Technologies
Technology Spring
2001
Fall
2001
Broadband 9% 9%
Internet 53% 53%
Online shopping 24% 23%
PC 60% 61%
Cell phone 59% 59%
Cell phone
with Net access
12% 16%
DVD player 16% 17%
Source: Knowledge Networks/Statistical Research

It will take the examination of future results to see just how much, if it all, the growth projections for certain markets may have been derailed by this mix of the economy and/or consumer apathy. The important thing to remember is that the unsustainable growth levels exhibited first by Internet access, then cell phones and broadband were just that — unsustainable. Most of them had nowhere to go but down.

  • Internet Access
    The KN/SRI study found no change in the proportion households using the Internet from spring to fall 2001. This shouldn’t come as a big surprise. The big push toward Internet adoption in the United States is over.

    A June 2001 survey by Gartner Dataquest found that 65 million U.S. households are actively using the Internet, an increase of 8.4 million users from a November 2000 survey. Sixty-one percent of U.S. households are actively online, and when they get online, they usually keep accessing the Internet. Ninety percent of online households said they were likely to continue their Internet subscription — indicating that the Internet is becoming a staple in the household.

    Nielsen//NetRatings found the U.S. at-home Internet population increased 16 percent from July 2000 to July 2001. That may sound impressive, but from 1999 to 2000 the online population grew 41 percent. Fifty-eight percent of all Americans had Internet access in their homes in July 2001, compared to 52 percent last year. In July 1999 only 39 percent of all Americans had access to the Web.

    The important numbers to consider as the market for Internet access hits critical mass are not how many people are online, but how much time Internet users spend online and what they do once online. According to Nielsen//NetRatings Web users spent an average of 10:19 (hr:min) online during the month of July 2001, rising 7 percent from 9:41 spent in July 2000. Surfers also accessed the Internet more often, jumping 11 percent from 2000 to 2001. The bottom line is that the Internet has a solid following that relies on it for a variety of purposes.

  • Broadband
    It might be accurate to say broadband Internet access suffers from an image problem. Its early adopters suffered from poor service and limited availability. Its newer, less tech-savvy adopters need to be educated about what broadband access is and need to be shown its benefits before they will pay for it. Both groups have seen a number of broadband providers disappear as a result of the telecom meltdown.

    Jupiter Media Metrix found 9 percent of U.S. households with broadband in 2000, and predicts that number will jump to 41 percent (35.1 million households) by 2006. The Jupiter report credits increased marketing for helping broadband find the masses in the United States, but in a poor economy the marketing will have its work cut out for it. Because it’s more expensive, broadband will have to pull harder for the consumer dollar.

  • PC Penetration
    The PC market has been hammered by the slowing U.S. economy. Preliminary data from Gartner’s Dataquest found that worldwide PC shipments fell 11.6 percent in the third quarter of 2001. In reducing its 2001 forecast for the worldwide consumer PC market to a decline of 9.6 percent, International Data Corp. blamed the economy from keeping consumers from making what amounts to a large discretionary purchase, especially when their existing PC meets their needs.

    Interestingly enough, sales of PC peripherals and “add-ons” performed very well for much of 2001, according to NPD Intelect. Removable memory and LCD monitors were the top two revenue-generating product categories among computer products, growing more than 210 percent and 149 percent, respectively, from the first half of 2000 to the first of 2001. The core computer product categories did not fare so well. Revenue share for the four main categories: printers, scanners, CRT monitors and desktop PCs fell from 45.5 percent in 2000 to only 35.5 percent of sales through the first half of 2001. Perhaps consumers are more interested in improving their existing PC than buying a new one.

  • Consumer Electronics
    At the same time NPD Intelect charted a slowdown in the PC market (about midway through 2000) it also saw a slowdown in consumer electronics. But the electronics slowdown did not have the negative revenue consequences the PC market suffered. In 2000, NPD Intelect saw vigorous growth for DVD players (108.3 percent), home CD recorders (70.3 percent), direct broadcast satellite (57.6 percent) and home theater-in-a-box systems (37.9 percent).

    The KN/SRI study found DVD penetration increased just one percentage point from spring to fall. Sales of other gadgets have been hurting as well. Retail unit sales of personal digital assistants (PDAs) in the United States grew by 11.9 percent in August 2001, according to NPD Intelect. Sounds good, but a year earlier PDAs saw a 207.5 percent increase in unit sales. The slower sales come despite the average selling prices having fallen from $283 to $248 from August 2000 to August 2001. Chalk these softening sales up to discretionary spending, or the lack thereof.

  • Interactive TV
    Among the technologies that did post substantial gains in the KN/SRI research were interactive program guides, now found in 22 percent of consumer homes (up 5 points since spring 2001) and reception of 100 or more TV channels, which has reached 24 percent (also a 5 point increase). Are consumers looking for more out of their televisions?

    An earlier SRI study on iTV found that almost two in three homes that have interactive program guides said they use the guides more now than when they first got them. More than half (53 percent) said they channel-surf less after they got an IPG, and 82 percent said they use TV newspaper listings less. But the United States is still far behind Western Europe, the leading region in the world for iTV services, where the offerings go beyond interactive guides to include gaming, shopping and banking through the television. In the United States, the television remains largely passive entertainment.

  • Wireless
    Here’s a market that has hit critical mass, yet still shows some signs of growth. According to J.D. Power and Associates, 52 percent of the households in the 25 largest U.S. markets use wireless phone service. Compared to 1995, this is a 93 percent increase in household penetration. And the reason is quite clear: since 1995 the average reported cost per minute for a wireless phone call fell from $0.56 per call in 1995 to $0.14.

    According to Gartner Dataquest’s June survey, 64.3 million households have at least one wireless phone available to the household. This represents nearly 61 percent of all households, increasing from 50 percent reported 16 months earlier. Of all households reporting residence access line replacement over the past six months, 2.3 million or 33 percent of lines were replaced with a cellular/PCS phone.

    The KN/SRI study was almost 90 percent complete on Sept. 11, 2001, and whether the events of that day, and the role that cell phones played in many people’s lives, will heighten demand for cellular telephones will not been seen until the Spring 2002 Ownership study.

    The Economy or Too Much Tech?
    So why is it the markets for Internet and wireless access have shown signs of life while broadband, PCs and consumer electronics have all suffered over the last year? The economy (as it is for most things) is mostly to blame.

    Basic Internet access and wireless phone service have been able to establish themselves as practical, useful and relatively inexpensive technologies. At a time when consumers are watching their wallets, that’s a better position to be in than being a DVD player when most homes have a VCR; being faster Internet access when dial-up suits most people just fine for the price; or being a new PC when the old one does the job.

    Internet access and wireless service have crossed the line from technologies people want to technologies that people need. As a result, consumers are more willing to pay for Internet access and wireless phone service than go without them. Many other technologies that gained popularity in a good economy are now left waiting on the other side of the line.

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