Peering Over the Edge: Looking Forward to See How CE Can Get Back to Growth
Stephen Baker, Vice President, Industry Analyst ;
Consumer Electronics Technology
2016 ended with a mixed bag of holiday sales and proved to be a very uneven year overall for the CE space. As we near the end of the first month of the new year, we’re stopping to reflect on some of the positive momentum of 2016, as well as looking ahead towards what key technologies, categories and products might change the direction of the tech hardware markets this year (and beyond).
It is fair, I believe, to view 2016 as mostly a transition year; one in which the industry and consumers were introduced to the potential of new categories, new technologies, and new business models. Viewed from that lens, 2017 is shaping up to be a tipping point year - a year where new technologies will prove their worth or begin to fade away. A year where products will move into the mainstream, or miss their mark and where some level of consistency in demand around new business models will need to be confirmed. From a technology standpoint, the optimistic view is that 2017 appears to be the start of what we experienced in 2009-2011, where new products, new technologies and new use cases provide a burst of opportunity and excitement for the market. Looking back, those years saw the explosion of the iPhone and flat panel TVs, the beginnings of the deployment of LTE, the introduction of the iPad and the netbook, and the first indications of the re-invention of audio. It also represented peak camera, GPS, MP3, and printer sales, and should serve as a cautionary tale that technological change goes both ways.
NPD’s recently-distributed tech industry forecast reflects this exciting (and scary) outlook. Looking ahead over the near-term, we see a slim 2 percent increase for 2017. That represents a reversal of the worst of the industry’s maturity-based stagnation with the promise that today’s most interesting new technologies will begin to provide the momentum that has been sorely lacking in an older, heavily-saturated hardware environment. But that forecast comes with its own risks and rewards. The past year saw an explosion of business models focused on reversing the saturated view of mature markets by refocusing those businesses on premium products and solutions, and away from a volume-based, entry-level focus. PCs were the harbinger of that, driven by the incredible growth in gaming, the rise in average sales prices overall, and the renewed focus on premium products (not just in price, but in fit, finish and design as well). 4K provided some of that same momentum to TVs, helped along by the growing interest in large screens. But the fall in pricing, and the shift by some consumers back to legacy sizes and products (often fueled by pricing), put a damper on revenue growth. Even the much-maligned tablet market was restructured to emphasize higher-priced products like Surface Pro and iPad Pro. All of this reflects a positive reinvention of the view of technology for both brands and retailers and their consumers, away from a volume perspective towards a growing revenue total addressable market (TAM) for the industry.
But technology shifts are always more exciting and provide the most long-term opportunity for the business. Among the technology shifts, Smart Home appears to be the one most poised to explode in 2017. As we exited 2016, it became apparent that the Smart Home category, and the products that fall within, is the next great hardware opportunity. The Smart Home category, which grew by over $400 million in U.S. sales in 2016, is being propelled by products like Amazon Echo and Google Home, Nest, Ring and a vast array of security camera makers. This grouping offers the best long-term potential for the tech industry, precisely because its focus on hardware; this means that sales opportunities in the future will remain in retail and will remain focused on hardware, without the cannibalization that gobbled up cameras, GPSs and others. And while there are many product segments that will show solid growth in the next few years based on the shifting progress of technology (AR/VR and wireless headphones, to name two), only Smart Home seems to have a virtually unlimited TAM, a path to success and a roadmap to get there.
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