Consumer Electronics Market Research & Business Solutions

The tablet market is beginning to mature after explosive growth following the device’s introduction. The tablet is now an integral part of the typical American household’s electronics inventory. Our new Tablet Accessory Inventory Report evaluates tablet accessory purchasing and ownership, providing fresh insights straight from consumers and our industry analysts.

Kids and Consumer Electronics, 2014 Edition delivers new insight on the significant role consumer electronics products play in children’s lives — and how it’s changing, with trended insights back to 2011. Looking at ownership and usage among kids ages 4 to 14, the report covers of a host of consumer electronics products — from smartphones and tablets to gaming consoles and TVs. Discover the frequency with which kids use these devices, the average age they begin using them, and more.

What's Driving Consumer Behavior? Our new consumer technology reports explore the products and market trends that matter to your business right now. These timely reports can help you navigate the fast-moving CE and IT landscape.

The VAR channel represents significant business potential. Now you can get a picture of this elusive technology market! Our VAR Tracking Service delivers detailed monthly sales information with views at the category, brand, item, and feature levels.

Consumers have come to expect high definition viewing experiences, but what about quality listening? According to The NPD Group's Retail Tracking Service, since 2014, high resolution (hi-res) audio devices* have experienced steady growth with U.S. dollar sales increasing 77 percent in 2016 compared to 2014 and unit sales more than doubling over the same time period (118 percent growth).

With the introduction of new devices, new features, and updates to hardware and operating systems alike, 2017 has brought a number of changes to the smartwatch market. As of June 2017, nearly nine percent of U.S. consumers aged 18+ owned a smartwatch, up almost 1.5 percentage points from the six months prior. Additionally, according to latest WEAR Report Industry Overview and Forecast from NPD’s Connected Intelligence, growth in the category will continue, with a nearly 60 percent ownership growth expected from Q2 2017 through Q4 2018, driven in large part by anticipated new product introductions from market leaders. This forecasted growth will result in nearly 15 percent of U.S. consumers aged 18+ owning a smartwatch by 2019.

The NPD Group today announced that it has launched its Checkout Tracking℠ E-commerce service for the technology industry. The service will provide clients an in-depth understanding of online consumer electronics sales, which is becoming increasingly important for manufacturers and retailers alike. Among consumer electronics categories seeing strong annual online dollar sales growth in the U.S. are: streaming audio speakers (80 percent), smart lighting (74 percent), and security & monitoring devices (56 percent)*.

By the end of 2020 there are forecast to be 260 million installed devices attached to the internet and able to deliver apps to TVs, according to the latest NPD Connected Intelligence forecast. This represents 31 percent growth in TV-connected devices over the forecast period, led by smart TVs and streaming media players. In fact, smart TVs will drive nearly half (48 percent) of installed internet-connected TV device growth through 2020, while streaming media players will contribute 31 percent of ownership growth.

Video games, electronics, and apps make up a combined 22 percent of kids’ licensed product dollar sales in the U.S.* – on par with the volume represented by toys, which is the number one licensed industry at most retailers, according to the U.S. Kids License Report from global information company The NPD Group.

We may be unsure which team will win the Vince Lombardi Trophy in Super Bowl 50, but if history is any indicator, The NPD Group already knows the TV market will triumph regardless of the team that ultimately emerges as the champion. According to The NPD Group’s December 2015 Omnibus study, 6 percent of households surveyed this winter said they expected to buy a TV ahead of the Super Bowl. In particular, Millennials are driving much of this anticipated growth, with 10 percent saying they intended to buy a new TV ahead of the Super Bowl.

The unlocked mobile phone market has reached approximately 30 million consumers in the U.S, which currently accounts for 12.5 percent of the market, according to global information company, The NPD Group. As the unlocked phone market continues to grow, the latest Unlocked Phone Demand Report 2.0 from NPD Connected Intelligence compares consumers who purchase unlocked phones, to the larger base of consumers who purchased standard, locked phones from their carriers. Among the findings, the report revealed that consumers with unlocked phones are less loyal to both carriers and device brands than those with locked phones.

According to The Future of Tech report from global information company, The NPD Group, home automation products will add $1.8B of new consumer electronics sales through 20181. The Future of Tech report forecasts 74 percent growth in the home automation category from 2016 to 2018, driven by sales of security & monitoring products, as well as growth in power & sensors.

U.S. dollar and unit sales of all-flash arrays (AFAs) are rising, as companies leverage them to process growing quantities of data at a faster pace.

Turntables are seeing renewed consumer interest as evidenced by double-digit growth in both U.S. dollar (16 percent) and unit sales (23 percent), for the 12 months ending February 2017 versus year ago, according to global information company, The NPD Group. Premium products were a key contributor to sales growth, as dollar sales of turntables priced above $250 grew 135 percent in the 12 months ending February 2017, accounting for 11 percent of total sales. An expanding number of entry-level products also aided the market increase, as evidenced by a six percent decline in average selling price.

The initial fanfare of last week’s Apple announcements has subsided and the debate has moved from what will be announced to which device consumers will purchase. What we have seen so far from data collected by market intelligence company, CivicScience¹, is that consumers are fairly divided. The iPhone X is obviously the flagship product and, more importantly, the one that stands out as being different from the others, thanks primarily to the full glass body (yes, there are differences beneath the glass, but the reality of consumer interest is more skin deep), but at $1000+, there’s a price to be paid for such cachet, even when leveraging today’s carrier offers.

Consumers that intend to purchase a new Apple device following the announcement indicated they will buy…

According to the CivicScience results, roughly 20 percent of the U.S. population plans to purchase a new iPhone following Apple’s announcement. That’s a lot of iPhones – equating to roughly half of Apple’s U.S. iPhone customer base, or potentially over 60 million devices in the next three to six months. But the numbers (and remember that these are intent, rather than actual purchases) are not out of the ordinary for Apple, which commands a 41 percent share of the total smartphone installed base in the U.S, according to NPD’s Connected Intelligence². As such, this appears to be the relatively standard fare of upgrades, rather than new consumers switching allegiances from Android.   

And there’s a catch: the Apple intender base is fairly evenly split between which device they plan to purchase, with the X and the 8 commanding equal interest at 25 percent of those planning to purchase a device, and the iPhone 7 showing slightly more interest at 29 percent (older models are also showing significant interest, with pre-7 models commanding 21 percent of the population’s intent). To put it more simplistically, over half of those intending to buy an iPhone fairly soon are looking at older models, rather than the newly-announced devices.

This should not be unexpected. When the fresh new shiny models launch each year, the older models drop in price, both due to carriers trying to shift older inventory (if they haven’t already) and prepaid carriers jumping on the older options as a way to drive consumer interest in their service options. In other words, just as there is a raging battle among the top four postpaid carriers to retain and entice new customers with Apple’s latest and greatest, so too is there a lower-tiered fight among the prepaid carriers.

Related to this is the clear fact that income levels impact the amount of disposable income available to buy the latest and greatest smartphone, regardless of brand or capabilities. So it’s hardly surprising that the consumers who are most likely to purchase the X are in the higher income brackets, while lower-tiered incomes are more likely to choose the 8… or the 7. But, there’s also clearly a pent-up demand for even earlier, cheaper models with pre-7 models commanding just as much intent as the 7 for many of the income brackets.

This is a mixed blessing for Apple. On one hand, it does show a strong loyalty to the brand, but on the other hand, the older models are going to struggle, over time, to keep up with the demands of the latest apps and features, meaning that the consumer experience won’t be as slick and smooth.

The divided consumer base offers an opportunity for carriers:

1. To bolster the demand for newer models, it’s pretty clear that consumers need a lower price point, or at least, lower monthly payments. The sticker shock of spending $1000+ on a new device is quickly alleviated when the “real” price is less than $50 per month over 24 months, which is why 65 percent of consumers planning to purchase an iPhone intend to make use of a payment plan, rather than looking to pay all at once, according to data from CivicScience.

2. To broaden the market further, tempting consumers away from the older models, carriers should consider adding a 36-month option to the Equipment Installment Plans (EIP). Not only does this make the purchase more palatable to the consumer, but it also helps the carrier to retain the consumer for a longer period of time. In theory, the EIP is not a contract, but it’s a lot harder to switch when your device isn’t paid off. As such, there’s a win-win for Apple and the carriers that’s looking more plausible than ever before.

¹Source: CivicScience surveyed 2,000 U.S. adults from September 12- 19, 2017.

²Source: NPD Connected Intelligence, Mobile Broadband survey, July-August 2017.

This year’s Mobile World Congress (MWC) Americas is, in many ways, a story of edges. Smartphone manufacturers, such as Apple (which doesn’t need to actually exhibit to show its importance), Essential, and Samsung, are clearly demonstrating that phones should have less edge, in the drive to create a single glass front. On the other hand,  the networks that enable these devices will require a far greater edge presence to succeed in the future. Simply put, in the future world of 5G wireless, the simple goal of a “cloud” is not enough to ensure that the content the consumer wants will arrive quickly enough, and with a low enough latency, to be of value.

The bandwidth demands that we will be placing on the network, both as consumers and business users, is simply not possible without putting far more processing power closer to the point of consumption. Consider, for example, Verizon's virtual reality (VR) demonstration at MWC Americas, which included a live stream (in 4k) of a baseball game, as well as four other 4k streams on virtual TVs... as well as a smattering of VR games to keep you occupied in the seven inning stretch. That demo, running over a 5G test network, pulls a lot of bandwidth, and while the "last mile" may be addressed via wireless connectivity, the congestion starts to become an issue when you aggregate multiple consumer streams as you get deeper into the cloud, closer to the content source.

While the Verizon demo may seem like an extreme case today, it’s a safe bet that the bandwidth demands will grow incrementally over a relatively short period of time. The Automotive Edge Computing Consortium, which includes the likes of Toyota, Intel and NTT DoCoMo, estimates that the volume of data between just cars and the cloud will reach 10 exabytes per month (10 billion gigabytes) by 2025. Add in the VR and video viewing needs and suddenly there’s a bit of a problem with delivering the volume of data using the current model.

To address this, there’s a need to put far more of the processing power at the edge of the network, reducing the pressure on the core and helping to alleviate some of the bandwidth concerns. And the closer to the “edge” this processing can take place, the more efficient the network becomes, and the lower the latency will potentially be. However, this will drive up the cost of 5G implementation.

The squirrelly part of this is deciding just how close to the end consumer this edge needs to be, and how much processing powers is required. And as we all know from the constant need to upgrade our PC's and phones, the processing power we think we need today is often too little for tomorrow's needs. Again, the number 10 billion gigabytes comes to mind and with VR still very much in its infancy, making a solid guess on data consumption and the processing that these new applications will demand is no easy task.

Getting it wrong means either under-delivering and underwhelming the customer, which is pretty much the kiss of death for a mobile operator; while over-delivering means incurring unnecessary costs in a highly competitive, and increasingly margin focused, industry. Either way, we suspect implementing 5G with the future demands of consumers in mind is going to be a far more expensive and complicated affair than any previous network.

While the smartwatch is still not a mass-market device, with roughly 9.5 percent penetration among U.S. adults as of the middle of 2017, Apple has certainly been doing its part to push the category in that direction. Apple currently owns more than 50 percent of the U.S. smartwatch market and the newly announced Apple Watch Series 3 will further bolster Apple’s status as the top smartwatch maker in the industry. While the Series 3 doesn’t change anything about the Apple Watch in terms of design, it sports a number of subtle refinements, in addition to finally adding an on-device LTE radio. While on-device LTE does not bestow the Series 3 with a wide range of new capabilities, being able to fully use the Watch without the need to have a tethered iPhone nearby will provide a strong reason for early Apple Watch owners and potential new buyers to upgrade or jump into the category. In addition, the ability for the Series 3 to be linked to the user’s main mobile phone number, as well as accessories like Apple’s AirPod wireless headphones, bolster its use case as an independent device.

Growth will also be driven by the lower price on the Apple Watch Series 1 (coupled with expected holiday discounting from retailers), will help drive sales with more price-sensitive buyers. Another potential wildcard that will further bolster Apple Watch sales will be the response from wireless carriers. Now that the Apple Watch has an LTE enabled variant, the carriers will be strongly incentivized to push Apple Watch sales and bundle the devices together with iPhone upgrades on zero-interest device financing plans. Spreading the cost of an Apple Watch Series 3 over two-years on a consumer’s mobile phone plan has the potential to make the purchase much more palatable – just as it has for iPhones. In fact, T-Mobile has already announced that customers will be able to add the $400 Apple Watch Series 3 with LTE on its Equipment Installment Plan starting at $16.67 per month. As a result, NPD Connected Intelligence is forecasting that Apple will sell roughly 3.25 million Watches in total in the U.S. during the Q4 2017 holiday season.

Enhancements beyond LTE

While on-device LTE is certainly the centerpiece capability on the Apple Watch Series 3, other more subtle enhancements will also improve usability and experience. On the hardware side, the most important aspect of the Series 3 is that the form factor and weight of the Watch are virtually unchanged, despite the addition of LTE. This was accomplished in part by integrating the cellular antenna into the screen. In addition, Apple claims that battery life is virtually unchanged, which had the potential to be a major Achilles heel with a power draining LTE chip. Another welcome hardware enhancement on the Series 3 is wireless charging, which will add to the convenience of a device that needs daily charging – especially with Apple’s announced AirPower charging pad, built to charge the iPhone, Apple Watch, and AirPods.

Beyond increased hardware performance, developments in Siri interactions on the Watch will also make for an improved experience. Prior to the Series 3, Siri was unable to respond verbally on the Apple Watch, which we believe is essential for a voice assistant on a small wrist-mounted device. An improved Siri experience will help unlock further Watch use cases and lead to more regular usage of basic features such as notifications, messaging, and navigation.

Finally, Watch OS 4 adds some additional fitness and health-related refinements, which shows that Apple is still positioning the Watch as a premium fitness device first. The most noteworthy additions include: better heart rate tracking, the ability to track a wider range of workouts, and a new Siri watchface that displays a wider range of relevant information and notifications. On the heart rate front, the Watch will also warn users of an elevated heart rate during inactivity, which Apple is using to analyze arrhythmias, as part of an FDA backed heart study.

The Competition

As we head towards the holidays, competition in the smartwatch space has been ramping up markedly, with the announcement of not just the Apple Watch Series 3, but also devices such as the Fitbit Ionic (the company’s first full smartwatch), and the Samsung Gear Sport. The common theme on both the Fitbit and Samsung devices is that they are positioned as premium fitness devices first – a strategy we are also seeing from Apple. While many of the technical specs and features are very similar to the Apple Watch Series 3, Apple’s extensive ecosystem still gives it an overall advantage. The addition of on-device LTE is also likely to be a strong differentiator for Apple, given that neither Fitbit nor Samsung have that capability in their latest devices. As a result, we expect the Q4 2017 holiday season to be Apple’s best-ever quarter for Watch sales.

Tomorrow, Apple is expected to launch its next generation iPhone. Assuming the anticipated announcement becomes a reality, this will mark 10 years since Apple entered the smartphone market and fundamentally changed not only what we expect from a phone, but also the competitive landscape for mobile phones – and smartphones in particular. Theoretically, this next iPhone should be an incremental enhancement, following Apple’s pattern of launching the “S” version every other year; but, Apple cannot (and will not) simply launch a minor hardware update for the 10^th anniversary.  Apple is working to stay at the leading edge of the market as competition looks to build faster and more aesthetically pleasing alternatives to the iPhone behemoth.

While there’s interest in the underlying specs of any new phone, the reality of consumer interest is more skin deep. For most consumers, a sexy looking phone and a good camera are the obvious hardware features used to pique interest (we’ll get into software below). The chart below helps to demonstrate this fact.

By leveraging estimated sales data from NPD’s Mobile Phone Track, we can see significant spikes in sales with the launch of each iPhone model. The most significant spike came with the introduction of the iPhone 6 (in Q2 2014), which saw a change in shape and size for the iPhone. In other words, this model made it obvious, even at a quick glance, which consumers had the latest and greatest device when they pulled out their phone to check an email or answer a call. Taking an iPhone 6 out of your pocket in public had almost, but not quite, the same effect as when the initial iPhone launched, when people either had an iPhone... or they didn’t. There’s a “wow” factor.

We believe we can expect the same type of spike that the iPhone 6 saw – perhaps even greater – if Apple does launch a significant tenth anniversary iPhone X device. This type of device is one that consumers will want, or feel they need, to be seen with if they are an iPhone user. This brings us to another key factor in Apple’s success in the mobile phone market: its customer loyalty and retention rate is far greater than other devices. According to the latest Connected Mobility Report from NPD’s Connected Intelligence, just over 90 percent of Apple iPhone customers purchase another iPhone when they decide to upgrade devices.

What is also interesting, looking at the above chart, is that the launch of a new device has not caused a significant spike in older models at the same time. A logical theory would say that when a new phone launches, promotional activity on the older model will cause an uptick in sales. But that has rarely been the case; due mainly to the payment plans offered by carriers, which has meant that the monthly fee for a new phone is not that significantly different from older models.

Another reason to believe that the next iPhone launch will cause a larger than usual spike is that according to NPD’s Connected Intelligence, iPhone users typically hold onto their phone for 18-30 months, suggesting that they skip at least one generation of a new device launch. With over half of iPhone users reporting that they hold onto their device for 24+ months, we can expect that consumers who bought an iPhone 6 may be stretching the device’s life a little further than usual in order to wait for the new generation device to launch. Indeed, since the iPhone 7 was, in many ways, more of an incremental update rather than a fundamental change, we can expect that consumers will have been prepared to wait a little longer for the new update, which helps to explain why the iPhone 6 sales spike was higher than the subsequent two device launches. After all, the theory of an iconic 10 year anniversary device has been well talked about for the past year.

But it would be wrong to focus simply on the skin-deep appeal of the device’s body alone. Another key driver for the iPhone has always been the software and ease of use. FaceTime, for example, has proved to be a great retention tool. Once you embrace video chat with FaceTime, it’s very hard to give up. And with this next device, there are high expectations for augmented reality features that could again change the scope of how we use an iPhone. Apple is hardly alone in chasing this dream, but the company has the largest installed base to ensure that adoption of AR and other features occurs rapidly and is widespread, thus tempting new and current iPhone customers to want, or again need, the new device in order to stay current.

And finally, let’s not forget the carriers in all of this. iPhone customers are key to their ongoing success, and we can expect all four of the major carriers to be promoting major deals – in terms of payment plans and device exchanges – in order to keep their existing bases, as well as attempting to pull prospective customers from the competing carriers. In other words, get ready for a mass of promotional activity as the carriers work to stake their claims this week. Of course, there’s a rather large caveat to this: there are rumors that the iPhone X may only be available in limited numbers to start. This will require a fine balancing act by the carriers, who are, on the one hand, keen to grab as many customers as they can, but on the other hand, wary of over-promising availability on a device that may lead to large back-orders and disgruntled customers.

The combination of an iconic phone launch, along with the carriers’ appetite for greater growth in a saturated market, means that this week’s anticipated iPhone launch could be one of the most significant mobile phone launches since the first iPhone shook the status quo. And with Apple, the “X” factor is almost guaranteed.

So far, 2017 has been a great year for headphones. Through July, U.S. dollar sales and average prices increased 22 percent, and 18 percent, respectively, over the same period a year ago.  A number of new and interesting devices have also debuted this year. Recent products from industry headliners like Bose, Sony, and Beats represent just a few of the innovative headphone devices to come to market in the past year. Sure, much of today’s growth is due to the continued shift to Bluetooth, but the wireless revolution occurring in headphones has given rise to a wave of fresh audio offerings.

Totally wireless earbuds represent a new segment that has come out of the emergence of Bluetooth. Bragi and Doppler Labs were among the first companies making totally wireless earbuds, but the entrance of tech titans like Apple and Samsung (but mostly Apple) has led to a spike in unit sales in the segment. More than 900,000 totally wireless headphone units were sold in the U.S. since the start of the year, according to The NPD Group’s Retail Tracking Service. As fast as this segment has emerged, so have products that go beyond music streaming. Samsung’s headphones-slash-fitness tracker, IconX, features an optical heart rate tracker and 4GB of memory for music storage (eliminating the need for a music player) for those interested in a fitness product. There are also augmented hearing buds like Doppler’s Here Plus and Nuheara’s IQbudz, which are fitted with external microphones to change the sound around the wearer, making it easier to have a conversation in a loud restaurant or to tune out a crying baby on an airplane. 

Some products have a loftier goal – making the wireless earbud a computing device for the ear. Since launching in December, Apple’s AirPods have accounted for 85 percent of totally wireless headphone dollar sales in the U.S., according to NPD’s Retail Tracking Service. With a use case centering on frictionless access to Siri and other tasks initiated by voice, AirPods really act as an extension of the iPhone. Apple’s path to leadership in the category is helped by disruptive pricing, brand resonance, and excitement over the W1 chip, which significantly eases Bluetooth connections to iOS and Mac devices.  The Dash from Bragi features an ARM Cortex M4 CPU, as well as 27 sensors designed to detect movement and voice input. It is also the first noteworthy headphone brand to partner with IBM Watson. For these products, audio quality remains important, but takes a backseat to new capabilities added on top of the sound experience. With this in mind, it’s not hard to imagine a collection of mobile apps optimized for a voice interface similar to the growing ecosystem of Alexa skills.

Apple’s early domination of the category will continue to challenge competing brands entering the totally wireless market. New entrants will have to provide some differentiation in features, sound quality, or associated services and applications in order to stand out. Consumer reception of wireless earbuds is still forming, even as their use case continues to evolve. As Alexa skills and other voice-first content diversifies, headphones, including totally wireless earbuds, are the leading candidate to be the next piece of hardware to drive digital assistant adoption.

Each year around the holidays, NPD provides what we have come to call the Baker’s Dozen - a list of 13 predictions for the holiday season, as it relates to technology products and retail trends. While the holidays are not yet upon us, we’ve compiled a special summer edition of the Baker’s Dozen that provides a look at what’s worth watching in technology and how the overall retail landscape is shaping up for the rest of 2017, Holiday 2017, and beyond.

1. The New Channel Value — Solutions vs. Transactions

Technology retail success is no longer dependent on success in the brick-and-mortar or e-commerce channels. We’re beyond building expertise in one or the other; winners must dominate one and exploit the other. Success is a function of whether a channel adds efficiency to the purchase transaction or offers true incremental value with a solution.

2. Retail in an Age of Product Disruption

New products and new brands are reshaping and redefining selling motions. Brands have to think about new form factors at different price points across both mature and high-growth markets, while also optimizing across different retail formats. Retail has to add value, as new products change the way consumers interact with purchasing, and the value proposition of these products shift consumer views of the purchase experience.

3. The End of Price Erosion

Share growth is no longer about pushing boxes. Technology has been traditionally about unit volumes, unit share and leveraging the power of the mass market. Well, the mass market is here, and share strategies must change. Today, the only way to growth is through more dollars per unit. Price increases are never a straight line, and to be successful they must impact both premium and entry level products.  

4. The Age of The Early Adopter

Today’s growth products are squarely in the early adopter wheelhouse. According to NPD’s Future of Tech Report, we found the greatest amount of anticipated tech industry spend through 2018 (43 percent) stems from “ Tech Super Consumers.” Yet this segment makes up only eight percent of the population. It’s fine to focus on the “super consumer” today, but keep in mind; the next 40 percent of consumers (who also spend 40 percent of the dollars) need to enter the market as well. The industry must make innovation relevant for the masses in order to grow emerging markets.

5. Innovation Paradox

Along with industry interest and excitement created with product innovation comes stress and uncertainty for the retailer, as well as consumer hesitation and indecision around the purchase.

6. Product in an Age of Retail Disruption

As products are becoming more complicated, channels need to become simpler. Don’t be a transaction, be a solution that integrates. Products need to embrace all available channels to their consumers, especially focusing on ones that best highlight their product benefits. Solution channels vs. transaction channels are a critical choice for the next set of innovative products, just as they were for the last.

7. Death of Technology Incrementalism

Improvements on the margin (bigger, better, cheaper, faster) don’t drive consumer interest or passion anymore. These days, it’s a “go big or go home” mentality, where truly innovative technology products can’t just be better. They must offer new form factors, experiences, and interfaces that will get consumers excited and willing to spend.

8. Preparing for the Tidal Wave

Unprecedented product change is upon us over the next five to 10 years. Get ready for foldable phones, wallpaper televisions, VR movies, AR entertainment, driverless cars, anticipatory virtual assistants, self-controlled homes, and sensor-based health and tracking. And selling these products the same way as the last generation of products will not be a successful strategy.

9. Demographics Matter Less And Less

Mature markets homogenize the ownership and purchase base so that we’re all really tech buyers. It’s no longer about demographics; it’s more about personal hardware use. Early adopters and mainstream consumers are a diverse group. The value consumers receive from the next generation of products will be very different as well - more focused on the product and the activity it enables, and less focused on the individual consumer.

10. Ownership and Installed Bases Matter More and More

The size of the installed base determines the value of both innovation and new technologies, as well as the stream of value (and the replacement value) the industry can expect. Hardware brands must find ways to supplement their installed base penetration with other services that power the hardware.

11. Long-Term Growth Strategies in a Stagnant Market

New categories are not sufficiently mature to make up for market challenges in the most mature, highest value categories. High-growth categories are not growing fast enough to offset declining spend from mature, low-growth categories.

12. 2017 Holiday Outlook

Holiday success for the technology industry has coasted on television sales for years. But, now that televisions are not growing at the same rate, their legacy remains a heavy burden on future holiday seasons. The industry must find new demand drivers for holiday success.

13. B2B and B2C Product Lines Continue to Blur

Innovation, robustness, form factor, and blurring of personal and professional makes it hard to keep products apart. In the 90s, most technology started in B2B and migrated to B2C. Today, most new cool technologies begin in B2C and migrate to B2B. More and more of the growth areas (for example VR and drones) have just as much value or more in B2B as they do in B2C.

With Amazon’s now annual summer buying event upon us, we’re looking back at the past two years to evaluate the impact of Prime Day to tech vendors, to Amazon’s tech business, to Amazon’s Kindle/Echo businesses and to online consumer tech as a whole. 

After two years it is quite obvious that, like the Black Friday event Prime Day seeks to emulate, Prime Day is already morphing and changing. Much like we have seen Black Friday evolve into a whole week of deals (and in some cases a whole month), Prime Day has already begun its calendar expansion this year. We would suggest that this expansion is not necessarily a good thing, as it dilutes the idea of a day (just like it isn’t great for Black Friday), and has more to do with maintaining consumer interest and a need to stretch the period out in order to maximize the return.

Of course, unlike Black Friday, Prime Day remains very much an Amazon-focused event with the rest of the online (and offline) world still trying to develop a competing product or strategy. In fact, according to NPD Checkout Tracking^SM, Amazon accounted for 88 percent of online tech sales on Prime Day 2016, up six points from the prior year, and far above the 55 percent of volume they generated over the last 12 months (ending April 2017). Amazon’s secret weapon (at least for tech) is that it uses Prime Day not just as a way to promote aggressively priced consumer technology products to grow its overall share, but to also co-promote its ever-expanding portfolio of brands, such as the Kindle and Echo families of products. While this strategy is great for Amazon, the numbers show that, Prime Day’s usefulness as a promotion vehicle for consumer tech as a whole is considerably more limited (like we see on Black Friday).

Amazon’s tech business clearly gets a bump from the Prime Day promotion. Just like Black Friday drives crowds into stores (or at least it used to), Prime Day delivers traffic and volume to Amazon. For Amazon, overall, its buyer share (percent of shoppers who shopped at a particular retailer) of e-commerce jumps to over 50 percent on Prime Day from the low 30 percent range both before and after the sale, as reported by NPD Checkout Tracking. Does this help Amazon’s tech business? As we said earlier, Amazon’s share of online sales jumps 30 points on Prime Day. In 2016, that equated to 70 percent in revenue. But, there is that catch mentioned previously. Of the increase, fully 60 percent of the incremental dollars spent on tech on Prime Day are spent on Amazon products, driving that 70 percent growth rate down to 29 percent, which is good but not all that special considering the hype of the day and the long-term momentum of Amazon’s retail tech business. Even the breadth of the business is impacted. On Prime Day, three of the four biggest categories were wireless speakers, tablets & e-readers, and streaming video players, all of which are driven by Amazon’s sale prices on Amazon-branded products, not on third-party products, or their vendor’s products. A big win for Amazon’s branded products and Amazon Prime, but not such a big win for Amazon’s vendor partners. 

Vendor partners (both direct and marketplace) and Amazon’s retail tech business certainly benefit from Prime Day’s incremental volume; but once the excitement of Prime Day is over, much like we see on Black Friday and oftentimes for big sales events at other times of the year, that increase does not seem to translate into long-term gains. Using NPD Checkout Tracking to compare the sales from 10 weeks prior to Prime Day, Prime Day sales, and sales from the 10 weeks after Prime Day, we find that the trajectory of Amazon’s retail tech business is basically unchanged. Sales in the 10-week period before Prime Day increased 29 percent and in the post-Prime Day period they grew 26 percent, a negligible difference. 

The end result of the last two years of Prime Day is that, like any retailer’s sale goals, success is measured in the incremental benefit to the retailer and oftentimes very little of that benefit accrues to its vendor partners. That is clearly the case here, with Amazon seeing benefits with its Prime membership and in growing the installed base of Amazon hardware, but with little incremental opportunity for its vendor partners (or for Amazon’s own retail tech business) over and above Amazon’s ongoing impressive growth rates.  When the deals and the final results for Prime Day 2017 are tallied, it’s likely that its similarity to Black Friday will have increased.  As Prime Day increasingly mirrors the form, function and focus of Black Friday its utility to the vendor community will diminish as Amazon’s goals continue to outweigh the needs of its partners.

It’s that time of year again; school instruction is coming to a close and Jeff Spicoli is about to get a visit from Mr. Hand to go over the history lessons he ignored (reference: Fast Times at Ridgemont High).  While Jeff is explaining to Mr. Hand about the class, IT equipment is being ordered, shipped and implemented by channel partners in preparations for the August-September timeframe, which marks the beginning of a new school year.

According to NPD’s most recent SMB IT Quarterly Survey (April 2017), in the next three months, 50 percent of firms in the education market plan to spend on technology, which is a 62 percent increase from the prior year. The instructional side (classroom technologies) will be a key area of growth, as technology can solve for many of the shifts we are seeing in the classroom, including… 

• Classroom sizes have grown and teachers are in need of solutions to help reach every student more effectively.
• More schools are adopting STEM (science, technology, engineering and math) and STEAM (science, technology, engineering, arts and math) programs to help the U.S. become more competitive on the global stage.
• Schools are encouraging students to become more innovative and expressive, while collaborating with their peers to solve real world problems (e.g., project-based learning).
• Schools are preparing for digitally-based Common Core Standards assessment testing.

Where Technology Comes In

To address the needs of larger classroom sizes, many schools have increased their use of learning management systems, such as Blackboard, Moodle, and Google Classroom, to better manage students and encourage greater parent involvement in the education process. In addition, polling devices via smartphones and classroom responders are also helping teachers better understand when the students are absorbing the content most effectively.

Schools that have woven STEM and STEAM programs into their curriculum are adopting technologies such as 3D printers, microcontrollers, drones, and more. Many schools are teaching students how to use computer aided drafting programs to create their own designs and print them via a 3D printer. To help students learn programming skills, schools have adopted microcontrollers (e.g., Arduino boards), which allow students to download open source code and even create their own code to develop projects such as obstacle avoiding robots, plants that send a tweet when they need to be watered and more.

As more of an emphasis is put on project-based learning, schools are using methods such as flipping classrooms, where students watch videos of the next day’s subject ahead of time, so class time can be used for digging deeper into the material via peer learning groups. In this case, instead of receiving an hour-long lecture, students form peer groups where they discuss content and then present findings to the classroom using a projector or an interactive whiteboard, encouraging students to develop communication skills. From a demand perspective, according to NPD’s Distributor Track and Commercial Reseller Tracking Services, year-to-date (January- April 2017) versus the prior year, we have witnessed 136 percent unit growth in the interactive whiteboard market. 

For schools that have adopted digitally-based Common Core Standards testing, Chromebooks have been the device of choice due to lower average selling prices. Year-to-date (January- April 2017), Chromebook shipments have increased 26 percent in the B2B channel, with the largest volume month approaching in July. In addition, according to our SMB IT Quarterly Survey, in the next three months, 45 percent of firms in the education market plan on purchasing personal computers, which is a 22 percent increase from last year. Along with the growth in Chromebook sales, upgrades in wireless networks will occur, as students and staff place increased demands on the network. According to the SMB IT Quarterly Survey, 50 percent of education institutions plan on purchasing networking gear, a 183 percent increase from last year. 

As technology is further ingrained into school curriculums, whether driven by necessity or choosing, we expect to see strong 2017 back-to-school sales in the B2B channel. And, for Jeff Spicoli, maybe we’ll see a drone delivering pizza or a bagel in a future remake of Fast Times at Ridgemont High.

This time last year, when interest in the Amazon Echo and Google Home were at a fever pitch, many observers wondered why Apple hadn’t yet made a voice-activated speaker. After all, Apple has the pieces necessary to make a great Echo-like device: a robust content and app marketplace, smart home platform, and a market-leading audio brand in Beats. Additionally, Siri is installed on 375 million Apple devices. Smart speakers can tie disparate pieces of an ecosystem together and last year Apple seemed perfectly suited to make such a product... 

At last week’s WWDC, Apple finally announced HomePod, its voice-controlled speaker powered by Siri with all the requisite features we’ve come to expect from the growing crop of ‘smart’ speakers:  Apple Music integration, the ability to set timers, news and weather reports, and control over other connected devices in the home. HomePod is similar to Echo and Google Home in many ways, even down to its vaguely similar form factor. Given these similarities, and Apple’s late entrance to the market, it’s vital that HomePod provide a differentiated experience from what is sure to be a wider field of competing devices.

A more robust Siri is one differentiator Apple is counting on. An announced upgrade to ‘Siri Intelligence’ will allow the application to analyze multiple streams of user data – taking into account past app and device usage, as well as context, in order to help Siri make better informed recommendations. Apple has also expanded the list of third party apps and capabilities Siri has via SiriKit. Tasks like dictating notes in Evernote or initiating VOIP calls can be done using the digital assistant, a sign Apple is looking for ways to make more applications navigable through Siri. Further, an improved Siri more tightly integrated into iOS and HomePod is likely to get iPhone and iPad devotees interested.

Challenges await Apple too. At $349, HomePod is twice the price of Google Home and Echo, making it unlikely consumers will buy multiples to position throughout the house… at least at that price. Simulating a Sonos-like multi-room audio experience throughout the home would be equally cost prohibitive. And while early reports suggest HomePod delivers on sound quality, Apple isn’t a pedigreed audio brand. Wireless speakers priced above $300 make up a small market, accounting for just 12 percent of total revenue, which has actually declined three percent year-to-date. Lastly, with new products like Amazon’s Echo Show and Echo Look on the horizon, the market is already looking beyond the tabletop speaker.

But if any company has a track record of creating markets where they don’t exist, it’s Apple. Apple’s other voice activated audio product, AirPods, launched in December to intense demand, making Apple the third leading Bluetooth headphone brand on the market thus far in 2017. The pricing strategy was different (AirPods actually hit the market slightly below the price of its competitors), but limited supply of the product and rave reviews from users represent a first successful step into this market. HomePod won’t release until December, but the buzz around the product will surely challenge demand for competing voice-enabled speakers, and premium non-voice speakers as well, for the rest of the year.  You can expect Apple fans will once again line up outside stores to buy HomePod on launch day – but interest among more casual users will determine how well Apple can compete in this rapidly changing market.

Source: The NPD Group, Inc. / Retail Tracking Service, U.S.

The lady sitting in front of me on the tram was clearly into her music. She was using headphones, but we could all clearly hear Eric Clapton’s dulcet tones explaining that he would, “wait in this place where the shadows run from themselves.” Deep stuff, Eric; but also, rather loud. I mirrored the attitude of the Dutch passengers around me, stoically ignoring the noise and searching for some sort of inner peace. However, the tram driver felt differently and requested the passenger turn her iPhone volume down, which she did.

In the relative quiet that followed, I realized there were two tech matters addressed in that single moment. Firstly, in a future (or in some places, current) world where there is no tram driver, we would have continued to listen to the tinny echoes of Eric Clapton passing through the headphones; and secondly, tech ‘smarts’ can be, and often are, ignored by consumers.

I say the latter, because Apple takes some lengths to remind us that we shouldn’t be listening to extremely loud music via headphones. Siri will helpfully suggest that it may be too loud for comfort and for the sake of our eardrums (as well as those around us), a lower volume would be a good idea. But we can overrule such a suggestion. And while I feel that we should be able to, I’m not convinced that will always be the case. As we embrace artificial intelligence, rather than simply helpful suggestions, I can see a time when the music volume may perhaps be determined for us.

That may be (and probably is) a very trivial concern, but it is a small sign of the ‘freedoms’ that we could give up, ever so slowly, as we allow more ‘smarts’ to seep into our world. And the smarts are coming. Almost every tech company out there salivates at the idea of a ‘smart city’ and what that means in terms of future revenue and new product opportunities. What is required is a careful balance between the consumer’s desires and technology’s drive towards more intelligence. And please don’t mistake me for someone with nightmares about a dystopian, Blade Runner-esque future: I’m a self-professed nerd who is pretty excited about how technology can help create a smarter city.

But this is where I hope the term ‘smart city’ can be used a little more widely than simply in a tech context. A smartphone is not really ‘smart’; rather it’s a small computer (and we don’t call the ‘PC’ a Smart PC very often). The same is true of a Smart TV, adding apps does not make it smart, it just broadens its use case and makes life a little more convenient for us all. The key here is the term convenience: a smart city should provide us more information with which we can make decisions. More so, a smart city should provide us with a more entertaining, playful world around us, which does not necessarily mean more overt technology, as much as it does a cleverer, more creative implementation of everyday products that surround us. For that, we all need to think far beyond the current state of technology and do a better job of blending tech with everyday activities. That said,  the activity needs to remain at the forefront, rather than letting technology drive the direction… even if it does mean occasionally listening to someone else’s music on the tram. But that can have advantages too: I haven’t listened to Cream for a long time and I can thank the lady on the tram for the reminder to give them another listen.