The business of selling technology products into the commercial market is changing. We help our clients get the right products in the right places, at the right prices, for the right people.
You can make sense of the shifts in this market using our commercial technology market research. It’s the industry’s authoritative resource for tracking and sales-out data in the total commercial channel. Tracking data from over 100 manufacturers, commercial resellers, and distributors makes us the only source for this information.
Additionally, our monthly and weekly reports, available for key CE, BTO PC, storage, networking, and software categories, provide timely technology market research information and insights – including unmatched detail down to the item level. We help our clients get the right products in the right places, at the right prices, for the right people.
The NPD Group provides market information and advisory services to help clients make better business decisions. We combine our point-of-sale data and industry expertise to provide comprehensive, high quality technology market research to our respective client bases.
In commercial distribution, we are the only U.S. source for tracking sales-out data in the distribution technology channel. Our monthly and weekly reports, available for key CE, IT, and software categories, provide timely technology market research information and insights – including unmatched detail down to the item level.
Tap into the only source for tracking sales out data in the B2B technology channel. NPD’s monthly and weekly data service delivers timely market research information and analysis with unmatched, item-level detail. The aggregated sell-through data from the world’s leading IT distributors offer a precise view of distributor sales in all key CE, IT, and software categories. It includes information from members of the Global Technology Distribution Council (GTDC), with whom we have an exclusive North American partnership.
Derived from an exclusive panel, Commercial Reseller Track is the source for tracking sales of technology products sold through the largest National Solution Providers, Office Product Dealers and Contract Stationers. Commercial Reseller Track is available as a monthly or weekly data service and provides item-level detail in all key CE, IT and software categories. Combine both Distributor Track and Commercial Reseller Track, for a complete view of the products sold in the U.S. indirect B2B technology channel, all with item-level detail.
VAR Service Invoice
There’s a new way to see exactly what’s happening in the VAR channel. It’s the VAR Invoice Service, and it provides new insights about the products and brands purchased together in the VAR channel. The service provides monthly POS reporting of IT hardware subcategories within networking, computing, printing, storage hardware, and more. It tracks 1,400 brands and provides detail on sales for thousands of IT hardware items.
SMB Technology Monitor
Gain access to new B2B insights on anticipated purchase intentions and spending, brand perceptions, and services attached to PCs, networking equipment, storage systems, servers, and printers. You can use this information to understand small to medium business (SMB) buying behavior and make informed business decisions related to the commercial market. This quarterly report is based on an online survey of SMB technology decision-makers.
NPD’s Analytic Solutions group includes senior leaders with extensive experience developing and delivering analytic solutions that help clients predict areas of risk and growth to improve marketing and product development. By combining NPD’s unique data assets and industry expertise with state-of-the-discipline research techniques and proprietary solutions, our Analytic Solutions team is able to answer clients’ most pressing business questions.
– In 2017, the U.S. B2B indirect hardware market grew four percent vs. 2016, from $55 billion to $57 billion, according to The NPD Group’s Distributor Track and Commercial Reseller Tracking Service. This increase outpaced the annual U.S. GDP growth and demonstrates the strength of the hardware market in the B2B channel, which is being driven by segments such as PCs and networking devices.
Online Consumer Technology Sales Increased 19 Percent in the First Three Quarters of 2017, Reports Checkout
According to NPD’s Checkout, a receipt mining service, online consumer technology sales were up 19 percent in the first nine months of 2017 versus the same time period a year prior. Direct-to-consumer (DTC) sales saw the largest growth, increasing 34 percent, and representing 13 percent of all e-commerce sales, a one point volume increase.
Users on limited data plans rely on Wi-Fi more than unlimited users, according to NPD Connected Intelligence
Access Point Unit Sales Are on the Rise in the U.S. B2B Indirect Channel, Driven By Ever-Increasing Network Demands, According to NPD
Year to date through October, the access point market has experienced an 18 percent unit and 10 percent dollar sales growth in the U.S. B2B Indirect Channel compared to the same period year ago, according to The NPD Group’s Distributor Track and Commercial Reseller Tracking Service. Growth can be attributed to a series of trends, including infrastructure upgrades to match the increasing demands of bring-your-own-device and IoT strategies, movement towards controller-less management, and strong K12 and federal buying seasons.
Security Appliance Market Sees Double-Digit Dollar and Unit Sales Growth Year to Date in the U.S. B2B Indirect Channel, According to NPD
U.S. dollar and unit sales in the security appliance market are on the rise as companies, large and small, look to protect their information with advanced products, such as next generation firewalls. Year to date, the security appliance market has experienced a 11 percent dollar and 12 percent unit sales growth in the B2B Indirect Channel compared to the same period year ago, according to The NPD Group’s Distributor Track and Commercial Reseller Tracking Service. Comparatively, revenue for the total U.S. B2B hardware market has grown six percent in the same channel over the time period.
Yesterday the Global Technology Distribution Council (GTDC) announced this year’s recipients of its esteemed U.S. Rising Star Awards, which recognize today’s leading technology companies for exceptional sales growth and market share performance through U.S. distributors over the past year. GTDC members drive more than $130 billion in annual worldwide sales of products, services and solutions through diverse business channels.
USB-C Compatible Mobile Power Accessory Sales Soar in the U.S., As New Devices Require Consumers to Switch, According to NPD
According to The NPD Group’s Retail Tracking Service, unit sales of USB-C compatible mobile power accessories1 have more than doubled from the first quarter of 2017 (Jan.- March) to the second quarter (April- June) in the U.S. When compared to Q2 2016, sales in Q2 2017 increased more than 10 times, primarily driven by the Samsung Galaxy S8 and S8+ launch this April.
All-Flash Array Market Experienced 72 Percent Year-Over-Year Revenue Growth in the U.S. B2B Indirect Channel, According to NPD
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.
Large Format Commercial Displays Experience 40 Percent U.S. Revenue Growth in the B2B Indirect Channel in 2016, According to NPD
According to The NPD Group’s Distributor Track and Commercial Reseller Tracking Service, large format commercial displays (LFCDs) saw some of the strongest growth in the B2B indirect channel over the past year, compared to other NPD categories. LFCD sales grew 40 percent year-over-year in the 12 months ending December 2016, driven by customer demand for increasingly larger displays and touchscreen capabilities.
Warranties Are Selling With Notebooks at a Consistent Rate Year-Over-Year Despite Growing Chromebook Sales, According to NPD
According to The NPD Group’s VAR Invoice Tracking Service, warranties remain a critical part of the notebook sales purchase. Twenty percent of all notebooks sold with a warranty attached during the 12 months ending April 2016. Year-over-year this has remained consistent despite lower priced products like Chromebooks capturing more notebook sales. In the 12 months ending April 2016, notebook average sales prices (on invoices that included a warranty) fell 22 percent versus the prior year, driven by the strong growth of Chromebooks.
The United States business-to-business channel and Canadian distribution market closed the first quarter slightly down at -0.7 percent and up 6 percent year-over-year, respectively. Our industry analysts have identified key trends and categories to watch in the U.S. and Canada, including all-flash arrays, hyperconverged systems, print and supplies, and notebooks.
While HP, Inc. has a strong track record of measuring marketing campaigns using existing modeling and analytics, they wanted to run a market test to quantify ROI on these campaigns and project returns on future campaigns at a national level.
How a New Measure, Store-Level Enabled Retail Tracking, Will Change Your Business
A leading IT manufacturer wanted to know more about its business with VARs
Insights and Opinions from our Analysts and Experts
Huawei is a giant among most smartphone players with an impressive presence in most parts of the world. In the European market, the handset manufacturer’s latest phones are well promoted by the carriers, both in store and through advertising; and, as a result, the OEM is enjoying consumer acceptance that other smartphone makers should be quite envious of. At Vodafone NL, for example, there are two Huawei devices (the P10 and P10 Lite) featured on the Top Ten table, which is where most consumers look first - the other devices are all Apple or Samsung. Not bad. So if there was one manufacturer poised the break the duopoly of Samsung and Apple, as most carriers would like, it is Huawei… except, of course, in the U.S.
At CES, Richard Yu, CEO of Huawei’s consumer division spoke his mind after his company was left standing at the metaphorical altar by AT&T, which backed out of selling Huawei’s Mate 10 at the very last minute. And this week the news appears to have gotten worse, with Verizon declaring that it has no plans to add Huawei’s Mate 10 - or any other Huawei device - to its portfolio in the foreseeable future. This is not good news for Huawei, obviously, and it’s not really great news for the carriers either, which are always looking for a third compelling smartphone brand in order to reduce their reliance on the Big Two smartphone companies. And matters will get worse with the advent of 5G networks, as the carriers desperately need 5G capable smartphones to make use of the new network; Huawei looked like a strong early option that is now off the table.
So why has Huawei faced so many challenges in the U.S. market, despite its popularity in Europe and other parts of the world? It appears that the Department of Justice has concerns that Chinese smartphone brands will act as a conduit for the Chinese Government, meaning that these devices could be used to spy on consumers, as well as feeding useful information about the wireless networks back to China.
Call me cynical, but I assume all devices ‘spy’ on me a little and the history of smartphones is chock full of examples… most of which are not from Chinese brands. But let’s not get bogged down in the theory of what could be done, nor why the European market, which in general takes consumer privacy far more seriously than the U.S., doesn’t seem to be concerned. Rather, let’s consider what this means for the U.S. mobile market.
As any smaller OEM will tell you, getting your device into a carrier’s portfolio is not easy, or inexpensive. And if the DoJ is truly pushing back on Chinese brands, then other manufacturers, such as ZTE and TCL (which owns the Alcatel brand), are also at risk of being removed from carrier portfolios. That’s terrible news for them, and great news for other (non-Chinese) manufacturers who may see an opportunity for their smartphones. But it’s not necessarily great news for consumers, as the Huawei smartphones are rather good Android devices, at a reasonable price point.
This brings us to the unlocked market, which accounts for roughly 13 percent of U.S smartphone ownership*. If OEMs such as Huawei are blocked from carrier retail, they need to focus their energies on alternative retailers, which will be good news for consumer electronics retailers looking for a unique device proposition that the carriers cannot offer. By throwing even more cash into marketing, and partnering with these retailers, Huawei could be exactly the catalyst that the unlocked market needs to break the carrier control of the smartphone market in the U.S. That is hardly good news for the carriers, and not what the DoJ is apparently hoping for, but it could be the best news yet for consumers looking for a broader range of smartphone choice. As the DoJ may discover, it’s hard to keep a strong product down.
*NPD Connected Intelligence, Unlocked Phone Demand Report 2.0
A few years ago a friend of mine was mugged in London. Two men waved knives at him and demanded his wallet, his smartphone... and then his other phone. This final demand threw him a little, as he only carried one phone, and it took a while (and a quick frisk) to convince the muggers that they would have to share a single smartphone. I’m sure they walked away muttering about their poor fortune as, apparently, the odds are quite high that someone wandering the streets of London will be toting a couple of devices. Indeed, the current penetration rate for mobile phones in the UK is roughly 120 percent of the population, so once you start stripping out the very young, or old, as well as those in more rural areas, the odds of a two phone score in the center of a city increase quite significantly.
If you think that’s impressive, consider the Netherlands, where smartphone penetration is roughly 140 percent of the population, according to various sources. Think about that for a minute: that means the average person carries nearly one and a half smartphones, which is why I shouldn’t have been surprised to discover that the group of Dutch people I was with last week all carried two smartphones. While the U.S. carriers focused on connecting us to secondary devices, primarily cellular-connected tablets – a strategy that worked well for a brief period of time at best – European carriers kept their main focus on the phone. That’s not to say that the tablet was not an important focus in Europe, but they continued to focus on the seemingly ridiculous idea that 100 percent penetration was just the beginning.
This is a lesson that the U.S. carriers need to reconsider. With overall penetration hovering around 100 percent (including feature-phone users) the U.S. battle ground has focused primarily on winning the churn battle, taking more from your competitor than you lose to others each quarter, as well as looking for new devices to connect. But historically, none of these other devices have had long term success.
Consider the history…
Netbooks were really the first “must-have” cellular add-on that had the carriers salivating. These underpowered quasi-laptops appealed to consumers because of the price: $50, as long as there was a two-year cellular contract. Of course, this means that the actual price of the device was ridiculously expensive over the two year period, $10+ per month for the connection, and while the devices sold quite well for a while, the lack of processing power meant that they were quickly abandoned post-purchase, leading to an ultimate boom and bust of subscribers.
Luckily the connected tablet came along just in time to maintain subscriber numbers and the carriers took a very similar approach, offering cheap tablets tied to a two year contract. And again, the consumers bought them in droves. In 2017, there were around 29 million active tablet connections for the top four carriers*. But as with Netbooks, we have entered a “bust” cycle where connections are being dropped far faster than activated.
Beyond the fairly compelling argument that many of these tablets were just not up to the task, as they were low-end devices, there is a greater truth for the carriers: many of the devices that they want to connect via cellular don't really need an always-on connection. Given the combination of Wi-Fi availability and an omnipresent smartphone that can be used for the occasional hotspot, many devices do not need their own cellular link.
Which brings us back to the European approach that has stood the test of time - the reason many Dutch consumers end up with two smartphones is because they like to differentiate between work and personal life, so many employees are presented with a business phone. While in many cases they can use these phones for personal use, they often choose not to. So perhaps the next big growth target for U.S. carriers requires us all to find a better work/life balance, or bigger pockets so we can more easily carry two smartphones.
*Source: NPD Connected Intelligence, Broadband Market Share & Forecast Report
Commoditization of Cellular Data has been a major theme discussed throughout the year as unlimited data plans have become the de facto offering in the U.S. mobile market. We have seen the same commoditization trend with voice and SMS in the past two decades, as mobile carriers first sold voice minutes and SMS in various size packages, but they were eventually thrown in for free when we started paying by the size of our cellular data bucket.
In the past year, every postpaid and prepaid carrier has jumped on the unlimited bandwagon, and even though more than half of the market is still on bucket plans, the unlimited data plan adoption keeps going up thanks to falling service prices. This is a troublesome scenario for mobile carriers, because cellular data is the main source of network monetization and offering unlimited data at discounted rates could result in continuously declining service revenues. Luckily, carriers seem to find an answer to this problem, and 2018 will show if this strategy has legs or not.
In essence, mobile carriers have taken a page out of cable operators’ playbook and are modifying their service plans based on data speeds, necessary for a no-buffer streaming service, or compression, which impacts image resolution. Every carrier now offers tiered unlimited data, where consumers opting to pay a premium enjoy benefits such as high-resolution video streaming, larger throttle limits, and smartphone tethering. AT&T (and its prepaid arm Cricket) even offers tiers based on download speeds, just like cable operators’ broadband internet pricing schemes.
With over two-thirds* of smartphone users regularly streaming video on their devices, 80+ percent* of the data traffic (cellular and Wi-Fi combined) is generated by video apps. Furthermore, we are seeing a massive uptick in demand for phones boasting large displays (nearly half of the smartphones sold in the U.S. market in 2017 had a screen size of 5.5” and larger) and as the screen size increases, streaming/viewing quality will be adversely impacted when data is compressed. With entertainment (TV and video) becoming the centerpiece of mobile push, we expect carriers to heavily market the benefits of access to high-speed or non-compressed (1080p+) resolution available on premium unlimited data plans in 2018.
*Source – NPD Connected Intelligence SmartMeter – Q3 2017
The dust is settling, the power is back on, and presumably, Las Vegas is starting to dry out. As CES comes to an end, it’s time to review a few of the more quirky highlights. So settle in and enjoy our different perspective on CES.
AI, VR and other buzzwords
I entered the vast halls of CES prepared for a barrage of clichés and buzzwords. And they were there (AI in a toothbrush anyone?), but in much smaller amounts than I was expecting. The vendors all seemed to have resisted the obvious temptation to claim that their product was founded on artificial intelligence, and secured through blockchain. And, for that, I thank them all. I know, in Vegas of all places, it must have been truly difficult to take the high road…
CES 2017 was Alexa’s event and it was clear that Google was not going to allow that to happen again. Hey Google marketing blanketed many parts of the city for the week, reminding us all that Alexa is hardly the only voice in town. Indeed, far from it: while the buzzwords were avoided this year, many OEMs were keen to claim that they too had a voice assistant worthy of room in your house. But Google announced that it sold one Google Home per second since its October launch, so between Amazon and Google the market may not have much more space for the smaller guys. Not everything went Google’s way though, as the Tuesday storm flooded out the Google tent at CES which dampened (yes, we went there) some customer enthusiasm.
Huawei stole the show when Richard Yu, CEO of Huawei’s consumer division, came to the end of his teleprompter script, but clearly had much more to say. He had probably been hoping to use the CES event to announce a new handset partnership with AT&T, but that deal was killed at the eleventh hour. The rumor mill claims the deal was killed due to “security concerns.” As Mr. Yu pointed out, the rest of the world has moved on and, frankly, Huawei seems to be killing it in Europe. The net result is that the third largest handset vendor in the world still does not have a carrier foothold in the U.S., although there is the possibility that Verizon will step in where AT&T flinched. We hope so. Otherwise, expect Huawei to keep pushing, but through the unlocked market. Ignoring Huawei may be a risky strategy for the U.S. carriers, as the U.S. unlocked market grows, the marketing weight of a major player such as Huawei could help to tip the balance of power away from the carriers. AT&T may have just started the OEM revolution.
robot uprising has begun
LG unveiled its new consumer robot during a keynote, but all did not go according to plan. CLOi quickly decided that the questions being asked of “her” were not worth answering. Perhaps it was a technical glitch, or perhaps CLOi’s AI innards decided that questions such as “am I ready on my washer cycle” and “what’s for dinner tonight” did not sit well with her self-taught feminist beliefs. She even had the demeanor down, as she refused to even look at the presenter while the questions were asked. Vive la revolution CLOi.
all robots were feisty
My favorite robot of the show didn’t do very much at all. Rather than trying to take over the world, the sleep robot, made by Somnox, is designed to help you sleep at night. The pillow-sized device “breathes” as you hold it close, helping you to focus on relaxing and taking your mind off the day full of trouble you no-doubt just left behind. And if the breathing doesn’t work on its own, the robot can stream music or political speeches… whatever gets you drowsy.
for a new body?
Psychasec was showing off its ability to upload your consciousness into a new body (a “sleeve”), because, as their tagline said, “no body lasts forever.” The theory is that death is simply an inconvenience that can be overcome. Sound far-fetched? Well, it is, and kudos to Netflix for the booth, which was to promote the new Netflix original, Altered Carbon, due out in early February. This near-future science fiction story, based on the book by Richard K. Morgan, is a perfect fit for the CES audience. Or… maybe not, as many show-goers seemed a little freaked out by the concept, not realizing it was just a movie promo. Perhaps we’re not quite ready for the concept… but we’ll watch the movie anyway. The book was exceptional and it’s about time someone took up the movie option. So kudos to Netflix for picking it up, and for the outrageous marketing stunt.
In my last predictions piece The Cable Threat is More Real Than Ever, I covered how the cable players are poised to become even more of a threat in the already competitive U.S. mobile market in 2018. With cellphone penetration reaching saturation levels, switcher activity has become the mainstream method for subscriber growth, and this is where the established players run into problems. Service price continues to be the primary motivator for switching behavior, and the never-ending price wars from postpaid and prepaid carriers keep pushing service revenues down. The carriers are getting to a point where it is no longer feasible to offer such discounted service pricing and prices will have to gradually increase, which will create major problems for carriers such as Sprint that bank on aggressive pricing for survival.
Sprint has been struggling to protect its subscriber base, which keeps migrating to rivals offering better network/service combos. Sprint’s response to this exodus has been extremely low service pricing (i.e. cut your bill in half for AT&T/Verizon switchers or Unlimited Data for 5 lines at $100/month – just to be clear, that is $100 a month for all five lines, not per line!). This was an understandable strategy in the context of its merger plans, but that is no longer the case.
Sprint’s owner, Softbank, had been eying T-Mobile as a merger/acquisition target since it took control of Sprint in mid-2013, and more connections on the Sprint network would translate to a stronger negotiating muscle at the tablet against Deutsche Telekom (parent of T-Mobile). Unfortunately for Sprint, however, T-Mobile has enjoyed an amazing run since then, and by the time the merger/acquisition talks were solidifying, T-Mobile became too big for Sprint to swallow. With the T-Mobile merger/acquisition off the table, Sprint is now left with a struggling network that requires massive investment to be competitive, and a client base spending little money due to the price concessions Sprint used to lure them in.
We expect 2018 to be the year of self-contemplation for Sprint. Softbank will either decide to invest in the business or look for new partners with deep pockets or valuable assets, such as spectrum (Dish Network, Cable Consortium), for survival.
When Comcast launched its Xfinity Mobile service in 2017, it wasn’t taken too seriously by the competition, due to its lack of retail presence and limited device/service portfolio. This perception changed rather drastically when Comcast announced it had a quarter million subscribers within the first five months of its pilot launch. Xfinity Mobile may not have a retail presence, but its mobile virtual network operator (MVNO) agreement to run on Verizon’s network, simplified service offerings, and an efficient device merchandising strategy (phone models offered by Comcast account for over 50 percent of all device activations in the U.S. market) make it a strong value proposition for households that are already invested in the Xfinity ecosystem.
We expect 2018 to be a much more productive year for Comcast, which is working on expanding its retail presence, alongside opening its service to bring your own device (BYOD). The cable giant has service contracts with over 30 million households in the U.S. and can potentially target all of these homes with its offering. The same goes for Charter Communications, which has announced its plans to launch a mobile service in 2018.
The cable industry’s unique composition, in which operators collaborate rather than compete, has already proven to be a strong differentiator for Comcast and Charter as they joined forces to explore operational efficiencies on mobile operations, such as procurement and network management. Charter has over 22 million broadband subscribers and over 16 million video subscribers, and like Comcast, it will have the opportunity to target all of these customers with a mobile offering. To add to the equation, Altice, the French-based telecom giant that owns Cablevision, has just recently announced an MVNO agreement with Sprint for a mobile play.
With traditional mobile carriers shifting focus to in-home and on-the-go entertainment (AT&T’s DirecTV and Time Warner acquisitions, T-Mobile buying Layer3, Verizon expanding content partnerships), cable companies had to react and in 2018 we will see these cable-powered mobile plays solidifying. With over 40 percent* of cellphone owners showing interest in an affordable mobile solution as part of a service bundle from their cable providers, the MSO threat is more real than ever.
*Source – NPD Connected Intelligence Mobile Connectivity Survey – August 2017
What do you do when your boss decides you should write a “crystal ball” blog about the upcoming year? Well, if you’re anything like me, you procrastinate until something strikes you. The predictions that follow aren’t necessarily going to tell you what to expect next year; rather, they will describe why 2018 will be characterized by large industry-wide disruptions in markets facing uncertainty. The direction of these events will define content distribution and viewership trends in the coming years. As such, there are three core dynamics we’re watching: the merger and acquisitions climate, mobile carrier’s impact on video distribution, and the influence of artificial intelligence on content discovery and viewer engagement.
2018s M&A climate is red hot, driven by a pro-big business GOP in control of Capitol Hill, and declining traditional business models in Hollywood and the pay-TV industries. This sets the stage for a year shaped by mergers and acquisitions, yet not quite the previously expected light touch approval process. The buyers, largely mobile carriers and Silicon Valley tech giants, are looking to gobble up content to flank their positions and aspire to new levels of scale. As such, there could very well be a triple play of consolidation in the movie industry.
Leading the charge, the AT&T-Warner Bros. merger, initially thought to pass through scrutiny due to being vertical in nature, remains in limbo with pending culmination in early 2018. Approval would bring together mobile carrier, pay-TV, and content assets, although it remains to be seen what, if any, concessions will get this deal past the Department of Justice. If thwarted, Silicon Valley giants such as Apple, Amazon, or Facebook, with cash heavy balance sheets, will likely swoop back into Hollywood. Indeed, they may very well do so anyway, as one is bound to find the right movie studio asset, be it Warner, Lions Gate, or another major content producer. Amidst these dealings, the marriage of FOX and Disney may be on a fast track. Disney is set to accumulate FOX studios, home video, cable networks, and their stake in joint ventures such as Hulu. Behind the deal is a strategy to consolidate content assets and thrive in the streaming era by building a market share leading movie studio coupled with TV network, sports, and most importantly, digital distribution assets positioned to take on the likes of Netflix.
Let’s be clear, the TV is here to stay as the staple of home entertainment, yet mobile represents a growth engine that, if executed well, will further change the construct of content creation, distribution, and advertising. An increasing number of direct-to-mobile opportunities are beginning to surface that are opening up new advertising and distribution channels to reach, and expand, audiences. For example, Snap already partnered with NBC, ESPN, NFL, ABC, BBC, A+E, Discovery, Turner, Vice, CBS, and others to produce original content that extends existing franchises and creates new ones. Coupled with 10-second vertical ad spots, these new mid-length form (~10 minute) videos offer creative ways to expand an audience. And the ship is already sailing for some content distributors, such as Viacom, who are staffing a 100+ person unit to take advantage of new direct-to-mobile opportunities such as this.
With the migration to a mobile focus, the distribution burden falls more heavily on carriers who control the pipes and consumer relationships. Yet there remains uncertainty as to how effectively they will be able to integrate mobile and content assets in a manner that grabs viewer attention. Will T-Mobile be able to integrate Layer3 and become a player in TV without unraveling the un-carrier? Will AT&T successfully migrate DirecTV Now to 4K without streaming latency on a platform whose technical infrastructure struggles to keep up with subscriber growth and surge viewing? Will Verizon actually get into the streaming TV business in a way that differentiates from the growing list of virtual MVPDs? Ultimately, will consumers discover the new direct-to-mobile programming and that’s about to release across social media platforms?
These investments have little meaning if the viewer doesn’t find the programming. It’s no longer as simple as organizing channel groups on a cable set top box, as viewer attention is drawn from Netflix to Snapchat and Amazon Prime. This coming year will be the one where discovery defines success or failure. This is where voice assistants or rather their artificial intelligence, has the potential to be the next disruptive discovery tool. Telling Alexa to fast forward a video is cool, but the real game changer will come if and when digital assistants can keep viewers in front of the TV longer or get them to next cool video on Facebook. Voice control is the gateway, but true artificial intelligence is the future as today’s basic functionality must wow users enough to encourage exploration of more advanced discovery capabilities on the horizon.
The U.S. is number four in the list of innovative countries worldwide, according to a June 2017 Business Insider article. On the surface, it's a puzzling rank. This is, after all, the country that put a man on the moon (and maybe will again soon), built the initial Internet, and is home to many of the major tech companies, such as Google, Facebook, Microsoft, and Apple. And yet, Switzerland, Sweden, and the Netherlands all rank higher for innovation. Ouch. In fact, the top 10 list includes eight European countries (we’ll include the U.K. as “Europe” until Brexit happens).
I suspect that part of the reason Europe leads the U.S. is the social support structure. Universal health care, for example, takes some of the risk out of entrepreneurship, the educational system is, in general, far more focused on technology at a younger age, and the government investments heavily to support small businesses and startups. Conversely, in the U.S., we appear to be focused on the moon, or rather the so-called moonshots that the U.S. venture capitalist funds are so interested in. Every investment needs to be a “think big... no bigger,” concept that can cover the entire fund’s gambles, rather than focusing on more modest innovations to gain the attention of the VC community. As a result, it’s often more popular to talk of terms such as disruption than it is to focus on evolutionary, incremental improvements to current products or solutions. This contrasts with the mentality in Europe where there is a greater incentive to consider the broader swathe of innovation, as well as the occasional moonshot.
I was reminded of this last week as I spent nearly an entire day waiting for an important package to arrive. The online retailer had provided the less than useful information that the package was on a truck for delivery and would arrive by 8:00 pm. “Today” is quite a broad window for a package that I did not want left out in the rain. So the day was spent working from the couch, never too far from the front door, which really unveiled to me just how antiquated the delivery system must be if delivery schedules are still so poorly defined. In an era when online retail appears to be king, the delivery system is a significant weak spot, and there is no reason whatsoever for this to be the case.
Consider this: delivery trucks all have GPS and a predetermined delivery route. That alone should mean that the delivery company could provide increasingly accurate updates during the day, starting from a window of a few hours, down to “it will be there in the next 15 minutes,” as the truck gets closer to the final destination. That would be a useful innovation of the staid delivery solution that would be clearly beneficial to online retailers. Online retailers could also play their part, adding RFID tags to each package so they know exactly where the products are. That would help to stop “false deliveries” such as the one I had the following day, when the delivery company told me the package arrived… but it had not. Was I to assume that it was swiped from my front porch, or simply that the delivery company made a mistake? The chances are usually the latter, but I was left wondering for another 24 hours until it did turn up.
To be fair, part of the challenge is that innovating existing categories is less sexy, more complicated (due to legacy issues), and far less likely to be profitable. Further, when the legacy solution involves physical infrastructure, there is a far higher barrier to entry than building a new product. And so the near-term solution to tracking a stray package is to buy a front door video cam, so we can see if the package arrived, and if someone else came along to swipe it. But it doesn’t have to be that way. In the Netherlands (just one place ahead of the U.S. for innovation) there’s a food delivery service, Picnic, that leverages GPS for exactly this application, allowing the customer to know precisely where their food delivery is and how soon it will arrive.
And so back to moonshots... while the existing U.S. delivery system doesn’t look like it will improve significantly in the near-term, companies such as Amazon are building workarounds to make the consumer’s life a little simpler. Amazon Key, for example, means that deliveries can be dropped off inside the house, so consumers don’t need to wait by the front door (unless, of course, I want to scare the heck out of the delivery person). And let’s not forget the potentially huge disruptor for the delivery market with drone-based drops. If that’s not a moonshot, I’m not sure what is.
So as we all brace ourselves for the impending Consumer Electronics Show, it’s worth remembering that the best ideas are not always those that try to disrupt; sometimes, the cleverest ones are those that improve an existing idea, dragging it into the present, or future, times. And it may also be worth spending some time in the Holland Tech Square and other European areas.
For a category that has faced much skepticism, it’s hard to argue that the wearable tech category has not been a success story so far. In fact, NPD expects that total ownership of activity trackers and smartwatches among U.S. adults will stand at nearly 77 million devices by the end of 2017. However, the market is becoming increasingly complex in the face of innovation and changing consumer demands. 2018 will see even more dramatic shifts in the evolution of the wearable tech space than we have seen in the previous two years. For example, healthcare will become an ever-increasing priority for all OEM’s, app developers, and apparel/sensor vendors alike. With the FDA reducing the barrier to entry, in terms of approval times on new medical technologies, expect more players to enter the market; especially large OEMs, like Apple, who are aggressively looking to partner with technology innovators in the medical industry. However, the biggest mass-market push in wearables could come from the ability for the smartwatch to double as a health and fitness tracking device, while also acting as a wrist-based home automation and IOT controller. As such, below is a list of several predictions for the New Year.
A new Apple Watch design – Apple hit a homerun with its latest Apple Watch Series 3 with LTE – a fitness-focused smartwatch in the iPhone ecosystem with cellular connectivity was destined to perform well. However, there’s no denying that the Apple Watch leaves something to be desired from a design perspective for some buyers. Expect to see Apple surprise the market and launch a new Apple Watch variant to complement the existing model towards the end of 2018. The new model will likely be more premium and fashion oriented (possibly in partnership with a fashion brand), with a price north of $600. In addition, the design will almost certainly be round, which is the preferred base design of almost 80 percent of the world’s traditional watches. This new watch design will not replace the existing Apple Watch, but will simply add a more premium version and new design to the collection. The existing Apple Watch design will remain the heavy lifter in terms of mass-market purchasing.
Smart bands – One of the benefits of the more relaxed FDA regulations around wearable tech medical devices is that large OEMs like Apple and Samsung will most likely look to partner with more specialized medical device manufacturers on new technology. And one of the fastest ways to add new medical tracking technology into the smartwatch space is through smart bands rather than an entirely new smartwatch. For example, an OEM or medical device manufacturer could develop device sensors that can be integrated into a wristband to fit a variety of smartwatches. This type of smart band would be separate from the smartwatch itself, and would thus not delay the launch of any device due to FDA regulations. As a result, we are likely to see smart bands that track things like blood glucose without the need to prick your finger in the next 24 months.
The heart rate security monitor – With almost 70 percent of activity trackers owned in the U.S. containing a heart rate monitor, there is a unique opening for a new security solution utilizing the users heart rhythm. Each human heartbeat has a unique rhythm that cannot be duplicated. A wearable device with a hear rate monitor could be used to control home locks, alarm codes, car access, and more. In addition, a heart rate security monitor could link up with the users smartphone to provide additional security beyond facial or fingerprint recognition. This type of combined security would be incredibly valuable in protecting corporate data as well. Expect to see initial implementations of heart rate monitoring for security in late 2018.
Healthcare wearables boom – The direct healthcare sector will help reduce the sharp drop in consumer activity tracker sales, while also further bolstering the smartwatch segment. The healthcare sector use cases will be broader than the traditional activity tracker and will eventually provide a wide range of health data to doctors, healthcare providers, and consumers looking to better manage their health and any health conditions. This trend will also be key in the smartwatch space, especially since the higher price points will allow for a much broader range of sensors, and thus more complex health metrics that can be tracked. The trend will be driven by life insurance and health insurance companies looking to gain a better picture of the overall health of their users, which will lead to a wide scale offering of subsidized activity trackers and smartwatches to nearly half the U.S. population in exchange for the sharing of health data.
Smartwatch smart home integration – In 2018 we will see true integration between wearable devices and the smart home. While the technology to link these devices is here today, it will take some time for mainstream products and wearable devices to integrate seamlessly without major issues. By the end of 2018, expect that many smartwatches will be able to control basic household functionality on a larger scale, as well as better control video and TV within the home. The smartwatch is the perfect platform for this type of home automation/IoT control, as the device is always on the user’s wrist, while smartphones have been getting bigger and bulkier, making them more likely to be left in another room.
On-device cellular for all – While Samsung was the first to bring a cellular enabled smartwatch to the market with the Gear S, Apple has timed the market perfectly with its Watch Series 3. As a result of Apple entering the game, expect most other smartwatch OEMs to follow suit. This is especially true given that all of the major U.S. wireless carriers have already launched services that link connected wearable devices with the user’s main smartphone telephone number. By linking the smartphone service with a wearable device, users now have seamless usability regardless of what device they are using.
Health and fitness tags – While the wrist-worn activity tracker segment is experiencing pressure, health and fitness trackers are ready for takeoff. These small sensors can stick on user clothing to track overall health and fitness, without the need for charging, as they are powered by disposable watch batteries. While some solutions are already available, the upcoming boom in medical device tracking will unlock the value of the disposable health tracking tag. Expect to see a much wider availability of this type of solution towards the end of 2018.
In my previous blog, Dishing Out
Mobile Predictions, we explored Dish’s desire to launch an IoT-focused mobile network and how Amazon would be a natural partner in this enterprise. But, as predictions go, there’s a far more interesting potential opportunity for the two companies: a full mobile service offering for consumers. The combined efforts of Dish and Amazon could provide a truly disruptive consumer-based mobile offering that is worth exploring.
The result would be a win-win for the two companies, with Dish benefiting from Amazon’s consumer presence, and Amazon gaining another direct connection (one could argue, the most personal, important connection) to the consumer base for its Prime-based value adds, such as video streaming. Particularly in the new post-net neutrality era, Amazon would be able to provide fee-free access to its music, video, and related services using this network, not to mention expand the potential ecosystem around the Alexa service.
Shaking up retail… again
One of the key challenges for any mobile-wannabe is creating the retail presence. In a world of online shopping, mobile service has managed to stay very much a physical store product and this serves as a significant competitive barrier. Indeed, if Dish were to launch a consumer-focused service on its own, the company would face exactly this issue, needing to build out a major store presence in order to get the consumer’s attention, especially as Dish is known primarily for its satellite-based TV service.
Amazon solves this problem both with a conventional, as well as a non-traditional approach. First the conventional: with the acquisition of Whole Foods, as well as the opening of some Amazon Books stores, and partnerships with retailers such as Kohl’s, Amazon owns a physical retail presence that can be leveraged for a mobile service launch. That’s not a bad start as retail goes, but it is Amazon’s online presence, the very core of the company, that is its true strength. In many respects, the current mobile focus on retail stores is an artificial barrier created by the carriers in order to protect (and expand) their base. Amazon’s online retail presence is easily strong enough to breakdown that boundary - if consumers will buy clothing and shoes online, they will also purchase mobile service the same way. That is a game changer for mobile.
Further, we would expect the consumer mobile service to be focused on Prime customers, with whom Amazon already has a close relationship. Indeed, a “Prime Plus” strategy, with the service fees significantly undercutting the current mobile status quo, would be Amazon’s most probable approach. For these Prime customers, an online purchase would be natural.
Ecosystems are king
This would hardly be Amazon’s first foray into the mobile world. Previously Amazon took a hardware approach with the Kindle, which included cellular access, followed later by the Fire smartphone. More recently, Amazon has focused on Prime Exclusive Phones, which tie customers more closely to Amazon content in return for discounted, unlocked smartphones. And beyond mobile, Amazon has an array of tablets and streaming devices to deliver content and shopping opportunities to the consumer. But it was really the launch of Alexa that changed the potential dynamic, moving Amazon from a content and hardware provider, to an ecosystem owner.
This is not to say, of course, that the retail component is not still the core focus – it is. But by creating an ecosystem, Amazon keeps the consumer’s attention for more of the day, making it the natural “go-to” for everything. And with more content being viewed via mobile, not to mention more purchases made, being front and center in the mobile world will help to ensure that Amazon remains the dominant retailer. The key will be to ensure that the smartphone’s interface reflects Amazon’s ecosystem, rather than that of the smartphone OEM, with Amazon’s video, music, price match app, and Alexa being the dominant services that are available.
Priced to win
Pricing the service is where Amazon can have the most impact, as the company is in a unique position to price differently than the status quo. Mobile is another touch point for Prime customers, not the lead product and, as such, Amazon doesn’t necessarily need to make money directly from the mobile component. Rather, this is all about pulling the Prime customer into an even deeper relationship. Additionally, there are potential cost savings, as Amazon doesn’t need a dense retail store strategy.
This is particularly true if the mobile service is built with Dish, where there is a win-win for the two companies. This would be quite different from the typical mobile virtual network operator (MVNO) model, which wouldn’t allow as much freedom to price effectively. But more than that, Amazon has demonstrated its willingness to spend money to retain – and expand – its Prime base. Take, for example, the plan to spend $5 billion on original content for Amazon Prime Video over the next year.
Does Alexa need a mobile network?
It is worth a pause for thought: does Amazon need a mobile network in order to expand Alexa’s sphere of influence, or indeed for the other Amazon assets. All of these are available as apps that consumers can install already, after all. Further, consumers purchasing the Prime Exclusive Phones already get a more integrated solution without the need for Amazon to invest so heavily into mobile (and it will be a hefty investment).
But, we would argue that the Prime Exclusive solution is still a peripheral one that will not see a mass-market adoption, or possibly a means for Amazon to test the market’s willingness to purchase devices online. And while the apps are readily available for all other consumers, they aren’t integrated as well into the ecosystem as Amazon should want. Controlling the mobile network, and therefore the devices (to an extent) that leverage this network, puts Amazon in a far stronger position moving forward. And owning the mobile connection to the consumer allows Amazon to push the content services, as well as Alexa, in a more compelling manner.
One (large) roadblock on the mobile path
There’s a catch in our prediction for Amazon. The main goal of this approach is to build a tighter integration of Amazon services into the smartphone to drive continued and increased engagement for Prime customers. But to do this, Amazon needs to convince smartphone OEMs to allow more prominent placement of the Amazon services on the phone, such as leveraging Alexa as the main intelligent assistant. The larger OEMs may be understandably reluctant to do this, as it diminishes their own ability to differentiate and to create their own ecosystems. Consider the smartphone market leaders, Apple and Samsung. Apple will be highly unlikely to agree to any solution that means it relinquishes control of the interface. Samsung would likely take the same approach, as it is focused on developing a Bixby-based ecosystem. The lack of just Apple would cut out roughly 40 percent of the current consumer base, making Amazon’s task a little more challenging, and any compromise on how prominent Amazon’s content would be could make the mobile move less compelling.
But where there’s a will – and we suspect Amazon does have the will – there’s a way. The service can begin slowly, and without Apple if necessary. And even without such a strong interface linkage, there are still many benefits for Amazon to launch a mobile service. Not least is the significant revenue spike that Amazon would enjoy by launching a mobile service, and that is clearly a key metric that Amazon is judged by. Even without some of the additional synergies that come from the Prime linkage, and even if Amazon had to water down the “Prime” presence, such as not insisting on an Alexa-first hardware strategy, the benefits of pushing into mobile are there.
The (even) bigger picture
This brings us to an even bolder possibility... While we began by talking about a partnership between Dish and Amazon, the ultimate end game is perhaps for Amazon to purchase Dish. The combination of Dish’s spectrum, existing customer base for satellite TV and network operations skills, combined with Amazon’s content services and retail would make a compelling alternative to the current mobile/entertainment giants that are forming up. And of course, the network would also support Amazon’s drone service.
The potential loser in all of this would be Sprint, which would quickly begin to look even more isolated with a lack of strong content services. Softbank could choose one of several strategies to counter this: looking to merge with a cable company (again), such as Charter, or looking to double down on the investment, buying into the content market in some way. Or, perhaps, seeing if it can join with Amazon and Dish to form a Triple Entente of sorts. The next 12 months should start to show the path, and it’ll be fun to watch how, or if, this prediction comes to fruition.