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Superior screens, advances in audio, and all things ‘smart’ will be hot this holiday. See more holiday consumer electronics predictions from NPD’s technology industry advisor, Stephen Baker.
The role of the consumer device is evolving, as content that was once the domain of the computer continues to migrate to smartphones. In fact, 45 percent of smartphone users now report they shop online via their device.
Traditional Retailers Are Gaining Ground in Online Sales of High Ticket Tech Items, Reports NPD’s Checkout
According to NPD’s Checkout, 29 percent of U.S. online CE dollar sales were made through traditional retailer websites for the 12 months ending June 2018. During this timeframe, they gained online dollar share primarily in high average sales price segments, spanning products such as TVs, PCs, tablets, and printers.
New smartphones often deliver growth opportunities in the mobile accessories space. Growth in wireless charging in Q4 2017 is a prime example.
– The NPD Group, a leading global information company, announced today the winners of this year’s Consumer Electronics Industry Performance Awards at their annual reception during the Consumer Electronics Show in Las Vegas.
Whether treating yourself or gifting to someone else, increased spending has resulted in stereo headphones historically ranking among top tech sales performers during the holiday season (Oct. – Dec.). Dollar sales last holiday were 15 percent higher than the 2015 holiday season, and 2017 sales are off to a strong start with Cyber Monday week sales up 55 percent vs. the same week last year1, according to The NPD Group, a leading global information company.
Industry revenue has turned the corner – 2017 will see the best holiday performance in years, as hot new categories and a stable market deliver positive revenue growth in consumer electronics.
According to global information provider, The NPD Group, 57 percent of all U.S. smartphone users access video content via an app at least once a month, with iOS users more likely than Android users to access video content, 66 percent versus 49 percent, respectively. Streaming video is the number one driver of cellular and Wi-Fi data consumption on mobile and fixed networks, accounting for 78 percent of the total data used by smartphone owners, with streaming video apps like YouTube and Netflix driving the greatest data demands.
Fifteen percent of U.S. internet households currently own a home automation device, up from 10 percent in April 2016, according to global information provider, The NPD Group. Year to date, U.S. dollar sales of home automation products have increased 43 percent, with strong growth across all device types1. While security and monitoring continues to hold the largest share of dollar sales in the category, video doorbells2 (+123 percent) and smart lighting (+83 percent) are also quickly growing.
High Resolution Audio Device Sales See Steady Growth in the U.S., Indicating Increasing Expectations for Sound Quality
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).
Shifts in U.S. consumer purchase behaviors show signs of a maturing home automation marketplace. Here’s a closer look at what’s happening in key categories.
At CES, our analysts shared insights into the latest industry themes and trends to watch – with 2.3% revenue growth and more than $2 billion in additional revenue in 2019!
Grandparents account for more than a quarter of total U.S. toy industry sales, and they contributed the strongest dollar growth compared to other consumer segments over the last 12 months.
We asked our top industry advisors to weigh in on how they see Holiday 2018 shaping up for their respective industries. Drawing upon Holiday 2017 trends, the retail environment during the first three quarters of 2018, and our 2018 Holiday Purchase Intentions survey, the advisors shared what to expect this holiday season, both in stores and online.
Checkout can help you grow your business in this rapidly changing world. We offer the most robust e-commerce data for tracking and improving performance as more business moves online plus tailored analytics to help you keep current customers and win new ones.
High average selling price categories—think TVs, PCs, tablets, and printers—are strong performers on traditional retailers’ websites. Those are sites operated by brick-and-mortar retailers that sell consumer electronics both in-store and online.
In the quest for healthier eating, better-for-you snack foods are an option Americans continue to embrace.
The NPD Group’s Market Intelligence MI Minute explores the latest e-commerce insights, featuring NPD’s Checkout E-commerce data. This animated infographic looks to confirm or dispel the myth that sales of smart lighting are driven by repeat category buyers.
One of our clients, a highly successful consumer technology manufacturer, recently launched a new product, which almost immediately garnered brisk sales and a leading position in the market. To ensure continued strong in-store sales, the client’s marketing team wanted to answer one key question: How much does online advertising affect offline sales?
There has been tremendous growth in many segments — within B2B software, and especially within cloud infrastructure-as-a-service (IaaS) and platform-as-a-service (PaaS).
Insights and Opinions from our Analysts and Experts
Black Friday sets a mood for the consumer and is an indication of things to come. But, while a good Black Friday makes us all feel holiday will do well, a poor one doesn’t mean poor growth performance for the holiday overall.
Whether they were in New York, Virginia, Florida, Illinois, or Texas, there were common themes that each of our industry advisors noticed as they hit the stores over this peak holiday shopping period. The biggest callout – Black Friday weekend has changed.
Click on the bars below to see the recaps, and follow #NPDHoliday on Twitter to see everything our advisors saw in their Black Friday travels.
The Industry Advisors
- Marshal Cohen
Chief Industry Advisor, Retail
- Stephen Baker
Vice President, Industry Advisor, Technology and Mobile
- Matt Powell
Vice President, Senior Industry Advisor, Sports
- Juli Lennett
Senior Vice President, Industry Advisor, Toys
- Joe Derochowski, Executive Director, Home, Appliances
- David Portalatin
Vice President, Industry Advisor, Food
Insights from the Experts
Chief Industry Advisor, Retail
This Black Friday was very telling – it had a lot to say.
The deals were plentiful, both in offerings and depth of product, but by day’s end, there was still product left, though not piled as high as at the start. The days of stampedes of shoppers fighting for too-good-to-be-true deals on limited quantity items seem to be gone. Instead, there were a fair number of shoppers queued up at store openings and seeking deals in a more orderly fashion.
Retailers were more prepared and organized than ever before which helped to create this sense of calm in a storm of deal hunting. Black Friday spread continued with some retailers, like Best Buy, starting their Black Friday promotions as early as November 1st. Online retailers, like Amazon, also got in the action well before Cyber Monday. Staggered opening times helped to eliminate some of the chaos, allowing the 20 percent of consumers who shopped Black Friday weekend to casually, and strategically, go from one store to another. New digital maps offered guidance to those items, and in-aisle checkouts made for a modern, speedy, and efficiently painless shopping process. Rather than relying on the element of surprise, retailers shared deals ahead of time, and offered larger quantities of door-buster product. Perhaps the biggest shift came from stores stepping up their online game, giving consumers more shopping alternatives.
The focus of the weekend has also changed. Shoppers and promotions were both focused more on self-gifting items like smart home and robotic vacuums than more personal gift items. Fewer shopping bags pointed to in-store shopping followed by mobile purchasing – avoiding the need to cash-and-carry, especially large items.
New trends emerging.
NPD’s Checkout data revealed that 2017’s peak holiday shopping occurred from noon to 4:00pm on Black Friday. Similar to last year, it was a slow start Thursday night, but by Friday at noon the malls were packed with shoppers. Last year, we saw surges on Thursday at 6:00pm, and on Saturday from noon to 2:00pm. Some of this year’s surges lasted longer, depending on where you were.
Thursday night went to Best Buy, Walmart, and Target. Once the peak hit on Friday, the malls were bustling and store traffic reached an all-time high at outlet centers across the east coast. In some cases, parking lots filled beyond capacity, and the sides of the highway became an alternate parking option. In the 20 years I’ve been doing this, I’ve never seen it so packed.
Apple, Pandora, and Adidas were among the busiest stores. Athletic/active apparel inspired stores, and apparel chain stores with aggressive discounts fared well overall. Mall based mass merchants, like Kohl’s, Target, and Walmart had a great range of successes in electronics, small appliances, toys, and select apparel. Best Buy did great with efficient offerings, toys, and self-gifting consumers.
Positive signs, but still room for improvement.
All in all, this was a great Black Friday. Consumers came out in droves and retailers stepped up efforts around inventory and servicing. Consumers still seemed excited about last year’s product innovations, and pricing was not as high as many predicted. All of this sets a healthy tone and good momentum for the holiday season. But, retailers can still do a better job of using technology in stores to create the endless aisle. They have the opportunity to provide more innovation, in the product and how it is sold.
Black Friday was a huge success for retail this year, making it clear that stores are not dead. Rather, stores have entered a transformation that will strengthen their ability to compete. The biggest challenge will be to extend this excitement beyond the holiday shopping season.
Vice President, Industry Advisor, Technology and Mobile
There is so much more to holiday shopping for Tech than just Black Friday.
“It’s the end of the world (Black Friday) as we know it, and I feel fine.” With apologies to REM, I think this sums up this weekend nicely.
We have been rapidly moving towards this point over the last few years – in fact, check out my quote in a 2010 TWICE article. We are at a point where the focus on Black Friday is totally misplaced. Over the last 8 years the fastest growing week for the tech industry has been Cyber Week, which represented almost 16 percent of sales in 2017, up from 12 percent in 2010. Thanksgiving week is key as well, steadily representing about 22 percent of all sales over that same time period, despite the growth in Cyber Week volumes. Consumers really have, as I said eight years ago, adopted their shopping patterns over to the reality of today’s retail – they now seem to view the intersection of retail and online seamlessly. We observed that trend over this year’s holiday shopping weekend, with seemingly diminished crowds on Thanksgiving evening and on Black Friday morning, followed by rapidly mounting traffic as Friday wore on. These shopping patterns prove that consumers will shop in stores when the time and product is right, but will also take advantage of the many blessings afforded to them by at-home shopping at any time of day.
This holiday is likely to be a continuation of the strong momentum we have seen all year in the tech market. TVs, as they always do, will lead the way. But, once again, we would expect to see the most popular deals drive consumers into higher price-points and bigger screen sizes this year. The other segment to call out for 2018 is smart home, and not just the smart speaker giveaway fest sponsored by Google and Amazon, but the myriad of products and prices afforded on all the next level of Smart Home goods, from locks and doorbells to cameras and lighting. The rapid expansion of these products into adjacent channels – from mass merchants and discounters like Kohl’s, to sporting goods and hardware stores – helped to make smart home products the most widely available technology products this Thanksgiving week.
We remain enthusiastic about the holiday season for the tech industry, and believe our three percent revenue growth goal is not only reachable, but also likely to be exceeded.
Vice President, Senior Industry Advisor, Sports
Black Friday was a blend of bland and bold for Sports.
After what was the most promotional holiday ever in 2017, as expected, holiday 2018 looks like it will eclipse last year.
With no true hot item or look, and with major brand drivers in a soft patch, brands and retailer must promote to drive sales. The brands were particularly aggressive this year at the expense of their wholesale partners. On the retail side, Dick’s took the bold stance of 25 percent off the entire store.
Traffic was very weak to start off the day, as Black Friday creep moved sales to earlier in the month. Clearly the ease of shopping on the internet precluded consumers from having to get up early and stand in lines. Parking lots filled up later in the day, but it did not appear that many were actually buying. The longest line I saw was at Starbucks.
Many of the Black Friday shoe releases were uninspiring, with brands still trying to force performance footwear on an athleisure market. However, there were a couple of bright spots for the sport industry. Fashion outerwear and fashion cold weather boots seemed to be moving well, as they had been for the last eight weeks.
All in, a lackluster start to what will likely be a lackluster holiday for sports retail.
Senior Vice President, Industry Advisor, Toys
Black Friday is as much about options as it is about bargains.
I admit it. I do not like shopping and I especially don’t like shopping on Black Friday. I don’t like hunting for a parking spot, I don’t like crowds, and I hate waiting in line. Patience is not my virtue. This Black Friday was a bit different – it was my job to go shopping on Black Friday. I didn’t actually have to buy anything, just observe, so I wouldn’t be forced to wait in any long lines. Overall the experience wasn’t as bad as I anticipated and, in fact, I enjoyed most of it. And, if I was going to spend time stalking people so I could take their parking spot, and immerse myself in wall-to-wall people, then I was going to take advantage of some Black Friday deals.
The two things that really stuck out for me this year were the timing of the crowds and the shopper experience.
My experience was that the serious bargain hunters did their most important shopping (for themselves) when the stores opened on Thanksgiving. But after a few hours, those hunters had gone home—they had swooped in and swooped out. They knew exactly what they wanted. Another large group of shoppers seem to have shopped online to get their favorite deals but then took advantage of in-store pick-up on Black Friday—there were long lines for BOPUS. The rest of the shoppers casually drifted into stores throughout the day on Black Friday, but not too early, and continued shopping until the stores closed.
In terms of the shopper experience, I was very impressed with the effort from most of the retailers to create a positive in-store shopping experience. From providing apps with maps to find exactly what you were looking for, to providing plenty of courteous, helpful, and cheerful staff on the floor ready to service customers.
However, there are still two areas where retailers could improve. First, get buyers out the door more quickly with multiple checkout options—arm employees with devices to check-out shoppers in the section where they shop, or provide self-checkout. Buyers who thought the lines were too long abandoned their items, or even full carts, in the stores – not good for the retailer or consumer. Second, if the item is out of stock, make it easy for shoppers to buy the item while they are in the store and eager to make a purchase. If the answer the shopper gets is to “go online”, chances are the shopper will find a better price online and buy it from your competitor.
If we do this again next year, I’ll need a more comfortable pair of shoes.
Executive Director, Home, Appliances
The spirit of Black Friday has expanded.
I am preparing for the day when my kids ask “Is there really a Santa Claus?”, armed with the response that Christmas is “something bigger, it is about the spirit of the season”. Black Friday used to be a single day filled with early morning shopping frenzy and busy traffic all day where consumers were pining to purchase items at bargain prices. Similar to my impending Santa Claus question, today, Black Friday is about something bigger, it’s about bargain shopping spread over multiple days and shopping platforms.
The mad rush has moved from Friday morning to Thursday night, at least for those retailers who were open on Thursday. While store managers said that Friday was busier than last year, Store managers and employees all talked about how Thursday night was “crazy” – it was busier than Friday. There was an evident scramble on Friday to deal with the stock outs and refresh the look of the merchandise. On the other hand, similar to recent years, there were no lines early Friday morning – other than a few people looking for deals on TV’s. The shopping really looked like any other Friday, with huge traffic flows from 11:00am to 4:00pm. Many consumers said they started much of their shopping on Wednesday because they could access the Black Friday deals that early.
Retailers have also done a much better job of integrating online shopping with in-store. The online promotions are reflecting the same promotions seen in the circular and in the store. This makes for a more seamless consumer shopping experience, but does pose some operational challenges for store employees looking to maintain the parallels amidst the mad rush of shoppers.
The door-busting categories for the early shopper seem to be led by TV’s and computers. At Menards, the drivers were dog beds, quilts, and step ladders. The home categories that received the most promotion were the categories that have been hot all year – Instant Pot, air fryers, coffeemakers, cookware, Dyson stick vacuums, upright vacuums, iRobot and Ecovac robotic vacuums, and electric toothbrushes. I expect to see these categories leading the sales for this week.
The majority of consumers have mixed feelings, but those who are the true ‘treasure hunters’ do miss the Black Friday bustle of years past. While Black Friday, the day, is no more, in-store traffic showed that consumers embraced the spirit of the day on Friday and the days preceding. All indications are this should be a good Holiday season, with both consumers and retailers emerging as winners.
Vice President, Industry Advisor, Food
Black Friday is for leftovers
I’ve never paid much attention to Black Friday before. As NPD’s Food Industry Advisor, my focus has always been on the big meal. I look at the way grocery retailers and food manufacturers collaborate to provide convenient yet authentic meal solutions for the vast majority of American’s who either feasted at home or prepared a dish to take to someone else’s home on Thanksgiving day. As far as Black Friday dining goes – many of us are too stuffed, and gorging on leftovers, to eat out at a restaurant.
In fact, on any given day in America, 13 percent of our meals are sourced from a restaurant. On Black Friday, that number is 12.4 percent. In other words, for restaurants, Black Friday is much like any other day. Many observers who are rightly awed at the throngs amassing at retail storefronts reasonably assume that adjacent eateries and mall food courts must pick up some customer traffic. It’s a reasonable assumption, albeit an incorrect one. Long Black Friday lines at Starbucks, or a crowded independent full-service establishment, are likely to exist on any other day.
For Black Friday shoppers, the pursuit of the elusive deal and beating the crowd to the next door buster takes priority over stopping to eat. After all, there are leftovers aplenty waiting at home!
Now, Valentine’s day…..let’s talk restaurants then!
This is a snapshot of our advisors’ Black Friday 2018 observations across apparel, appliances, food consumption, foodservice, home, retail, sports, technology, and toys. Follow #NPDHoliday to see what they are observing throughout the holiday shopping season. For more in-depth perspectives across our other industries, visit our Holiday Insights page.
Eight years ago, I lost my shorts… and I mean that quite literally, although, to be clear, I was not wearing them at the time. I wrote about the experience (see: I Lost My Shorts, Not My Data), not because I thought anyone would be interested in how I eventually found them, but because losing my shorts (and the wallet in them) helped me to realize how much I relied on the Starbucks app. With no wallet or cash for 24 hours, the Starbucks app was a lifesaver: a source of limitless coffee and snacks. And that (the app, although the coffee helped) gave me hope, and some heady expectations, for the future of mobile payments.
Eight years later, I still rely on the Starbucks app and, like many other people, have failed to make the leap to a broader mobile payment experience. Part of this is simply lethargy on my part. I have cash and a credit card in my pocket, so why add more options? But far more of the blame lies with the dysfunctional union of mobile and banking in the U.S. (what other countries still expect customers to sign for credit card transactions?), combined with the wrong set of players trying to drive the market forward. As a result, I still carry cash for smaller transactions.
By contrast, my colleague in China pointed out that while he does have some cash in his wallet, they are the same bank notes that have been there for the past six months. Every transaction he makes is paid for via WeChat Pay or Alipay, the prevalent mobile cash solutions available in China. And he’s not alone; market estimates put mobile transactions at $12.8 trillion (yes, trillion) U.S. dollars in China in the first 10 months of 2017. The U.S. had a paltry estimate of $49 billion for all of 2017, according to eMarketer, and we suspect that is a generous number.
There are, in my mind, two key reasons why these Chinese payment solutions have become so prevalent, while the U.S. payment services have floundered. First, the services are completely independent of the smartphone’s operating system and hardware, so retailers and other vendors don’t need to support different apps for different hardware. But more importantly, the system is simple, based on QR codes that the vendor or customer can scan.
If that sounds familiar, it should: it’s the basis of the Starbucks payment solution that most people use. And because the mobile payment solution is based on QR codes, pretty much any vendor from the smallest to the largest can adopt it quickly and easily. Small vendors can accept payments using their own smartphones and the relevant app, scanning the QR code with the device’s camera. Large retailers can adopt the same type of solution that Starbucks uses, leveraging the barcode scanner to read the payment code on the customer’s phone – just as many of them do today for loyalty cards.
Perhaps what has really slowed down U.S. adoption is that the companies driving most of the payment schemes are smartphone vendors, all intent on building walls around their various ecosystems in an attempt to keep the customers from straying. But the problem is that most customers recognize the walls for what they are, and are reluctant to engage further into any one system. Google Pay should – to an extent – solve this problem, but even within the realms of its larger Android garden there can be obstacles. A case in point, when I tried to set up Pay, it turned out that my (very new) Android-based smartphone could not pass the Google security sniff test due to the way the OEM had modified the underlying Android. Rejected from mobile payments, I wandered down to my local Starbucks, launched my favorite app and bought myself another coffee.
It’s been a long dance between Sprint and T-Mobile, but it looks like fate has finally had her way. The two companies announced on Sunday that they will, after all, merge into one venture, with T-Mobile looking like it is firmly in control. That’s significant for a number of reasons, with the most important being that T-Mobile has re-imagined the mobile market, driving service innovation and growth, while Sprint has a terrible reputation for managing mergers (Nextel anyone?). Of course, this deal still needs to get the blessing of both the FCC and the DoJ; and consumer advocacy groups will likely be screaming from the rooftops about how this merger could drive consumer prices upwards due to less competition, leading to potential challenges.
But we disagree. The pricing battle was never between Sprint and T-Mobile, but between T-Mobile and the Big Two. Indeed, Sprint has been steadily losing market share for years now and even though the carrier pulled out all the stops with highly aggressive promotions, nothing really seemed to work. Or rather, the promotions managed to attract new subscribers, but Sprint was still losing as many, if not more, subscribers than they pulled in each quarter. This goes to show that consumers want aggressive pricing and a strong network, and Sprint failed the consumer perception test on the latter point at least.
But if Sprint was not an influencer in terms of keeping pricing down, the carrier certainly does employ a lot of people. And with any merger comes the inevitable consolidation. Yes, both carriers are talking about how the new merged entity will drive job growth, but it’s a somewhat questionable claim. Job growth will presumably be driven by the 5G network build out in rural areas, which would happen with or without this merger. Indeed, one could argue that if Sprint and T-Mobile were to remain two distinct entities, there would be even more job growth. Furthermore, we must expect a significant consolidation of stores over time, driving more job cuts.
However, it’s not clear if Sprint would survive as a standalone entity long-term - and nothing says job cuts like a struggling carrier. So, overall, the merged solution will protect more jobs, we suspect. And let’s also focus on the positive, with the economies of scale that come from the new entity only needing to build out a single 5G network. This is likely to be a faster deployment, with deeper pockets of spectrum, than either carrier could do alone, meaning a much better consumer experience overall.
But while this deal has many positives to it and is, perhaps, inevitable, it also feels rather like a quaint, old school deal. Yes, it’s necessary, but let’s consider how Verizon and AT&T have been pushing for a broader digital content strategy through acquisitions such as Yahoo!, DirecTV, and (coming up) Time Warner. The combined T-Mobile/Sprint venture will need to pretty quickly look for a comprehensive content strategy to compete effectively against the Big Two.
Which brings us to the other news of the week, this week should see the closing arguments in the Time Warner/AT&T merger debate. Both sides have some valid points, but the deal should be allowed to go through, especially as the T-Mobile/Sprint news changes at least part of the debate. Sure, the two deals are fundamentally different (one vertical, one horizontal), but they both demonstrate the need for mergers and acquisitions as the very foundation of the competitive landscape continues to shift in this digital economy. Having said that, rational digital arguments don’t necessarily sway the day, so many of us will be watching the events unfold with great interest.
Last week, SpaceX received permission from the FCC to use spectrum to create a satellite-based broadband service known as Starlink. I can’t help but think that the timing of the deal was quite perfect – as SpaceX talked about superfast broadband from space, China’s old space station, the Tiangong-1, was hurtling out of control towards Earth, reminding us that this space stuff is not that easy, and doesn’t stay up there forever.
It’s hard to bet against Elon Musk. The man is making quite a career out of dreaming big, and succeeding. He does, after all, throw enormous rockets up into space that (usually at least) come back to be reused, dig tunnels to circumvent traffic issues (useful for all those Tesla drivers no doubt), and even manage to sell flamethrowers to the public (and gets away with calling it “not a flamethrower” to avoid any issues). And, let’s not forget, his ultimate dream of getting mankind to Mars, which sounds almost feasible when he says it. So, why, when he takes on the seemingly impossible on a regular basis, am I less than convinced about an Earth-orbiting high-speed broadband solution?
My reluctance to believe starts with the fact that we’ve been down this road before. Twenty-some years ago two earlier pioneers, Bill Gates and Craig McCaw, launched Teledesic with a very similar goal of launching low earth orbit satellites to provide global broadband service. Craig McCaw was, in many ways, the godfather of the U.S. mobile services that we all take for granted today, creating the first national provider (McCaw cellular) that he later sold to AT&T. In other words, the man knew his mobile stuff, while Bill Gates, of course, understood the need for speed for computing. And yet, the venture failed to get off the ground due to the economics. At roughly the same time, Iridium, a Motorola-backed venture, had a similar goal that also ended poorly. Indeed, while Iridium does still exist today, the original version failed and was sold for less than the cost of decommissioning the satellites. Yes, it was cheaper to keep the aging satellites in the air than it was to close the business and bring them down in a controlled fashion.
Of course, 20 plus years is many lifetimes in terms of technology, and SpaceX has a couple of advantages over the previous failed ventures. Since they own the rockets needed to get these satellites into space, the set-up costs are less. Additionally, the satellites are now smaller and cheaper to build than they were in Teledesic’s days. That’s the good news. The bad news is that the LEO solution requires around 800 satellites, and they seem to have an average lifespan of five years, which is a pretty hefty hardware replacement cycle regardless of how cheap the actual satellites are. And while technology has helped make the venture more feasible in terms of satellite technology, it has also hindered it, as more of the globe is now covered by high-speed broadband services, meaning that the addressable market for the SpaceX venture is far harder to comprehend.
Between the wired broadband infrastructure that is available today and the promise of 5G – both mobile and fixed – there is far less opportunity for a broadband internet solution in wealthier markets. Where there is a huge opportunity is in less developed worlds that have limited, or no, Internet access today. But here’s the catch: Elon Musk is not building this solution as a philanthropic proposition. Rather this, as with his other “big bets” is supposed to ultimately fund the Mars venture and that seems to be in direct conflict with the size of the opportunity.
Even more challenging is the fact that SpaceX is not alone in its race to build a LEO-based broadband solution. OneWeb, which is backed by Softbank, has priority from the UN to use the radio spectrum needed for a broadband solution too. So with a questionable market need, unless the goal is to provide broadband to underdeveloped markets that will pay far less, and two companies chasing the same gold, the chance of success becomes even harder to imagine. And indeed, there are several other contenders, such as Inmarsat, Globalstar, and the re-born Iridium that are already in the sky (although all three use far fewer satellites, but result in greater latency).
It’s hard to bet against Elon Musk’s winning streak to date, but the entire history of satellite broadband services tells us that wishing on space hardware is not a good move. At best, we may see OneWeb and SpaceX’s LEOs combine into a single solution over time to improve the economics. At worst, we’ll come back to the topic 20 years from now when someone else decides to take on the challenge.
For a product that was criticized by many only a short time ago, the smartwatch has regained momentum in the U.S. market. Indeed, far from being a failed product, we expect U.S. smartwatch ownership to surpass that of the cheaper and more ubiquitous activity tracker by the end of 2020. This is despite the fact that smartwatch owners paid an average price of nearly 2.5 times that of activity tracker buyers (according to the NPD Connected Intelligence Wearables Industry Overview and Forecast, Dec. 2017). The growth is being driven by the Apple Watch, but it’s a success that will have a ripple effect on smartwatch brands that meet the consumer need in the Android market as well.
At the beginning of 2017, activity tracker ownership among U.S. adults stood at over 43 million devices – well over double the number of smartwatch owners. This made sense, given the wide price differences between the categories, better battery life for trackers, and the growing pains that plagued the smartwatch space prior to the last year. Additionally, many older smartwatches were generally considered to be too bulky to be a true replacement for the activity tracker. What once drew consumers to activity trackers, their simplicity, has been working against the category most recently. Consumers are now looking for more sophisticated use cases with features such as intelligent health and fitness tracking, as well as easy-to-use notifications and messaging. Many are also looking to use wearables as a control hub for things like music and home automation. As a result, many existing activity tracker owners and new buyers are making the smartwatch shift.
This process has been accelerated by the latest launch of the Apple Watch Series 3 with built-in cellular connectivity, and lower pricing on the older Watch Series 1 and 2. In fact, by the end of 2017, NPD projects that Apple will have sold almost 17 million Apple Watches in the U.S. since the devices original launch in April 2015. In addition, the mix of activity trackers will shift, as the smartwatch commands a larger percentage of the market. For example, as higher-end activity tracker buyers move further up-market to the smartwatch, much cheaper and more basic activity trackers will take over an increasing percentage of new sales.
To gain a clearer understanding of the changing dynamic between the smartwatch and activity tracker, NPD produces a bi-annual ownership forecast of the market. Based on that forecast, the below chart is of view of the shifting ownership splits among U.S. adults over time and projected forward.
This Thanksgiving we invited my Uncle Pete to dinner, which was great because we don’t normally get to spend the holiday with him. As has become the norm in my house, during dinner, my wife asked when I was heading to the stores and where I was going. Pete, incredulous that I was leaving for the night when we’d barely finished pie yelled at me, “How fun can it be leaving right after dinner and before football? Heading out to the stores at the crack of dawn Friday morning is how it’s done.”
I let Pete’s words sink in. There is no fun in leaving during football. So I decided to do a little market research by having another piece of pie and asking for the remote. This year I decided my holiday research would shift from #AfterTurkeyThursday to #BlackFriday. Tradition and all.
According to NPD’s Holiday Purchase Intention Study, those who intend to buy electronics this holiday expect to spend $595 on average, significantly more than other categories measured. Despite the buzz and attention devoted to Thursday night, there’s a lot for retailers and manufactures to like about Friday. Fourteen percent of holiday consumers will begin their shopping on Friday. Post-dinner door busters and rock-bottom TV and PC prices are excellent at driving consumers out on Thursday, but on Friday the first thing I noticed was shoppers looking at premium tech products and appliances.
The feel in my local Best Buy was tamer than the beehive I experienced last year. It was active though, and smelled like coffee. There were little kids running around (they get up early) and lots of activity around slightly bigger (60” and above) 4K TVs than normal and PCs - particularly Chromebooks. Target had a strong Beats promotion and I also saw several Echo products in carts - I fully expect those two categories to lead growth this holiday season. And in general, more shopping activity around apparel and toys. I like this Friday crowd.
That being said, I think I’m still a Thursday night shopper. Most interesting, from a research point of view, shoppers seem to have a clear objective - to get the special deal that is only available that night. There’s some urgency in getting deals before they sell out. This year, shopping on Black Friday morning was an enjoyable experience, but next year, it looks like I’m missing football again.
An old colleague of mine, let’s call him “Tom,” had a theory regarding productivity and the car. He often drove from New York to Washington, D.C., following the New Jersey Turnpike and i95, at strange hours in the early morning; and his theory was that he could multitask. He would set cruise control, turn on the interior light, pull out some ‘light’ work reading materials and get to it. His logic (if that is the correct word for it) was that the road was pretty straight and very quiet at that time of night, and that other drivers would navigate around him if they needed to go faster. Happily, and somewhat surprisingly, the story doesn’t end with a fireball on i95.
I was reminded of Tom yesterday as I was driving back from work in relatively heavy traffic. One car in particular was driving rather erratically and the cause, it turned out, was that the driver was watching a soccer game on his smartphone. The phone was perched on the dashboard above the steering wheel and he was clearly paying more attention to it than to his surroundings. Goals, near misses, and various other infractions, were cause for celebration or dismay, as all the nearby drivers could tell.
Now technically, he was not infringing on New York’s hands-free rules (assuming he started the video stream before setting off), but I’m sure there are a whole bunch of distracted driving rules that he was completely trampling over. Technicalities aside, the situation does highlight just how much watching video on smartphones has become engrained in our lives. The very fact that we can now watch a live soccer game on our phones shows how far mobile has come, both in terms of technology (fewer dead spots, faster networks) and content licensing. We truly have entered the realm where we can watch almost anything we want, anytime we want, and anywhere that suits us.
Having said that, it would be useful if other technology could catch up. If people are going to watch video while driving, the need for a self-driving car becomes more important. After all, as one colleague (not Tom) pointed out, then perhaps we could drink beer while watching the game. Or not… as I think we’re still quite some way from a fully aware self-driving car. Take for example, the driverless shuttle that was set free in downtown Las Vegas a few days ago: it had its first fender bender within the first hour, and while it wasn’t the car’s fault (a truck backed into it), a human driver would have moved out of the way of a 20-ton truck slowly backing towards it. Whoops.
In the meantime, if you are driving on the New Jersey Turnpike late at night, keep your eyes open for cars with interior lights on. It’s probably not wise to get too close to Tom if he’s too engrossed in his work.
This past week, technology and entertainment news has been largely dominated by Amazon, as they launched six new Echo devices and revealed insight into the final stages of their strategy to move further into movie production and distribution. The device strategy encompasses Alexa integration into nearly every household electronic interface, including a vastly improved, artificial intelligence (AI) driven audio play, deeper Alexa smart home assimilation, a highly competitive 4K HDR streaming video solution, link to traditional home phone service, and two devices with an entirely new form factor, the Echo Spot and Buttons. These may be among the most interesting, as Alexa skill development and consumer usage patterns will shape their uncertain path. Amidst these AI hardware advancements, Amazon also revealed the final components of a strategy to move deeper into Hollywood, leveraging a traditional distribution approach that is ultimately aimed at bolstering the Amazon Prime value proposition. Below are the details and our analysis:
Over the past three years, Amazon has launched numerous Alexa-enabled devices, such as the Dot, Show, and Look; yet their flagship Alexa enabled speaker, Echo, hasn’t received a hardware update since its November 2014 launch. In tech years, which are sort of like dog years, that’s an eternity. But, generation two was finally announced last week and is sporting two form factors, which are both less expensive than the first generation speaker. The new Echo, priced at $99, includes improved microphones to better pick-up voices, a subwoofer and tweeter, Dolby Audio, and new fabric coverings. In addition, Amazon will be selling them in a three-pack for $250, so that users can immediately take advantage of the recently introduced whole-home audio feature available with Alexa-enabled devices, which let you play the same music on multiple speakers. The original Echo design is not entirely going away; it's being reused in the $149 Echo Plus, a smart speaker that also has a built-in smart home hub that can link to Zigbee smart home devices, such as Philips Hue lights. This means you no longer have to use Amazon Skills or apps to connect things to your Echo. The Echo Plus will come with a Philips Hue bulb, in an effort to demonstrate to consumers that this is the optimal choice for smart home integration.
Echo’s no longer just about audio devices. Amazon introduced screens earlier this year with the launch of the Echo Show, and last week continued down this path by introducing two new video-focused devices to the mix. The Echo Spot, which is an entirely new form factor, and the Fire TV with 4K HDR support. The Spot is pretty nifty, think alarm clock with a 2.5-inch screen that can make video calls…hmmm. The functionality is quite similar to that of the Echo Show, bringing voice and home automation control to more screens and locations in the home. The big question here revolves around the front-facing camera. In a world where many put sticky notes over their laptop camera in fear of spying, how many consumers will embrace that feature in their bedroom or other household locations?
This launch was not just about adding Amazon screens to the home, but also connecting TVs that are already installed. Following the success of the Fire TV product line, Amazon added a 4K, HDR-capable Fire TV with 2160p resolution at 60 frames per second. It has Dolby Atmos integration and an Alexa voice remote. At $69.99 it’s far more affordable than the rival Apple TV 4K, which starts at $179, and priced in line with the $69 4K-capable Chromecast Ultra. It’s the form factor that is quite interesting, not a streaming stick and not quite a set-top-box, rather a mid-size dongle that connects to your TVs HDMI port. And for an extra $10 you get an Amazon Dot, suggesting this is as much about bringing Alexa to the TV, as it is fostering full home integration.
The home phone is back
Echo Connect, a $35 box that plugs into your landline jack, turns your home phone into an Alexa-controlled speakerphone. It syncs your contacts and bridges your phone calls to an Alexa-enabled speaker, enabling hands-free calling using your home phone. Adding phone integration essentially bridges Alexa to every facet of your home life. While most of the country already has these features through their smartphone, Amazon is banking on there being a segment of the population that wants to keep their landline number, and also sees the appeal of Alexa integration.
Let’s file this one under, why not see where it goes – Echo Buttons. They are the first of many Alexa Gadgets to come, a new way for consumers to play games with friends and family through compatible Echo devices. These buttons illuminate and can be pressed to trigger a variety of game play experiences, powered by Alexa. These devices liken back to the Simon Electronic Memory Game from the 80s; what was once old is new again.
Amidst the glory of a whole new product line, Google pulled YouTube support for the Echo Show, limiting one of its core features. Amazon announced last week that its Echo Show devices could no longer play videos from YouTube because the site’s parent, Google, stopped supporting the service. Google’s response is that Amazon’s implementation of YouTube on the Echo Show violates the terms of service, creating a broken user experience.
In contrast to the innovative Echo family of devices, Amazon’s expansion into Hollywood is as old school as it gets. There’s no contention with exhibitors about release windows and no intention to forgo a theatrical release, like Netflix does with their movies. In fact, Amazon is embracing the tried-and-true Hollywood distribution model to generate buzz and credibility for films that will eventually land on Amazon Prime. Starting with Woody Allen’s “Wonder Wheel” in December, Amazon will begin distributing its own films and overseeing all parts of their theatrical campaigns. Amazon is taking a more traditional Hollywood approach, focusing on art house mid-range budget films, while offering directors the creative flexibility they need. Think of this move further into content creation and distribution as a vehicle to propel Prime’s brand image, consumer value proposition, and ultimately grow the subscriber base.
You’ve likely heard of cord cutting, the trend toward cancelling cable TV in lieu of streaming video or no paid TV service at all. This trend, which is becoming more mainstream, is no longer just a behavior of innovators who test the waters of new technology. In fact, it’s so pervasive that media companies such as Disney, CBS, and HBO, have or are in the process of decoupling their programming from the traditional pay-TV distribution machine, now offering streaming services that don’t require you to buy a large bundle of channels, but rather subscribe to the core content they offer. As such, the future of TV distribution is being shaped in part by those that were willing to test new ways of delivering content to consumers.
While cord cutting has now seemingly become part of everyday life, we’re seeing the very beginning of what may be termed “phone cutting.” Phone cutters desire to leverage wearable technology, such as smartwatches, to offset the use of a smartphone and identify opportunities to leave their phone behind. This behavior falls before the early adoption stage we see in consumer technology; it’s not yet a trend, but more a trial, akin to the cord cutting we experienced a few years ago. The technology adoption lifecycle, a sociological model that describes the acceptance of a new innovation, labels the first group of people to use a new product as "innovators," representing less than three percent of the population. And that is where the phone cutter resides, facilitated this past week by Apple embedding LTE into the Series 3 Apple Watch.
Given the newness of the behavior, we can merely postulate on the extent to which wearable technology will offset the widespread use of smartphones. But, there are lessons from the past that offer a view into the future, as we were here in 2010 when the iPad was expected to replace laptops. A key learning from that adoption cycle is that dispersion of user activity is more common than replacement. So what changes in behavior should we expect from cellular connectivity on the wrist, and what limitations persist?
The appeal is simplistic: leave the phone behind and stay connected in your backyard, at the beach, the gym, or out for a run. Granted, a few smartwatches were already offering cellular connections, but integration into Apple Watch brings with it mass-market appeal and assimilation into the Apple ecosystem. Unlike early connected smartwatches, the Apple Watch is enabled by network level services such as NumberSync and DIGITS from AT&T and T-Mobile, respectively, allowing users to link their mobile phone number to other devices, not to mention the pure simplicity of Apple’s account synchronization that allows calls to bounce between Apple products with ease. Basic communication tasks such as texting, calling, emailing, and streaming music no longer require a phone. As phones increase in size, impacting portability, there are certain situations where the charm of a 1.5-inch screen clearly has its place.
This is the first generation of LTE-embedded smartwatches and that, along with a small form factor, brings limitations. For example, a high frequency of calls is bound to run down the battery and call quality will need to improve over time. Indeed, my friend looked like Dick Tracy, pulling his wrist to his face to order pizza delivery from his Apple Watch, yet had the watch been paired with AirPods the call would have been far less conspicuous. Further, iPhone-Apple Watch app compatibility is more widespread when the devices are on the same Wi-Fi network than when the watch is untethered and running solely on LTE. For example, a Skype notification will show on the watch when both devices are on the same Wi-Fi network, but when independent of iPhone, Skype is not supported on Apple Watch. A small screen also impacts touch interface making voice control vital, but that still is not as seamless as we would expect: even a minor act like adjusting a Bluetooth speaker’s volume using Siri from the Apple Watch remains challenging. While optimization is needed, these are the types of improvements solved by the user tweaking a few settings or through an operating system update.
The fact remains that there are numerous instances where a segment of the population will begin to leave their phone behind. Meanwhile, the dispersion of activities will be shaped by the innovators – the cord and phone cutters – tinkering with the integration of devices from a 1.5-inch smartwatch to a 65-inch smart TV.
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.