The $750 billion converged living room: a plateau approaches
The living room’s digital upgrade is nearing completion; peak disruption may have passed with no clear winner, except for the consumer, whose need for entertainment and media is now better served than ever at the hardware level.
In 2000 there were few connected devices. A few homes had PCs connected via a dial‑up connection. There were video games consoles but they weren’t connected; there were mobile phones, but not smartphones; there were books, but they were made of paper; there were televisions, but they were only used to watch TV shows and DVDs. Now, in 2014, the living room in developed markets is almost completely digital.
Over the period from 2000‑2014 we have had a period of extreme turbulence, with nearly all aspects of the living room going digital and getting connected. Sometimes this led to profound changes in usage, such as watching TV with a second screen in our hands or on our laps. The music industry and video rental industries were transformed, probably permanently. On the other hand, alongside these profound changes, other behaviors haven’t changed. Minutes of traditional TV viewing have remained about the same, even with the number of people paying for traditional TV growing over the same time frame worldwide.
It is important to note that the five categories discussed here are not facing a drop in sales, but merely a slowing of growth. Also, our prediction only extends to 2018: there may well be new developments that could cause the market for any or all of these devices to grow rapidly again after that date.
Further, as happened with tablets in 2010, a new category could emerge that generates annual sales of $50 or $100 billion, which would be big enough to move the needle.
The converged living room doesn’t seem likely to have room for another “Next Big Thing”, but moving outside offers an interesting possibility in smart glasses. Based on our 2014 prediction, first‑year sales of these devices at $2 billion appear to be less than half the first‑year sales for tablet computers, so they seem unlikely to be big enough in dollar terms. Also outside the living room, 3D printers, also known as additive manufacturing, might make “every home a factory”. That sounds like a promising new category except that the most optimistic analyst forecasts say 3D printers will sell only $5.7 billion by 2017.
To put the likelihood of another disruptive technology into context, since the 1970s there have only been three consumer device categories (PCs, smartphones and tablets) that generated over $100 billion in annual sales.
Hyper‑growth of hardware sales in the last decade likely absorbed a significant share of the consumer wallet. However, as that growth slows, sales of software, services and content might accelerate. For example, slowing sales growth for flat screen TVs could free up money for multiple video services; lower growth in video games consoles might be offset by higher sales of video gaming titles.
With smartphones, a lengthening refresh cycle might reduce the need for carriers to subsidize phones in markets where that is common, and carriers may even want to encourage consumers to keep their phones for longer through innovative pricing plans. And in markets where phone purchases are not subsidized, it might allow consumers to spend more on data plans.
One interesting effect could be a deceleration in research and development costs for hardware manufacturers, as many consumers might refuse to pay for incremental technology improvements such as 100 megapixel cameras when 50 megapixels is good enough. At the same time, in a world of increasingly commoditized technology, spending on advertising might rise to stimulate demand and improve differentiation.
It is unclear what the implications might be for chip design: will device manufacturers respond to a plateau in growth by offering a new processor only every second generation, or will they try to claim a bigger piece of the same size pie by attempting to differentiate through even faster new processors?
The past decade has been especially challenging for those developing apps, content or software for devices. Sales growth was accompanied by an explosion in formats, aspect ratios, resolutions and operating systems, with developers forced to create a new version for every combination and permutation, or pick and choose likely winners. A plateau might provide a much needed respite for them, while helping to create a more stable environment with less fragmentation.