Digital Experience Gaps: CE's $3.8 Billion In Lost Revenue

Digital devices were a big hit over the holidays. Big-box retailers like Best Buy sold a boatload of HDTVs, digital cameras, and MP3 players. But consumers who purchase these products don't necessarily buy the content and services to accompany them, creating vast digital experience gaps that leave $3.8 billion in revenue on the table for CE companies.

The digital experience gaps faced by today's consumers mean unrealized revenue for technology manufacturers, service providers, and retailers, as well as frustration, confusion, and unrealized digital potential for consumers. While 14.6 million US households own HDTV sets, only 50% of them subscribe to HDTV service. This means that half of the households that are equipped to enjoy HDTV service have underused devices, and this translates into $876 million of lost revenue for firms. Similarly, 43 million US households own digital cameras, but only two-thirds of them print digital photos; firms lose $813 million from this digital experience gap.

Device manufacturers, service providers, and retailers must overcome three major flaws that currently cause these digital experience gaps:

• Manufacturers produce standalone products. Chances are high that consumers who reside in a digital home won't have bought all of their products from Sony, Apple, or Microsoft. The complexity of linking products -- from the same or different manufacturers -- and filling them with content or services means that a flummoxed consumer might just give up on product-service-content integration altogether.

• Service providers struggle to serve countless devices. Service providers that enter today's digital home will be faced with more devices than they can control via their proprietary network, and this problem will continue to worsen as consumers acquire more devices. Providers put the burden of service-device integration on the consumer, who is often ill-equipped or not motivated to deal with the process.

• Retailers sell devices, not solutions. Retailers -- especially the big-box variety like Circuit City and Staples -- most often sell products a la carte, rather than presenting them as a part of a whole, and these are the same products that manufacturers produce as standalone devices. Almost entirely ignoring the content, service, and connection components of digital device ownership, the retailers compete on providing low prices and a wide selection instead of providing digital experiences.

Sell Digital Experiences, Not Digital Devices

Forrester defines a digital experience as products and services integrated end-to-end under the control of a single application. Digital experiences have three parts: 1) available content and services; 2) personal control devices; and 3) portable players and peripherals. All of these parts come together under one application in a single business model.

In today's marketplace, some manufacturers, providers, and retailers are already successfully combining their content, services, and devices into experiences through product-service bundles, point-of-sale assembly programs, and in-home installation. But Apple's, Tweeter's, and CEDIA's successes -- each with a different flavor of digital experience bundles -- only scratch the surface of the progress to be made in selling digital experiences. How can players in the CE industry better effectuate the sale of digital experiences going forward?

• Manufacturers should sell products, services, and content bundled under a single SKU, such as combinations of music players with downloading services or digital cameras with photo printing, so that generated revenue is for the product-service combination and not each component separately.

• Service providers should diversify the services bundles they offer for devices that connect to their networks, including content download and gaming services, to extend their reach in the digital home.

• Retailers should create stores and repurpose displays around selling digital solutions instead of digital products, focusing on the concept of a networked home, instead of the sale of just one component of the network such as a router or a laptop.

• Custom in-home installers should offer streamlined installations that will appeal to consumers who want a whole-house solution at one price, such as multiroom audio or HDTV or a whole-house network that connects PCs, audio, and video devices with content and services.

Research Referenced In This Issue Apple iTunes Jump-Starts Windows Digital Music (32961) CES 2005: Digital Devices Looking For Content (36303) Consumer ISPs Scorecard Summary: AOL (38440) Consumer ISPs Scorecard Summary: AT&T (38441) Consumer ISPs Scorecard Summary: Comcast (38443) Consumer ISPs Scorecard Summary: EarthLink (38445) Consumer ISPs Scorecard Summary: Verizon (38447) Europeans Need Simpler Home Networks (38070) HDTV And The Coming Bandwidth Crunch (35146) HP Re-Ups On The PC Business (36269) Paid-For Content Needs More Flexibility (38144) Portable Multifunction Devices: What Works? (38463) Sell Digital Experiences, Not Products (38277) Smarter Stores: Are We There Yet? (37497) Sprint Arms Cable Operators With Wireless (38152) The Battle For The Digital Home (35108) The Consumer Device Adoption Cycle (38010) The Forrester Wave™: Consumer ISPs, Q4 2005 (38007) Video Gaming Levels Up? (34918) Where Should I Print My Digital Photos? (36248)

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