Internet Appliances Look to Rebound from Soft 2000

Sales of Internet appliances will rebound from disappointing sales in 2000 and grow more than 40 percent each year from 2000 to 2005, according to a report by Cahners In-Stat Group.

In-Stat divides the market for Internet appliances (IAs) into two product categories: Internet terminals and television-based Internet appliances. The Internet terminal category includes cordless Web tablets and corded terminals, while TV-based Internet appliances consist of set-top box products such as Microsoft WebTV and AOLTV.

“While the introduction of the AOLTV box will invigorate that sector, sales of Internet terminals are expected to surpass those of TV-based IAs in 2001,” said Brian O’Rourke, senior analyst with In-Stat’s Multimedia Service.

According to In-Stat’s report, “Internet Appliances: Escaping the PC Shadow?“, IA sales will jump from $219 million in 2000 to $1.3 billion in 2005. Much of the growth will occur outside of the PC-centric North American and Western European markets. Growth in the IA market will also be a welcome sign for semiconductor manufacturers. Sales of IA microprocessors will jump from $18 million to $91 million in 2005. Flash [definition] and DRAM [definition] sales will also rise at 5 percent and 27 percent, respectively. As next generation IAs come online, they will contain double the flash memory capacity of today’s units.

Since their development, Internet appliances have been marketed to less tech-savvy consumers as alternatives to the PC, but according to research by Parks Associates, shifting marketing efforts in order to target early technology adopters may spur growth in the Internet appliance market.

Parks Associates conducted three separate consumer studies, totaling nearly 1,600 respondents, and found that consumers with broadband Internet access or multiple PCs are more likely to favor certain information appliances over consumers who are still using dial-up accounts.

Among the findings from Parks:

• Consumers with broadband Internet access are 15 percent more likely to find Web tablet devices useful than their counterparts in multiple-PC or dial-up households.
• Both broadband and multiple-PC household consumers are 45 percent more likely than consumers in dial-up households to desire Internet access on a mobile phone.
• Television-based Internet access is geared more toward less tech-savvy consumers, as respondents in dial-up households are more likely than their broadband counterparts to desire this type of access.
• Finally, households with multiple PCs and broadband Internet access are more than 80 percent and 50 percent more likely, respectively, than their counterparts in dial-up households to desire Internet access on a kitchen appliance, including white goods.

“Given this data and the lessons learned from several high-profile failures in distributing non-PC Internet access devices, developers of information appliances should re-think their business models,” said Kurt Scherf, Parks Associates’ vice president of research. “Instead of focusing on a total available market of 45 million non-PC U.S. households, it behooves marketers to look at a smaller total available market of tech-savvy consumers who are more inclined to supplement existing Internet access platforms — PCs– with additional solutions.”