February 7, 2000 11:40 AM PST

Info appliance market set to take off

The information appliance market is set to explode, according to a new survey, and it will be driven by the couch potato.

Television-based services and Internet content will drive the growth of so-called information appliances, according to the new report from International Data Corp. The term refers to a wide range of computing devices, often with specific tasks such as email access.

By leaps and bounds
The information appliance market is expected to surge during the next four years.
  1999 2004
Units 11 Million 89 Million
Revenues $2.4 Billion $17.8 Billion
Source: International Data Corp
TV set-top boxes offering interactivity and online services from cable and satellite TV providers will be the first of a new wave of Internet technology hitting the home, in a market IDC says will eventually outpace even consumer PCs.

Overall, the market for devices, including set-top boxes, handheld computers and gaming consoles, is set to grow from 11 million units shipped in 1999 to 89 million units in 2004. The market will grow from revenues of $2.4 billion last year to $17.8 billion in 2004, according to IDC.

Already, major PC companies such as Compaq Computer and Dell Computer are releasing versions of information appliances, while almost every day a start-up announces a novel way of connecting the Internet to everything from typical home appliances, such as microwaves and refrigerators, to picture frames.

However, the first services to take off with consumers will likely be incremental and come from cable companies and satellite providers, according to IDC's Kevin Hause, because television viewers are already used to paying for services from these companies.

"Everybody's got a TV, and almost everybody's got cable or satellite," Hause said. "As it gets rolled out, they'll be targeting everybody who watches TV."

Over the next few years, handheld computers and gaming consoles will take off as well, he said. For example, the game console market grew from almost no units shipped to 1.5 million units, on the strength of the mid-year introduction of Sega's Dreamcast alone.

Outside of those few products, the industry will see a lot of experimentation as a wide assortment of hardware manufacturers, service providers and home appliance companies hook up to create all sorts of "smart" devices. Few of these will actually succeed, Hause predicts.

"There's going to be a lot of experimentation and a lot of failures as these companies are looking for the appropriate mix of product services and price," he said. Already, there are some indications that the most successful information appliance strategy will be to sell the hardware for very low cost, as companies experiment with subsidizing these costs through service contracts and e-commerce revenues.

"A lot of business models are being considered. The most successful ones will find ways to subsidize hardware by e-commerce, services or advertising," Hause said.

The emerging market is likely to resemble the PC world in one respect, though: It is likely to be dominated by existing players like Microsoft, AOL and Yahoo.

"It's important to note that users are going to demand an integrated service--if they already have AOL they're not going to pay another 20 bucks a month for another service--and they're going to want the same email and same messaging account," throughout their home, he said.

"The two companies working most publicly at developing integrating services are AOL and Microsoft. In terms of applications, Yahoo and the other portals are very closely following."

 

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