Digital convergence = new opportunities?

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1 April 2005 | 0

Computers have a long tradition in the home. In fact, their appearance in the home predates the advent of the PC. But in the more than 20 years since, their presence has been mainly confined to the study and the children’s bedroom (for the kids to play games
on). 
 
There are many who believe the computer is going to move from the edge of the house to the centre. They see the PC as the king of the home of the future, a digital hub which will control and play music, video, photographs, television and the Internet for the household. 
 
Windows Media Centre is the most obvious manifestation of where the IT world sees the future of home entertainment going. But is anyone else convinced? 
 
It is clear that convergence is happening, or likely to happen, between the IT world and the traditional consumer electronics space (which includes HiFi and TV), but is it going to be on as sweeping a scale as those who paint widescreen pictures of the future would
have us believe? And what role is the traditional IT channel going to play in its delivery? 
 
Typically, IT vendors have sought the sales momentum of large retailers like Dixons to promote their technology to consumers. One reason may have been that presenting their products alongside well-established consumer technologies like HiFi and TV would help improve the acceptability of IT among home users – as well as seeking to move them out of the IT ghetto. 
 
But the growth of large computer retailers like PC World demonstrates that most customers still make a distinction between IT and consumer electronics in their minds. They find it more reassuring to purchase a PC in a retail store which focuses on computer equipment than in a general purpose consumer electronics outlet. 
 
Past behaviour suggests consumers may be reluctant to buy a computer in a HiFi or TV shop, but is the same likely to apply in reverse to computer outlets in the future? The answer depends on how well the IT vendors succeed in convincing consumers that their
audio and visual requirements can be met in tandem with IT technology rather than separately from it. 

Crossover
At a low level, computer outlets are beginning to see a ‘crossover’ in terms of products like MP3 players – fuelled in large part by the runaway success of Apple’s iPod – and digital cameras. ‘When people buy a PC, they might buy an MP3 player or a Webcam as well. They’re constantly finding new and more exciting things to do with their PCs,’ says Paul Clancy, sales director at Creation Computers. He argues computer resellers are well-placed to take advantage of the convergence between consumer electronics and IT ‘because our knowledge of the technology will always be better’. 
 
Peadar Dolan, sales director at distributor CMS Peripherals, sees ‘digital convergence’ as a real opportunity for IT resellers, but he claims they need ‘to cop on. PC growth is really in the home and the IT guys are in a better position to understand and help people. I don’t think the high street shops will cross over as successfully.’ 
 
It will also depend on the big vendors and which channels they decide to use to reach the home market. ‘I don’t think that’s really settled,’ Dolan argues. He sees four separate markets beginning to converge: IT, consumer electronics, photography and telecoms.
‘They’ve gone down separate channels previous to this but there are some overlaps already in some of those things. I think there’s a huge opportunity.’ 
 
To demonstrate the point, he claims the distributor’s consumer division has grown to 19 people with sales of over €30m this year.  
Brian O’Connor, managing director of distributor 3D Logistics, argues the crossover is already starting to happen. ‘Traditional ‘electrical’ shops (the kettle and toaster men) are now realising that PC products have become household consumables,’ he says. ‘DVD players are coming with Ethernet links for Web radio and PC Links. Digital cameras are no longer specialised but off the shelf, and this has resulted in demand for Flash memory products and USB sticks from the man in the street. We have reached and passed the
crossover in less than a year.’ 
 
Maybe so, but Geraldine Keogan, managing director of Jaguar Computer Systems, argues that most of the demand for digital cameras and camcorders occurred last year. ‘This year, they won’t be that big because people have them now,’ she says. 
 
Home networking is often held up as a big potential driver for IT into the home. ‘Home networking is certainly going to grow and there’s an incremental opportunity for resellers in that space,’ says Dolan. A point echoed by Kin Mak, product manager at Elara: ‘The wireless home is taking off, people want everything linked together.’ 

Would consumers pay?
 Dolan believes this could lead to a situation where people become accustomed to IT people coming into their homes. But will they pay for support? 
 
It’s a question posed by Alistair Edwards, senior analyst at market research firm Canalys, who points out that PC World has a service in the UK which offers to install a home network. ‘How many people pay for that service?,’ he asks. 
 
There is an opportunity for retailers to change their business model to one where they would offer network integration services to users, ‘but would people pay for that?’ 
 
In many ways, the impetus is towards ‘plug and play’, in much the same way as people expect for their TV and HiFi systems. 
 
Edwards wonders whether IT vendors have the ability to engage with the consumer world. ‘The IT industry can’t sell functionality,’ he says, ‘it can only sell bits and bytes. They’re still sitting in a PC oriented world – it’s very hard to get out of it. Vendors need to be able to think like consumers and get inside their heads. That’s still a long way off.’ 
 
One IT reseller which has made a move into retail is Galaxy Computers. Managing director Bob Curran says it became involved in the retail market two years ago when it started a Web site in partnership with Buy4Now. ‘Web sites in Ireland were lacking, there wasn’t any proposition online.’ 
 
Alongside the usual computer equipment, the Web site also offers MP3 players and peripherals, such as digital cameras. The company has also got a shop in Naas. It has plans to open up to three more, although they will only carry limited stock. Curran freely admits they are designed ‘to support the Web site’ as most customers in the shops will be directed to products on the site. 
 
While the shops won’t necessarily have demonstrations of technology, Curran says he’s always showing the wireless network which is set up in the Naas store. ‘One of the biggest features we offer is that people can come in and speak to someone who is
knowledgeable, a consultant almost. The people in the shop are techies.’ 
 
One person seeking to turn digital convergence into reality is George Reynolds, managing director of Media Centric. He freely admits to playing the part of the pioneer – ‘the cowboy with the arrows in his back’ as he puts it – and claims to be one of the few, if not the only, reseller pushing Media Centre PCs. He describes it as ‘an exciting opportunity. With Media Centre and wireless technology, it’s possible to lay out a home with displays and sound where you want them.’ 
 
Reynolds claims it got a strong response at its stand at the Ideal Home Exhibition. ‘People see it as an extension of the iPod and SkyPlus,’ he says. ‘They see the beauty of pulling it all together.’ 

 

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Ugly
Not that there’s much beauty to the Media Centre. He describes Hewlett-Packard’s Media Centre as ‘a big ugly box’ and says the big thing is to ‘hide it away’. Media Centric works with interior designers to try and hide as much of the technology as possible. ‘The idea of shoving it into a drawer is more attractive than trying to improve the design,’ Reynolds says. ‘They don’t give a damn how ugly the PC box is if you bury it away.’ 
 
It’s not a mass-market. Media Centric pitches itself at people who typically spend a small fortune, as much as €50,000, on getting their houses wired for sound and vision. ‘It’s a fairly small market, without a doubt,’ Reynolds admits, but PC technology can put systems together for a fraction of the cost people typically pay sound and video installation specialists. 
 
He is also adamant that it needs a network integrator to put home systems together. ‘You’re putting together a horrifically complex, advanced computer network into the home. It’s very hard to integrate and support. At this stage, it will be value added resellers who come in and design it.’ 
 
He believes the lack of VARs addressing this market is holding it back. One reason might be that they ‘still have to figure out how to make a lot of money. We need to figure out how much people are willing to pay for support.’ 
 
Reynolds says he ‘can’t see it becoming an off-the-shelf market for a long time – we’re appealing to the early innovators’. But the idea of having to employ VARs with specialist skills to install and support home networks sits uneasily alongside the need to simplify technology to the point where it can truly become a mass-market consumer product. 
 
Vendors are likely to try and adopt mass marketing techniques to Media Centre – if the volumes aren’t there, they might not stick around. But Reynolds believes that because the market potential is ‘ginormous’, companies like Microsoft and HP will continue with Media Centre. It will take longer than they expected, but there will be a creeping acceptance. 
 
The prospect of a future where ‘every house has four or five PCs in it’ is likely to keep them focused.

20/12/04

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