In-Stat Forecasts A Bright Future For 'Smart' Appliances

Scottsdale, Ariz.— Though product introductions in the Internet appliance market have been slightly slower than expected this year, Cahners In-Stat Group forecasts the number of smart appliances will exceed 20 million units by 2005.

Cahners In-Stat Group, which is part of TWICE's parent company, Cahners Business Information, sees that many of the players in the Internet access device market that were in this space a year ago are still in it today.

Smart appliances, non-PC devices that access the Internet as their primary function or to enhance their core functions, are no exception. In fact, the number of products and players is increasing, which is an indication that manufacturers are not discouraged by the market climate.

Whether it is smart white goods for the kitchen, bedroom, or living room, smart appliances come in many shapes and sizes and are designed for use in nearly every room of the house. Devices themselves include Internet radios, integrated Internet televisions, e-mail devices, multifunctional entertainment devices, and white goods ranging from large appliances to coffeemakers and alarm clocks.

In-Stat forecasts this market to grow an average of 101 percent annually from 2000 through 2005, with integrated analog Internet televisions leading the growth. These televisions have been introduced in Asia and many consumer electronics manufacturers in the United States and Europe are racing to introduce them.

As consumer familiarity with Internet radio and MP3 technology increases, manufacturers look for ways to introduce these features to audio and home entertainment devices. These features give users more control over what they listen to and move the experience from the PC to the living room.

Products such as integrated analog Internet televisions will see more growth in regions where PC penetration and income levels are lower. Audio and multifunctional entertainment devices will see initial growth from audiophiles and tech savvy consumers.

There are several key factors affecting the market for smart appliances. Because they require Internet access, the worldwide Internet penetration rate will have a large impact on their success. Whether or not the product requires a broadband connection or home networking technology will also affect growth rates in certain regions of the world. However, the main issue impeding acceptance of these products remains the education of consumers regarding the capabilities of these new devices and how they can add value to consumers' daily lives.

Learning from the successes and failures of related product introductions this year, manufacturers have begun to concentrate on features that add value without significantly increasing price.

Manufacturers and OEMs are also learning how Internet-enabling their products can add value to them. Such benefits may include remote access to maintenance, the ability to upgrade software, new revenue streams from e-commerce applications, and improved relationship management with customers.

The manufacturing of smart appliances is not without problems. Profit margins are often small and manufacturers are reluctant to add features before consumers have a proven interest in paying for them. Many manufacturers in the white good segment are awaiting technical standards, yet to be introduced, for interoperability between products. The highly competitive nature of the white goods industry and the slower replacement cycle for products will also hamper growth in this segment for several years.

Though the sluggish economy has delayed the launch of some smart appliances, numerous Internet-enabled digital audio products have been introduced. Large consumer electronics companies such as Philips, RCA and computer manufacturers Compaq and Hewlett Packard have introduced multifunctional audio products, which utilize Internet access for Internet radio and streaming MP3s. Other functions such as hard drives, CD+ and CD/RW drives, tape decks and AM/FM tuners included with these products vary by manufacturer.

As the number of players and products in the smart appliance industry continues to increase and Internet penetration and consumer education improves, the demand for all types of smart appliances will likely rise substantially in the coming years.