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Dataquest Analyst Addresses PC, TV, Convergence Trends

Hardware companies will have to build more versatile and flexible products, while content providers must be able to provide programming across a variety of platforms as computer technology and consumer electronics converge over the next several years.

That's the view from Van Baker, consumer research director for Dataquest, a unit of the GartnerGroup, who spoke at RetailVision Spring '99 in San Francisco.

Baker's address discussed current trends and predictions in computers, communications, video, the Internet, e-commerce and home networking.

Prior to the emergence of digital technology, the Internet and home networking, he said, "function and devices have always been married. 'Telephone' and 'television' defined the devices and what they did."

However, "with home networking, that model breaks. [Set-top] boxes will bring in content separately. Content must be flexible. For instance, a movie must be accessible through a PC and a TV, if the user wants that. And web sites must be accessible sometimes through a TV as well as a PC."

Overall, in his view, "The day of ubiquitous hardware product is over, and the days of dedicated products are over. People will want content when and where they want it."

Among other predictions offered by Baker were:

The hub of the home network will not be a personal computer, it will be a "bullet-proof" operating system, "probably put in your closet," which will control content distribution throughout the home.

PC household penetration will slow down even though prices will continue to decline. He cited U.S. household penetration at 50% and predicted it will level off at about 65%. As for the free PC deals out there, Baker noted, "I haven't seen many free PC [business] models out there that work."

Internet access will result in rapid adoption of high-bandwidth consumer solutions, and "next year, cable modems sold at retail will be accepted."

Home networks will be accepted due to compelling benefits and will be easy to set up.

Internet usage, or new media, will complement, not replace, old media. For instance, "e-commerce will not replace the mall, which is also a social experience."

And TV viewing will be dramatically impacted by the use of digital technology, as well as TiVo and Replay TV. The differences between the Internet and broadcast TV will blur as content on demand becomes popular.

Baker also offered a category-by-category breakdown of the various products and technologies, detailed below:

Computers: U.S. household penetration was 50% by the end of 1998, with the average purchase price (including software, warranty, peripherals, etc.) of $1,850. During 1996 penetration was 35%, and the price was $2,000.

Currently, the average PC is less than two years old, with an intent to purchase in '98 of 21.5%, a six-point drop from '97.

PC sales will go flat in two or three years because, according to Baker, "They are either too intimidating or not relevant to many consumers needs." For household penetration to go over 65%, "computers must come up with a different form factor, go to the information appliance market or different devices."

Cable modems: The effect of set-top boxes on the market will be significant. "Cable companies have not set plans yet, but there is a lot of expectation," he said, and a widespread rollout will occur within three years.

Internet: Internet usage has grown 47% in households from '97 to '98, according to Dataquest, but it is a "one-on-one activity, which doesn't lead to group participation. WebTV is now adding net capability to TV viewing" - and in Baker's view, this is making consumers deal with technology in new ways.

Home networks: Baker said that 54.3% of those who use PCs at work want to have home networking, and the lower costs allowed by sharing peripherals, extra phone lines and ISPs make it more desirable.

Taking the long view of home networking, Baker sees a variety of systems being accepted: phone lines, Ethernet, RF networks and possibly others. But he stressed, "The gateway box into the home will not be the PC. It will be a robust black-box operating system."

By 2003 home networking will include plenty of alternative appliances that will "leverage the connectivity of PCs and other products."

Finally, the "fat pipe" with large bandwidth will enter the home after '03, "which will either be DSL, cable or coax with phone line or RF Ethernet connectivity."

Entertainment: Baker also presented responses to a recent survey on television. Regarding the statement "TV viewing is one of my favorite activities," 34% of respondents agree or strongly agree, 25% are neutral, and the rest disagree or strongly disagree.

As for the statement "DTV & HDTV is the same thing," 13% agree or strongly agree, and over 35% disagree or strongly disagree. "Consumers understand that they are different experiences," Baker concluded.

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