One of the greatest results of the consumer technology revolution is that just about everyone can afford a great piece of electronics if they want to, and even if they don’t want a great device, they can still get something functional.
Much like the auto business, we in electronics have driven our products into the hinterlands. Unfortunately, we don’t have a great rallying cry like “a chicken in every pot and a car in every garage,” but we can at least lay claim to a digital camera for every user (1.2 cameras per household) or a PC in every home (computer penetration at 85 percent). And while this gives the impression we have done our jobs, it does create a big problem — the inevitable “what next?”
As we were blithely cranking up the size of the total available market (TAM) we were forgetting that the final consequence of full penetration is slowing growth. The consumer technology business built itself a great little growth engine, but almost every growth engine stalls out at some point. It appears, at least for the near term, we are no longer a 10 percent to 12 percent yearly growth business.
Even before the economy crashed, the growth potential of consumer technology was beginning to self-limit because of its great success. Now we are left with the unintended consequences of our success: a supply chain built on end-market growth that is increasingly difficult to sustain, and customer expectations of falling prices and increasing features that are increasingly hard to provide as marginal costs rise and feature growth flattens. Bigger, better, faster, cheaper doesn’t play as well in a mature industry.
So now comes the hard part for the electronics business: building out a new business plan that acknowledges the likely consequences of slower growth. Among those are slower inventory turns, more pricing pressure, consumers shifting to low-priced channels, manufacturers looking for lower-cost distribution channels, fewer new products, and more emphasis on content and subscriptions as part of an integrated sale with hardware. The future is likely to be more challenging, to require the industry to be leaner and more nimble, to drive manufacturers, brands, and retailers to think more globally than ever before. So while the pace of change is today being driven by the negative reinforcement of a difficult economy, it is also the best time to begin an adjustment to the new realities of a more mature and stable industry.
