Friday, January 01, 1999

Consumer Readiness Hangs In the Balance

For years, discussion at the annual Parks Forum has centered on the consolidation of the utilities, telco and home networking markets.  Even though it hasn't happened on the integration side as quickly as was speculated in years past, evidence at this year's Forum of larger corporations, including , major utilities, entering the structured wiring market was apparent.  Developments in the acceptance of home networking technology by the mass market, through community intranet and new marketing strategies were also the subject of discussion at the conference held November 18-20 in Miami.

The increase in Internet use over the past four years is testament to the quickening acceptance of new technologies by consumers.  But it isn't people who are changing, Tricia Parks, president of Parks Associates, explained to 170 Parks Forum attendees.  It's the technology that's changing, creating a new market dynamic where the rate of adoption is increasing exponentially.

"Today, technology is a leader in taking customers' expendable dollar," Parks said.  "Satisfaction comes from buying another TV, another phone line, another PC."

Parks, like many of the thirty-plus speakers who addressed attendees during the three-day forum, was confident that home networking will be the next technology to capitalize on the rising tide of consumers technological acceptance.   Parks Associates analyst Kurt Scherf indicated that interest in home networks is on the rise, due in part to an increasing number of PCs in U.S. homes.  Parks Associates numbers indicate that by 2002, 65 million homes will have at least one computer, while 30 million will have more than one.

Household Internet penetration is expected to grow 10 percent every year until 2002, when Parks Associates estimates that 37.8 percent of U.S. homes will be connected to the Internet.  By that time, Scherf speculated, Americans will be seeking an easy solution for use of consumer entertainment products throughout the home, in addition to networking their home computers.

Speed will be the key to reaching consumers, according to Scherf.   Reporting that speeds of 11Mbps are not far off, Scherf advocated proprietary home LAN solutions and common application languages to help make speculation into reality.

As for present-day consumer attitudes, Scherf, and the other Parks Associates representatives who shared their market analysis at the Perspectives Workshop on the first day of the forum, indicated that the proliferation of additional phone lines being installed in homes of Internet use, and exploding number of DBS subscribers, and even the number of pricey HDTV sets being purchased, should make representatives of the home networking industry giddy with the possibilities.

The entrance of big corporate players on the structured wiring scene is proof of what may be on the horizon for the systems contracting market.   Representatives form Lucent, Bell Atlantic Communications and Construction Services Inc. (BACCSI) and even one of America's largest building corporations, CENTEX, were at the forum, eager to discuss the revolution structured wiring will bring to the domestic landscape.

Stunning success in structured wiring integration was reported by Greg Farmer, manager of business development at BACCSI, who said that enormous demand for integration can be created with the right marketing strategy.  BACCSI's successful "Bell Atlantic Ready Homes" campaign convinced another large U.S. builder, Pulte, to install structured wiring in all of its projects.

By June of 1998, BACCSI had successfully installed structured wiring in 1,500 homes and signed 15,000 more homes that will be built "Bell Atlantic Ready."  More than 15 other builders are participating in the program, and share the benefits of BACCSI's massive marketing campaign, which lists the builders and contact information.

From Lucent Technologies, John Cowley, director of HomeStar, further advocated partnering with builders on the installation of structured wiring, but also said what was on every attendee's mind:  quality installers have got to come first.

Conflicts between protocols, network solutions and even ideas about the layout of the home of the future were apparent in presentations describing the benefits of everything from HomeRF, HomePNA, structured wiring, no new wires, gateways, to home plug and play.  The conundrum pushed Evan Price, president of Domosys Corp. to surmise, "If we want to exploit this market we have to come to a common language."

The fact remains that compatible innovations have a better chance at success on the market.  Dr. Kenneth Wacks, home automation consultant to manufacturers and utilities, observed that presenters at the forum went to considerable lengths to differentiate their home networking technologies.  However, he added, "It's really up to the manufacturers to develop the applications and then pick the technology that makes sense, recognizing that they may have to change network interface modules in future product runs."  Protocol selection, he explained, is not something that can be driven by the consumer.  Appliance makers need to understand that networked products can deliver novel functions to consumers and result in increased product sales.

Chasm Group partner Mark Cavender's keynote address, "Technology Adoption and the Consumer:  Separating Facts form Fantasy," made innovation seem more distant than any of the other speakers were willing to concede.   "We are a long way from getting to consumers with these technologies," Cavender said, terming them "discontinuous innovations," or advances that will take a great deal of time to work themselves into everyday life.  Cavender explained that in order to cross the chasm between the precious few consumers who are interested in the newest technologies and those who are a part of the mass market, home networks will have to be "goof proof, 100 percent solutions" for a niche market first.   "Find people with something broken that needs to be fixed," Cavender said, and that Niche market will tell others of a products' benefits, until the product at last loses it discontinuous nature.

Potential niche markets that Cavender picked out for home networking were the SOHO (small office/home office) and apartment markets.  However, providing witness to the many different perspectives held by speakers and attendees alike at the forum, Gopal Ahluwalia, assistant staff VP and director of research at the National Association of Home Builders, economics division, said that the SOHO market is not growing as quickly as people thought.  Ahluwalia brought attendees further down to earth by explaining the irrational nature of consumers who think they are interested in home networking, saying, "People want an energy-efficient  home, but they also want features like too many windows first."

The tug of war between speakers who advocated that home networks are accessible now and those who felt that they are systems meant for the distant future continued throughout the forum.  However, the opinion that people will spend more to save more remained steady amidst the fray.  A return on the significant investment consumers make on home networking solutions is what will be necessary to reach the mass market.  But before that ever happens, Evans shocked network endorsers by pointing out, "Some consumers will have to suffer for the good of all of us."

Energy conservation, as an aspect of home networking that may help sell it to the mass market, is an issue about which many in attendance felt strongly.   While the potential of conservation has been discussed for years, one utility representative at the forum, Malcolm Barnes, account specialist at Florida Power, said his company partnered with the EPA 10 years ago, but the fact remains that "Builders are not unwilling to cooperate, they are just concerned about passing the cost to the customer," Barnes stated.

Despite the struggle he has faced thus far, Barnes said he will continue to work to implement efficient systems into new housing developments in Florida.   The business this could bring to the systems integration industry has not escaped the mindset of several innovative companies that continue to attack the issue.

On the sidelines of the conference, David Modisette, director of engineering for Smart Corp. was talking about coordinating energy in multi-family dwellings to help reduce costs for residents.  With no more than two-thirds of the dwellings using electricity at any time, energy would be saved, and the network would produce "a difference you can see," Modisette said.  "The way to move to the middle class is to show that the system will pay for itself," Modisette added.   This might be accomplished by coordinating blocks of apartments so that energy and money are saved, until the system is in fact free.  As far as the energy saving network devices themselves, Modisette said, "Everybody likes toys, but what's better are free toys!"

The multi-family housing that Modisette discussed coincided with topics such as "smart apartments," where home networks are just the start of a way of life, and the earth-bound ideal of community intranets, which may provide a roundabout means for technology to enter the average American home.  Doug Blattner, president of Community Vision, created a case for the latter scenario when he indicated that the Internet has created a desire to build up a stronger feeling of community in real life.

Americans can once again become involved with their neighbors lives through the closeness created by an intranet connection to other homes in their subdivisions.  Experimental community intranets in cities that include Telluride, CO and Davis, CA, have provided a forum for picking tee times and finding babysitters.   Community necessities such as these, put at neighbors' fingertips by community intranet, can be enhanced to cater to other common interests, such as water and energy conservation.  Blattner said that intelligent homes can communicate with one another, and report that precipitation is likely, so the automatic sprinkler system can be suspended.  Communication among security systems could be another benefit.

William Walker, president and CEO of Wizer Home Systems expressed a passionate interest in community intranet after the ideas were presented.  Walker has been working with developers, trying to convince them of the virtues of community intranet, with limited success.  This interaction has led him to conclude that intranet and home networking are still inaccessible in most cases.  "Builders don't like things that don't work," Walker said.

Further admonition of home networking prospectors came from Randy Luther, VP of research and development at Centex Corp., one of America's largest builders.   "You have demonstrated no understanding of the market of the home buyers," Luther said, adding that home networking is not yet practical for what it costs, and one of the only ways to sell it is to emphasize the security side of home networking.  Building the benefits of technologies for the builder is the first step that needs to be taken, and Luther declared, "Home builders hold the key to the toll road, and we want to be involved."

From the article "Consumer Readiness Hangs In the Balance," by Kirsten Nelson.

Next: New Home Construction Spurs Market.


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