Digital Lifestyles and the Service Provider. a Parks Associates white paper

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1 Digital Lifestyles and the Service Provider a Parks Associates white paper

2 Published by Parks Associates April 2009 Parks Associates Dallas, Texas Attribution All rights reserved. No part of this book may be reproduced, in any form or by any means, without permission in writing from the publisher. Printed in the United States of America. Disclaimer Parks Associates has made every reasonable effort to ensure that all information in this report is correct. We assume no responsibility for any inadvertent errors. Attribution and Disclaimer 1

3 Table of Contents...3 The Roadmap for Service Providers...4 Home Networking...5 Next-generation TV Platforms & Services...6 Customer Support in the Digital Home...7 About Parks Associates...10 List of Figures Figure 1 The Broadband Service Provider Roadmap...5 Figure 2 Consumer Interest in Advanced STB and Home Network Features...6 Figure 3 First Contact: Technical Support...8 Table of Contents and List of Figures 2

4 Service providers are currently facing issues brought on by the economic and housing crisis, slowing subscriber growth, and increased competition where the right combination of services or the wrong pricing dynamics can woo subscribers from one carrier to the next. Although service providers priorities have been consistent over time, the steps necessary to fulfill them have changed. The major priorities include: Retaining current consumers Acquiring new consumers Growth ARPU At the outset of mass-market Internet proliferation, service providers sold Internet services based on speed. Providers won subscribers by offering faster speeds at lower prices than their competitors. At the same time, there were still many homes without Internet access or with dial-up accounts that a provider could sell on its high-speed services. Now bandwidth is commoditizing at a rapid rate, with cost declining to $4 per MB in 2008 while over one-half of U.S. broadband households do not know the speed of their Internet service. Speed is a given, and most households have it. In the U.S., 80% of Internet households connect through broadband, and four service providers split 70% of the market. A provider s hold on a subscriber can be tenuous, however, even for a service as fundamental as landline access. Among landline customers in the U.S., cablecos increased their share over fourfold from 2004 to In the realm of television services, cable operators still retain the largest share of the television services market, but telco/iptv services (provided by telecom service providers such as AT&T and Verizon) experienced over 110% growth in subscriptions from 2007 to Among IPTV services, the percentage of customers likely to switch providers hovers around 10%, and that rate gets higher among rural consumers. In addition to their traditional competitors, carriers also face threats from over-the-top providers as well as competitors from other sectors of the service economy. 3

5 These companies are winning subscribers in non-traditional areas by offering unique service bundles (voice, video, data, and more). Providers have to develop these types of creative combinations to remain competitive as speed and price are no longer sufficient differentiators. It is at this point that need meets new possibilities. Many of the latest technological advances make it possible for providers to fulfill new roles as experience providers and lifestyle consultants. The steady increase in the number of connected products in the home means more opportunity for providers to offer innovative services. The next round of competition among service providers will center on bundles and value-added services (VAS). These bundled services will be the catalyst moving carriers deeper into the connected home. The Roadmap for Service Providers Prior to 2005, broadband service providers were in the early stage of their market roadmap (what Parks Associates calls the Raw Bandwidth stage), featuring offerings such as tiered services, basic security, data networking, and simple information portals. In the current stage (the Smart Bandwidth stage), services have gotten more sophisticated. They include bandwidth-on-demand, higher upstream speeds, premium and exclusive content, security-as-a-service, VoIP, and break/fix and remote customer support. The next stage, what Parks Associates terms the Smart Home, will feature more expansive solutions that include holistic customer support, multiplatform services, whole-home entertainment, storage-as-a-service, home monitoring, home control, and lifestyles/health management. Parks Associates forecasts this stage will start around The Roadmap for Service Providers 4

Figure 1 The Broadband Service Provider Roadmap By following this progression, providers can fulfill their three main priorities (attract, retain, increase ARPU) in today s market.

Offerings such as HD video, gaming, and home servers have greater long-term potential, and new value-added services such as premium technical support will contribute significant revenues to service

6 Figure 1 The Broadband Service Provider Roadmap By following this progression, providers can fulfill their three main priorities (attract, retain, increase ARPU) in today s market. Current low-bandwidth services such as Internet security, Web 2.0 applications, and exclusive content help in retaining customers but are also low ARPU services. Offerings such as HD video, gaming, and home servers have greater long-term potential, and new value-added services such as premium technical support will contribute significant revenues to service providers. Additional sources include storage/backup services, entertainment services, and home controls and monitoring. Home Networking The home network is the backbone for all VAS and for the concept of the digital lifestyle as a whole. Parks Associates identifies three different types of home networks. First and currently most prevalent are data networks, where devices such as routers, gateways, access points, and bridges connect PCs and printers so they can share resources and a broadband connection. The next network type is a multimedia network which connects home computers to CE platforms such as TVs or stereos in order to Home Networking 5

7 share content. The most expansive network type is the entertainment network, with connected networked CE platforms and point-streaming (receiving content and applications from Internet-hosted solutions) or server-based (connected to media servers or set-top boxes) solutions. This network can encompass TVs, game consoles, media servers, DVD players, and set-top boxes as well as PCs. As noted, the home network adds capabilities as it expands in scope and number of devices, and consumers are receptive to this concept of enhanced connectivity. This demand for entertainment services will drive the second-stage acquisition of more connected CE and networked devices in the home. Most appealing set-top box and home network features (Among U.S. BB Households) Multiroom DVR Ability to remotely watch recorded content on DVR External hard drive for DVR Interoperability between STB and PC Remote access to all stored media content Content transfer to portable devices Ability to share recorded content on DVR with friends Source: TV 2.0: The Consumer Perspective : 0% 50% % of Respondents Rating 5-7 Figure 2 Consumer Interest in Advanced STB and Home Network Features Next-generation TV Platforms & Services Digital television subscribers, including cable, satellite, and IPTV, grew to 69 million U.S. households in 2008, creating greater competition and greater risk for churn. Service Next-generation TV Platforms & Services 6

8 providers can counter these challenges by opening up their offerings to the next wave of television services (coined TV 2.0). The roadmap of television services, the progression toward and beyond these TV 2.0 opportunities, follows its own three-stage process, much like the service provider roadmap. Near-term opportunities are DVR functionality, VoD with movies and TV, simple communications services, search and navigation, set-top-to-pc links, widgets, and casual games. Midterm opportunities include blending of locally generated content, Web video blending, limited Internet-like features, remote access and place-shifting content, targeted advertising, social networking enhancements, and additional storage. Long-term opportunities include motion-sensing remotes, video calling, t-commerce, home and health, and community features. Not all services win the same level of support in all locations, however. Service providers have to know the particulars of their different service areas. For example, in the U.S., primetime anytime is by far the most popular TV 2.0 feature, scoring highest in interest and likelihood to create churn. In Germany, the results are a little more mixed. Overall, catch-up/start-over primetime is the most desired feature, while caller ID on the TV is the more valuable feature and the one most likely to inspire churn from one provider to the other. While features attract new subscribers, service quality is still the factor that will make or break a service which opens another major area of opportunity. Customer Support in the Digital Home When looking at the complete value chain for customer services, tech support service emerges as another important link. Tech support addresses the growing do-it-for-me market with a clear VAS proposition. A growing number of broadband households in the U.S. prefer to have someone show them how to use a new product or service. More of these low-tech, hands-off consumers are the current buyers of new technology products than in years past. Predictably, there has been a threefold increase in the number of U.S. households using tech support services for PC and networking problems. Customer Support in the Digital Home 7

9 The migration of consumer technology products and services into mass-market households has caused this change, and this trend will continue. Parks Associates estimates revenues for PC and home networking troubleshooting services will be a multibillion dollar business by year-end The case for service providers and tech support strategies becomes even more obvious when considering that carriers are already getting many of the support calls. The broadband service provider is the second most common source of technical support for U.S. broadband households, the first being those who are able to solve the problem themselves. Technical Support for Household Electronics/Services "Who do you typically contact first for technical support for your household electronic products or services?" (Among U.S. broadband households) Nobody; I usually solve the problem by myself Broadband service provider Friend, family member, neighbor, colleague, etc. Manufacturer of the product Independent technical support professional Retail-based technical support service Online community Source: Customer Support in the Digital Home % of Respondents Figure 3 First Contact: Technical Support Parks Associates calculates the costs to U.S. operators to support home networks alone at upwards of several hundred million dollars annually. Creating proactive tech support services can provide significant cost savings, but along with this benefit, service providers can leverage their well-established brands and legacy of customer support to create revenue-generating services and move beyond the typical one-way relationship Customer Support in the Digital Home 8

10 of today. No other entity has the kind of access that service providers do when it comes to the digital home. A provider s points of access include video, voice, and broadband offerings, in addition to customer-facing items such as the program guide, the monthly bill, and content portals. Some industry giants have already entered the home tech space, including BT s Home IT Advisor, Verizon s Expert Care (which combines remote tech support and additional warranty services), and AT&T s ConnecTech. By taking these types of support offerings to their logical conclusion, the support role for service providers can expand into areas Parks Associates calls Holistic Digital Home Support. Here the service provider offers targeted and appropriate services to keep the digital home working at high functionality. The company also uses its new role to sell customers on additional services and features, all based on what the customer is doing today. Through connections featuring two-way communication and feedback loops with their subscribers, providers can greatly enhance their relationship with their customers while enhancing their bottom lines, thus fulfilling those three key priorities in this new and challenging market. Customer Support in the Digital Home 9

11 About Parks Associates Parks Associates is an internationally recognized market research and consulting company specializing in emerging consumer technology products and services. Founded in 1986, Parks Associates creates research capital for companies ranging from Fortune 500 to small start-ups through market reports, primary studies, consumer research, custom research, workshops, executive conferences, and annual service subscriptions. The company's expertise includes new media, digital entertainment and gaming, home networks, Internet and television services, digital health, mobile applications and services, consumer electronics, and home control systems and security. Each year, Parks Associates hosts executive thought leadership conferences CONNECTIONS, with support from the Consumer Electronics Association (CEA ), and CONNECTIONS Europe. Parks Associates produces the online publication Industry Insights in conjunction with the CONNECTIONS Conference series About Parks Associates 10

Market Snapshot: Smart TVs & the User Experience

Market Snapshot: Smart TVs & the User Experience A Parks Associates Snapshot Market Snapshot: Smart TVs & the User Experience Streaming media player adoption and smart TV adoption experienced sustained