How a new generation of digital products and services will effect businesses and consumers was the subject of a roundtable discussion at Cyberposium 2003. Panelists represented several intriguing markets made possible by new technology: automobile satellite services, peer-to-peer networks, digital photography and Internet media players.
Panelists began by outlining how their own companies are attempting to entice the digital consumer.
More and more, vehicles are becoming the environment for delivering wireless services, said Chet Huber, president of OnStar. The General Motors subsidiary uses a global positioning system to offer a wide range of services to car drivers, everything from pinpointing nearby restaurants to calling for help in the event of an accident. The service has 2.5 million subscribers, Huber said. In essence, the car has become a "sales delivery environment."
Ron Sege, CEO of Ellacoya Networks, said that from his perspective as a provider of telecommunications services, the most exciting potential market to be in is peer-to-peer technology, where customers share music, video and other files over a decentralized network. At any one time, 6 million people are sharing 7 petabytes (1 petabyte is equal to 1 million gigabytes) of content over these networks, he said.
As a result, P2P services consume up to 70 percent of all bandwidth on the Net, making a nice business for his company, which helps broadband operators improve performance of their congested networks. "Peer-to-peer is the killer app," Sege said. "If you want to lead the parade, this would be a good one to get in front of."
Merrill Brown, senior vice president of RealNetworks, which makes the RealPlayer technology for playing video and other media over the Net, said consumers are finally beginning to pay for content they find valuable. RealNetworks offers subscription services providing video content from ABC and CNN, and is developing more pay-for-play products with Major League Baseball.
"People will pay for content," Brown said. "We think we are on the edge of a very exciting time."
Moderator Bruce Upbin, of Forbes.com, wondered about that. Can consumers be convinced to pay for content they have, until now, received free online? "You are the enemy," Upbin told his panelists.
Sege argued that people would pay if they saw value for their money. Sege also said that peer-to-peer networks are one of the fastest-growing consumer technologies in history. Simplicity is driving that, he said-you get the exact music you want with a click of the mouse. "People will pay something to use this technology," he said. "It's not a question of if, but how." The question is how to pay the content creators.
Huber noted that cars came equipped with radios that offer free music, but many consumers were ponying up about $10 a month for XM Satellite radio subscriptions. Why? Satellite radio offers compelling benefits: great music quality, a wide choice of content via 100 stations and no advertising.
Upbin directed the conversation to the subject of broadband use in the home. High-speed Internet access will be one of the conveyor belts bringing digital services such as video-on-demand and music downloads into the home. But broadband, while growing, is nowhere near a mainstream technology. There were approximately 14 million broadband subscribers in 2002, according to market researchers. Are broadband prices too high? Upbin asked.
"If you want to lead the parade, [peer-to-peer] would be a good one to get in front of."
Sege said it's a matter of broadband providers finding the right pricing model, perhaps a tiered approach where big users pay higher rates. If costs were allocated properly, broadband access could be offered for $30 a month. (Most broadband offers are above $40 per month today.) Noting that broadband hookups increased more than 50 percent last year, Brown said the tide has turned. "I'm quite confident about widespread deployment by the end of the decade," Brown said.
Another key to enticing more consumers into buying digital products will be managing "the customer experience."
Kodak's Shih said his team uses rigorous customer-focused research to understand the needs of customers. For example, customers told Kodak that their number one frustration with digital cameras was the difficulty of transferring images from the camera to the PC. And the number two complaint, he continued, was dead batteries. So Kodak last year came out with EasyShare, a docking station that recharges batteries and allows image transfer with one click of a button. "It's been a runaway success," he said.
Creating the perfect consumer product is just the start of the challenge. Companies also have to be clever about communicating their value. "How do you tell consumers they have a problem...in a 30-second TV ad?" asked Shih. "This is not natural for most people who grew up in technology."
"People will pay for content. We think we are on the edge of a very exciting time."
Good, old-fashioned marketing is the key, said Brown. "Brands matter. Brands will be the answer on the Web as they inevitably are in the market."
Huber said it is important for his company to focus; to first seed the market for OnStar using the basic value propositions of safety, security and convenience. And because his customer is in a potentially dangerous environment, a moving vehicle, not a store aisle, "we have to be mindful of what you can absorb in that environment." But he does foresee a time when we will pull into a gas station and fill up with content as well as fuel--downloading local maps, restaurant ideas and video games into the vehicle's onboard computer.
In other discussions panelists said:
For peer-to-peer networks to flourish, content providers such as recording artists must be compensated via digital rights management software, Sege said. But people must be able to enjoy fair use of the content they download.
Most opportunities in digital products will come on the software side, not hardware. Most hardware manufacturing expertise has moved offshore, particularly to Taiwan, said Shih. We will have to leverage those capabilities through partnerships, not compete with them.
The potential of war and terrorism in 2003 will show the consumer the value of high-speed Internet access, said RealNetworks' Brown. "Sadly, world events in the coming 20 months will help establish the value of broadband in the home."
Click here for Harvard Business School's information portal.
© Copyright 2003 President and Fellows of Harvard College