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The Convergence to Consumer Electronics

http://www.bytemeonline.com/whencollide.html

When Companies Collide: The Convergence to Consumer Electronics
Copyright 2004 by Frank Catalano
(The following essay originally appeared as a Special Letter in the March 4, 2004 issue of STRATEGIC NEWS SERVICE, published by Mark R. Anderson. For more information on the SNS newsletter, please visit www.stratnews.com. For more information on the Future in Review conference held May 24-27, 2004, where Frank will be leading a panel on "The Future of Devices," visit www.futureinreview.com.)

Pop quiz: What is a computer? For extra credit: What is a consumer electronics device? What is a toy?

Or, more to the point: define what makes a firm a computer company, consumer electronics company or toy company.

This would have been an easy quiz a decade or even five years ago. Computer companies sold big, expensive ($2,000 and up) multifunction boxes with microprocessors inside. Consumer electronics companies sold single-purpose devices at sub-$200 price points. Toy companies sold stuff that was fun to play with, usually for under $100, and rarely had any advanced technology in it (unless, like me as a kid, you were fascinated with how an Easy Bake Oven could actually cook anything edible).

Those several years ago, you’d find computers at CompUSA and Computer City; CE devices at Radio Shack and Good Guys; toys at Toys R’Us and Kmart. Sure, there’d be some overlap, but when you looked at a toy, you knew it was a toy, and no one was going to confuse a PC with a Walkman.

Fast forward to today and the Alaska Airlines flight I took last month from Seattle to New York City for the 101st American International Toy Fair. On the flight were the usual business travelers, screaming babies, drunken passengers who took a bit too much advantage of a free upgrade to first class, and –- the best part –- the APS DigEPlayer 5500.

A DigEPlayer is a new, 2.4-pound device the size of a trade paperback book with a large LCD screen set in one side and a fold-out stand on the other.

When you turn the DigEPlayer on, up pops a menu of 10 movies (new and classics), three TV shows and hours of classical, pop and other music (including the intriguing selection “Alaska FM,” which turns out to be the music you hear when you board the plane). There’s also an Alaska route map and other information. Plug in your headset, play with the buttons and you’re set for several cross-country flights.

So is the DigEPlayer a PC? Must be; it runs something called MicroOS, has a hard drive and clearly has files to manage. Is it a CE device? Of course, as it’s a single-purpose “in-flight entertainment system.” How about a toy? Putting a game on it and plugging in a controller or using the four-position rocker switch on the front to play games would be, well, child’s play.

About the only entertainment the DigEPlayer can’t match is watching people squeeze by the food service carts in the aisles.

But the difficulty in classifying a device like the DigEPlayer illustrates the growing challenge in keeping clear divisions between what’s a computer, CE device or toy. Consumers themselves probably don’t care what categories a product falls into as long as it does what they want. Yet the increasing convergence of these three types of products creates headaches for companies, marketers and distribution channels.

The general trend is for personal computer companies and toy companies on the edge to migrate to the consumer electronics center. At the same time, traditional CE companies are expanding to encompass what they like in the PC and toy markets.

Motivating each firm is a desire for increasing profits and margin. (Though the PC business has razor-thin margins and sales in the $20 billion toy industry are slightly down, the CE industry is worth about $100 billion and growing, according to trade association figures.) But as these products converge, companies collide.

So let’s take a look what happens When Companies Collide