Consumer Technology Market In Decline: CES Searching For The Next Big Hit

By | January 11, 2016

This article originally appeared on Diginomica as CES Market update: Still searching for the Next Big Thing


Like the swallows returning to San Juan Capistrano, New Year’s revelers have barely cleaned out their rooms before hoards of tech execs, entrepreneurs, marketeers, journalists, PR flacks, technophiles and gawkers descend upon Las Vegas for the annual gala to gadgetry that is CES. Most years, it’s a testament to the wisdom of Macbeth, full of overwrought product announcements for things of little ultimate significance, however there are always a few major themes worth watching that measure the pulse of what the event’s organizing body, the Consumer Technology Association (CTA) now terms the Global Technology Market. Perhaps the most accurate barometer of the CES ecosystem is the annual technology spending forecast and analysis provided by the CTA’s Senior Director of Market Research, Steve Koenig. His presentation on Monday was full of mostly discouraging data interspersed with bright spots that seemed designed to temper the stark numbers with rays of hope.

Tech-spending

The backdrop to CES is a world where technology spending and unit sales are in steady decline. According to the CTA’s latest forecast, global technology spending will drop 2% this year while unit sales are essentially flat. Looking at the longer trend, since 2011, both units and revenues are declining just over 1% annually. Extrapolate this out a couple years and we’ll see total tech revenue about $90 billion less than in 2011. The culprit is declining ASPs across the board: down 7% for smartphones, 4% for laptops and 2% for TVs in the last year.

It’s a Mobile (and More Diverse) World

The overriding theme of CTA’s data is how mobile has taken over the industry, however the spread of technology from developed countries to emerging markets has notably crimped technology spending. The situation is similar to the effect globalization and the ready availability of low-skill workers has had on wages: as mobile technology spreads to low-wage emerging market countries, the pressure to reduce prices is extreme. The CTA estimates that emerging markets will account for 71% of smartphone units this year, up from 40% in 2010. Indeed, across all tech spending, the revenue split between developed and emerging markets has reached near parity: 51% versus 49%.

regional-market-share

The expanding smartphone market has been a boon to sales volumes, increasing over 5-fold since 2010, however ASPs have been slashed by over a third. Indeed, the long-term rate of price decline is over 7%. But at least smartphones keep selling in greater numbers. Pity the poor tablet market where both units and prices are in free-fall. From 2014’s peak, the number of tablets sold this year will be down 21%. From 2010, when the iPad created the tablet market with prices well over $500, ASPs are expected to be just $228 this year, a 17% annual decline over five years.

Smartphone-salesSmartphone--tablet-ASP

Clearly the smartphone and tablet market trends are linked. As the former spreads throughout the world, it’s often one’s only computing and communication device, which has driven the market to screen sizes. Phablets, in turn, have obviated the need for tablets in many situations with a resulting race to the bottom as everyone but Apple turns tablets into cheap secondary devices for kids, schools and occasional media consumption.

tablet-sales

Rays of Hope

CES-1In a separate presentation, CTA’s Chief Economist Shawn Dubravac offered his trends to watch for 2016. The backdrop is five megatrends shaping the tech industry:

  • ubiquitous computing: epitomized by smartphones
  • cheap digital storage: flash following Moore’s Law to exponential improvements in capacity/price
  • connectivity: wireless everywhere with LTE penetration exceeding 50% in most of the world
  • proliferation of digital devices: wearables, smart appliances, IoT
  • ‘sensor’ization of tech: the proliferation of low-cost sensors beyond smartphones to everyday appliances and special-purpose gadgets

CES-2Three themes emerge in 2016 according to Dubravac:

  • ambient sensing: things like baby monitors, diet/food sensors, environmental
  • aggregated learning or predictive customization: think Netflix recommendations or the Nest thermostat learning your behavior and preferences
  • maturing of five nascent ecosystems:
    • VR: From Oculus Rift on the high-end to Google Cardboard at the bottom, CTA estimates it as a $540M market growing over 4x this year.
    • 4K TV: With $10.7B in revenue, 4K now accounts for 21% of the TV market
    • Wearables: Split between smart watches with $3.7B in sales and fitness trackers at $1.3B, if Fitbit’s Blaze is an indication, expect to see a broader spectrum of health and fitness data.
    • Drones: Now almost a $1B market, with 2.9M units sold and growing over 100% this year
    • 3D printers: Still relatively tiny at $152M in revenue, like drones these seem destined to be a niche consumer product, but hugely important to manufacturers
    • Smart homes: Another billion-dollar business, but it’s unclear whether it develops into a standalone market or the technology gets absorbed into existing devices (appliances, HVAC equipment, lighting).

A final trend that Dubravac lumps under the aggregated learning category, but really deserves special mention is autonomous vehicle technology. With NVIDIA announcing a virtual supercomputer to analyze sensor data and power machine learning algorithms, Ford’s CEO saying the industry will put full Level 4, fully autonomous cars on the market by 2020 and Volvo partnering with Microsoft to allow voice control of the car’s entertainment and control systems using a Band 2 fitness tracker, car technology is becoming a major catalyst of tech innovation and spending. Although initial applications target consumers, the implications of autonomous vehicles on the transportation and logistics business are profound, as evidenced by GM’s investment of $500M in Lyft.

Although the macro environment for technology spending is ugly and CES itself is again littered with tchotchkes that are soon forgotten, it does demonstrate the ongoing osmosis of technology throughout every industry and object. Some of these trends will remain niches, however things like autonomous vehicles, smart sensors/IoT (particularly applied to industrial settings) and machine learning/predictive analytics will reshape industries and disrupt unprepared companies throughout the rest of this decade.