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Guest Commentary: A quiet broadband revolution is upon us

Jun 11, 2001  •  Post A Comment

Super-fast broadband Internet connections are on the verge of spawning a quiet revolution in our living rooms. Broadband technology will likely penetrate 40 million homes by the end of 2005. In this new world of super-fast connections, time spent online increases markedly at the expense of television; demand for interactive applications, including interactive television, is strong; and consumers rapidly adopt applications enabled by broadband, such as streaming and downloading audio and video entertainment.
The shift to an “always on” Internet is under way, opening a universe of opportunities for businesses to capture a new breed of consumer who clearly loves broadband connections. To capitalize on these opportunities, service providers need to shift away from simply touting the speed of broadband Internet connections and begin offering consumers services such as interactive TV, streaming video and downloadable audio.
Time is of the essence. Competition in this new broadband consumer marketplace is heating up. In fact, providers of cable and digital subscriber lines may already have a head start, since they already provide service to the lion’s share of online consumers.
McKinsey & Co. and JPMorgan recently researched geographic areas where broadband connections have been available for more than two years, through either digital subscriber lines or cable modems. In those markets, consumer demand for broadband has already reached 20 percent to 30 percent of online households. This makes broadband the fastest-growing product in the history of telecommunications.
To further accelerate this demand, companies need to communicate to consumers how their lives will be enhanced. For instance, broadband providers could emphasize the ability to have a fax server and to easily use low-cost voice-over IP. In the non-PC world, they could promote the availability of digital radio and video on demand via television.
Consumers clearly love broadband connections once they get them. In a separate study, McKinsey found that broadband users spend considerably more time online-up to 40 percent more-than when they had slower dial-up connections.
With broadband use clearly moving beyond the early-adopter stage, six distinct consumer segments are now emerging. These are:
E-mailers and readers: older, upper-income users with interests in e-mail and news.
Researchers and hobbyists: middle-age, upper-income females with families who like to research family- and hobby-related subjects online.
Gamers and gamblers: people who primarily use the Internet for online gaming. This segment spans younger male users who like to play action games and older female users who prefer parlor games such as bingo and bridge.
Chatters: low- to moderate-income high school and college students who use the Internet for chats, e-mail or downloading music.
News seekers: Internet-experienced, wealthier, young to middle-age males who prefer to go online for news, sports and music.
Entertainment junkies: young to middle-age users with an interest in a wide range of media and entertainment.
These customer segments are likely to grow over time because they reflect life-stage-based needs that can be addressed by new online offerings. These range from video on demand for young entertainment junkies to video links for e-mailers and readers who would like to see their grandchildren while they talk to them.
Broadband ubiquity will be founded on new and exciting consumer applications, many of which are barely on the drawing board. In McKinsey focus groups and surveys with more than 600 participants conducted in February, consumers were clearly interested in personal video recorders and video on demand.
A PVR such as TiVo, allows random access to television shows, which the machine records based on individual viewer preferences. Demand for other applications, such as portable Web pads, which allow Internet access on a portable computer screen, are also interesting to some users.
The real battle over broadband will not be fought between DSL and cable but between different players attempting to set standards and to own the consumers over the long-term.
Today, DSL and cable providers may have a leg up because they already have the consumer base. But it is still unclear which players will eventually develop the most compelling offers that will attract and retainconsumers.
By 2004, video on demand has the potential to become a $1 billion business, which represents a major potential improvement to the low-margin and erratic business of making movies.
Watch for cable companies, DSL and other infrastructure players and the major studios themselves, each attempt to build successful VOD retail models and in the process set the standards for encryption and compression software.
For example, picture financial advice available through real-time one-way or two-way video streaming. This would allow for a far more personalized asset-management experience at low incremental cost, thus potentially enfranchising a whole new swath of mid-level wealth consumers to this previously more exclusive service.
Broadband may appear to be simply a better technology for fast Internet access. But as companies develop new applications that exploit broadband’s functionality, the ways consumers shop, communicate and enjoy their leisure time will undergo sweeping change. Broadband will finally allow consumers to tap into the Internet’s true potential.