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Forrester: Consumer Electronics Not Just About Cool Products Anymore; Delivering Digital Experiences Could Add Billions In Revenue

Jan. 3, 2006 The same consumer technology industry that is selling digital devices at a record rate is failing miserably at selling the additional products, services, and content that bring those devices to life. The result, according to a new report from Forrester Research, Inc. (Nasdaq: FORR), is that consumer technology companies are leaving $3.8 billion in lost revenue on the table today. Forrester's advice to the consumer technology industry: Stop selling standalone products and start selling digital experiences that integrate products, services, and content in a way that's easy for consumers to buy, install, and use. This strategy has the potential to provide an additional $13 billion in revenue in 2010.


Forrester's data illustrates the staggering gap between owning a device and powering it with services and content:

-- 80 percent of the 18 million Web-enabled mobile phone households don't buy data services. The revenue gap by 2010: $5 billion.

-- 50 percent of consumers who own HDTV sets don't subscribe to HD programming. The revenue gap by 2010: $3.4 billion.

-- Only one in four consumers who own an MP3 player buys music online. The revenue gap by 2010: $3 billion.

-- One in three digital camera owners doesn't print these photographs anywhere. The revenue gap by 2010: $1.6 billion.

"Consumer technology sales are broken," says Ted Schadler, Vice President at Forrester Research. "Consumers are being forced to assemble the different components of their digital lifestyle themselves, and they're not equipped to do it. Retailers' traditional approach of lining up racks of products at the lowest price isn't cutting it. Digital experiences are too complex, and technology is changing too rapidly."

Today, Apple Computer, with its highly successful and tightly integrated iPod and iTunes, is the only consumer technology company that has perfected the digital experience playbook. And while Apple is unique in being able to control software, hardware, and content, Forrester sees companies like AT&T, Best Buy, Hewlett-Packard, Tweeter, and mobile retail newcomer IMO beginning to offer other digital experience solutions.

"Apple's legacy is not just about cool products; it's about recognizing the need for an end-to-end digital experience," says Schadler. "The iPod's impact is reverberating across every sector of the consumer technology industry."

Forrester believes that the most promising opportunity for selling digital experiences lies with companies that can assemble solutions at the point of sale. But most big-box retailers' strategies rely on offering consumers the widest selection of products at the lowest price. That opens the door for a new kind of nationwide retail specialist that Forrester calls a "solution boutique."

What is a solution boutique? Think Starbucks, not Wal-Mart. Solution boutiques -- whether online or offline -- will offer consumers the opportunity to get an education about what digital products, services, and content make the most sense for their lifestyle, resulting in a complete solution. Profitability at a solution boutique comes from the higher-margin service contracts, in-home installation, product upsells, and service bounties.

Apple's retail stores represent the quintessential solution boutique for PC digital entertainment experiences, but retailers in other consumer tech industries are copying the Apple blueprint. In the home electronics space, Best Buy's Magnolia subsidiary and Tweeter install custom solutions. Meanwhile, mobile retail startup IMO, which recently opened its first store in Columbus, Ohio, helps consumers wade through the dizzying selection of mobile phone brands, service plans, and applications.

"Every consumer technology company -- manufacturers, service providers, installers, and retailers -- has a role to play in delivering end-to-end digital experiences," says Schadler. "Product-service bundles, global media and technology standards, and nonprofit certification groups that implement and test standards are all critical to bringing digital experiences to life for all consumers."

More details on this subject can be found in the Forrester report "Sell Digital Experiences, Not Products," which is available to WholeView 2(TM) clients and can be found at www.forrester.com.

About Forrester Research

Forrester Research (Nasdaq: FORR) is an independent technology and market research company that provides pragmatic and forward-thinking advice about technology's impact on business and consumers. For 22 years, Forrester has been a thought leader and trusted advisor, helping global clients lead in their markets through its research, consulting, events, and peer-to-peer executive programs. For more information, visit www.forrester.com.

(C) 2006, Forrester Research, Inc. All rights reserved.

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