Parks Associates, Example Just in Case, Parks Associates

TRENDS, TECHNOLOGIES, & ECOSYSTEMS: Evolution of The Digital Home

2

Consumers are being offered more services

from a growing number of providers.

• Manyoftheseserviceshavesomeappeal,but

consumersarewillingtospendonlymarginally

morethantheycurrentlydoforservices.

• Newservicesmustnotonlyprovetheirvaluebut

alsocompeteforvalueagainstotherofferings.

Core features and functionalities are most

important to consumers.

• Forpay-TVservices,improvingthebasicvideo

experienceisstillmoreimportantthanadding

additionalfeatures.

• Fortechsupport,break-fixabilityiskey.

• Forsecurityandhomecontrolsystems,home

safetyandsecurityarekey.

Consumers want comprehensive solutions.

• Cobblingtogetheravideosolutionthatincludes

YouTube,Netflix,andpay-TVservicesisnotideal.

• Similarly,piecingtogetheratechsupportsolution

fromdifferentsoftware,hardware,andservice

providersisnotideal.

Environmentalism and limited cost savings will

not be major drivers for energy management

services.

• Marginalsavingsandthe“feelgood”ofenergy

efficiencyarenotenoughtosubstantiallychange

consumerbehaviors.

The connected home continues to evolve from basic connected home networks to a feature-rich collectionofCEdevices,broadband-enabledservices,andmultifunctionalset-topboxesandresidentialgateways.

Existing and traditional services are continually offering more:morefunctions,morespeed,andmoreconsumerbenefits.

CONSUMER PREFERENCES AND DEMANDS are in large part driving the technological advances in devices and services.

Parks Associates,with more than

25 years of industry expertise and

consumer research,analyzesthetop

trends influencing the future of the

connected home and digital lifestyle.

3www.parksassociates.com|Allrightsreserved.

Broadband services are the foundationfor the growth of consumer technologyproductsandservices.

By 2016, 814 million households worldwide will have Internet service,

and over 94% will have broadband.

Broadband access will account for almost 99% ofallInternethouseholdsintheU.S.andmostWesternEuropeancountries.

In areas where wireline services have not achieved full coverage,

including markets such as Africa, the Middle East, India, and Latin America,

wireless broadband is likely to outpace fixed line services.Thistrend

leveragesthegrowthofmobileservices,andeven indevelopedmar-

kets,LTEserviceswillprovideaqualityalternativetofixed-lineservices.

Butaswirelineservicesmoveto1Gbpsandbeyond,theseconnections

willworkbest in serving theconsumerdemand foronlinevideoand

cloud-basedservices.

Broadband providers have watched their revenue per bit drop as their expenditures and the volume of usage

increase.Usage-basedbusinessmodelswillbecomemorecommonmovingforward,withprovidersencouraging

consumers intodifferenttiersofservicebasedupontheirusageprofiles.Furthermore,serviceprovidersaswell

aswirelesscarriersare turning toamultiservicestrategy tooffset revenue losses fromthecommoditizationof

standardbroadbandservices.

While broadband speeds have increased, pricing for broadband services has remained flat.

BROADBAND SERVICE PROVIDERS adopt multiservice strategies to offset stagnant revenues and increasing OPEX costs.

HOUSEHOLDS

w rldwide

2016

the NUMBER ofInternet

willBE 814

MILLION

120

MILLION 75 MILLION

MILLION

90%OVER

© Parks Associates

© Parks Associates

4

USER INTERFACES expand to allow for personalized search and discovery.

Providingpersonal recommendations is a growing featureofcontentservices.

Serviceproviders,contentowners,andadvertiserswill allbenefit from the ability of a connected device to suggest content

and advertisingbasedonaviewer’shabits,demographics,orthecontextofacurrentlyplayingprogram.

The question of who will control the user interface remains a contentious issue aspay-TVprovidersseektodifferentiate

servicesandmanagesubscribersthroughuniqueexperiences,whilesmartTVmanufacturersseektocreateabroaderapp

interfaceonthebigscreen.

ThepopularityofOTT video services is driving changes in

the user interface beyondpay-TVgrid-basedinterfaces.

As smart TVs and other connected CE devices integrateapps,

onlinecontent,andsecond-screenservices,theiruserinterfaces

(UIs)areevolvingtohandlemultiplestreamsofcontentandto

allowforbetterorganization,customization,andpersonalization.

Themannerbywhichconsumersselectcontentwitharemote

controllerisevolving,particularlywiththeincreaseofgraphics-

orientedappsonsmartTVs. Industry players are experiment-

ing with enhanced access featureslikefacialrecognition,voice

navigation, gesture control, and search and recommendation.

Smart TV manufacturers will increasingly incorporate gesture

andvoicecontrolsintotheirinterface.

Platforms other than the smart TValsoofferuniqueuserinterfaces.

AppleintroducedtheSirivoice-commandfeatureintheiPhone

4S,andMicrosoftintegratedgestureandvoicecontrolsthrough

KinectontheXbox.

Forhomesystems, ease of access and control makes or breaks

the adoption of a product. Recognizing this fact, smarthome

deviceandservicevendorsaredrivingcontroloftheirproducts

awayfromadedicateddisplay(IHD)ordevice-specifictouchpad

topopularplatformslikesmartphoneandtabletapps.

DID

YO

U K

NO

W OF U.S. BROADBAND HOUSEHOLDS

+25%

MORE THAN

regularlywatch

tabletsmobile devices

tabletsmobile devices&

ONLINE VIDEO

on

© Parks Associates

© Parks Associates

5www.parksassociates.com|Allrightsreserved.

Thepromised long-term growth of IP connected home management serviceswillhelpbroadbandprovidersdeepentheirrelationshipswithsubscriberswhileoffsettingslowingrevenuegrowthfromcoreservices.

Players such as Verizon, Comcast, Swisscom, and ADT Security have all entered this space with IP-based connected home solutions.

Service bundles includingentertainment,technicalsupport,home

management,energyservices,andhealthcareextend the operator’s

reach into the home,leverage existing investments in marketing

and equipment, and create new revenue opportunities.

This bundling strategy is especially important in the energy marketsasconsumerenthusiasmforenergysavingsand

efficiencyhaswaned.ParksAssociatesresearchinlate2012showsinterestinsavingenergyhasdeclinedslightlyamong

consumersoverall;however,inahopefulsignforthefutureofthismarket,youngerconsumersarestartingtoshowmore

interestinenergy-savingproducts.

Theseyoungconsumers come with certain expectations for

technologies.

Developers targeting thismarketmust

ensure their home management ser-

vice/solution provides good function-

ality,withamodernandsleekuserinter-

face, and the solutionneeds to tie into

other systems and popular connected

platformsthroughoutthehome.

A key driver for adoption of these services is the proliferation of connected CE and mobile platforms.

Byextendingtheirnewofferingstothese

popular, and multipurpose, devices, pro-

viders will raise consumer interest and

adoption of these services, which previ-

ouslywere behind closed and expensive

proprietarysystems.

SERVICE BUNDLES, CONNECTED CE, & MOBILE PLATFORMS are key to energy services and are opening new markets for IP-based home management services.

Connected Systems&Services

GROWTH DRIVERS• Maturemarkets

• Highadoptionofbroadbandandhomenetworks

• Familiaritywithsmartphonesandtablets

• Improveduserexperiences

• Lowerequipmentcosts

ParksAssociatesestimatesthereareapproximately450,000 SUBSCRIBERS of bundled IP home management services in2012,generating$500 MILLIONinrevenuesfortheseservices.

Consumers18-34WOULD PAY FOR

HOUSEHOLDS

w rldwide

2016

the NUMBER ofInternet

willBE 814

MILLION

120

MILLION 75 MILLION

MILLION

90%OVER

a smart thermostat —or —

smart water controlsif the solution

saves them on energy consumption

ofU.S.

20% © Parks Associates

© Parks Associates

6

MULTISCREEN SERVICES become standard on any device and for all video offerings.

Contrarytospeculation,however,households are not abandoning physical mediaen masse.Only8%ofU.S.broadband

households have abandonedDVDs and Blu-rays completely in favor ofTV and Internet video, and consumerswho are

abandoningdiscsdosobecausetheydislikethemoviesbeingreleasedingeneral.Consumers have not reached the point

where cloud copies are valued at the same level asphysicalmedia,butsubtlepricechangesmakeasubstantialdifference

inresponses.

© Parks A

ssociates

© Parks A

ssociates

© Parks Associates

© Parks Associates

Video has evolvedbeyondtimeandplaceshiftingintheDVRmodeltoan“anywhere, anytime”service,bothinconsumerusageandexpectations.

Thewideavailabilityofvideocontentonthe

InternethasenabledanyInternet-connected

screen tobecomeanentertainmentdevice.

Pay-TV providers, fighting to maintain their

role as primary sources of video, have em-

bracedInternetvideothrougharapidrollout

ofmultiscreenservices,oneofthefastestde-

ploymentsinhistory.Ninety percent of pay-TV

customers in North America have access to TV

Everywhere, and two-thirds of pay-TV custom-

ers in Western Europe have access to operator-

provided multiscreen services.

• Videoviewingontabletsdoubledto0.6hoursperweekbetween2010and2012

• Videoconsumptiononmobilephonesmorethandoubled

• Roughly20%ofbroadbanduserswatchedvideoonamobilephoneinthepast30days

In2013,106 millionpay-TV

subscribers in North Americawill

have accesstotheseservices,

makingpay-TVprovidersimportant

playersinthefutureofonlinevideo.

The industry will have to continue to experiment with new services,includingfree,ad-supportedvideocontentand

newapps,providingconsumerstheflexibilitydemandedwithtoday’snewmultiscreenenvironment.

Not all new distribution methods for video will

be successful.FOR EXAMPLE

JUST 10% of U.S. users express a willingness to rent and watch video through a social networking site.

90%

Tablet purchases

purchases

are now

E Q U A L I N Gor exceeding

in EVERY agegroup

desktop

are now are now

90%

Tablet purchases

purchases

are now

E Q U A L I N Gor exceeding

in EVERY agegroup

desktop

are now are now

& TWO-THIRDS of PAY-TV Customers in Western Europe have access to OPERATOR-PROVIDED MULTISCREEN SERVICES

of PAY-TV Customers in North America have access to TV EVERYWHERE

7www.parksassociates.com|Allrightsreserved.

Netflix’s services

DOMINATE THREE of theFOUR SCREENS consumers use to watch MOVIES & TV PROGRAMS,

ADVANCED RESIDENTIAL GATEWAYS AND CLOUD-BASED SERVICES provide new opportunities for service providers

Disruptions in distribution channels are forcing all players to reexamine their value propositions.Inparticular,as2013progresses,serviceproviderswillstakeabiggerclaiminthehomethroughmoreserviceandmediaofferings.

Wide availability of online video has transformedall Internet-connected screens into entertain-ment devices,andOTTservicessuchasNetflixWatchInstantlyhaveunderscoredthenewchallengestoserviceproviders.

Inresponse,pay-TVproviders have embraced Internet video through rapid rolloutofmultiscreenservicestothemajorityoftheircustomers,but these efforts will not stop at video.

Providers are moving to monetize a variety of value-added services.

Many are investing in network infrastructure to deliver cloud-based servicestoconsum-

ersandtoenablecloud-basedfeaturesfor in-homedevices.Forsomeserviceproviders,

gateways,especiallyhigh-endmodels,willbean importantaspectof their strategies to

capturenewrevenues.

By 2017, broadband service providers worldwide will deploy 120 million residential gateways

and routers, up from 75 million in 2012. Thirty-nine million of units deployedin2012will

behigh-end, feature-rich residential gateways, increasing toover 65 million by2017.

These high-end gateways allow providers to expand their offerings to include options

suchasVoIP,advancedhomenetworkmonitoring,andmediasharing.

© Parks Associates

© Parks Associates

1 2 3 4

a domain that otherwise would seem a natural extension of pay-TV providers’ traditional services.

These OTT services are also consuming bandwidth over their networks while competing directly against their transactional VOD services.

in2012

BY 2

017 BROADBAND

SERVICE PROVIDERS

w rldwidewill

deploy

residential gateways + routers

UP FROM

© Parks A

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© Parks A

ssociates

8

CONSUMER DEMAND FOR MOBILITY AND PORTABILITY will collide with operator efforts to expand tiered pricing offerings.

AsInternet-connectableproductscontinuetoachievehigherpenetration,opportunities for advertising, gaming, control apps, and second-screen interactions will increase.

Major advertisers and content owners are providing more personalized advertising environments and applicationsthat

linkthetelevisiontoamobiledevice,encouraging greater interactivitybetweenportableandfixedconsumerelectronics.

AS A RESULT, many carriers

Almost every consumer experience now

has a mobile component, fromvideoview-

ing to controlling home systems, and these

second-screenofferingstapintothegrowing

consumerexpectationforubiquitousaccess,

both fixed and wireless. At least one, and

oftentwo,smartphonesare inoverone-half

ofbroadbandhouseholdsintheU.S.market,

andbytheendof2012,therewillbeover180

millionsmartphoneusers.

Over one-third ofU.S.broadbandhouseholdshave a tablet, andthatpercentage will increase asthisdeviceisapopularitemforthe2012holidayseason. By 2013, 66% ofU.S.broadbandhouseholds

will have a tablet.

Tablets will continue to sell well in 2012, and in 2013,alternativeformfactorssuchasUltrabookswilltestthetablet’sdominance.

Earlyconsumer research indicatesUltrabookscould lureconsumersback

topurchasinglaptopsbutonlyiftheydon’thavetopayapremiumforthis

device. For example, purchase intentions for theMicrosoft Surfacewere

at45%inthethirdquarterof2012butdroppedto21%oncepricingand

productdetailswereannounced.

ConsumersaccustomedtoUNLIMITEDdata planswillobject…

Consumer use of data-heavy appli-

cations, namely video streaming, is

soaringalongwithadoptionofthese

devices,requiring more capacity and

greater efficiency for mobile data.

The rolloutof LTEnetworks is an im-

portant step towards the realization

offuture“true”4Gcapabilities.Forthe

fourthyearinarow,globalmobileda-

tatrafficmorethandoubled.

ALTHOUGH earlydatafromParksAssociatesshowsubscribers will quickly adjust their

behaviors(e.g.,usefreeWiFiwhenavailable)tocompensatefordatalimits.

This transitionto tiered/shared data plans is a key change to watch in2013.

notably Verizon Wireless & AT&T

aremovingtheirsubscriberstotiered &shared data plans.

90%

Tablet purchases

purchases

are now

E Q U A L I N Gor exceeding

in EVERY agegroup

desktop

are now are now

© Parks Associates

© Parks Associates

9www.parksassociates.com|Allrightsreserved.

The scope of support services is expanding to includemobiledevicesandaccessoriesandmobile-specificsecurity

offeringssuchasremotelocation,lock,anddata-wipeservices.Thenextlevelofsupportservicesisthedeploymentof

“unattended”technicalsupportservices(coinedTier0services).Theseservicesenable“agent-less”problemresolution

andadvancedproblemdetection—resolvingproblemspriortotheuser’sawareness.

Retailers and product manufacturers are also looking at tech support as a new tool to counter reducedproduct

marginsandattractnewcustomers.Extendedwarrantiesandserviceplanscanincreasetheaverageexpenditureper

customerandencourageadditionalvisitstothestore.

TECH SUPPORT SERVICES become a critical component of customer satisfaction.

Technical support services, if properly implemented, offerimprovedcustomersatisfaction,differentiation,increasedrevenues,andlong-termrelationshipswithendusers.

For service providers,atech-supportoptioncreatesanew level of service “stickiness”and increases customer satisfac-

tion.Seventy-three percentofU.S.consumerswithaccesstotechsupportservicesfromtheirserviceproviderare very

satisfied with their broadband service,comparedto62%ofbroadbandsubscribersoverall.

The purchase of extended warranties and/

or product insurance for products such as

televisions,computers,andmobilehandsets

has remained steady for the past couple

of years, with nearly 20% of consumers

purchasing serviceplans for personal com-

puters, but consumers are more likely to

purchase support services when they buy

tabletsandcomputersthrough retail chan-

nelsasopposedtoonlinepurchases.

Service relationships are providing coverage beyond basic warrantiestoincludeongoingmaintenanceandremotesupportservices.

© Parks Associates

© Parks Associates

Approximately of shoppers feel50%TECHNICAL SUPPORT SERVICE

is an IMPORTANT CONSIDERATION when choosing a retail store

10

Goingforwardin2013, success of an app will depend largely on its performance across platforms.

Developerswillneedtoensurethattheirappcanscaleproperlyfromalow-endBlu-rayplayerorasmartphonewithasmall

screentoahigh-endsmartTVorgameconsole.

App developers will bewise to learn from early successessuchasNetflix,whichpusheddeploymentof

itsapp across platforms and was rewardedwithhighlevelsofconsumerengagement.

Asadoptiondiffusesbeyondearlyadopters, thenumberofapp downloads will level off and even decline in some cases.

This trend is already occurring in smartphones.

Theaveragesmartphoneownertodayhasdownloaded14appssincepur-

chasingahandsetanduses4appsonaregularbasis,comparedto19apps

purchasedand6appsusedinthethirdquarterof2011.

Developers have to be more focusedontheirapp’sfunctionality and target marketinginordertocapturesignificantreoccurringusage.

Increasinglymeteredbandwidthisalsoagrowingchallengeforappdevelop-

ers,especiallyasappsmoveacrossplatforms.People are turning to multiple

screens in their homes for entertainment and information.Already47%of

tabletowners,or15%ofU.S.broadbandhouseholds,engageinatleastone

second-screenactivityontheirtabletsmonthly.The most popular activity

is searching for products or services, followedby searching forTV show-

relatedinformation.

Appsprovidenotonlyuser-interfaceandcontrolfeaturesbutalsoself-contained ecommerce ecosystems.

One-fifth of U.S. broadband households own at least three of the four app-based

devices: smartphone, tablet, smart TV, and game console. Sixty percent of

U.S. broadband households own a smartphone, and 33% have a tablet.

Among users of smart-TV apps, 17% have purchased a product or service

throughtheseapps.

APPS continue to expand across platforms, creating new opportunities for advertising and content services, and must contend with mass-market challenges.

ONE-FIFTH

U.S.BroadbandHouseholds

own at least THREE of four

APP-BASED devices: smartphone

tablet

smart TV

game console

of

© Parks Associates

© Parks Associates

11www.parksassociates.com|Allrightsreserved.

Energy monitoring and control systems HAVE DEMONSTRATED

energy savings approaching

The truly smart home has systems that can accurately anticipate the needs and comfort of the inhabitant, without user intervention.

Dataanalyticscanhelphomesystemsoperateandfunctioninthiswaywhilealsoincreasingthecomfort,convenience,andsecurityoftheuser.

Energy monitoring and control systems have demon-

strated energy savings approaching 17% in some homes.

Systemscananalyzedatatoreduceelectricityusage

in timesofpeakdemand.Beyondcost savings,data

may be used to optimize comfort and convenience

by adjusting lighting scenarios, unlocking doors, or

reporting irregular activities. Applications of smart

systemstodayincludepredictivemaintenanceofap-

pliances,withnotification to thehomeownerwarn-

ingofimpendingfailureofarefrigeratorcompressor

orwashingmachinebelt.

SOLUTIONS BASED ON “BIG DATA” ANALYTICS create smarter home systems and enhance consumer comfort.

Connectivityhascreatedvastamountsofdata,providing opportunities to turn “big data” into predictive intelligence.

Data analytics of home systems can also benefit in-

surance companies, energy utilities, police and fire

departments, and the environment, to name a few.

Initialreluctancetosharepersonaldatamayslowthe

deployment of analytics-based solutions until con-

sumersrealizethebenefitsofthesesystems.

Data analytics will play an increasing role in the functionality ofmanyhomesys-tems,impactingpartnerships,competition,andproductdeployments.

Intheadvertisingspace,real-time bidding (RTB)isanewprocessthatleverages large amounts of data to target specific audiences.

ThroughRTB,adagenciesplaceauction-basedbidsfor individualadimpressionsbasedoncomplexalgo-rithms.Thisprocessallowsagenciestoadjusttheirplacementstrategies”onthefly”basedontheperformanceofindividualsitesandadimpressions.TheonlineadvertisingindustrywillincreasinglyuseRTB,attractedbyitsabilitytooptimizeadrelevance,andby2017,RTBwillaccountfor34%ofallonlinedisplayadrevenues.

insome homes17%© Parks Associates

© Parks Associates

12

CLOUD SERVICES start to become the standard for storage, content access, and security of consumer media.

Contentinthecloudpromisesaccess anywhere, at any time, from any device.

Popularityofdevices that combinemobilitywith thecapacity todisplay richmediaand theavailabilityof4G/LTEdata

speedswillacceleratethistrend.Consumersarealsousingthesedevicestopurchaseandconsumenon-physicalmedia:

Despite the increase in consumer awarenessofthesenewsolutions,thereisstillsome hesitation to accept “the cloud” asareplacementformoreconventionalstorageandusagemodels.

Asnotedearlier,consumersdo not yet valuea“cloudcopy”atthesamelevelasadisc.

Theongoingmigrationawayfromphysical,disc-basedmediainfavorofcontentinanelectronicformatincreasestheneed

forbetterstorageandaccessoptions.Most consumer environments lack the storage capacitytodistributestoredfiles

beyondtheprimarystoragedevice.Virtually hosted or cloud-based hosting of content presents a possible solutionfor

organizingdigitalcontent,sodigitalmediasolutionswillincreasinglycomewithstorageanddistributionoptions.

DespitethewidespreaduseofFacebookforpersonalphotos,manyconsumersdo not trust personal content to cloud-

based storage services due to fears over security, privacy, and continued accesstothatcontent.Highprofilefailuresin

2012bymajorcompaniestosecureconsumeraccountinformationhaveonlyreinforcedthatdoubt.

A comprehensive, user-centric approach to cloud media is needed andwill require

partnerships across the value chain. Continuing improvements in broadband perfor-

mancewillalsohelpthetransition,asconsumersrealizetheycanrelyonthecloudfora

high-qualityentertainmentexperience.

Databases, including entertainment collections and applications, will increasingly be

availableviathecloud,providinggreaterflexibilityforaccessingservicesandcontent.

Security of personal and premium content will remain a critical issueasconsumers

andcontentcreatorsbecomecomfortablewithlivinginthecloud.

Desires for convenience and ubiquitous access will move consumers ever more into cloud

services as a repository for their digital files.

Over the next several years, new companies and unique partnerships will emerge that rely on a cloud-based delivery model for their service.

Anewcategoryofserviceswillarisethatblendsstorage,streaming,management,andvirtualizedfunctionalitytoproduce

awidevarietyofuniqueservicesavailableonlyviathecloud.

Smartphone Owners of71% HAVE AT LEAST

ONE PAID app on their phone© Parks Associates

© Parks Associates

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• AccessandEntertainmentServices

• Advertising

• ConnectedCEandPlatforms

• ConnectedHomeSystemsandServices

• DigitalGaming

• DigitalHealth

• DigitalHomeSupportServices

• DigitalLivingOverview

• DigitalMedia

• HomeEnergyManagement

• MobileandPotable

• AppEcosystem

• SMBMarket

• EuropeanandWorldwideConsumerResearch