Embedded Processing

Sep 27 2007 6:52AM | Permalink | Email this | Comments (3) |
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I hear on a semi-regular basis from semiconductor companies targeting consumer products, especially for audio and video applications, that their latest offering will be successful because consumers demand the better features and quality of capabilities that their new silicon product targets. However, I am not convinced that consumer demand is what is pushing forward and driving all of this technological advancement. In fact, I would go so far as to say that consumers seem to value devices and offerings with less exciting features more frequently than devices that boast the highest technical prowess.

Take for example audio quality. The MP3 market is booming, and yet the quality of the audio from these devices is inferior to the already existing and legacy format used on CDs. Additionally, MP3 players costs a substantial amount more than the $15 for which you can purchase a decent portable CD player with anti-skip features. MP3 players make up for a lower-quality sound by supporting a higher song density and a much easier mechanism for sharing music with friends than with CDs. The use scenario for MP3 players is one where higher audio quality does not impart appreciable value compared with the song density and sharing capability.

Apple's recent 30% price reduction in the iPhone is another example of what consumers might and might not demand. One possible interpretation of the timing of this price change is that there were approximately 1 million consumers that demanded the high-tech capabilities of Apple's latest product enough to buy it at the higher price; however, the steep discount, which places the iPhone's pricing closer to the prevailing price point for similar devices in the market, was necessary to create the possibility of capturing the next 10 million projected buyers over the upcoming year. The relative features available in competing devices near the prevailing market price point seem to play more of a role in consumer decisions than the availability of exclusive capabilities above the prevailing price point.

Eric Taub's article about HDTV retailers points out that some retailers of HDTV are trying to cope with falling profits despite selling more HDTVs than ever before. Some retailers are abandoning HDTVs at the entry-level price point—not because consumers are demanding it, but because they are making less money on them. The article points out that consumers may experience stronger sales suggestions for nonessential services like extended warranties and professional installation that improve the retailer's profit on the sale. It will be interesting to see if HDTV sales shift up to the higher price point or if consumer will follow the entry point to those retailers still supporting that price point.

There are many examples of products that were not the technical leader beating out products with higher technical merit. Think of Beta versus VHS. Many would agree the Nintendo Wii is far behind the Xbox 360 and the PS3 on the graphics front, but that does not seem to be hurting the market share of the Wii compared to these two other platforms—graphics resolution, frame rate, and image detail seem to lose their differentiation power (much like MP3s to CDs) after a certain point, and other things, like how you interact with and use the product, begin to matter more.

Cell phones do not deliver better sound quality nor reliability than that generally delivered by a landline telephone, yet more people each day are opting out of their landlines and relying solely on their cell phones. For these consumers, the cell phone is good enough to offset the cost of the extra landline connection.

Or consider instant messaging (IM) versus voice communication. This is an example of consumers choosing a limited capability versus a legacy capability that actually offers more flexibility and bandwidth…and in many cases, at a lower cost too. My daughter's prepaid cell service charges $0.10 a minute to talk and $0.10 (send) + $0.05 (receive) per IM. Somehow many teenagers feel two (size-limited) instant messages is better than three minutes of direct talking.