Market Analysis: Convergence & Home Media Servers

By Michael Greeson, CEO, Co-Founder of The Diffusion Group

The Headlines Say?

According to a number of recently published reports, demand for ?home media servers? ? generally defined as hard drive-based platforms with media networking software that enable the use of a home network for media sharing purposes ? is set to accelerate to staggering heights in just the next few years. 

One particular study predicts that some 50 million home media servers will be sold in the US in 2010 ? that?s annual sales, folks, not cumulative.  As well, the US HMS market is expected to grow approximately 10 million units in 2006 to more than 20 million in 2007, more than 30 million in 2008, more than 40 million in 2009, and more than 50 million in 2010.  Interesting – that?s essentially an increase of 10 million units each year for the next five years with little variation in annual demand. 

In other words, regardless of the specific pace of market drivers, US consumers will simply purchase 10 million HMS each year ? a nice, eye-pleasing linear growth rate.  It?s as if the key drivers for HMS adoption (such as more widespread use of IP-based  wide area media distribution, increased usage of home networks for media sharing, and decreased cost of HMS platforms) are themselves ramping up in the same linear fashion.  Never underestimate the power of aesthetics when forecasting!

Back to the central point:  when we add up the five years of annual sales forecasts, it appears that cumulative sales of home media servers during this period will be approximately 150 million units in the US alone ? that?s almost 1.5 media servers per home by 2010.  Are you kidding me? 

The Research Says?

Just so we?re all on the same page, the ?home media server? category includes a diverse set of platforms such as multimedia PCs, set-top boxes, consumer electronics devices, and network-attached storage units armed with media server software.  Key to all HMS platforms is that they can store digital media content (music, photos, videos, etc.) and ?serve? this content up to other devices connected to a home network that enable consumption ? in most cases, these ?other? devices would include TVs, stereos, or other PCs.  There are a number of HMS devices available today in each of these product clusters, but the bulk of HMS sales are limited to multimedia PCs ? in most cases, PCs armed with Microsoft XP Media Center software.

According to TDG?s latest consumer research, less than 10% of all broadband networked households have non-PC media devices such as TVs or stereos connected to their home network.  Given that there are approximately 24 million US broadband households with a home network in use, that means that less than two million US households currently use anything even approximating a ?home media server? or ?home media network.  I suspect that primary research from this same firm produced similar results, a fact which begs the question as to why their short-term forecasts are so optimistic.

Potentiality versus Actuality

Here are a couple reasons why I believe these forecasts may be a bit fluffy, reasons which are all the more relevant given that Media Center PCs comprise the bulk of HMS unit sales forecasts for the next several years.

First, the HMS category is defined so broadly that just about any hard drive-based device with media server software qualifies as a HMS.  To illustrate this point in the most absurd way possible, imagine an iPod or portable media player with a hard drive, media sharing software, and USB or WiFi connectivity.  Does this portable media player therefore qualify as a ?home media server??  If your answer is ?yes,? the forecasts for HMSs just jumped to several hundred million.  If your answer is ?no,? then today?s conception of home media servers is erroneous. 

Second, even if you accept the premise that 50 million HMSs will be sold in 2010 (a conclusion which is highly suspect), none of the published research clarifies to what extent these home media servers will actually be USED AS home media servers.  Unwittingly OWNING a home media server simply because your new PC has a Media Center OS running on it and USING it as such are two very different things (as many digital home proponents are discovering).  The best that can be cited is research regarding consumer intentions to use their PCs as home media servers ? a metric which, while helpful, has time and time again led to overly optimistic forecasts and misguided strategies.

The Challenge of Product Definition in the Age of Convergence

Trends in hardware miniaturization (driven primarily by innovations in silicon) and advances in software have facilitated a level of ?converged? functionality that is absolutely mind-boggling:  for example, devices as small as mobile phones can now support the same applications once enabled by personal computers of the 1990s.  With these trends expected to become more pronounced in the next few years, the lines between products and categories will only become further blurred.

In this age of convergence and miniaturization, how will we organize consumer technology products?  Will they evolve from being defined by the applications they enable to being characterized by the way in which they are actually used?  Will product categories void of usage metrics become meaningless?  I would argue that usage must become the measure by which such platforms are defined or organized ? if not, then almost any digital or IP-based platform with a hard drive is in theory capable of being a home media server. 

When this happens, you end up with overly optimistic forecasts describing products that, while capable of a robust set of features, will never in their lifetime be used.    You end up with misguided product designs and marketing strategies that don?t speak to real consumer needs but to those imagined by engineers.

A Funny Thing about the ?Digital Home??

Fluffy forecasts have characterized the digital home landscape for more than two decades.  For those of you with experience in this space, you are aware how many fits and starts the ?digital home industry? has had.  As a consultant in this space for more than five years, I?ve seen both large and small companies embrace overly-optimistic forecasts only to find themselves squandering millions on ?emerging opportunities? that never surface ? at least not to the extent many forecasts may have suggested.  I?ve seen well-intentioned analysts produce forecasts in the vacuum of their cubicles, unaware of the impact their predictions will have upon their client?s financial future.

For those of you that know TDG ? and are aware of our conservative methodologies ? you understand the extent to which we go to avoid becoming cheerleaders for emerging products.  This is not to suggest, for example, that we?re not bullish on home media servers.  In fact, most of our experts agree that this is a growing market.  The same can be said for digital media adapters and embedded IP networking.  However, pie-in-the-sky forecasts are of benefit to no one ? not the firms that proffer them and certainly not the clients that embrace them.


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The views expressed here are solely those of the author and do not reflect the beliefs of Digital Trends.