Last year Internet appliances were
generating buzz. Twelve months down the track much of the hype seems to have died down, with many of the vendors taking a more sober-minded approach to the devices.
The loosely defined term covers both Net-connected devices with limited functionality targeted at users who don't need a full-fledged PC, and stripped-down gadgets designed for away-from-the-desk "pervasive" computing.
The Internet appliance market has fielded more misses than hits in the last year. 3Com s much-hyped, well-reviewed Audrey died mere months after its splashy launch, as did Virgin Entertainment Group's Webplayer. Netpliance pulled the plug on its I-opener and lost its Nasdaq listing.
IBM, Intel and America Online (AOL), in partnership with Gateway, showed off their Internet appliances at last year's annual Technology Exchange Week in New York. This time around, AOL is skipping the show all together and Gateway and Intel won't be demonstrating their devices on the exhibit floor.
Intel is targeting the Dot.Station to ISPs (Internet service providers). The device isn't available directly to consumers. Instead, Intel markets its Dot.Stations to service providers for resale to their customers. One year after its launch, the device has garnered only a handful of takers. Intel signed a deal in March to sell 250,000 Dot.Stations to AOL Avant, a joint venture between AOL and Banco Santander Central Hispano SA, which plans to market the Dot.Stations in Spain later this year as part of an Internet services bundle.
The AOL Avant deal is the first major deployment for the Dot.Station, Intel spokeswoman Shannon Burris claims. "Quite frankly, we haven't seen the interest we'd hoped," she admitted.
AOL closely aligned with Gateway to develop the Gateway Connected Touch Pad - which makes AOL Avant's decision to use the Dot.Station as its device of choice particularly puzzling. A representative for AOL's Latin American unit could not be reached to comment on the selection.
Announced in October 1999, AOL and Gateway's original intent was to develop a trio of Web appliances, including a countertop unit and a laptop-like device that would pair with a base station to create a wireless home network. At last year's PC Expo, Gateway and AOL demonstrated a prototype Web appliance, but a final product didn't reach the market until November last year - and it hasn't been a hit with consumers. Gateway recently knocked $US100 off the Touch Pad's selling price, bringing the unit's cost down to $499.
"Gateway is still committed to the vision of the connected home. But we think it's really going to take off when broadband takes off more in the home," Gateway spokeswoman Lisa Emard said.
Gateway is currently "re-evaluating" its Internet appliances strategy, but will continue producing and marketing the Touch Pad, Emard said. For the time being, Gateway has no new Internet appliances in the works.
In June last year US-based research firm eTForecasts predicted that Internet appliances' penetration would skyrocket within five years. The firm estimated that 2.3 per cent of US Internet users were currently accessing the Net through Internet appliances, but forecast that figure would jump to 14.2 per cent by the end of 2002 and 55.4 per cent by 2005. By 2005, the company predicted that 221.9 million PCs would be in use in the US, along with 115.4 million Internet appliances.
But the predictions now look aggressive. Analysts say the big problem with Internet appliances is that manufacturers misjudged what consumers are looking for in an Internet device, and what price tag they'll accept.
Even bullish eTForecasts has toned down its expectations since last year. Last June, the company predicted that 115.4 million Internet appliances would be in use in the US by 2005; in a report issued last month, it cut its forecast to 54.2 million. The firm also slashed its worldwide outlook, from 596 million devices in use by 2005 to 322.5 million.
"Consumers haven't really rushed to embrace Internet appliances because of the price," said Brian O'Rourke, a senior analyst with Cahners In-Stat Group. "A low-end PC has more functionality, and costs about the same."
"There's a mismatch between what consumers are willing to pay for the device and what the device they want to buy will cost," agreed Giga Information Group research fellow Rob Enderle. "[Manufacturers] are still exploring what an Internet appliance needs to be. They really haven't found the right device yet."
Faced with a shaky consumer market, several companies are tapping the corporate sector to make their research and development expenditures pay off. Sun Microsystems aims its Sun Ray appliances at the government, financial, education and industrial designs sectors of the market.
IBM plans to announce its similarly enterprise-focused NetVista Internet Appliance this year. The NetVista device is targeted at vertical markets - IBM pitches the appliances to call centres, hotels, retailers and other "task-oriented" industries. Royal Caribbean Cruises recently installed 500 NetVista Internet Appliances in its crew cabins.
Howie Hunger, IBM's business director of Net devices, said IBM's vertical-focused Internet appliances strategy "evolved over time". Initially, IBM thought its strategy would be more in line with Intel's, a "business-to-business-to-consumer" supply chain.
"But we learned that what our customers really want, and what we're strongest in, is focused-use devices," Hunger said. "There's a great market for these in vertical applications."
Analysts O'Rourke and Enderle agree that enterprise is where the market is at, for the moment.
Enderle said IBM's NetVista Internet appliance is "a niche product, but a good one". Noting that electronic terminals existed before PCs, he commented: "If IBM had come out with this a couple of decades ago, we might not have PCs on our desks at work."
"In the enterprise space, Internet appliances can be cheaper than PCs, and they don't have nearly the complexity of PCs," said O'Rourke. Still, he said that both the consumer and enterprise markets are "tiny" at the moment. He estimates that the Intel/AOL Avant deal will represent 65 per cent of all Internet appliances sold in vertical applications in 2001.
Nevertheless, not all manufacturers
have lost their Internet appliance faith. Sony Electronics caused a splash in the US recently with the launch of its eVilla Network Entertainment Centre, a $US499.99 Internet appliance that will start shipping to consumers by the end of the month.
"This is probably the best device out there so far. It's the closest to matching price and the user experience," Enderle said. However the eVilla still has a number of drawbacks to its technology, he said, including its bulk.
"Every device gets a little closer. This is the closest, but I'm not convinced it's close enough yet," he said.
Those of you waiting on the edge of your seat for a small box to place on top of the TV to replace the video and TV guide, or for a display beside the phone to replace the phone book, will require the patience of a saint. While Internet appliances are only now appearing on the horizon in markets like the US, they are still a long way from becoming a fixture on the Australian IT landscape.
Logan Ringland, analyst with International Data Corporation (IDC) in Australia, says that while there are probably markets out there, the local Internet appliance market lacks some key components and will not get off the ground for some time. Ringland has identified three factors that he believes are preventing Internet appliance markets from developing in Australia.
"In order to be effective Internet appliances require a device, content and bandwidth all within a reasonable value proposition to the end user," Ringland said. "That combination is just not happening here at the moment."
Ringland points to a number of major vendors such as Acer and Compaq that forecast the launch of Internet appliances, only to pull them from the market as the fateful day drew near.
"Acer were going to bring out a product but it has been pulled; Compaq had a product but they have canned it - there is just not the market there," Ringland said.
However, Ringland believes that Internet appliances still have potential on Australian markets, given the right combination of price, device and content. To this end IDC intends to revisit the Internet appliance market early in the new year.