a manifesto forthe digital home

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March 22,2004

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with Chris Charron, Charles S. Golvin, Josh Bernoff, Jaap Favier, and lris Cremers

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The digital home - a single networking environment that allows a household to control aind share

entertainment, communications, and applications - will liberate consumer experiences from

technology shackles. Killer applications will include video distribution, flexible storage, and enriched

voice communication. But an explosion in functionality will lead to an explosion in control complexity.

A universal, voice-enabled browser will solve this UI complexity and give the digital home mass appeal.

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2 What lsThe DigitalHome?

The Manifesto ForThe Digital Home

3 What Stands ln The Way Of Utopia?

Benefits Are Elusive ForThe Mass-Market User

Digital Home Technologies: lmmature,

lncompatible, Complex

Business Models Face The lnnovator's Dilemma

7 The Digital Home Means ExperienceLiberation

The Six Families Of Digital Home Applications

Killer Apps That Will LiberateThe Masses

A Voice-Enabled Browser Will Run The

DigitalHome

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14 Digital Homes Alter How We View The World -And The World Views Us

16 Supplemental Material

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For this document, we drew on c,onversations

with a number of senior executives from device,

media, telecommunications, serv'ice, and retail

companies over the past year. ln addition,

we conducted in-depth intervievrrs with 12

companies helping to shape the digital home,

including: Apple Computer, ARCIIOS, British

Telecom, Creative La bs, Hewlett-Packa rd, I ntel,

Li n ksys, M icrosoft, Ph il i ps E lectronics, Pu re

Networks, Sony Electronics, and l-homson.

Related Research Documents

"CES2004:Video Loses lts Chains"

January 9,2004,Brief

"Who Will NetworkThe Home?"

May 9, 2003, Report

"CeBlT 2003: A Small Step ForThe Digital Home"

March,l4,

2003, Brief

"Unlocking Profits From Digital Television"

March 10, 2003, Report

"Where Next ForThe Home PC?"

Janua ry 23, 2003, Report



Forrester Big ldea j A Manifesto ForThe Digital Home

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Twentieth-century technologies gave us the Internet, digital content, and intelligent

devices. lthe 21st century promises to knit them all together. Imagine a home in which

computers, set-top boxes, cell phones, stereos, cameras, and more are connected. Digital

content flows in through a broadband pipe to a ubiquitous home network. Applications

follow consumers from room to room. Unmoored from distribution, content flows freely

to portable devices and vehicles. And digital rights management keeps content safe from

piracy, allowing only those who have paid for it to consume it.

This vision is popular with device, broadband, and content companies, all of whom have

described it to us vividly (and variedly) in the past year. This is the digital home:

A single networking environment that allows a household to control and share

entertainment, communications, and applications.

Consumers, not technology, will drive the development of the digital home. Home network

owners today are a small group of nerds looking to share printers, files, and broadband

connections.'But to resonate with mass-market consumers, another level of simplicity,

flexibility, and powerful applications is essential. Consumers demand:

1. Flexibility. Consumers want easy installation: "I want to set up my digital home

(network) easily." They want adaptability: "I want to add a new component by opening

a box and turning it onl' And they want the simplicity of a single system: "I want oneubiquitous home network, not two or more."

2. Control. Mass-market consumers also want to collaborate: "I want to share documents,

pictures, audio, and video effortlesslyl' They also demand full and easy control: "I want

a simple and intuitive mechanism to control my digital homel'

3. Security. Most consumers (other than illegal file sharers) are interested in legal means

of sharing content: "I don't want to feel that I'm breaking copyright lawsi' They also

want data backup: "I don't want to lose any documents, audio, video, or images." And

they want to ensure their privacy: "I dont want anyone getting hold of my information

or tracking what I am doing without my consent."

4. MobiJlity. Consumers want location-agnostic and device-agnostic access: "I want

to take selected content with me in my car or on my mobile phone." They also want

remote access: "I want to access functions of the digital home when I'm not there."



Forrester Big ldea ; A Manifesto For The Digital Home

This manifesto offers an admirable vision of the digital home. But that ideal is held back

today by three obstacles: actual consumer demand, technology, and business models.

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Today's consumers arent crying out for a way to share digital content and extend their

home entertainment experience. In fact, most are still struggling to understand DVD-

region encoding and how a personal video recorder (PVR) might be useful.

. Today's adopters are a fragment of an already small market. Those consumers with

broadband access, a home network, and an interest in extending this to create a digital

home are a very small audience today - less than 2o/o of households in the US and

Western Europe (see Figure 1). These Fast Forwards and Mouse Potatoes spencllots of

money on technology, but this spending has yet to deliver significant benefits tlhat alignwith their primary motivations.2

. Compelling content and applications are hard to find. To date, home networking

and broadband connectivity have just increased the speed or convenience of existing

activities - few applications offer radically new entertainment or productivity options.

Furthermore, consumers are still reluctant to pay for online content. Four in five online

consumers have either never paid for content or say that they don't intend to do so.3

. Self-sourced content only gets the digital home so far. Much of the content

currently stored on home PCs and networks is self-sourced: consumer-created digital

photographs, or ripped CDs and DVDs. This process allows users to share lots of

content but doesn't get new commercial content into the home. A more mass-rnarket

audience will be less inclined to go through the hassle of ripping libraries of content.

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The manufacturers of networking hardware, PCs, and consumer electronics are still the

heaviest promoters of the digital home vision. But problems still exist with the technology

ideals that they present.

. Installation and configuration requires expertise. The initial creation of a home

network and the addition of new devices take time and require a detailed knowledge

oflP configurations, broadband accounts, and router setups (see Figure 2). This can

be particularly trying with Wi-Fi equipment: Devices and routers simply fail to talk to

each other despite being compatible and in close proximity.



Forrester Big ldea : A Manifesto ForThe Digital Home

Figure l The Audience ForThe DigitalHome

US

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107 million households

Consumers who Consumers who havehave broadband a home network

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163 million households Base: all consumers

*Based on percentage of consumers using home networks for digital home applicationsSource: Forrester's Consumer Technoqraphics@ Q4 2003 European and Q4 2003 North American Studies

Source: Forrester Research, lnc.

' Security, speed, and compatibility issues persist. Consumers who get their home

network to work face more challenges: What security do I apply to wireless networks -WEP, WPA, etc? How fast will the network run? Will the flavors of Wi-Fi protocol -802.1Ia,802.11b,802.11g, and 802.11i - in myvarious devices worktogether?

. Competition between proprietary and open systems stands in the way. New

technology and business opportunities naturally lead to commercial competition

in establishing superior systems. In the digital home arena, this is creating a clashbetween proprietary systems - such as Sony's Roomlink or Apple's iTunes and iPod

exclusivity - and open systems like Wi-Fi and Linux. This leads to confusion and

disappointment for consumers trying to construct a digital home network.



Forrester Big ldea ; A Manifesto ForThe Digital Home

Figure 2 The Building Blocks Of The Digital Home

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Workable business models for the digital home have so far proved elusive. In part, the lack

of business models is due to the classic innovator's dilemma: Creating new business models

means cannibalizing old ones.4 As a result, technology companies have been huppy to gain

revenues from device and software sales, but it hasn't motivated media owners to invest

time or effort in developing new services for the home. Alternative service models have hit

the following barriers (see Figure 3):

. Media companies and rights owners aren't engaging online. Media firm concerns

over piracy, digital rights management (DRM), traditional revenue cannibalization,

and the potential alienation of powerful retail partners are preventing online content

experimentation. The small, initial installed base of home networks is doing little to

dislodge this conservative approach to content distribution in the home.

. The runiversal payment system is still a pipe dream. Even for a content or service

offering that consumers are willing to pay for, finding a way to facilitate this causes

further headaches. Credit card payments are expensive for small transactions and

require ownership of a credit card - this is not a given in European markets like

Gerrnany or Spain. Similarly, micropayment systems have been demonstrated for the

past decade but have yet to gain credibility.'

Figure 3 The Digital Home's Broken Business Models

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Service and contentowners:

. Media owners

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Revenue models:

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Payment mechanisms:. Credit card. Cash

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Industries collide along the value chain. Many industry players are pinning their

futures on this market, so disagreements about who owns the consumer and where

value is delivered are bound to crop up. Witness the current battles between consumer

electronics companies like Sony and PC companies like Dell for living-roomdominance, or between EchoStar and Viacom over the relative value of their place in

the TV value chain. As the digital home takes shape, these battles will only intensify.

So is the digital home just a fantasy dreamt up by networking companies to sell more

routers? Hardly. The digital home will arrive, but in an incremental, evolutionary fashion.

To predict the future of the digital home, we can draw lessons from other significantl

technology innovations - each of which has been shaped by one characteristic that

distinguishes thatinnovation from prior ones (see Figure 4). In the case of the digital home,

that defining characteristic is the liberation of experiences from technology. Consumers will

gravitate to extensions of existing technology that liberate them from:

. Devices. The digital home cuts consumer and application ties to specific

viewing, listening, or interactive devices by offering a way to access content and

communication - along with common standards for processing - across devices.

A digital image can be viewed on TV a PC, a handheld device, or a mobile phone.

. Distribution. Experiences become independent of the distribution channel and,

to a lesser degree, creator control. Consumers can now experience a TiVo-recorded

TV program at their convenience while skipping ads or rewinding live broadcasts -liberating them from the broadcast stream and broadcaster control.

. Location. Devices and applications are no longer tied to one point in the house. The

network and intelligence of the digital home make all services available in all locations.

The main TV and set-top box dont have to sit where the cable comes through the

wall, and Internet browsing isnt restricted to the home office where the PC sits. As

experiences move to multiple locations, fighting for the remote becomes pass6:

Experiences permeate new areas of the home - and beyond'

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The initial killer apps for the digital home will not be revolutionary uses of technology -rather, they will significantly extend the functionality of today's home devices and

applications. Six application families will power the digital home (see Figure 5):




Figure 4 The Evolution Of Communication

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. Productivity applications will generate reyenues first. Productivity applications

include home working, household budget management, address books, and

printing. These digital home applications represent the smallest leap from today's

home networking market. Consumers already understand the benefits here, and

most applications will work without significant additional investment. Key enabling

tech:nologies include PCs, PC peripherals, virtual networking, and security.

. Entertainment applications will arrive in phases. Representing the biggest area of

spending within most households, entertainment applications will come to the digital

home over a long time frame. Consumers can already share digital music throughout

their home with products like the Creative Wireless Music unit, but more complexofferings like video on-demand (VOD) will take years to deploy. Why? Aside from the

business risks involved, applications lil:e VOD or high-definition TV (HDTV) require

expcrnentially more bandwidth, storage, and processing power. Key technologies are

streaming, encoding/decoding software, and DRM solutions.

. Connmunication applications will be the third wave. In some households,

com:munication services outstrip spending on entertainment, yet the technology to

support this today is fragmented (mobile, DECT, email) and relies on outmoded

technology (SMS, fixed phone lines). V/hile this is not of immediate concern to most

consumers

-and hence won't drive home network adoption

-services like VoIP and

video chat will liberate consumers frorn more expensive, complex services and offer

unified messaging, address books, and remote management.6



Forrester Big ldea : A Manifesto For The Digital Home

Figure 5 The Six Digital Home Application Families

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. A battle between standards-basedshared storage and proprietary device-specific storage will frustrate consumers

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10 Forrester Big ldea i A Manifesto ForThe Digital Home

In addition, three more families of applications will offer less-tangible immediate benefits

but draw strongly on Metcalfe's Law as the number of empowered devices and applications

in the home grows:7

. Storage will be a smaller, but ongoing, opportunity. The digital home will require

huge volumes of storage to hold video, audio, data, photographs, messages etc. This

demand will need to be satisfied from day one by ever-increasing hard disk capacities

and new devices that arent enslaved by a PC. More importantly, these huge volumes

of data will require new management systems - scrolling through a file manager to

find one particular digital picture or a specific audio track ceases to work when tens

of thousands of files exist within the seamless home environment. PC and storage

manufacturers are the obvious beneficiaries here, but network resident storage and

management services represent a longer-term opportunity.

. Security and monitoring will create niche markets in the long term. If we think of

the network for the digital home as a nervous system, what passes for the eyes and

ears? Remote access and management of a home environment via devices like cameras,

microphones, and temperature sensors creates excellent opportunities for home

security applications and even remote health-monitoring applications. Going hand in

hand with these near-voyeuristic applications will be the need for privacy protection,

regulation, and consumer advocacy. Today's home security providers like ADT will be

strong players in this space, extending their offerings to utilize new technologies.

. Home automation and management will bring up the rear. Home automation and

management allows consumers to remove drudgery from their daily lives. This willtake the form of lighting, heating, and appliance maintenance and management or

new devices, such as robotic cleaners and lawnmowers. This also creates a market for

human support and management services to check that everlthing is working well.

This takes time: Most of these applications will be "nice to haves" rather than category

killers. They will rely on the growing installed base of digital homes and key appliance

manufacturers like Potterton or Maltag including basic network circuitry in their

appliances by default.

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If these six families of applications drive the development of the digital home, what killerapps will cause large numbers of consumers to convert along the way? Assessing the value

of any app requires looking at it through the lens of experience liberation: 1) Which apps

will resonate with consumers looking to liberate key experiences or activities? 2) which

apps are capable of being liberated given existing technologies? and 3) which apps offer

service models that are truly independent of existing business and revenue structures?



Forrester Big ldea ; A Manifesto For The Digital Home 11

Forrester has created a digital home application scorecard to benchmark applications along

these three criteria (see Figure 6). We scored existing applications like TiVo, Apple iTunes,

and broadband video on-demand, as well as some prospective applications. Here are some

killer apps coming to a digital home near you (see Figure 7):

. Broadband VOD. Ho hum, you say? VOD has indeed been well-hyped - but with

good reason. Broadband VOD applications are largely technically unfeasible at the

moment, but this will change over the next five years as available bandwidths increase

dramatically and the broadband audience grows. As more content becomes available

beyond entertainment - such as for training and education - portable video will be

a must-have for 21st-century homes.

. Video chat. Drawing on the popularity of voice and instant-messaging technologies,

the addition of inexpensive Webcam-style devices will enable video chat in the digital

home. However, the utility of this application is limited by the number of enableddigital homes - Metcalfe's Law in action.

. Home security management. The global market for home security services like

burglar alarms, security firms, and panic switches is huge: In the US alone, around

$19 billion per year is spent on electronic security products and services - but

this spend is highly fragmented among local installers, security firms, and global

equipment manufacturers.s The digital home will provide an ideal opportunity for

more standards-based, self-installed, remotely monitored security systems. Consumer

concerns over theft and home invasion guarantee that money will always be available

for the right solution.

. Mobile phone master keys. As the most ubiquitous and personal device, mobile

phones will evolve to become the digital home's "master key ringi' The device's secure

storage, always-on functionality, and picture/video-messaging capabilities combine to

provide a compelling package. When the Sky installer shows up at your door and rings

the doorbell, the camera in your front door will call your mobile and send you a

picture - still or live video - of him. When you are convinced that you want to let

him in, you'lltell your phone to unlock the front door: It will also tell the mobile

network to store his picture and metadata recording your authorization of entry -time-stamped and signed by the operator in case of any legal issues.

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Forrester Big lclea : A Manifesto ForThe Digital Home

Figure 6The Digital Home Application Scorecard

SCORING CRITERIA SCORE

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Forrester Big ldea ; A Manifesto ForThe Digital Home 13

Figure 7 Digital Home Applications Emerge

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Liberating content and communications from individual devices has an unfortunate side

effect: It exponentially increases consumer options and control complexity. Picking one of

hundreds of movies, recorded TV programs, or interactive services and piping it to one offive or six devices around the home is something that today's remote control systems cant

deal with. To succeed, the digital home will need a universal browser that:

. Works across many devices and applications. Just as the Web browser united

disparate sources and types of Internet content, so the universal browser, running

on many home devices, will restore manageability to the digital home by simplifying

interfaces, choices, and management.

. Offers voice control. Voice is the most natural human communication mechanism,

but machine recognition and processing have been basic and poor to date. The

flexibility and distributed processing power of the digital home will make voice

recognition possible and a necessity - no interface is more universal than using your

voice. Some early examples include Home Automated Living's Voice Control kits for

lighting and heating or Microsoft's Voice Control extender for its Pocket PC platform.

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14 Forrester Big klea , A Manifesto ForThe Digital Home

. Is personalized and location-aware. Personalizing the universal browser to individual

housrehold members - based on user preferences and learned behavior - reduces

the number of control options that need to be presented in daily usage. In addition,

making the browser aware of the room the user is in helps to further reduce potential

options and simplify usability.

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It's not iall liberate, liberate, liberate. The digital home brings with it a unique set of

privacy, social, and complexity issues:

. Lawyers summon your digital home to testify against you. A Montreal man

was recently convicted of dangerous driving based on evidence of his speed at the

time of an accident from his car! intelligent air bag, How long will it be before law

enforcement agencies see the vast amount of data collected and stored within the

digital home as vital evidence in proving motive, means, and opportunity?

' Forget remote control battles: Get ready for environment battles. The digital

home removes a lot of today's family clashes around what to watch on the main TV

by allowing family members to move experiences elsewhere. But what about more

basic environment control? lf two household members are in the same room, how

does a preference-based sensory heating and lighting system decide which set of

preferences to use? Do members of a household end up voting for who has ultimate

contrrol in an 'American ldol'Lstyle vote?

. The power supply is vital: Batteries and generators take off. Give more control to

electrical devices, and you place yourself at the mercy of the power grid. ln the recent

power outages on the US East Coast, people were shocked to find that cordless

phones didn't work - because the base stations need constant power - or that

they'couldn't flush toilets - because manual flushers had been replaced by light/

movement-sensing automatic flushers. The digital home will make this worse and

lead to an explosion in the backup generator and battery market.

. Experience brokers become key intermediaries. Google search services and

online blogs have vastly improved the lnternet experience by adding structure, color,and commentary to an anarchistic environment. Experience brokers, either real

or automated, will do the same for the digital home, helping consumers navigate

complex choices and get the best value for money. Want to know where to get VOD

episodes of "The Simpsons" or what the best-value VolP package is this week? Put in a

call to your experience broker.



Forrester Big ldea ! A Manifesto ForThe Digital Home t5

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film ever releur"O ir iuuifable for download, the ability to navigate, organize, and

filter such massively comprehensive volulei.of data.Oelomes

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16 Forrester Big ldea i A Manifesto ForThe Digital Home

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We used Forrester's Consumer Technographics@ data to provide a deep understanding ofcurrent consumer behavior and technology usage. We supplemented this with interviews

with global thought leaders from the PC manufacturing, CE manufacturing, networking,

software, and ISP worlds.

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I Consumers want home networks for connecting PCs, but they need help. Broadband ISPs,

aided by gear makers and retailers, will provide the needed assistance and gain a platform to

enhance revenues. Europeans are drawn to home networking as a way to share PC resources and,

increasingly, to allow broadband connections to be extended to multiple devices. A significant

percentage oftechnology-literate early adopters have already invested in home networking, but

todayt solutions are still complex to install and configure. By 2008, these issues will have been

addressed, and 47o/o of broadband households in Europe will have a home network. See the

May 9, 2003, Report "Who Will Network The Home?" and see the February 26,2004, Trends

"Europet Homes Get PC Home Networking."

2 The combination of technology optimism, household income, and primary motivation creates

10 segments, each exhibiting unique behaviors, attitudes, and purchase patterns - ranging from

the successful, career-driven Fast Forwards to the low-technology-aptitude Sidelined Citizens.

See the November 26,2001, Report "WhyTechnographics Works."

3 Forrestert Consumer Technographics surveys show that 88% of online European consumers

have never paid for Internet content, while 79o/o of online Americans say that they would not pay

for multimedia content online.

a Source: Clal'ton M. Christensen, "The Innovatort Dilemma: When New Technologies Cause

Great Firms to Failj' Harvard Business Press, 1997.



Forrester Big ldea i A Manifesto For The Digital Home 17

Most of Europe's 60 new payment systems will fail. Survivors will stick to the usage conditions

under which they outstrip cash and plastic cards and work harder at driving their difftrsion -which will take a decade. See the fuly 1,2003, Report "New Payment Systems'Survival Guidel'

Convergence between communications and collaboration technologies will radically changethe way people communicate in the next decade. Unified synchronized communications (USC)

combines myriad technologies and devices in a single platform, streamlining management of

communication channels and reducing end-user complexity. See the February 24,2004, Trends

"Unified Synchronized Communications Arrives."

Metcalfe's Law states that the usefulness, or utility, of a network equals the square of the number

of users.

In 2001, Americans spent an estimated $18.7 billion on professionally installed electronic

security products and services - this figure includes monthly monitoring fees; previous totals

were $17.5 billion in 2000 and $16.2 billion in 1999. Source: STAT Resources, Inc., Boston, Mass.

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400 Techrrology Square

Caribriclge. MA C21i9 USA

l-ei: *l 617 /6i 3-6000

Fax: + I 6i7 /61 3-:;00C

ImaiI: [email protected]

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