Good News Story - Let's stop being so gloomy

The digital economy is currently battling against two key opponents: the state of the markets and a state of mind. The perception in the markets is one of gloom and that brings down our state of mind: a vicious circle. It is time to shake off this malaise by examining the very real, fundamental opportunities that exist in the digital sector. It is time we were more positive in our state of mind. It is time we heard the good news about the digital economy.

The dot.com noise has gone from the market. The competition is in retreat. Audiences continue to grow rapidly. There is no better time to build an internet presence that supports a business. The lessons have been learned so the formulas for success are clearer. The digital services sector in the UK now has people with valuable, hard experience, people who understand how to make the most of the digital channels to create value for businesses, people with the talents and passion that continue to flourish in the face of the direst recent news.

Everyone has a part to play in delivering this shot of adrenalin – the press, agencies, clients, analysts. Forget f**ckedcompany.com, let us know about the good news you have. Register your views by replying to this message – if we get enough interest we’ll take it to the papers…

To get you started, here are a few thoughts:

1. People want to buy online.

Even if we discard the uniformly positive projections for e-commerce growth, there is real news to support what is happening:

- Amazon’s first quarter sales in 2001 saw a rise of 22%
- Online bank Egg is still on target to break even in Q4 this year
- WHSmith.co.uk has seen sales leap 47 per cent to £5 million in the six months to February
- Argos’ online sales have topped £50m
- AOL now has over 29 million customers (some belonging to the 1 million new Britons who’ve gone online in the last few months)

Ask yourself: do you really, honestly think e-commerce has peaked and will gradually disappear? Do you find yourself buying more online now or at least considering giving it a go? Do your friends talk about things they have bought or researched online, like travel, books or music? Do even your parents talk about ‘getting the internet installed’?

2. Interactive TV will be big business.

98% of UK households have at least one TV and ownership of digital TVs has just surpassed the number of those with an internet connection at home. Most people do not subscribe to digital TV for the interactive services, and some of those services are currently poorly designed and getting to them can be quite a task, but as the services continue to improve we will see them become a part of millions of people’s lives. Those that have seen the latest digital text services, get e-mail through the TV, access their bank balances on screen, have tried TV betting or have been able to buy a pizza off the TV while watching the big match, quickly become converts. It will take time to become a mass-market phenomenon, just as SMS has only recently taken off, but it will happen.

3. Wireless internet will be indispensable.

It wasn’t so long ago that mobile phones were brick-like devices flaunted in public principally, it seemed, by salesmen eager to impress. Today, nine-year olds don’t seem to be able to live without their credit card sized link to the connected world. Mobile phones are increasingly a must have, not an option. 7% of UK households have chosen to dispense with their fixed line phone connections. Why bother if everyone has their own wireless phone?

The telecommunication companies may have their work cut out trying to recoup the £22bn they spent on 3G wireless licences, but the success of short message services in Europe indicates that there is huge consumer demand for the right wireless services. In December 2000, over 15 billion text messages were sent over GSM networks worldwide. The number of users of NTT DoCoMo's i-mode service in Japan at the beginning of March 2001 was 20 million and over 30,000 new subscribers are added every week. If you have you seen what will be possible in just 5 years time then you will know that such services will surely become indispensable to us all.

4. People are making money online.

There is currently much more bad news than good but perhaps that is, in part, a function of the fact that there were, and are, a great deal of e-businesses that were never likely to do well in the first place and Darwinian evolution is weeding out the weakest. However, there are green shoots of good news growing through the cracks:

- Online broker E*Trade posted third-quarter net profits of £604,000 compared to a net loss of £468,000 a year ago.
- Tesco has revealed that its internet arm tesco.com is raking in weekly sales of £6 million.
- Expedia announced that it will report revenue for its third fiscal quarter of around £77m
- Global energy giant Enron revealed that its e-commerce platform has transacted over £368bn in gross value since late 1999.
- Oracle, the world's second-biggest software company, expects the gloom in global information technology markets to fade by the end of this year, with business returning to normal in 2002.
- Online travel site Travelocity.com reported its first-ever profitable quarter, just days after competitor Expedia.com said it has reached profits as well.
- Ebay beats forecasts and raises its earnings guidance for the second and third quarters. eBay's accelerated international growth is putting its overseas operations ahead of schedule in reaching profitability.
- Shares in European online travel company ebookers.com rose by 20.5% following Q1 results, which show consolidated sales up 35% on the previous quarter to £33.3m

5. New media means a great working environment.

We no longer live in a “jobs for life” work culture. If you work in new media the mere thought of doing the same thing all your life, trekking along the same well worn career path as countless others before you, strikes terror in your heart. The path of new media may be rocky but it is challenging, there is the thrill of the unpredictable and every day offers new chances for innovation. You cannot work in new media without a passion for learning, for thinking creatively and for working in a team of people with very varied skills. The spirit of change is infectious and for many coming from the ‘old’ economy it is like a breath of fresh air.

6. The internet is here to stay.

IDC project that “over the next four years, the number of Web sites will double, e-commerce will increase by a factor of 10, and technology spending on Web applications will escalate to four times what it was the previous four years.” We have come to distrust such projections but it is hard to ignore the day-to-day shifts in behaviour that we observe. My grandfather is now part of an online community dedicated to Second World War battleships; my PC-illiterate neighbour came round last week and I helped him look for a new house on the web; I’ve just booked every element of my summer holiday on the web within three hours and learnt a lot about my destination in the process. Habits are changing - not in an Internet revolution, but at the normal, slow, steady pace of human behavioural change.

Do you have a good news story to tell about the digital economy? Do you think the digital economy is doomed after all? Let us know by replying to this message.

Phil Redding, CEO, Wheel
www.wheel.co.uk

Interactive TV has had a tough run in the press for the past few months. The announcement of job losses at Open, the re-launch of the digital terrestrial platform and the disappointing growth in digital cable have all given the sceptics opportunity to hail interactive TV as an over-hyped digital failure. Thankfully, many of their arguments are made without a clear picture of the state of the market nor a real understanding of the relevant technologies.

Here are four basic reasons why there is every reason to be positive about the market for interactive TV:

1: The current market size and rate of growth is impressive

If you consider the standard five stages of consumer response to innovation (i.e. Innovators, Early Adopters, Early Majority, Late Majority, Laggards) digital TV has converted the “innovators” and “early adopters” in a very short space of time (especially when compared to growth rates for similar consumer device innovations, like the colour TV, the VCR or the PC). More than 30% of households receive some form of digital TV - that’s about 7 million homes. The figure goes up to 50% for homes with children. In just two and a half years, that’s a remarkable growth rate.

Perceptions of non-subscribers are changing as well. In a Gallup poll (commissioned by Pace) last year, 53% of respondents said they would wait until just before an analogue signal switch-off before converting to digital. In this year’s version of the same study, that figure had dropped to 34%.

The issue of the analogue switch-off is a contentious issue and will no doubt be blown out of proportion in the lead up to the election. It is important to understand that the signal will only be turned off once 95% penetration has been achieved (and a couple of other conditions are satisfied as well*). It will therefore by a consequence of successful digital TV penetration and not a driver of it. The current date of 2006 may be over-ambitious (to say the least) but the government’s initiatives to achieve the target date will certainly have a positive impact on the general awareness of digital TV’s benefits.

When considering the potential market for t-commerce it is important to temper the optimism with the fact that a large portion of digital TV subscribers do not currently have access to the interactive services that allow for commercial transactions. Specifically, ONdigital’s subscriber base of a million-plus, require the additional “ONnet” set top box to gain access to full interactive services. To date, barely 80 000 subscribers have taken up this option. A large proportion of the NTL digital subscriber base is also not yet fully interactive and the platform is, of course, extremely reticent to release details. It is rumoured to be in the region of 50%! (The industry would be well served by some clarity from the platform in this regard.)

Although these discrepancies no doubt contributed to some overly optimistic t-commerce forecasts over the past two years, the rate of growth of subscribers has exceeded expectations. T-commerce revenue will exhibit slower growth but, even with the current number of the interactive TV shoppers, significant opportunities do exist.

2: The applications are improving and viewers are learning how to use them.

Platforms and broadcasters are developing applications that acknowledge viewers’ primary reason for sitting in front of the television. While the dedicated interactive shopping platform is an important foundation for most t-commerce strategies, the era of the “walled garden” is coming to an end. Platforms, retailers and content developers are starting to work creatively to ensure that the full potential of the TV as an interactive device is realised. There is no doubt that future success in interactive TV will be determined by allowing consumers to act on the transactional impulses generated by the primary entertainment stream.

Sky’s new WML interactive browser is an important development in this area. For the first time on the platform, viewers are able to continue viewing a broadcast channel while completing transactions with the remote control. The effectiveness of this is illustrated by the success of the Sky Betting service -far and away the most impressive service yet to launch on any interactive platform. Interactive betting generated £55m for the company over the past nine months and is expected to raise £700m by 2005 (although these figures incorporate phone and PC generated revenue.)

But the other platforms aren’t standing back: Cable aims to launch similar interactive programming applications in 2002 and the launch of Carlton Active is an important step for digital terrestrial. (The division is dedicated to the development of interactive advertising and enhanced programming opportunities for advertisers.)

Just as things start looking positive, you can normally count on a regulator to orchestrate some form of catastrophe. But, to their credit, the ITC (Independent Television Commission) are taking a light-touch approach and seem to be applying common sense in their guidelines for interactive programming. The restrictions are primarily there to ensure there is no confusion between entertainment content and offers to transact or purchase. Once the viewer has been transported far enough away from the broadcast stream (typically no more than two “clicks”), the retailer or platform is given free reign to promote their products and maximise revenue per customer.

In general, the platforms seem to be shifting focus from the mad rush to increase subscription levels, to the need for increased revenue per subscriber (Sky, for example, have set themselves a target of £400 per customer, per annum by 2005). This can only be a positive sign for the businesses seeking to define profitable business models that can augment and justify their initial interactive TV ventures.

But again, a few realisms must be considered with regard to the emerging interactive applications. Firstly, there are still some serious flaws in the usability of interactive TV applications. The technology has its limitations and response times to remote control commands are often annoyingly slow. To make matters worse, many content providers have not adopted sound usability principles in the design of their interfaces. Secondly, many viewers simply do not consider using the interactive services. It is well known that the key drivers for digital TV subscription are increased number of channels and improved quality of sound and image. So the platforms hope that once they have the consumers signed up, they can then convince them of the value of interactive services. With this in mind they are frequently promoting the availability of interactive services and explaining how to access them. Enhanced programming such as Sky Sports Interactive and the BBC’s (forthcoming) interactive Wimbledon broadcasts will all contribute to the educational process and start to convince consumers that the television is no longer just a passive entertainment device.

On the whole, platforms, broadcasters and content providers are learning more about how and why consumers interact with the television. As a new generation of TV viewer emerges, interactive formats will become more complex and retailers will be allowed greater flexibility.

3: The platforms are consolidating:

Sky Digital are clear leaders at the moment and should be in a position to switch off their analogue signal by September. This is excellent news for the industry. The presence of strong platform competition is essential, but it is safe to say that digital TV would truly be in crisis, if not for the aggressive approach of Sky. The end of 2001 will see the launch of their “2nd generation” set top box, which includes an additional tuner (for multiple TV homes) and PVR capability (i.e. a hard-drive and associated TiVo software).

As far as the platforms are concerned, the two cable companies are working more closely together and now have joint advertising sales teams and a joint pay-per-view service (Front Row). It has to be a question of time before some kind of merger takes place. The unique benefits of the cable technology need to be clearly communicated to consumers and this could be done far more effectively under a single brand proposition.

The re-branding of digital terrestrial, from “ONdigital” to “ITV Digital” is a positive development for the market. ITV is possibly the biggest TV brand in the country and this kind of association will clear some of the current confusion and improve take-up in the long term. Also, the interactive services for some of ITV’s flagship programming will introduce the technology to a wider audience.

In general, all platforms are capitalising on the commercial learning of the past few years. This will create a much more stable environment for interactive TV commercial and technological developments.

4: Experienced development partners have emerged

Some interactive TV agencies have now had over two year’s experience in developing solutions for interactive TV. Many have sound project management methodologies in place and employ experts in this new technology. The high level of competition in the industry has kept outsourced costs within reason and forced agencies to differentiate by offering unique skill-sets (cross-platform integration, usability testing or brand planning are examples) that ultimately yield a more robust solution for the client.

So there are four reasons why interactive TV is here to stay. Have no doubt, there are some serious challenges facing the industry. Arthur C. Clarke once said “Any sufficiently advanced technology is indistinguishable from magic.” It’s safe to say that interactive TV is far from magic at the moment, but opportunities exist and more are emerging. Retailers who may have become disillusioned with trials of the technology should look to the future and gear up for a second wave. There will definitely be reward for businesses who build a sound understanding of the technology, set clear iTV objectives and launch initiatives with the right partners.

Murray

On 10:48:25 17 May 2001 Sam wrote:
>The industry may still feel somewhat in the trenches. But
>there's only one way out of that - "tally-ho and over
>the top" (to the sound of whistles and artillery
>shells)...!

Nice analogy. The difference being that clever thinkers would use observation of those who went before and this time wear a bullet proof vest! You'll still get shot at, but you stand a much better chance of surviving.

The digital TV post is also spot on - advances in technology will mean that viewers actively *want* to press the red button when the advert comes on, rather than thinking "by the time the service cranks up my program will be back on again."

However, digital TV was also hype up as much as WAP to begin with, and people rushed out to buy the 1st gen STBs, only to arrive home and find that the services weren't up to scratch (I'm generalising here, of course). Picture quality was cool though, and they got more channels, so they weren't devastated.

Now though, we will need to reach out to them and explain that the 2nd gen really does deliver where the 1st gen didn't, as we are dangling the 3G carrot to those disillusioned WAP users who were expecting to be able to make their PC redundant for their web surfing needs.

It may be a fair old battle - are the digital TV service providers going to be willing/able to price the 2nd gen stuff at a level that the punters are going to be prepared to pay, in the light of the costs of setting up the 1st gen services?

Robin

Agreed, but I have yet to hear compelling evidence that people DONT want any of it.

Sure, certain iTV applications have been ill-conceived but the industry needs to accept that the technology has the potential to create profitable new entertainment formats and retailing opportunities.

It is always going to be difficult to measure demand for interactive TV in general. It's very early in the life cycle and consumers don't yet fully understand what they are getting.

On 17:37:41 17 May 2001 dcjarvis wrote:
>Murray,
>
>Respect and agree with most of what you have noted here,
>but a fundamental question still remains over the future
>of interactive TV:
>
>Do people actually *want* it?
>
>As soon as we can figure out that one (and I haven't seen
>anything that really shows it) I'm sure all the forecasts
>and estimates will come to fruition. Until then we're just
>experimenting.
>
>Regards, d