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A Manifestc ForThe Digital Home

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

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The digital home networking environment that allows a household to control aind share
a single
-
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? For this document, we drew on c,onversations
with a number of senior executives from device,
The Manifesto ForThe Digital Home
media, telecommunications, serv'ice, and retail
3 What Stands ln The Way Of Utopia? companies over the past year. ln addition,
Benefits Are Elusive ForThe Mass-Market User we conducted in-depth intervievrrs with 12
companies helping to shape the digital home,
Digital Home Technologies: lmmature,
including: Apple Computer, ARCIIOS, British
lncompatible, Complex
Telecom, Creative La bs, Hewlett-Packa rd, I ntel,
Business Models Face The lnnovator's Dilemma Li n ksys, M icrosoft, Ph il i ps E lectronics, Pu re

Networks, Sony Electronics, and l-homson.

7 The Digital Home Means Experience
Liberation
Related Research Documents
The Six Families Of Digital Home Applications "CES2004:Video Loses lts Chains"
Killer Apps That Will LiberateThe Masses January 9,2004,Brief

A Voice-Enabled Browser Will Run The "Who Will NetworkThe Home?"

DigitalHome May 9, 2003, Report

.,.,1,ta.: "CeBlT 2003: A Small Step ForThe Digital Home"

,l4,
14 Digital Homes Alter How We View The World March 2003, Brief
-
And The World Views Us "Unlocking Profits From Digital Television"
16 Supplemental Material 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 one
ubiquitous 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 align
with 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

Number of households Consumers who Consumers who have Consumers who are using
have broadband a home network digital home applications*

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million hou seholds
2.1 million households

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21 million households

107 million households

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2 million households
Europe "ti/;i;;:::;:i

6 million households

20 million households

163 million households Base: all consumers

*Based on percentage of consumers using home networks for digital home applications
Source: 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 clash
between 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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DRM-enabled . Case in point: 50% of home network owners share

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in the courts
Source: Forrest:er Research, lnc.
Forrester Big ldea : A Manifesto ForThe 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

' l.- i lit Revenue models:

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. Pay per-download
. Pay per-bit
::::::::::::::::::: .,i..ti:t::,r.::.1',l . Retail purchase
. Hybrid models
. Micropayments

Service and content Consumer relationship:

owners: . ISP
. Media owners . Telco
. Broadcasters . Utilities
, '.:
. Advertisers and marketers .: . Pay-TV provider
. Publishers !"
Payment mechanisms:
. Credit card
. Cash
. Check
. lnvoice
. Mobile/telephone bill

Source: Forrester Research, lnc.

 Forrester Big ldea : A Manifesto ForThe Digital Home

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-room
dominance, 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 that innovation 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 control. Consumers can now experience a TiVo-recorded
a lesser degree, creator
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):
Forrester Big ldea : A Manifesto ForThe Digital Home

Figure 4 The Evolution Of Communication

Date Communication Audience Defi ning characteristic

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Source: Forrester Research, lnc.

. 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 complex
offerings 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

Application Example
family Timing applications Key vendors Comments
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Storage 0-3 years . Network storage . Xirneta . Boundary between in-home storage
Backup services . Pure Network and lnternet storage disappears
. Managing . Xdrive . lncreases by stealth as more content
is stored in the digital home

. :
sharlng 'Apple, HP
. Dell services . Consolidated storage, backup,
'.3'Bil1s"o'' . Gracenote CDDB cataloging, and search are killer apps
catalogs . A battle between standards-based
shared storage and proprietary device-
specific storage will frustrate consumers

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cosily
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ratchet up music demand
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cation . VolP .'Verizon . Unites audio, visual, and text-
" .Voice confiol .,Siemens based communications
: . Click to .,Cisco/Linksys .Ties fixed and mobile together
conference

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automation handling Philips, Motorola lighting, and whitegoods devflces
. nemote 6ouse. . Home Depoi, i . Offers a real step change in how consumeis
' hold Sears.i;-.19= ,. think about fheir homes ':

management
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Security and 4-5 years . Healthcare - ProtectionOne' . l-,lome-based healthcare services will take
monitoring monitoring ADT off as payers realize the cost benefits and
. Home social . CyberNet , i,, fund services in high-risk populations
ServrceS Medical .Today's security systems will be wired into
. Home and cyber . Healthcare , the digital home infrastructure and extended
security a9encres to alert to cyber attacks

Source: Forrest.er Research, lnc.

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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 will
take 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.

HiEler *4., :l ih*{Hdirt .r* 1,,,',,'};',-"'-'-

If these six families of applications drive the development of the digital home, what killer
apps 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 enabled
digital 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.

l
Forrester Big lclea : A Manifesto ForThe Digital Home

Figure 6The Digital Home Application Scorecard

SCORING CRITERIA SCORE

Consumer readiness
0ttl 5 l0

Total : /150
Source: Forrester Research, lnc.
 Forrester Big ldea ; A Manifesto ForThe Digital Home 13

Figure 7 Digital Home Applications Emerge

2009
, , :' j , ",.,,,8roddband VOD ,OOn 1; llirr

:::': Mobile ',, ,,r. :' "':' '

1
2007
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innovation
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Broadband VOD today $ r *l'" t$F. ffi iTrnes
Works
now 75 150
Opportunity sizer
*Based on Forrester estimate
iBased on Forrester's diqital home application scorecard
Source: Forrester Research, lnc.

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 of
five 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

.,Metad-ie ba
mairmoie imp.oita'nt th'a.n,the:rettuh:ldatt; ln'a:world wheie,,eve
film ever releur"O ir iuuifable for download, the ability to navigate, organize, and
filter such massively comprehensive volulei.of data.Oelomes imR3rta.nt than
.more
'-i'the d-it itieifgati'onqpeiidntes.e*cbedi the:worthd aciudJto-ntent. foi ihstanie,
p iOusiabita;:ihaiadh:owled of.eilery9.,!e'a=.f rifueiiie, and peer revierys of
content are vital for choosing a new online g;m" ior u group oJconnected friends,

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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 of

current 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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Apple Computer Linksys

ARCHOS Microsoft

British Telecom Philips Electronics

Creative Labs Pure Networks

Hewlett-Packard Sony Electronics

Intel Thomson

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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 change

the 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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