Ten Questions for: Harry Wang, Parks Associates

Harry Wang of Parks Associates is out ahead of the pack. He’s one of the only market analyst/researcher who is paying close attention to the emerging wireless digital picture frame market. Since he’s as expert as anyone on what’s happening in the market, and where it’s heading, we approached him for the first in what we plan to be a regular monthly interview feature. We thank him for giving us some time from his busy schedule.

1. What percentage of that figure do you expect to be wireless-enabled?
I am in the process of revising of my forecast, so in 2010 digital picture frame (DPF) shipments worldwide might be revised upward as many positive developments are taking place in the market right now. Wireless will be a standard feature by then — much like Wi-Fi in today’s notebook computers. Wireless features will be supported by a variety of protocols including Wi-Fi, Bluetooth, or wireless USB. But it will take time for the market to reach this saturation level and my view is that before mid-2008, the market will still be dominated by non-wireless photo frames.

2. What are the obstacles to the development of the market?

• Component supply bottlenecks prevent retail prices from dropping as fast as manufacturers would like to, and from what we know, this is a very price elastic product category. Downward price movement can generate significant upward push in consumer demand.
• Opportunistic vendors infiltrating the market with inferior product designs, low quality components and cloggy user interface — all dampening consumers’ interest in this product category
• Retailer’s reservation on this product category; a “once bitten, twice shy” mentality among potential future market leaders continues to weigh on this market. However, we saw that the situation is improving: more retailers and manufacturers demonstrate their vote of confidence by carrying this product category.

3. Is there a killer app that you can see spurring purchases of these frames?
We are at the tipping point where consumers suddenly find that this LCD display device can free their digital photos from their PC hard drive and camera’s memory card, and present their memories in such a convenient and beautiful way that such discovery itself is enough to drive this product into the mainstream status. As to the bells and whistles we have seen in the market, they are all secondary to this imaging presentation and sharing function DPF has successfully demonstrated. Once retail price falls into the sweet spot, the volume can ramp up considerably over a short period of time. This past year such phenomenon occurred on 5.6-inch and some 7-inch models, and this year we are going to see the majority of 7-inch models and some 8-inch ones experience this kind of surge in demand.

4. What role does increased connectivity and bandwidth play in this space?
Both can open new application and service models to potential new entrants into this space. Connectivity either using wireless protocols or wired networking technologies will spur new use cases such as streaming photos from PC or Internet, and bandwidth improvement will make such streaming experience more smooth and versatile. Not only photos can be streamed, information, music, and short-form videos can be added to the function list of a photo frame, although consumers’ uptake might vary depending on their perceived value of these functions.

5. What needs to happen to get better retail presence for digital frames?
From retailers’ perspective, they want to see sufficient consumer demand before agreeing to carry this item. From the vendors’ perspective, they want to get their products into mainstream distribution channels in order to move the volume, drive down the component cost and further lower retail price point and hike up demand. So there is the familiar “chicken and egg” situation. But for this emerging product category, retailers and vendors should collaborate and meet halfway in order to move the inventory. Vendors need to educate retailers and their employees; retailers need to be more accommodating regarding this product category. Once in the retail store, both parties should be responsible for promoting the products, educating potential buyers and offering quality customer service.

6. What kind of customers will adopt wireless frames first?
We haven’t gotten any consumer data yet, but I suspect wireless frames will only be popular among early technology adopters for now, just like today’s owners of wireless digital cameras. Ask Nikon or Kodak about the description of their Wi-Fi enabled camera owners; these people are likely to buy a wireless frame too. One situation is that actual buyers may not be the end users who receive it as a gift but are not tech-savvy enough. Either the buyers will help set up the connection and teach the users how to manage the networking aspect of the product, or the end users leave it gathering dust or return it because he or she gets frustrated during the process of network setup.

7. What price point do you see as being the tipping point for these frames?
The closer the frame gets to the sub-$100 level, the closer it reaches the tipping point. Their anchor point always starts with the prices of traditional frames. If a 7-inch digital photo frame at $100 can justify its 5x-10x premium over the traditional frame of similar size, 15x-20x premium will be deemed excessive, thus curbing the demand from going higher. As to the multimedia functions, no one will seriously consider the frame as a multimedia device for now, and hardly will the majority think so in the future, because we have many substitute products that can do multimedia things better and more conveniently than a photo frame. Therefore even with all the fancy bells and whistles in the future, the value proposition for a digital photo frame will remain digital imaging related, not music or video or RSS feed. Therefore, consumers cannot perceive a digital frame as a product with the same kind of value as a video iPod.

8. What developments would you like to see in the market in the next 12 months?

• from a product design perspective, I would like to see vendors further polish their products in terms of features and usability, but not go too far by eclipsing mainstream consumer demand with novel features that only early adopters would care about. Home networking features can be added to frames, but they need to make sure they work smoothly as intended. Software development needs additional investment from all vendors, and frames with iPod-like elegance haven’t surfaced on the market yet.
• from a marketing perspective, I would like to see these vendors to strengthen their retail support and increase co-marketing budgets with major retailers, so that store employees can properly answer consumers’ questions and products can have better shelf-space or a more-visible display spot in the store.
• from a competition perspective, I would like to see the market weed out those opportunistic vendors, and leave in vendors with strong conviction in this product category so that the market will experience healthy development and innovative product improvement cycles.

9. When do you expect major consumer electronics names (Sony, Apple, etc.) to move into the space?
After Kodak, HP is very likely to be the next vendor. Sony is also very likely in 2007, but Apple is seen as unlikely in the near-term because of its business focus is on mobile phone and digital home applications. Don’t forget other digital imaging names that have imaging service offerings, like Fuji film, Nikon, Canon, etc., or service providers like AOL, MSN, etc. Frames can be a natural extension of their existing product/service lines.

10. Will digital frames end the traditional picture frame market?
I don’t expect digital frame to replace traditional frames any time soon. These two categories will co-exist with each other just like today’s CDs and digital tracks or paperbacks and electronic books. For one, the traditional picture frame is far cheaper to own and more convenient to place anywhere in the home. It also has so many size, color and material choices to fulfill consumers’ different tastes. The key here is, in order to replace traditional frames, digital frames must be able to lower the ownership cost sufficiently closer to traditional frame’s. But given the technology trends and component pricing, this scenario might never pan out.

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