Who and What are you going to allow into your home? That is my question of the day/month. It seems a lot of the Big Guys (Best Buy, Sears, CompUSA, Cisco, Intel, Microsoft) are announcing new homes strategies. As part of that, the net focus is that they want to be in to your home in an increasingly big way. Specifically, the product companies want into your living room, kitchen, bedroom, etc. And the Retailers want to not only deliver the goods at a fair margin but also be responsible for delivery, installation, integration and repair (tech support). This is brilliant, of course, because everyone wants to get in front of a fast growing market. The only problem is that consumers are not really getting in line for all of these offers. Why are Ma and Pa Kettle not letting many people into their homes with their Media PC, PlasmaTV, wireless network, et al? In fact, after years of product, promotion, etc. the consumer still remains reluctant to buy because they don't see overwhelming value. Is that their fault? No. We are still selling products and not solutions. There needs to be more "WOW" offered if this is going to be the big growth market we all are hoping for. So, again, the answer, to me, has to do with a number of factors but the primary one is that these are a bunch of neat point products in search of a solution and various solutions that then need to properly identify a looking for a market. Anyone else have any thoughts? We would love to hear them. Please send your thoughts to me at kanewman@sbcglobal.net or share them with me at RetailVision.

Keith Newman is the Editor of ChannelMedia. We hope you’re all keeping an eye on ChannelMedia and are planning to meet with us at RetailVision down in the beautiful Arizona desert Sept. 2-5. Do you have an item that’s worthy of inclusion? Does it impact the Retail Channel? Let us know – we may get it in for our upcoming RetailVision Preview Issue. Send items to kanewman@sbcglobal.net.

RetailVision Fall is shaping up to be one of our best Events ever, with a great Retailer audience, strong Vendor lineup, exciting new features, and our first-ever visit to the JW Marriott Desert Ridge Resort & Spa. With the Event just a few short weeks away, here’s a quick review of the highlights and happenings.

The Audience: Currently at 187 Retailers and counting – with over 60% of participants from the top 25 retail organizations.

For over 12 years, RetailVision has attracted the channel’s most powerful retail decision-makers delivering an extraordinary quality invitation-only audience. Retailer participation at RetailVision Fall promises to be truly outstanding. 187 Retailers are already confirmed with more to be added. Of these 187 Retailers, 116 are from the top 25 retail organizations. We’ve seen a 55% increase in the number of these top-tier Retailers coming to the Event. At a time when organizations need to justify every minute out of the office, this is testimony to the unique business value that these companies see in the RetailVision program.

Not only can Vendors count on seeing a Top 100-level audience, they can count on seeing the majority from top 25 companies. It also means better coverage of every product category from key retail organizations. For the full current list of Retailer companies and names, go to www.retailvision.com. Here are just a few of the key Retailer organizations coming to Phoenix:

• Best Buy
• CompUSA
• Circuit City (record number of participants at this Event!)
• Office Depot
• OfficeMax
• Micro Center
• Fry's
• Staples
• Costco
• RadioShack

The Vendors: A Who’s Who of Consumer Technology Leaders

The success of RetailVision wouldn’t be possible without the loyal following of the leading and emerging Vendors in the world of consumer technology. Vendors count on RetailVision to deliver audience quality they simply don’t get elsewhere, and a consistently higher return-on-investment. That’s why the participation level from leading Vendors is so high Event after Event, year after year. This Fall in Phoenix, the Vendor roster once again reads like a “who’s who” of technology leaders in the consumer channel. (For the current list, visit www.retailvision.com).

Included among the participating Vendors is a select group we call “RetailVision Champions.” These Champions are industry-leading companies that have supported RetailVision over the years, and made significant contributions to the growth of the Event. This Fall, the RetailVision Champions will include: Belkin, Alera, Imation, Altec Lansing, Falcon Safety Products, Lowepro, Tripp Lite, Seagate, TCA, Micro Innovations, Archos, Ingineo, AMD, Continental Promotions Group, Digipower and Learn.com. We thank these companies for their loyalty and support, and look forward to adding many more companies to our Champions club.

The Program: Even Better Access to the Retailer Audience

RetailVision Fall has set the standard for enabling Vendors to interact with Retailers in a variety of proven, dynamic business settings – from the Private Boardroom Appointments to structured One-on-One meetings and informal social functions. This Fall, these One-on-One meetings have a whole new dimension. The new “Self-Scheduling” online system allows Vendors and Retailers to view each other’s afternoon schedule and coordinate One-on-One meeting times. It gives everyone more control over who they meet with, and it increases efficiencies and ROI for all involved. The program has been enthusiastically received by Vendors and Retailers alike.

The Venue: First-Class Fun in the Valley of the Sun

We all know that some of the best business discussions and relationship-building activities take place “beyond the walls” of the Event. That’s why RetailVision Fall 2003 will take place at an unforgettable world-class resort. Set in the spectacular Sonoran Desert in Phoenix, Arizona, the JW Marriott Desert Ridge Resort & Spa is one of the Southwest’s best resorts. It offers tremendous business and guest amenities, including a spa, great restaurants, championship golf, and the kind of service that is truly memorable. The resort is easily accessible from Phoenix Sky Harbor International Airport and Scottsdale Airport.

Against this scenic backdrop, we have an exciting program of social and networking activities. The Welcome Reception on Tuesday, September 2 co-sponsored by Altec Lansing is going to be a blast – with a rodeo and casino theme that will feature two mechanical bulls (ride it if you dare!), the first RetailVision Rodeo, and lots of exciting casino action and special prizes. Then on Wednesday night there will be a late night 007 theme party hosted by Maxtor. ("From MAXTOR with Love").

The pinnacle of RetailVision is always the Awards Celebration with “The Best of RetailVision Awards”(TM), which honors the hottest retail products, services and channel programs. This Fall’s Awards night begins with the Pre-Awards Cocktail Party hosted by Keystone Marketing Specialists, followed by “The Best of RetailVision Awards” Celebration. This year the Awards will be hosted by comedian Henry Cho, a very funny man who is a regular guest on The Tonight Show, MTV, and Comedy Central, and whose movie credits include McHale’s Navy and the Farrelly brothers’ Say It Isn’t So. The Awards night will also feature a Laser Light Show/Fireworks Extravaganza. Directly following the Awards Gala, Ingram Micro will get everyone revved up at the "Harley Party". Then we’ll wrap it all up on Friday, September 5 with One-on-Ones at breakfast and the RetailVision Golf Classic sponsored by Levin Consulting.

It’s going to be an incredible program, and there’s still time to be part of it. To discuss your participation this September 2-5 at RetailVision Fall in Phoenix, contact John Hurley at 603-471-4228 or john.hurley@gartner.com, or Eda Fantasia at 603-471-4207 or eda.fantasia@gartner.com.

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NEWS Retail Digest: OfficeMax for a Discount, Notebooks vs. Desktops, Sears, Best Buy, Buy.com Rocks!, More Good Guys, Linksys Connects

Sponsored by:

News of the Week

OfficeMax had almost 1,000 stores and nearly $5 billion in sales but all that they could muster was a distant third place in the 3-horse battle for leadership in the offer superstore marketplace. Hence, Boise Office Solutions, Boise’s office products distribution business, which had sales of $8.3 billion, just added OfficeMax thus creating a whole new ballgame. The $1.1 billion dollar merger (that was 30% cash, 70% stock) will provide Boise with increased leverage in consumer and small business market and SG&A savings in the $160 million range once systems are integrated and a total of 15 to 30 cents a share even before companies are fully integrated. Boise’s Chairman and Chief Executive Officer, George Harad stated, “Our acquisition of OfficeMax represents a major step in the transformation of Boise’s office products distribution business and Boise as a whole. Together, OfficeMax and Boise will be strategically stronger and better able to deliver compelling value to office products customers through all channels and across all segments of the market. At the same time, the size and impact of this transaction offers Boise the potential opportunity to enhance shareholder value by actively evaluating strategic alternatives for our paper and building products businesses. Michael Feuer, OfficeMax’s Chief Executive Officer, added, "Combining the strengths of OfficeMax and Boise Office Solutions will generate strategic synergies resulting in enhanced capabilities to better serve customers across all channels from small business to large corporations."

Notebooks surpass Desktops - According to recently released sales results from The NPD Group's point-of-sale tracking service, May 2003 marked the first time that the dollar sales of notebook computers sold surpassed the dollar sales of desktop computers in U.S. Retailers. Additionally, May marked the first month ever that LCD monitors generated more unit sales volume than standard tube-based CRTs. These two milestones occurred as May retail computer product sales posted their best year-over-year sales results in nearly four years, jumping 13.6 % over May 2002. "It is fitting that these milestones should occur together as they are both important components in the increased movement of the PC out of the home office and into everyday use," said Stephen Baker, Director of Industry Analysis for The NPD Group. "Key to the increased sales, for these and other rapidly evolving product categories, are a desire for computing products that offer portability, appealing form factors and attractive design. These two product segments are at the cutting-edge of this change with other products like photo printing, wireless networking, entertainment PCs and multi-function printing devices rapidly redrawing their categories and orienting them towards this new vision of home computing." Notebook computer’s sales volumes have been closing the sales gap on the desktop over the past four years. In January 2000, notebooks represented less than 25 % of sales volume. In May 2003, notebooks were over 54 % of the nearly $500 million dollar in retail computer sales. Unit volumes also set a record as notebooks accounted for more than 40 % of sales. "May results were driven by consumers' desire for mobility, combined with aggressive pricing and robust configurations," said Baker. "Selling prices fell below $1300 for the first time ever, more than $250 below May 2002, even while 80 % of notebooks sported 15 inch screens and 86 % provided customers with a CD burner." LCD sales volumes have been steadily rising since flat panel screens became affordable for consumers approximately two years ago. Flat panel monitors accounted for 52 % of unit sales in May and more than 70 % of sales dollars. These numbers are in stark contrast to May 2002, when unit volumes were only 22 % of total monitor sales and revenue for LCDs was only 40 % of the total. "LCDs slim profile and sleek looks are more appealing and more ‘home electronics' looking than the bulky CRTs traditionally sold with PCs," Baker added. "Consumers are willing to spend to access the technology since, despite the aggressive pricing in the LCD category, the average LCD price of $467 is more than $250 above the average selling price of a CRT."

Sears posted a net profit of $1.04 a share in its second quarter, topping analysts' consensus estimate by 9 cents a share and its year-ago profit by 31 cents a share. Sales in the second quarter came to $7.8 billion, an increase of 0.9 % from the comparable period in 2002. Sears went on to say that, while it sees same-store sales rising in the second half of 2003, it was lowering its full-year profit range to $4.80-$5 per share.

Best Buy and Black Box Corp. created a technical service for in-home networking that will provide design, installation, and maintenance services for data, voice, video, and audio systems in new home construction. Via the In-Home Integration Program, homebuilders will include the systems as part of a standard home package, with Black Box, a technical services company, providing the necessary products and technical support. Initially, the new service will be launched in the Dallas area beginning in July, with coverage in other areas following.

Buy.com offers free shipping on all items less than 20 pounds. Orders must be placed prior to 11:59 p.m. PST, July 10, 2003. The offer is valid with “in stock” items only, and not available with other offers or the Price Mistake of the Day.

Online retail spending for the week ending July 6 grew 30% vs. the same week a year ago, reaching $793 million from $612 million, comScore Networks, Inc. reports. Travel spending was up 68% to $832 million for the week, vs. $496 million in the corresponding week a year ago. Total retail sales for the week ending July 5 were up 2.7% from the corresponding week a year ago, says ShopperTrak’s National Retail Sales Estimate. It was the 10th consecutive week of year-over-year growth in total retail sales, ShopperTrak says. Total sales were down from the previous week, however, sliding 1.2%, the third week of declines from prior week, ShopperTrak reports. ShopperTrak characterizes the sales trends as “uneven but encouraging improvement.”

Good Guys named board member Thomas F. Herman to the position of President and Chief Operating Officer, effective immediately. Herman most recently served as Co-founder and Managing Partner of Oak Harbor Partners LLC. Mr. Herman will be taking over from Peter G. Hanelt, who will continue as a consultant. Additionally, Cathy A. Stauffer’s role as Executive Vice President will expand from strengthening relationships between Good Guys and its manufacturers and focusing on differentiation of its product mix, to include the management of the retail stores. Good Guys also announced that Michael Mohan, Director of Merchandising, was promoted to Vice President of Merchandising. Also, Mary Doan, Director of Advertising, was promoted to Vice President of Advertising and Marketing. Finally, the Board of Directors of Good Guys elected Elizabeth Gibson, Ph D. to the board. Gibson is a Corporate Psychology Consultant for RHR International, and brings to the board leadership and organizational development skills.

Linksys recently announced a new wireless multimedia product called the Wireless-B Media Adapter that allows users to enjoy digital music and pictures stored on their PC to view and play on their TV and stereo system. This is the first in a line of new Wireless Home products from Linksys. In spite of the high growth and fast acceptance of MP3 players, Internet-delivered music, and digital cameras, the average home entertainment system is still designed for analog input. The new Linksys Wireless-B Media Adapter bridges the analog and digital worlds using 802.11b wireless networking to deliver digital content to conventional TVs and home stereos. The Wireless-B Media Adapter sits by the television and stereo and connects to them using standard A/V or S-Video cables. Then it connects to your home network by Wireless-B (802.11b) wireless networking, or if users prefer, it can be connected via standard 10/100 Ethernet cabling. The media adapter also works in peer-to-peer mode (direct connection between the media adapter and wired or wireless enabled computer) so no Internet service is required. The media adapter enables the user to stream MP3 and play WMA music files on the home TV and stereo system. Users can set the adapter to play songs individually, by directory, or create M3U or ASX playlist files. "Linksys is innovating products that extend the network beyond traditional applications such as Internet, file and resource sharing for which home networks were developed. The result is a new line of Wireless Home products that add on to the home network to provide connectivity and access to other devices around the home," said Mike Wagner, Director of Marketing at Linksys. "The wireless media adapter, our first Wireless Home product, not only brings together consumer electronics and home networking but also provides users the ability to do more with the networks they have installed."

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Looking to reach the top Decision Makers in the Retail Channel? There is only one place you can stay top of mind: ChannelMedia.

See the opportunities at www.channel-media.com/mediakit.

RESEARCH

ChannelMedia Q&A
With Jack Wahrman, J&R ComputerWorld

Q. Jack, I’m amazed I got you on the phone! How are things going at J&R?

A. It’s still tough at the store with 130,000 jobs having been relocated in lower Manhattan since 9/11 – that’s 260,000 fewer feet in our store. We need to draw them back down here.

Q. I hear online selling is picking up - give us some insight into your Web business?

A. Online for us is skyrocketing – it’s almost 1/3 of our business.

Q. Why do you think you’re doing so well selling online?

A. Because we appeal to “techier” people. The early adopter is all over our site. Our strong Web business also helps our phone (telesales) business.

Q. How are things lining up for Q4? What are some product categories that you plan to push?

A. I’ve been hearing and seeing a lot in the DVD-R space and expect to see a lot more volume as prices come down somewhat. A lot of people are realizing they can use these devices to record TV shows and once realization of what you can do increases then the products get hotter. We also think digital cameras, MP-3, and other similar products will continue to do well.

Jack, thanks a lot for your time and have a great second half of the year.

RESEARCH

ChannelMedia Q&A
With Perry Solomon, Alera Technologies

Q. How are things going? Do you see an increase in sales? Is it coming from the prosumer, consumer or business side?

A. We are seeing a sharp increase in sales. We believe it can be attributed to the rapid adoption of DVD Technology. Alera Technologies is focusing on DVD/CD solutions and it is paying off. Being first with DVD Dual technology in our duplicator products is generating a hockey stick in sales that we expect to carry through Q4 and beyond. Our target is the prosumer and our new products are getting a fabulous response. Both the consumer and the business side are experiencing rapidly increasing sales revenues. We are also launching a new Gov/Ed initiative that is already producing very exciting results.

Q. What new products do you have now?

A. The new DVD Copy Cruiser Dual(TM), recently awarded the DVDplusRW.org Editors’ Choice distinction, is the beginning of a family of products that solve the DVD format dilemma. Now customers will be able to use DVD-R, DVD+R, DVD-RW, DVD+RW, DVD-ROM, CD-R, CD-RW and CD-ROM discs all with one product. The new family of Alera Technologies DVD Duplicators and Recorders is based on Dual Standard 8-in-1 DVD±R/RW Technology supporting all popular DVD formats. This exciting new product is both a Stand Alone DVD/CD Duplicator and an External USB 2.0 DVD/CD Recorder, all in one unit.

We have also introduced the new 1:3 DVD Copy Tower Dual and the 1:7 DVD Copy Tower Dual both using the new on Dual Standard 8-in-1 DVD±R/RW Technology supporting all popular DVD formats. The DVD Copy Tower Dual family can write on the fly simultaneously to either three or seven high speed 4x DVD Dual Technology Recorders without needing a Hard Disk Drive and features a professional duplicator controller that boasts 36 professional functions and diagnostics. To round out our new DVD dual line we have developed the next generation of two PC Magazine Top 10 DVD Drive Awards, the DVD Quad Cruiser(TM), the external DVD recorder based on Dual Standard 8-in-1 DVD±R/RW Technology supporting all popular DVD formats. The DVD Quad Cruiser is an external 4x DVD Recorder with USB 2.0 A-Connect strategy that can support optional IEEE 1394 FireWire or Cardbus/PCMCIA connections and includes a unique software suite. (Ulead MovieFactory, Ahead Nero Express Suite, MusicMatch Jukebox, and a DVD Movie Player).

We will be unveiling our new 52x Stand Alone CD Duplicator the CD Copy Cruiser, the next generation of our EMedia Editors’ Choice Award winning product, which features our new Cruise Control 100 Duplicator Controller that gives you the choice of making simple, one touch copies or having the power of professional duplicating functions and diagnostics. This is the CD Duplicator that puts you in control, a true Prosumers’ Choice with lower cost and higher performance. There is also an exciting new product for the Digital Photographer, the Digital Photo Copy Cruiser. This is a dual function product: Stand-Alone Digital Media Card Copier, and External USB 2.0 High Speed CD Recorder with 6-in-1 memory card reader. This is a must have product for any digital photographer. For the prosumer on the go, we are unveiling our DVD-R Slim Cruiser. We have taken what we have learned as pioneers in desktop DVD Recording and put that in a slim, portable DVD Recorder that writes DVD-R, DVD-RW, CD-R and CD-RW. It comes with a USB 2.0 port and a unique software suite including Ulead MovieFactory, Ahead Nero Express Suite, MusicMatch Jukebox and a DVD Movie Player.

Q. And share some thoughts about Q4 - How do you feel business is looking?

A. We expect our rapid sales to grow rapidly thru the 4th Quarter and beyond. Our new line of DVD products supporting all the popular DVD formats removes the major concern that customers have had about buying DVD technology and now the race is on.

Q. What are key messages you are looking to communicate with your key channel partners?

A. Giving prosumers the freedom to use DVD-R, DVD+R, DVD-RW, DVD+RW, DVD-ROM, CD-R, CD-RW and CD-ROM discs all with one product is a classic demonstration of offering the right technology at the right time eliminating fears, uncertainties and doubts about media compatibility.

Q. Any other comments or thoughts you'd like to share with the ChannelMedia audience?

A. Alera Technologies is proud to be the innovator of Prosumers’ Choice solutions providing professional grade products at consumer prices.

RESEARCH

Dell Printers – the New Threat
by Amber Shore, ARS’s Imaging Industry Research Analyst

It takes time to become a powerhouse. Dell methodically entered the computer industry with a plan--to offer build to order systems for less than comparable models offered in retail. Customers were able to pick and choose what they did and did not want in their systems, and this control helped spur astronomical sales. Dell, now moving from computers to software and peripherals, has entered its first phase of gaining market share in the printer industry. Strategic partnerships such as its relationship with Lexmark, offering printers at a lower cost, and banking on downstream consumable sales are key ways for a computer manufacturer to take a stranglehold on the printer industry. With the recent introduction of three new printers, Dell is renewing its commitment to delivering Lexmark-produced devices. Dell's printer line-up now consists of 7 different printers, including 2 all-in-ones and 1 consumer inkjet. With this offering, Lexmark is now on solid ground to gain back some of the volumes it lost as a result of the closed Compaq relationship. Though this OEM agreement is great news for Lexmark, Dell is also widely expected to reveal another printer manufacturing partner in the coming months, if not years. Dell has historically used this strategy in computers, where it uses multiple suppliers that compete against each other to drive down prices. Michael Dell has stated in the past that printers are too expensive in the course of their life, and that Dell plans to reduce costs to its customers. By doing this, Dell is first and foremost offering printers at lower margins than competing manufacturers. While this sets the bar for Dell to be the low-priced vendor, the real savings will come in the supplies. Dell will likely sell discounted inkjet and laser consumables over time, a favorable move for consumers. Printer consumables are the crown jewel of the printer industry. Lexmark, which is responsible for the manufacturing of these supplies, will now potentially be in a relationship with the computer manufacturer for 10+ years (the average life cycle of ink and toner supplies). Dell can continue to search for other manufacturers that will allow the computer company to dive into other printer segments but will then be responsible for maintaining those relationships over the life of not only the printers, but also the consumables that support those machines.

The industry can now only wait and wonder which manufacturer is the next to board the Dell wagon. Epson is a likely candidate to jump into the Dell-branded inkjet photo printer arena, though it is still uncertain if and when this will happen. The current inkjet printer industry trend is to deliver faster print speeds, higher resolutions, and borderless photo printing at a $100 price point--and Lexmark has recently introduced a mold-fitting model. The Photo Jetprinter P707, which is the first $99 6-color inkjet photo printer to feature a memory card slot, appears to be the obvious choice for Dell’s next inkjet printer, and the company has already hinted at more printers and peripherals to be released later this year. In knowing that Dell is planning to announce more printers--with possibilities including replacement, photo, and portable models--the company is signaling to the competition that it has entered the industry for the long haul. If OEM partnerships prove successful, and Dell can build market share, then the probability of the company branching out and producing its own printers appears inevitable. Of course, it is yet to be seen if Dell will have the ability to produce its own printers. Obtaining the rights to patents and printer technologies takes time, but it will be well worth the wait. If and when Dell has the intellectual property to produce and profit from its printers, then a billion dollar business could easily turn into billions in profits--not to mention a major competitive threat to every other vendor, including HP and Lexmark. If Dell produces its own printers, then there will be no use for Lexmark, Epson, or any other potential partnership.

RESEARCH

The Battle Intensifies Inside the Cell Phone and Microsoft Makes a Major Play
By: Shauna Smith
Senior Analyst, Mobile Wireless
July 2, 2003

Following the introduction of the first smartphone, the Kyocera QCP-6035, many analysts believed that handsets and PDAs would converge to create a new product category that would be all the rage with business users and early adopters. However, it was not long before it became quite obvious that there were actually two paths manufacturers would take in developing the ideal converged device. First, companies like Handspring, Kyocera, HTC, and Palm have introduced devices functioning primarily as a PDA and secondarily as a wireless phone. These “PDA first” devices run on distinct operating systems, namely Palm or the Microsoft Pocket PC Phone Edition OS. In the second camp, companies like handset giant Nokia have committed to the notion of “phone first”, where the device’s PDA capabilities are secondary. Such devices tend to run on different operating systems, namely Symbian or Microsoft Smartphone 2002. While it is still somewhat early in the game, Microsoft has already established a presence in both camps.

The demand for converged devices is particularly strong in Europe and is growing in the U.S. and Asia. The Symbian software platform is prevalent in Europe, and the fact that several major handset manufacturers, including Nokia (19%), Motorola (19%), Sony Ericsson (19%), Panasonic (7.9%), Samsung (5%) and Siemens (4.8%) have stakes in the Symbian consortium, the software platform has significant potential to grow in other areas of the world as well. However, Symbian is faced with increasing competition from Microsoft’s Pocket PC as well as Palm-based devices as traditional PC/PDA vendors continue to move into the mobile wireless space. Though Symbian is believed to have about 60 % of the worldwide market share for wireless operating systems, Microsoft is determined to capture a large portion of this market – some expect it to take over the top spot in operating systems for voice-enabled wireless devices within the next five years.

Current U.S. Shelf Share

In the U.S., there are currently only 17 different smartphone/converged devices on the market, available through wireless carriers direct today. In the carrier channel, these devices account for 13 % of the total handset placements in the U.S. compared to traditional wireless phones.

Source: ARS Data, May 2003

Dominating the scene are Palm, Microsoft’s Pocket PC Phone Edition, and RIM BlackBerry, making the state of the current converged device space in the U.S. primarily of the PDA-first type. In fact, Palm is the clear leader in the U.S. for the number of devices featuring its operating system, as it is currently a component in almost twice as many handsets as Microsoft’s Pocket PC Phone Edition and RIM’s proprietary BlackBerry platform. The Symbian OS, despite its numerous relationships with handset vendors and vast market share elsewhere, is present in only two models, both by Nokia (the 9290 Communicator and 3650 camera phone), in the U.S. today. Microsoft’s Smartphone 2002 OS is not currently featured in any devices available in the U.S., though AT&T Wireless has announced intentions to launch such a device and Verizon Wireless and Cingular Wireless are mentioned as “trial partners” by Microsoft.

Although phones featuring the Symbian operating system are less common in the U.S., the $299 price point for Nokia 3650 through T-Mobile and AT&T Wireless ($399 through Cingular) brings the OS’ average handset price below that of each of its competitors. However, the $599 price tag on the Nokia 9290 Communicator is much in line with high-end converged devices featuring other operating systems, particularly the Siemens SX56 ($549) featuring the Pocket PC Phone Edition OS through AT&T Wireless, the RIM BlackBerry 6750 ($529) through Verizon Wireless, and the Palm Tungsten W ($549) through AT&T Wireless, Handspring Treo 270 ($549) through Cingular, and the Kyocera 7135 through Alltel for $549 and through Verizon Wireless for $529, all featuring the Palm operating system.

Worldwide Market Share

Worldwide shipments of high-end smartphones are expected to increase over tenfold from 3.5 million units shipped in 2002 to 45 million units in 2007, according to London-based research firm ARC Group. Despite the gigantic growth, smartphones are predicted to account for 5 % of total handset shipments in 2007. Although the 5 % share sounds below mediocre, it would be a significant gain considering such devices accounted for only 1 % of global handset shipments in 2002.

On the operating systems front, the Symbian OS is expected to lose significant ground due to fierce pressure from Microsoft. Symbian’s market share is expected to decline to 39% in 2007, from a healthy 60% share it currently enjoys. Similarly, the Palm OS is projected to experience a vast decline, as its share drops from 22% in 2002 to only 5.5% in 2007. In contrast, Microsoft is predicted to capture the top spot by 2007 with a 40% market share compared to a 7% share it enjoyed in 2002. However, the software giant’s current position in the market does not depict so.

The Battle Continues

Microsoft currently has only one Smartphone OS-based phone (the Orange SPV) worldwide, and Orange was able to sell only 80,000 units, a relatively small accomplishment considering its subscriber base of 45 million. Battered with weak sales, Microsoft is playing hard to increase its penetration in the wireless handset arena. The company has been a dominant participant in the latest industry trade shows including the 3GSM World Congress, CeBit and the CTIA Wireless Show 2003 and has garnered a tremendous amount of attention in all these events. Microsoft already has strong supplier relationships with several manufacturers including Samsung (SPH-I700, SPH-I600), Toshiba (Thera and 2032), HTC (Orange SPV) and Siemens (SX45), and is on its way to sign up new manufacturer partners.

On the other hand, Microsoft does not have any relations with Nokia and Motorola, the two largest handset manufactures that together control about 50% of the global handset shipments. Additionally, signing up these two players, particularly Nokia, will be a huge challenge, due to their high stakes in the Symbian OS consortium. Of these two manufacturers, only Motorola (who recently announced the Linux-based A760) has so far developed a phone that does not run on the Symbian OS. Motorola, like Samsung, seems to be more open to utilizing various platform solutions for its new smartphones, and thus there might be a new opportunity for Microsoft to sign up this handset giant. In fact, the UK Register recently reported that Motorola may be readying the launch of a Microsoft-powered smartphone. If this is the case, Motorola’s endorsement of the Smartphone 2002 OS will be a huge milestone for Microsoft.

Both Symbian and Microsoft will also see increased pressure due to the upcoming Linux-based platform for mobile devices, as Sony and Matsushita Electronics (Panasonic) recently signed an agreement to jointly develop a new Linux-based platform that would replace the Symbian platform they currently use in their handsets. Currently, Sharp is the only manufacturer to offer a handheld using the Linux-based platform, although Motorola has also recently announced the A760, which is the world’s first handset operating on the Linux platform and supporting Java technology. The A760 is expected to be available in the Asia Pacific region this year. Interestingly, Motorola has been a major investor in the Symbian OS consortium. Although the Linux-based phone launch may sound like Motorola is cannibalizing its investment, the rules of fierce competition force wireless manufacturers to diversify their offerings in all ends including their operating systems on several high-end models. The fact that Linux has been challenging Microsoft’s dominance in the PC space as well, points to the assumption that this operating system is not going anywhere.

Thus, the battle between Microsoft’s Smartphone and Pocket PC Phone Edition operating systems and the Symbian OS is heating up. Microsoft is struggling as it continues to be plagued with low sales of the Orange SPV and few carrier partners, while the Symbian OS continues to leverage support from consortium partners like Nokia, Motorola, Sony Ericsson, Samsung, and Panasonic. However, alternative platforms such as the future Linux OS and the existing Palm and BlackBerry operating systems will continue to threaten both companies.

Microsoft’s Reactions

The determined Microsoft has made several efforts to stop the bleeding. For example, the company has partnered with Intel for a new Reference Design for mobile phones and has signed new carrier partners (TeliaSonera of Sweden, CSL of Hong Kong, Portugal Telecom, and Optus Mobile of Australia). Most recently, Microsoft has launched an upgrade to its Pocket PC 2002 Phone Edition operating system and has begun to leverage its enormous “Windows” brand equity. The new Windows Mobile 2003 for Pocket PCs is the third iteration of the handheld device operating system. The new operating system is primarily an “under the hood” upgrade, with the key improvements being in wireless connectivity, navigation, application development support, and entertainment.

In addition to introducing the new mobile operating system, Microsoft debuted a new brand for its mobile device software efforts. Windows Mobile is now the new global brand for Windows powered mobile device software (including Pocket PC and Smartphone). Microsoft will now use Pocket PC and Smartphone to define categories of devices but will use Windows Mobile to describe the software that powers the devices.
Clearly Microsoft wants a piece of the lucrative wireless market. The question is can Microsoft do what it did in the PC industry again in the wireless industry? While this remains to be seen, the new brand should surely help. With Windows Mobile, the company brings its Pocket PC and Smartphone 2002 operating systems more formally into the Windows family, and in so doing sets up a cleaner and stronger mobility message. This will allow Microsoft to leverage its position in the PC world as well as more effectively spend marketing and advertising dollars on mobility. ARS believes that Microsoft’s re-branding strategy will be the remedy to the software giant’s long-time woes in the mobile wireless handsets arena.

RESEARCH

Center For Media Research
50 Percent More Multi-channel Hyper-Shoppers

New evidence from the 2003 American Interactive Consumer Survey conducted by the Dieringer Research Group shows that the multi-channel hyper-shopping phenomenon is real and growing dramatically. Hyper-shoppers are defined as consumers who spend at least $500 directly online as well as offline after first seeking online information. More than 103 million Americans searched the Internet for product and service information in the 12 months prior to the survey. Of these, nearly three out of four used search engines to find products. When it comes to actually making purchases, the Internet still lags behind traditional mail order, with only 32% of Americans having purchased directly online, versus 38% who made purchases from mail order catalogs the past year. However, the average number of online transactions per year of online purchasers is three times the average number of transactions per year made by mail order shoppers, thus increasing the overall value of the online purchasers.

Overall, the number of hyper-shoppers now totals 23 million Americans who spend $500 or more both online and offline after first seeking product/service information online, up 50% from 2002. They represent the first generation of true multi-channel consumers who are capitalizing on the convenience and power of online shopping.

Hyper-shoppers rate Web sites as their most valuable way of obtaining product information. Half say the Internet allows them to find better prices and one out of five say it allows them to spend more time with their families. Nearly two-thirds of all hyper-shoppers say the value of the Internet to their purchase decision-making increased in the past 12 months. Over half of all hyper-shoppers who opened new financial service accounts in the past 12 months first sought information from provider Web sites, making the Internet their information resource of choice. Moreover, one in four hyper-shoppers indicated that online information changed their opinion of specific financial service products or brands. By comparison, among all American consumers who opened financial accounts last year, Web sites ranked fourth in popularity for obtaining product information, behind in-person visits, word of mouth and direct mail flyers. Hyper-shoppers are predominantly male, college-educated and married and most work for smaller businesses. Use of high speed broadband access from home is popular among hyper-shoppers, 44% of whom say they go online via cable modem or DSL services from their phone companies.

You can find out more here.

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COMMUNITY

Why IBM Should Buy Apple
by Jeff Matthews

. A financial no-brainer.
. A potential consumer home-run
. Passes the "Larry" test!
. Ending the Evil Empire!

We own Apple - let's get that out of the way. And we own it because I am fascinated by the notion that Apple may have figured out the legal music-download business. And if it has, I think the stock could be another, well, Apple.

Now, Apple might not make much money from the music business and most Street analysts have models that prove this beyond a shadow of a doubt. But the fact is the music industry was huge before Napster and KAZAA destroyed it - 66 million CD singles were sold 5 years ago, only 6 million were sold last year. And if, after years of denial, the Recording Industry of America is indeed waking up to smell the coffee by suing the illegal distributors, possibly including members of my family and yours, then the time is right for someone to capitalize on the use of technology to distribute not just music but all forms of digital content. For the record, Apple's iTunes is widely acknowledged to be the easiest and best way to download songs. For 99 cents and no subscription fee you can download any of 200,000 songs. Now, this barely scratches the files of the five major labels Apple has deals with - their total music catalogue is 10 million songs. And Apple has only 3% of the installed base of desktop computers. Yet more than 5 million songs have been downloaded since iTunes was launched a couple of months ago.

How does Apple make money off this deal? They get a cut - we hear 20 cents - from each 99 cent download. And they sell iPods to play the songs. People love their iPod, heck, Jason Giambi carries one with him into Yankee Stadium and Apple just shipped its 1 millionth, at about $300 a piece and up. What gets really interesting is when Apple puts out a Windows version of iTunes and we see if those 5 million downloads go up ten or twenty-fold-in line with the Windows share of the PC market. And that is when we see if the reality can match the early hype. Still, all this doesn't put much of a dent into Apple's $6 billion total sales. But combined with recent product announcements in the core Mac line, I think the wind is at Apple's back for a few quarters.

So, why should IBM buy Apple, as I suggest only somewhat tongue-in-cheekly in the title above?

Well, let's say they pay $25 a share for Apple, using the highly priced IBM stock (1.8 x sales, 22 x EPS) as a currency. Apple becomes IBM's consumer business - something IBM has lacked since the PC business flamed out. On day one, IBM would get $11.50 in cash from Apple's balance sheet the minute the deal closed, so the net investment is only $13.50 a share. And then IBM gets the Apple business, which generates about $16 a share in sales. Right away, IBM wins, because Wall Street pays almost 2x sales for IBM while IBM is paying less than 1x sales for Apple.

Moreover, if the Apple business ever returned to prior operating margins of 8% or more, that would add $1.25 per Apple share to IBM, at a cost of only $13.50 per Apple share - a 9% return at a time when IBM's cash is earning only 1% or so. And if IBM worked its magic on Apple's cost structure and brought margins up to IBM's old 13% high, that would be $2.00 per Apple share - a 15% return on invested cash. Where in this world can IBM find that kind of return on its cash? But more than that kind of financial engineering, IBM gets the Apple installed base - and IBM has purchased installed bases before, most recently Informix Software in 2001. IBM loves installed bases because it can sell services into them. Granted, Apple's installed base is consumer/small
business, but it can't be any less valuable to IBM than the nearly-dead Informix base was.

More interestingly, IBM would get the Apple legal music-download business, which could potentially be a gold mine and part of a broader digital-download business that would give IBM a complete home-run. And, best of all, it would absolutely pass the "Larry" test: like Larry Ellison's off-the-wall bid for PeopleSoft, an IBM purchase of Apple would completely screw around with people's heads. But the best part of IBM buying Apple, if IBM had the guts to do it, is the most insidious angle. And that angle is as follows: with Apple's $11.50 a share in cash in its pocket, with Apple's $6 billion in revenue and millions of customers to plunder, not to mention a legal-music download franchise to exploit, IBM would find itself in a position to take down from its perch as the most profitable, most expensive, most arrogant and important technology company since, well, since IBM in its heyday: Microsoft. How? Simple. IBM opens up the Apple operating system to the world and says, "It runs on Intel chips and it's free.” Goodbye Microsoft monopoly. Hello New World Order.

Wouldn't that be something? Might not even Steve Jobs think that would be "way cool"?

Cheers;
Jeff Matthews
Ram Partners, LP

COMMUNITY Changing Channels: Why Retail – Part 3 By ChannelMedia Columnist Steve Cross

Sponsored by:

Regular readers of this column know that in December of 2002, I took a real job for the first time in 6 years. Well, those of you with bets riding on it are in the money....I just resigned. No problem with the company, the products, positioning, etc. It was a channel job, but not retail channel. Don't get me wrong, channels are always interesting, but not as interesting as retail.

I love client work; the puzzling out of retail positioning, determining the right look and feel for products on the shelf, box design, blister-pack inserts, colors. I still wake up excited about how to manage the waves of a retail launch -.do we go regional, specialty or national, which Retailers to approach first, which Retailers (and/or e-tailers) are the best fit for this product line early, then who is right for the second more mainstream launch, and finally, who will carry it in the broad market launch. How do we coordinate these waves? How do we manage the seasonality of products and buying? How do we coordinate our launch with RetailVision; can we leverage our RV efforts to reach more Retailers; how do we do the follow-up after the show? Heck, what kind of gimmees or tchotchkes do we give out at RetailVision to maximize awareness (and minimize or right-size cost)? Do we co-sponsor an event?

The to-and-fro of sales force infrastructure is always a delight. Do we build an internal sales force to service the channel, do reps make the most sense for this company and its infrastructure? Or do we use a national rep firm, or a consolidator? Is there room in this product or business model for a software republisher?

Can the company's founders deal emotionally with the channel and its demands? Are they open to the flexibility of some of the programs? How much control of the infrastructure do they want/need? Do their internal infrastructures support the move to channels? Will we have to make operational changes to support the smooth functioning of the channel?

These are the questions I thrive on. I'll bet you do too. It's what makes the channel so much fun, so interesting, so challenging, and the place I call home.

Contact Steve Cross at steve@crosschannel.com, 702-492-7472.

Editor's Note: Steve is a top channel consultant who offers services from one-day brainstorming sessions to complete channel strategy plans. He has helped numerous companies to increase revenue and enhance their channel success.