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2019 Trends to Watch: Consumer Technology Super-Themes

24 Jan 2019 | Ronan de Renesse, Practice Leader, Consumer Technology and Media & Entertainment, Ovum

Summary

Catalyst

2019 will be a pivotal year for consumer technology with the launch of the first 5G smartphones, advanced computational image capture, and resulting new vision-based AI consumer applications.

The impact will be felt across the entire TMT value chain for the next decade and will fundamentally change the way people access and interact with content. This report depicts four trends that will shape the year to come.

Ovum view

2018 has been a year of reckoning for consumer technology. The growth and hype that surrounded the consumer IoT in 2017 have died down and pushed the industry to refocus on core features that consumers perceive as valuable. There couldn’t be a better time for the launch of the next generation of wireless technology: 5G. Operators will have commercially deployed 5G in at least 18 countries by the end of 2019. With less than a handful of devices and patchy network coverage at best, 5G will not disrupt the market for some time but 2019 will offer the first glimpses of what it can do and what use cases most resonate with consumers. AI will continue to be at the forefront of technology developments and investment, especially around computational imagery which will enable humans and machines to better understand and analyse what they see.

Key messages

  • 5G will refocus attention on smartphones. The smartphone market is in desperate need of innovation that will drive a new replacement cycle and 5G is the perfect candidate, but this kind of innovation only happens once in a decade.
  • Vision AI will be at the forefront of innovation. Vision AI will be fueled by the emergence of five-camera smartphones, camera-enabled smart speakers, video doorbells, and indoor home-security cameras. The ability to detect a user’s distinct features will help to personalise services and provide safeguards.
  • Huawei will become the largest tech firm after Samsung. Given that its smartphone shipments overtook those of Apple in 2Q18, it is time for the Chinese tech giant to scale up its global operations and go after Samsung. The US and smart home are areas that Huawei will need to address in 2019.
  • More voice-capable homes will emerge in 2019. There is a growing trend where smart speaker capabilities are brought to other electronic devices around the home. 2019 will also be the year where we will see several voice devices and experiments from Amazon and Google.

Recommendations

Recommendations for service providers and platforms

  • Go big on AR. AR is the perfect fit for 5G and new smartphone camera capabilities. It will require a lot of data and computational power which will consequently drive ARPUs and ASPs. Partner to develop and promote new AR applications that demonstrate the need for 5G, but resist being tempted by gimmicks.
  • Retail and promote 5G smartphones. 5G smartphones will stand out but may not sell. Capitalise on consumers’ curiosity to get them back into operator stores, then promote gigabit LTE as an alternative, along with an iPhone XS or a Galaxy S10.
  • Enable a secure vision AI environment. As vision AI (i.e. image recognition) gets more widely used, it will generate significant privacy and security concerns. Service providers and platform owners need to address those concerns early on and should use this as a competitive advantage.

Recommendations for content providers

  • Design content for voice. It does not need to be complex; simple voice commands accessible through an Alexa Skill or Google Action will be sufficient to address this growing market.
  • Develop 3D volumetric content for AR. Games will generate the vast majority of direct app revenues for AR, but it will also be used in many other types of applications as a way to improve the experience. Use tool kits developed by Apple and Google to copy and paste the real world and make it available to your audience.
  • Partner with device vendors and operators for 5G media bundles. Enhanced mobile media will be a key use case for 5G and operators will be looking for premium media experiences to bundle into 5G contracts. This will be an opportunity to add new subscriptions and raise awareness of your services via operators’ marketing campaigns.

Recommendations for technology vendors

  • Add vision to your product strategy. Capitalise on investment and interest in vision AI by making your technology and/or devices vision AI capable. Partner with developers and content publishers/owners to create powerful new use cases for vision AI.
  • Develop for 5G in a timely manner. Many different versions of 5G will be deployed at different times in different geographies. It is very important for vendors to track those deployments closely and bring 5G-related products to market at the perfect time.
  • Target media companies. 5G and voice/vision AI will change the way people access and consume media. Help media companies navigate through this new technology landscape by providing advice and management services on top of your products.

Back to the future: 5G will refocus attention on smartphones

Consumer IoT growth is falling

The tech industry is starting to run out of objects to “smartify.” Unit sales and revenues for wearables, VR, and smart home have missed expectations in 2018. Nokia is selling wearable company Withings back to its founder, HTC laid off 22% of its employees in July, and Snap disclosed $40m on unsold Spectacles at the end of 2017. Smart speakers are the exception to the rule with adoption in the US up to more than 20% in 2Q18, up from 6% the previous year. The Consumer IoT market is not dying but rather awaiting new technology to unlock it. This is particularly true for virtual, mixed, and AR headsets, where current hardware capabilities are insufficient to provide the experience that consumers expect. Smartphone markers such as Samsung, Apple, and Huawei are also major players in the consumer IoT market. In 2019, their focus and attention will be on 5G and how it will help differentiate flagship smartphones in a crowded high-end market, rather than on bringing new consumer IoT products to market.

First 5G smartphones will launch at CES

Operators will have commercially deployed 5G in at least 18 countries by the end of 2019. Enhanced mobile broadband will be among the first use cases to be deployed, accompanied by 5G devices such as hotspots and routers. The first 5G handsets will reach consumers’ hands in 2019, with the first models to be announced at CES 2019 in January. The impact will be minimal in terms of volume and revenues in 2019 – we expect 5G handset sales to just reach 400,000 units in 2019 globally.

Nevertheless, large marketing budgets from operators and manufacturers, combined with extensive press coverage of new service launches, will help raise consumer awareness. The 5G message that will then be pushed out to consumers is very important as it will plant the seed for future growth. The smartphone market is in desperate need of innovation that will drive a new replacement cycle and 5G is the perfect candidate, but this kind of innovation only happens once in a decade.

2018 AI was audio, 2019 AI will be visual

Five-camera smartphones for better AR

The latest flagship premium models already feature four cameras for depth-sensing, dynamic range, and wide-angle shots. Samsung and LG are expected to bring an additional camera lens to their smartphones in 2019 and bring the camera count to five. The primary goal for this, as with previous generations, is to bring smartphone picture quality closer to DSLR. But it also brings with it a higher “data” resolution for images which will help image recognition accuracy for AI and AR applications.

Mobile AR (i.e. smartphone-based AR) is set to unlock many revenue opportunities for media companies, telcos, and tech vendors, but there is an immediate need to improve the quality of experience before consumers buy in.

Real-time image recognition will create new video use cases

There are many other applications of vision AI besides AR. A key development already underway is visual search and the use of visual AI to help people and machines better understand what they are looking at and take actions based on that information. Facial recognition is already being used to authenticate user identities and payment transactions on smartphones. We expect this to become more widespread in 2019.

Vision AI will be fuelled by the emergence of camera-enabled smart speakers, video doorbells, and indoor home security cameras. The ability to detect a user’s distinct features can also help to personalise services and provide safeguards, for example recognizing a child and only providing him or her with access to certain programs or services. An AI overlay on cameras used in smart home security monitoring systems could expand and deepen the sophistication of services in this domain. Honeywell and Canary in the US added facial recognition features to their smart home security system which enables face detection notifications.

Huawei will go after Samsung

Huawei in second place for smartphones

Huawei was met with a lot of skepticism when it predicted at MWC 2016 that it would overtake Apple in three years and Samsung in five. With its smartphone shipments having overtaken Apple in 2Q18, it’s now time for the Chinese tech giant to scale up its global operations and go after Samsung.

Huawei’s consumer business has gained a lot of maturity in the last couple of years and has been able to lead smartphone innovation on many levels, such as camera technology and AI chipsets. The fact that Huawei has managed to sell over 150 million smartphones in 2017 with little to no presence in the US is impressive. It will be very hard for Huawei to beat Samsung without a US presence, and that doesn’t look promising in the current political context. Smart home is also a major gap in Huawei’s consumer product line outside of China, which it will need to address – it recently launched AI Cube, a 4G-capable Alexa-enabled smart speaker.

2019 will see a new star in Samsung’s Galaxy

Samsung’s Galaxy device sales are stalling as the company struggles through flat smartphone innovation cycles. Two major smartphone releases are expected from Samsung in 2019: Galaxy S10 and Galaxy F, a foldable smartphone. The timing couldn’t be more perfect as they will complement new 5G network launches, which mobile operators will be keen to get devices for. A $2,000 very large foldable 5G smartphone could play well for Samsung’s brand image, but it won’t make an impact on sales until a few years later once both new set of technologies mature. The S10 however will have a much wider impact in 2019.

2019 will see more voice-capable homes

Smart speakers are the tip of the iceberg

According to Ovum’s Digital Consumer Insights surveys, the penetration of voice-capable TVs in the US has more than doubled between 2Q17 and 2Q18, increasing from 6% to 14%. While this is inferior to the growth experienced by smart speakers over the same period, the addressable market is much larger with more than half of respondents owning a connected TV. 2019 will see a growing trend where smart speaker capabilities will be brought to other electronic devices around the home, such as kitchen appliances, alarm clocks, or even a toilet (e.g. Kohler Connect). Interestingly, this is being pushed by Amazon and Google, despite potentially cannibalizing sales of their own-branded speakers. The key challenge for device makers, and to some extent skills developers, is to understand and manage the quality of voice recognition, especially from a hardware module perspective. Every vendor must consider a physical interface to fall back on when the voice command fails.

Voice device ads to emerge

Paid search ads or sponsored product ads on Amazon Alexa and Google Assistant have been rumoured throughout 2018. This will certainly come at some point in the future and 2019 will be the year where we will see several experiments from Amazon and Google.

One more indirect approach where voice search is monetized is the use of displays on which the assistant is embedded. For instance, a voice search done on a smartphone will show results on the device’s display. Google Smart Displays and Amazon Echo Show are home assistant devices which feature a display and will be the perfect platform to start experimenting with voice-initiated display ads.

Another device which may offer some interesting opportunities for voice device ads are voice-capable TVs, media streamers, and set-top boxes.

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