The Internet Value Chain




interactive services, which can drive higher ARPU from

their subscribers. At the same time stand-alone set-top

boxes, which are commonly used in markets with high

penetration of free-to-air satellite TV, are increasingly

connected to the internet as the cost of IP box

technology has decreased: 57 per cent of set-top boxes

shipped in 2015 were connectable, up from 44 per cent

in 2014. Digital media receivers provide a similar

function and, for example, include Apple TV, Amazon’s

Fire, and Google’s Chromecast. Many of the major

providers of online video services have launched such

products to gain greater influence over the end-user

experience. Virtually all consoles are now IP enabled,

which not only allows for game downloads and multiplayer

online gaming, but also permits the use of

consoles as entertainment hubs to stream and

download video and music.

For the sake of completeness, we also include other

hardware that enables internet access such as modems

and routers, as well as select other smart items. Smart

cars and connected white goods (such as washing

machines, refrigerators, and other home appliances)

are the two most prominent categories at the time of

writing, although the connected item landscape is

developing and expanding rapidly. The number of

connected cars is expected to grow from 25 million in

2015 to 211 million in 2020, and new features will

include in-vehicle connectivity, media streaming,

personal assistant services, and vehicle-to-driver

communication. Cumulative smart white goods sold

are expected to grow from 11 million in 2015 to 205

million in 2020.4

Within the devices cluster, smartphones are now the

largest category with $294 billion of sales, and they

have overtaken PCs—the second largest category in the

cluster—in terms of market size since our study in 2010.

Estimated smartphone sales volumes will have reached

1.4 billion units in 2015, or one smartphone sold for every

five people on the planet (a number that would be even

higher if the resale of used smartphones was

considered). Smart TVs have emerged as the third

biggest category, with sales of $115 billion. China is by far

the largest smart TV market in the world, leading with a

penetration rate of more than 30 per cent; Australia, at

17 per cent, is the market with the second highest

penetration rate of smart TVs. Beyond smartphones,

tablets, and smart TVs, there is now a high degree of

fragmentation in the connected device landscape,

which reflects the many ways in which consumers and

business can now access the internet.

The strongest growth is expected to come from

wearables and other smart items (connected cars and

white goods), with both growing at more than 30 per

cent per annum between 2015 and 2020, albeit from a

relatively small base. Of the large categories, smart TVs

will have the highest growth rate, at 13 per cent annually

during that period. The PC market is expected to remain

flat, while smartphones and tablets will grow at less than

3 per cent annually, partly due to saturation in mature

markets and downward price pressure from low-cost

entrants (such as Chinese manufacturer Xiaomi) in

emerging ones.

The complete internet value chain is estimated to grow by 11 per cent

annually over the next five years, reaching $5.8 trillion by 2020.

4 Source: IHS Home Appliances Intelligence Services. (This estimate includes dishwashers, humidity sensors, microwave ovens, refrigerators, freezers, hobs, ovens, thermostats, washers,

and dryers.)


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