Digital Display Technology - Consumer Electronics Association

5toTechnologiesWatchPage 3 Digital Display TechnologyPage 9 Convergence of Wireless DevicesPage 13Digital ImagingPage 19Flash MemoryPage 23Electronic Entertainment/GamesCEA President and CEOGary ShapiroVice President ofCommunications andStrategic RelationshipsJeff JosephDirector ofCommunicationsLisa FasoldSenior ManagerPublicationsCindy Loffler StevensSenior ProductionManagerJohn LindseyGraphic SpecialistPhilip ToupsContributingWritersAlan BreznickRobert MacMillanCatherine Applefeld OlsonRon SchneidermanPhil Swann

5toTechnologiesWatchINNOVATION CONTINUESWelcome to the latest edition of Five Technologies to Watch. Once again, theConsumer Electronics Association (CEA) has accepted the considerable challengeto identify five of the most promising digital technologies in our industry. It was toughto choose the top categories that may prove beneficial as you move forward with yourbusiness plans. But this year CEA examines digital display technology, the convergenceof wireless devices, digital imaging, flash memory and electronic entertainment andgaming as areas to explore in more depth.The technology trends share some commonground: smaller, faster and in many cases, mobile.The caveat, of course, is that this issue is meant to whet your appetite to learn more about the valuabletechnologies that already are enhancing our workstyles and lifestyles as well as the emerging technologiesthat hold unlimited promise as we move forward.Which naturally leads me to the perfect educational forum to learn and see first-hand the latest technologies– the 2003 International Consumer Electronics Show (CES).As always, CES is known as the most advantageouslaunching pad for new products, and this show again will debut an abundance of new digital devices andservices.Thanks to innovative products, we forecast U.S. sales of consumer electronics goods from manufacturers todealers will reach $96 billion in 2002 on target to set a new annual sales record for the industry, representingthree percent annual growth. Consumer demand for digital video products, including game consoles, digitalcamcorders, digital television and DVD players is expected to continue to be strong.So note in your Palm or your calendar the dates that you won’t want to miss in Las Vegas, Nev., January 9-12,2003.This is your opportunity to see the most innovative, advanced products that entertain, inform and connectconsumers. Come see plasma display technology, convergence devices like the camera/mobile phone/multimedia messaging unit, the latest gaming software and removable data storage devices at the largestconsumer technology trade show in the world – The 2003 International CES: Defining Technology’s Future.Gary ShapiroCEA President and CEO5 Technologies to Watch OCTOBER 2002 1

1Digital DisplayTechnologyOVERVIEWThe introduction of high definition television in the UnitedStates is a remarkable breakthrough in visual technology.However, during the next several years, television promisesto take a major leap forward in technology. Experts say thatTV images soon will become life-like, or perhaps even morereal than life. In fact, some already are predicting we willone day see something called “H-TV”—or Hologram TV—where the characters of our favorite show will magicallysurround us in our living rooms.But television also will become more pervasive in our culture.Videoscreens will be everywhere, from the gas stationpump to the paneled wall of an elevator to the backseat ofa taxi.The New Television will change the way we receiveand watch programming and advertising messages.And digitalrecorders will change how—and when—we watch.Yes,the tube will get smarter, more powerful and even moreimportant to our lives.However, while much of the attention is focused on theadvances in high definition pictures and digital recordingfeatures, manufacturers are making incredible strides inchanging the very shape of the television itself. New digitaldisplay technology (DDT) is enabling engineers to createwidescreen TVs, flat TVs, wall TVs and, eventually, televisionsthat you can fold up like newspapers. Professor Ifor Samuel,who is doing research into new organic semiconductortechnology at the University of St.Andrews in Scotland,says,“In a few years, it will be possible to make television“New digital display technology(DDT) is enabling engineersto create widescreen TVs,flat TVs, wall TVs and, eventually,televisions that you can foldup like newspapers. ”screens which can be rolled up when not in use, informationdisplays on roller-blinds, and light-emitting clothing forsafety or fashion applications.” If Professor Samuel is correct,you will be able to customize the shape of your televisionas if it were an article of clothing.One could argue that digital display technology has yet tocapture the nation’s attention because of the subject’s complexity.Thetechnology often is described in arcane, engineeringlingo that could intimidate the average person.However, here is a layman’s look at the basic terms thatexplain how digital display technology works:DIGITAL LIGHT AMPLIFICATION (DLA)This is an electronic valve technology that uses liquid crystalon silicon. Developed by JVC, DLA enables manufacturersto create a brighter picture on a larger screen.DIGITAL LIGHT PROCESSING (DLP)Developed by Texas Instruments, DLP uses a digitalmicromirror device to modulate reflected light.An opticalsemiconductor chip also adds brightness and clarity to alarge screen picture. On opening day in 1998, the TexasRangers baseball team used DLP technology to display anHDTV picture of the game on an 18-foot diagonal screen.LIQUID CRYSTAL DISPLAY (LCD)LCDs, which now are used on everything from digitalclocks to microwaves, are thinner and require less powerthan cathode ray tubes (CRTs) found in most televisions.Many TV makers are using LCDs to create ultra-thin setsthat can display HDTV pictures. Sony, for example, is planningto launch a 30-inch flat-panel LCD TV by year’s end.PLASMA DISPLAY TECHNOLOGYPlasma technology, which does not require a tube, enablesmanufacturers to create a larger flat-panel TV, up to 60inches. (Samsung, in fact, is working on a 63-inch version.) Aplasma display consists of cells, better known perhaps aspixels; gas in the plasma state reacts with phosphors in eachsub-pixel to produce what engineers call “colored light.”That’s how a plasma TV can display such a clear picturewith the lights on.The term, plasma TV, has become synonymouswith flat TVs. But the plasma TV has yet to capture awide audience due to high prices.5 Technologies to Watch OCTOBER 2002 3

“As thin as a credit card,the OEL screen producesamazingly bright colors andcrisp pictures.”ORGANIC ELECTRO-LUMINESCENT(OEL) DISPLAYSMost experts say the OEL is a few years away, but it couldhave the most potential of all new display technologies.Asthin as a credit card, the OEL screen produces amazinglybright colors and crisp pictures. Sony displayed a 13-inchOEL at a 2001 trade show, but the company acknowledgesthat it’s not ready for a consumer launch.HISTORYThe sudden advance of digital display technology is evenmore remarkable when you consider that the first consumertelevision had a 4-inch screen, a small motor with aspinning disc and a neon lamp. Introduced in 1928 by GE,Popular Mechanics called the set a “laboratory plaything.”Only four sets were ever produced.In the 1930s, RCA and DuMont introduced the “electronic”television, which broadcast 343 lines, 30 frames per second.But the concept of viewing images at home still had notcaught on with the American public, particularly since therewas little programming available. (Sound familiar?) But, likesome of today’s new TV technologies, television found ahome among early adopters in Great Britain. In 1937, 9,000sets were sold in the U.K. after the broadcast of the coronationof King George VI.Television began to generate bigger numbers in the 1940sand 1950s, but the shape of the set hardly changed at all.The average TV was a squat, unattractive console, whichhad a large tube protruding from the back. But in the late1950s, Philco started experimenting with the actual design.In 1960, the company introduced the “Continental,” a 21-inch mahogany wood cabinet that was shaped like a triangle.However, the technology had yet to catch up with thedesigners.The television, which had a specially designed“short-neck” picture tube, was a consumer’s nightmare.TheContinental’s picture constantly went out and, eventually, sodid Philco.The Ford Motor Company bought the strugglingcompany in 1962.The 1970s witnessed a re-birth of new TV designs.Panasonic introduced the “Flying Saucer” TV, which featureda bubble-like rectangle screen. In 1978, JVC launched a 7-inch set which included a fold-down screen. But it was notuntil the 1980s and 1990s that the size and shape of TVsreally started to change.Thanks to display technology,TVmakers introduced widescreen sets—and screens largeenough to fill a living room.The creative designs wereembraced quickly by the public, leading to more experimentationby set makers.Today, the high definition television is the subject of vigorousdebate in the United States. But, over the next decadeor so, HDTVs will be in every American living room.Theincreased resolution of HDTV displays was designed foroptimal viewing distance 3-times the picture height (vs. 5-7times the picture height for NTSC).The wide screen highresolution display then immerses the viewer in programming,bringing the home theater viewing experience toreality.And the picture will only get more powerful. HDTV,which now comes as large as 70-inch sets, will be displayedon flat screens that take up entire walls.With flat screendisplays the need for higher resolution becomes more pronouncedespecially with larger screen sizes, 50-inch andhigher.That places the viewer at the optimal viewing distance.Thescreen will display multiple channels, enablingfamily members to watch different shows at the same time.And televisions will come in all sizes and shapes, customizedto the needs and desires of the consumer.But how does the new display technology hit critical mass?How does it get from concept to everyday reality? Andhow quickly will it happen.THE BARRIERSThere’s no question that new display technology is finding amarket. Sales of flat TVs, for instance, are increasing rapidly.However, before we drill down to look at the potential ofDDT, let’s examine the technological and marketing barriersthat stand in its way.TECHNOLOGY:TOO GOOD FOR ITSOWN GOOD?Industry officials often say that consumers will not buy newproducts because they fear they will become obsolete in afew years. Ironically, in regards to digital display technology,the industry itself is wavering. Some companies are unsurewhether to mass produce—and promote—new DDT setsbecause they believe a better technology is just around thecorner. For instance, Sony, which just launched a $5,900 30-inch LCD flat TV, is working on a much thinner OEL display.Richard Chu, an analyst for ING Securities, told Reutersthat Sony is not banking on its current flat-screen model.“They don’t think this is the future of TV technology.This isjust a transition period,” Chu said.Yoshinori, Onoue, deputypresident of Sony’s Home Network Company, acknowledgedthat the company is not in a rush,“We debatedwhether it would be right for Sony to rush LCD and plasmamodels to market, but we wanted to put out products4 OCTOBER 2002 5 Technologies to Watch

that were as good as or better than a CRT (cathrode raytube) television.”When color television was first introduced, electronic companiescould market it confidently to the masses, knowingthat the basic technology would not change for years.However, today, they are victims of their own success.Engineers have been so creative in developing new technologiesthat companies are reluctant to invest heavily in the latestdiscovery. (One could argue that this reluctance leads toa greater uncertainty among consumers.) For example, let’ssay that in 2003 Company X decides to gamble heavily onnew flat-screen TVs.The company kicks off a massive marketingcampaign and produces millions of sets.Then, shortlyafter the campaign is launched, Company Y announces thatit has unlocked the secret of the OEL display. Suddenly, consumersshopping for a flat-screen TV might pause, thinkingthat Company Y will launch the new and improved versionlater in the year. Company X’s multi-million dollar gamblecould go down the tubes, and along with it, an entire division.(Remember Philco’s disaster with “The Continental.”)LCD LEADERS5%LG Electronics/Zenith3%Panasonic2%Sony1%SanyoSource: DisplaySearch. Stats based on worldwide sales, 2001.86%SharpTECHNOLOGY: GOOD,YES, BUT IT COULDBE BETTERDigital display technology is a work in progress. For example,the plasma display has a fixed image resolution, whichmeans it displays the best picture when the incoming signalsprecisely match that resolution.This usually isn’t a problem,but signals that fall short require a difficult digital signal processing.In addition, the phosphors inside the plasma havea short lifespan, which can lead to early and frequent pixeldropout.The industry is developing solutions for theseglitches, but any picture imperfection will turn off consumers.Thisis another reason why the industry may proceedcautiously with full-scale production and promotionof current models.DDT: IT’S TIME IS COMINGDigital TV is currently holding center stage in the world ofnew TV technology.The media and industry are emphasizingnew DTV developments, whether it’s the FCC’s vote tomandate digital tuners or a network’s decision to expand itsHDTV programming. Consequently, DDT is not on theradar screen of most consumers; people have difficultyabsorbing new information on more than one category subjectat a time. For example, the recent popularity of DVDplayers has probably contributed to the slow growth of digitalvideo recorders (DVRs); how many consumers will buya DVR if they just purchased a DVD player? Compoundingthe DVR’s problem is that the media is devoting more timeto the DVD industry.Of course, many digital TVs will include digital display technology,such as wide-screen sets. However, the consumer’sprimary focus will be on the set’s picture, not its shape.Thiscould make it more difficult to sell non-HDTV DDTs, particularlyto consumers who can only afford to buy one newTV. (No spouse wants to explain why he/she came homewith an expensive new TV that does not deliver a high definitionpicture.“But, honey, look how thin it is!”)However, in a few years, after DTV takes shape in the U.S.,things should change for DDT.The media will be on thelookout for a new angle on TV technology.And the industrywill likely devote more promotional resources to build upa new category.DDT CHALLENGESThe FCC’s vote to mandate digital tuners in all sets by 2007(and sets 36-inches or higher by 2004) demonstrates thefederal government’s support for DTV.Whether you agreewith the FCC or not, it’s clear that the feds will not stopuntil every home has a DTV. However, the advance of DDTwill be based solely on the marketplace—do consumerswant and/or need televisions that come in different shapesand sizes? So, in the battle for consumer mindshare, DTVhas a tremendous advantage thanks to the federal mandate.In addition, DTV prices should drop even further becausethe federal policy will ensure that manufacturers increaseproduction volume. However, DDT sets will remain priceybecause production will be limited until market demand isestablished.This widening of the gap between the DTVprice and the DDT price could slow DDT growth in thenext year or two.5 Technologies to Watch OCTOBER 2002 5

IT’S THE ECONOMYAs we just noted, the prices of most plasma and otherDDT sets likely will remain high for the foreseeable future.However, the United States and much of the world isundergoing an economic recession, and it’s unclear whenthe recovery will occur. Concerned about plunging stockprices and devalued 401k accounts, many consumers areless likely to make a big-ticket purchase. DTV sales are up,but that’s because many sets now can be purchased foraround $2,000. If the economy does not turn around soon,it could have an impact on DDT sales.A TFCInfo study, publishedin July 2002, found that 50 percent of affluent consumerswould buy a plasma TV if the price were $4,999 orlower. However, when the same question was asked of allconsumers, 50 percent said they would only buy one if theprice dropped to under $3,000.However, some disagree that the economy is having animpact on new sales. Mike Piehl, a plasma line product managerfor NEC, says that plasma TV has been a rare “brightspot” during the down times.“Even after September 11th,our sales haven’t missed a beat,” he says.“The newness ofthe technology is still very attractive.”prices. But, by 2008, the group says LCD will accountfor just 53 percent of shipments and 35 percent ofrevenues. Plasma shipments will jump to 34 percentand it will account for 56 percent of all flat panel TVrevenue. Strategy Analytics agrees that Japan is theworld leader in flat panel sales, but says that willchange in the next few years.But, outside of the numbers, there is growing evidence thatthe industry is taking the business more seriously. SeveralTV makers this year said they were increasing productionof DDT sets. Perhaps accordingly, Circuit City, the retailchain that is often a weather vane on emerging technologies,said in February 2002 that it would re-organize itsvideo departments to “better display plasma and LCD TVs.”Later in the year, Circuit City said it would drop VHS videotapesfrom its shelves and boost its DVD line, a policy thatwas soon adopted by other specialty retailers.And Searsannounced in August that it was adding its “expensive” lineup of plasma TVs to more than 650 stores.PROJECTED FLAT PANEL TVSTHE FORECASTDespite the barriers, the industries—and analysts—are bullishon the potential of digital display technology. For instance:■■■DisplaySearch, a research group specializing in DDT,says it expects annual LCD TV sales to reach 14 millionunits, or five percent of all TVs, by 2006. (Lessthan 300,000 LCD TVs were sold in 2001.) The companyprojects LCD revenue to jump from $1.4 billionin 2002 to $13.8 billion in 2006 worldwide.DisplaySearch, however, says 80 percent of LCD salesthus far have been in Japan where houses are smallerand thin sets are more appreciated.The industry’schallenge is to persuade Americans that a flat-panelTV would improve the overall décor of their homes.Interestingly, marketing for high-end televisions is targetedusually at the male. But a flat-panel set couldappeal to women looking for ways to better organizethe living room;TV makers could do well by focusingtheir DDT advertising campaigns on both sexes.The Japan Electronics and Information TechnologyIndustries Association projects that worldwide plasmadisplay sales will hit 3.35 million by 2006, almost 20times higher than in 2001.The group says one millionof those sales will come from Japan with 900,000from the United States.Strategy Analytics forecasts that flat panel TV saleswill jump from 2.2 million in 2002 to 37.8 million by2008.The research group says LCD sets now accountfor 80 percent of units shipped, largely due to lowerSource: Strategy Analytics, 2001.“More Sears customers are investing increasingly in topqualityhome entertainment because Americans are spendingmore time at home with their families with the recentdecline in personal travel,” said Ray Brown, vice presidentand general manager of Sears’ consumer electronics business.“Theconvergence of these two trends…makes thisthe ideal time to introduce the largest selection amongnational retailers of flat-panel plasma and LCD brands.”In addition, there has been a slight increase in media coverageof flat-panel and LCD sets.The coverage nowhereapproximates the space given to digital TV, but it’s a startand it will help generate greater interest among consumers.THE PLAYERSAs a whole, the consumer electronics industry is devotingmore resources to manufacturing and selling LCD and plasmasets. However, there are some clear leaders in the field.A year ago, DisplaySearch reported that Sharp is dominatingthe LCD market with 86 percent of the worldwide market6 OCTOBER 2002 5 Technologies to Watch

share. Sharp reports that it sold 500,000 LCD TVs worldwidein 2001 and expects to sell 3.6 million by 2005.According toDisplaySearch, LG Electronics/Zenith was second with fivepercent; Panasonic was third with three percent; Sony wasfourth with two percent; and Sanyo had one percent.However, most CE companies have stepped up DDTplans in the last year. In July, for instance, Hitachiannounced the formation of a new digital media unit thatwould develop and sell new products based on LCD andplasma technology.SO,WHY WOULD CONSUMERS WANT IT?And that’s the most important question.Already overwhelmedwith new technologies, why will consumers beinterested in digital display technology? And, in some cases,why would they spend thousands of dollars to buy it? Hereare some reasons:PROJECTED LCD SALESDIGITAL VIDEO RECORDERSIndustry experts say that the digital video recorder (DVR) willreplace the VCR by decade’s end. But what’s taking so long? TheDVR is in less than two million homes. But it already has turnedthe entertainment industry upside down.TV networks are developing new ways to deliver advertising messages;consumer electronics companies are hinting they will discontinueVCR production; and the movie studios are hiring extralawyers to guard against illegal digital copying."DVR technology and perhaps TiVo, in particular, will revolutionizethe way people watch TV,” says Murray Arenson, an analyst withMorgan Keegan, aWall Street investment firm.However, the DVR, which permits viewers to pause live TV, skipcommercials and record more than 100 hours of programming, hasyet to capture the nation’s fancy.TiVo, the brand leader in the DVRcategory, has generated just 500,000 subscribers since its launch in1997. Why haven’t consumers embraced this new technology?Three reasons:1. Comfortability: History shows that very few technologiesbecome overnight successes. Whether it’s the microwave, theportable music player (Walkman) or the television itself, the averageperson needs time to become comfortable with a new technology.Once that occurs, word of mouth spreads and sales suddenlytake off. This may be happening now with the DVR. TiVoreports that 97 percent of its customers have recommended theproduct to a friend, an extraordinary high rate.The company alsoreported a sharp increase in sales for the last two quarters of2001, perhaps as a result.Source: DisplaySearch, 2001.PICTURENew digital display technology can dramatically improve theclarity and brightness of the picture, particularly in a well-litroom. It will no longer be necessary to turn out the lights toview your favorite movie—unless you have other reasons todo so. DDT sets also provide distortion-free images at thecorners and edges of the screen.A DDT set with HDTV willdeliver the best picture available on the market. For manyconsumers, particularly affluent ones, this will be a terrificlure in the coming months.FLEXIBILITYThe slimness of a flat panel TV will give consumers moreoptions in organizing the home. Many Japanese residentsnow hang their ultra-thin sets on the wall, eliminating theneed to reserve a large part of the living room for the tube.As we mentioned earlier, this feature could attract femalebuyers as well as male. In addition, as new technology develops,sets will come in even wilder shapes and sizes, alldesigned to fit a certain consumer need. Experts say that thefold-up TV will be launched soon and you will see “wearable”TVs, similar to the wearable PC now available from2. Price: Until late last year, the price of a DVR ranged in the hundredsof dollars.That was too much for consumers who believedthe product was just a newer version of a VCR. However, theindustry has cut DVR prices to under $200, closer to the price ofa VCR. Plus,TiVo, which also requires a subscription fee, is experimentingwith reducing the monthly charge. TiVo has announcedthat monthly subs for DIRECTV customers will be reduced from$9.95 to $4.99, effective November 1.3. Marketing: Industry analysts say that early marketing effortslacked focus and clarity. DVR companies couldn’t seem to agree onthe technology’s biggest selling points. Consequently, broadcast andprint ads rarely delivered the same message; one ad would spotlightthe pause feature while the next would focus on the commercial-skippingfunction. For a new technology, this was death.Consumers couldn’t figure out why they should buy the thing.However, thanks to experience, DVR companies have sharpenedtheir focus in the last year. Research shows that consumers nowhave a better understanding of the DVR’s main attributes.The DVR industry still has a long road ahead. It needs to persuadeconsumers to replace one perfectly acceptable technology, theVCR, with another – always a difficult task. However, due to theprice reduction and marketing shift, the industry could start to seedividends in 2003.5 Technologies to Watch OCTOBER 2002 7

“A DDT set with HDTVwill deliver the best pictureavailable on the market.”Zybernaut.The television will no longer be a fixed station inyour living room.STYLEFew can look at a flat-panel TV without saying,“Wow.” Theset is so much sleeker—and yes, sexier—than a CRT setthat many wealthy people might want one for decorativereasons.The fact that it delivers a great picture is an addedbonus.The style factor will go up when the first companyintroduces an OEL display, which promises to be as thin asyour credit card.INFORMATION DISPLAYAs television becomes more interactive, the LCD and plasmascreens will be ideal for displaying text and other data.ENERGY SAVINGSIt may seem odd to suggest that people will buy an expensiveTV because it can save on electric bills. But the plasmadisplay set does save energy because it does not have atube.When set prices eventually come down, this featurewill become more important. It’s already an issue in Japanwhere energy prices have escalated.PRICEYes, price. Many Americans now would like to buy a plasma set,but the price is cost prohibitive. But, in time, prices will comedown, fueling even greater interest among consumers.As withDTV, consumers will view a $2,500 set as a bargain when itused to be $6,000 or more. So the eventual lowering of priceswill attract a significant number of new buyers.SUMMARYDDT will change the way we think about television.We willbe able to customize a set to fit our needs and desiresrather than conform to its immobility.Want a video screento place in your briefcase? No problem.Want one on thewall? No problem.Want one that folds up so you can placeit your hip pocket? It’s done.The days of the living roomconsole seem far away. But DDT will likely struggle to gaina wider audience in the next few years.The technology isplagued by everything from industry uncertainty to highprices to consumer overload. However, once the barriersare overcome, consumers will quickly embrace the new television,which, in turn, will lead to even greater technologicaladvances. ■8 OCTOBER 2002 5 Technologies to Watch

2Convergence ofWireless DevicesOVERVIEWWhat would you rather carry around, a Swiss Army knife,or a Batman utility belt? Remember when Apple Computercaptured so much attention at the International ConsumerElectronics Show (CES) in Chicago in 1992 by introducing ahandheld computer called the Apple Newton? The $700Newton, one of the most hyped consumer products in history,hit the market in 1993. Unfortunately, it didn’t workvery well.And neither did several attempts to copy it.Enter the Palm Pilot in 1997.This personal digital assistant,or PDA, as the industry and media quickly dubbed it, didwork and was quickly followed by several other consumerelectronics manufacturers with PDA versions of their own.Since then, the race by manufacturers to add new things inorder to differentiate their products—has changed PDAsfrom plain old passive mobile computers to two-way interactivewireless communications devices with new featureslike cell phones, e-mail and Internet access, digital imaging,games, GPS navigation and streaming audio and video.But do consumers want several different functions in a singledevice? They love television because of its simplicity andcapacity to entertain, but will they put up with tiny screensand keyboards in a handheld device that may require more thanintuitive skill to use all of its impressive features? In Japan, theanswer is already a resounding yes.The jury is still out in the U.S.A survey conducted two years ago by CEA MarketResearch called “Convergence in the CE Industry” andmore recent studies by independent market researchorganizations, have generated mixed reviews to the all-inoneSwiss Army knife approach, with a device that is smallenough to fit in your hand, but that can handle both voiceand data—including e-mail and Internet access—has all thefunctions of a sophisticated electronic organizer and more.The CEA study found that when wireless phone ownerswere asked about their preferences for converged versusstand-alone products, more than half wanted a combinationwireless phone and PDA.A more recent market study byLondon-based Strategy Analytics Ltd., projects the marketfor PDAs with integrated cellular connectivity at 59 percentof total PDA sales in 2007.A PICTURE IS WORTH…The worldwide PDA market has cooled in recent months. Itincreased slightly in revenue in the second quarter of 2002,but slipped in unit sales, according to Gartner Dataquest, aresearch and management advisory firm. Gartner says Palmstill leads with more than 40 percent market share. Sony,HP and Handspring are close together but still trailing wellbehind Palm.That could change and quickly, according toseveral market analysts, with the addition of just one featureto their products—digital cameras.Japan’s leading wireless carriers already are having huge successwith camera-equipped cell phones. NTT DoCoMo,Japan’s leading wireless carrier, has shipped more than a millioncamera-equipped mobile phones since introducingthem in June. J-Phone, the country’s only carrier marketinga photo phone, started offering phones with integrated digitalcameras about 18 months ahead of DoCoMo and nowhas more than six million camera phone users, nearly half ofits subscriber base. Sharp Electronics produced DoCoMo’sinitial digital camera phone; in mid-July DoCoMo introducedtwo more camera phones, produced by Mitsubishi Electricand Fujitsu. KDDI, Japan’s second biggest wireless carrier,and other Asian and European wireless operators are eitheronboard with digital camera-equipped PDA/cell phones, orsoon will be.“Sony made a big splash with the Clie NR70V, which integratesa tiny digital camera,” says Todd Kort, principal analystfor Gartner Dataquest. Handspring, says Kort, is movingin the same direction, gradually withdrawing from the traditionalPDA market, focusing instead on smart phones withnew features, such as cameras.“Japan’s leading wirelesscarriers already are having hugesuccess with camera-equippedcell phones.”5 Technologies to Watch OCTOBER 2002 9

In the U.S.,AT&T Wireless and Sprint PCS have been quickto jump on board with clip-on cameras for their new cellphone models. Integrated versions are expected to follow.“The integration of digital imaging capabilities into handsetsand PDAs may be just what the doctor ordered,” says ChrisChute, a senior analyst for IDC’s Digital Imaging Solutionsand Services unit. Chute expects worldwide shipments ofthese fully converged (PDA/digital/digital camera) devices toreach 151 million units in 2006.“In time, camera phones will outsell digital cameras worldwide,”says Randy Roberts, director of imaging of Nokia’sImaging Business Unit, one of three new business unitsNokia formed about four months ago.According toRoberts, the new business groups are part of a plan byNokia to segment markets into specific applications. In additionto digital imaging, a new Entertainment & Media Unitwas established to develop mobile phones that are optimizedfor MP3s and other features.These devices wouldprobably not function as a PDA or feature a digital camera.A Business Applications Unit is expected to focus on developingPDA-centric devices, but with integrated phones.“Camera phones will be an essential tool in driving handsetreplacement rates in the next five years, especially in sluggishmarkets such as Western Europe,” says Neil Mawston, asenior analyst with Strategy Analytics.“In the U.S.,” he said,“we are forecasting that the growth for camera phones willbe noticeably slower than Western Europe due to networkinteroperability issues, lagging short messaging serviceuptake, and the relatively high cost of devices and per-eventphoto messaging.” For North America, Mawston expectscamera phones to account for 13 percent of total PDA/digitalhybrid sales in 2007, compared with 21 percent inWestern Europe in 2007.HIGH-SPEED NETWORKSNew high-speed data links, such as 2.5 generation (2.5G)and third generation (3G) wireless networks, are the key toenabling camera phone users in the U.S. to send andreceive images.And almost all U.S. wireless carriers areexpected to offer 2.5G service by the end of this year.Thisis important if digital camera-enabled phones are to send“To be a positive experiencefor consumers, convergencedevices must provide the righthardware, content and service,be easy-to-use, and enhanceconsumers’ ability to use, transferand create content.”and receive still digital images by e-mail, via multimedia messaging,to a printer using Bluetooth or infrared (IR), or to aphoto album on the Internet.The IEEE 802.11b wireless local area network standard, alsoknown as Wi-Fi, may be a sleeper as a totally new integratedfeature for handhelds.While it does not offer the seamlessmobility of cellular networks or the security, severalcomputer and telecom companies, including Intel, IBM,Verizon Communications and AT&T Wireless, have beendiscussing the joint development of a nationwide wirelesshigh-speed network for handheld and other portable computersthat could access the Internet. Despite its limitations,some analysts believe Wi-Fi will be used more oftenthan Bluetooth, particularly among well-traveled consumersand business/professional users.For one thing,Wi-Fi is considered to be a more robust systemthan Bluetooth.Also, despite its spotty coverage at themoment (mainly in some Starbucks, public areas in hotelsand major airports), Kagan World Media is projecting thatpublic access to Wi-Fi will increase a hundredfold in thenext 10 years. Intel, a charter member of the BluetoothSpecial Interest Group, is aggressively promoting the Wi-Fidevelopment program, and already has announced plans toprovide 802.11 functionality in all of its microprocessors formobile computing products beginning in January. StrategyPRODUCT PREFERENCES*OVERALL 18 TO 34 35 TO 54 OVER 54Prefer converged wireless 58% 62% 62% 50%phone/Palm PCPrefer two stand-alone products 42% 39% 38% 50%*among owners of a wireless phoneSource: CEA Market Research, 2001.10 OCTOBER 2002 5 Technologies to Watch

PRODUCT OWNERSHIP*OWN PROVIDED BY OWN & PROVIDED DO NOTPERSONALLY EMPLOYER BY EMPLOYER OWNNotebook Computer 24% 13% 2% 61%Pager 15% 15% 1% 70%Win CE Palm PC 2% 0% 0% 98%Palm Pilot 7% 1% 0% 91%Other type of Handheld 4% 1% 0% 96%or Palm PC*among owners of a wireless phoneSource: CEA Market Research, 2001.Analytics is projecting that only one-third of PDAs will offerintegrated Bluetooth in 2007.Karen Walsh, the author of a new report for the ARCGroup, another U.K.-based market research house, believesthat the introduction of 3G, with its faster wide-area networkcapability, will increase the value of Bluetooth phonesand other devices, and will provide new opportunities forall players in the Bluetooth value chain, but she doesn’texpect mobile phones to drive the market for Bluetooth ontheir own.“PDAs and handheld PCs (HPCs) will play a big role inearly Bluetooth adoption,” says Walsh,“especially amongprofessional users. But these mobile computing deviceswill be available with integrated Bluetooth in much smallerpercentage rates than mobile phones.” More likely, shesays, PDAs and HPCs will become Bluetooth-enabledthrough adapter products such as compact flash cardsand clip-on devices.“Despite the high expectationsfor digital imaging as amajor near-term market driverfor PDA/phone hybrids; mobileentertainment, particularly games,is another potentially hugegrowth opportunity.”There are pluses and minuses to convergence, according tothe CEA study.To be a positive experience for consumers,convergence devices must provide the right hardware, contentand service, be easy-to-use, and enhance consumers’ability to use, transfer and create content.The downsidecomes with a steep learning curve, when there is no backwardcompatibility with a previously owned device or software,and when net benefits fail to exceed those providedby a currently owned product.Another issue: it shouldn’t bedifficult or more expensive to upgrade.Apple may take another crack at the PDA market.Applereportedly has a new device, called the “iPhone,” that offersvoice access and wireless data via an Apple Mac operatingsystem.Apple is expected to use its licensing agreement withPixo, the company that developed the software for Apple’stiny iPod MP3 music player, to add music to its new handheld.Dell Computer also says it is seriously considering offeringa handheld mobile computer with wireless capabilitiesamong other applications.LET THE GAMES BEGINDespite the high expectations for digital imaging as a majornear-term market driver for PDA/phone hybrids; mobileentertainment, particularly games, is another potentiallyhuge growth opportunity. Cahners In-Stat/MDR, a marketand statistical analytical firm, says,“Downloadable games willprove to be a lucrative revenue steam for networkproviders.” It is this potential that led Ericsson, Motorola,Nokia and Siemens to form the Mobile GamesInteroperability (MGI) Forum last year to define technicalspecifications enabling a variety of mobile games to beplayed on different devices.Then there’s video. In Japan, KDDI has announced plans tolaunch a service in October that will enable users to sendand receive videos on their mobile phones. KDDI believes5 Technologies to Watch OCTOBER 2002 11

“Designing these new,increasingly complex deviceswill continue to be a challenge,particularly as consumersdemand smaller, lighter,and less expensive modelswith new features.”the new service and new phone (made by Toshiba) will helpit sign up seven million 3G subscribers by March, about fivemillion more than it has now.The phone can store as manyas 555 video clips of five seconds in length, and takes movingpictures that can be attached to e-mail and sent toother mobile phones and PCs.The new Toshiba phone alsofeatures GPS.France Telecom also is experimenting with a software programthat will create a video link between existing PDAswith cameras.The carrier has demonstrated the systemusing a Compaq iPAQ Pocket PC.FREQUENCY OF CARRYINGTHE PHONE2000 1998All the time 33% 28%Most of the time 38% 31%Some of the time 10% 28%Almost none of the time 4% 13%Source: www.80211planet.com compilation of research forecasts, 2001.Designing these new, increasingly complex devices willcontinue to be a challenge, particularly consumers demandsmaller, lighter, and less expensive models with new features.Chipmakers are already targeting wireless and mobilecomputing applications with smaller and more efficient integratedcircuits and other components.At the same time,battery and fuel cell manufacturers are developing andlaunching new products for this market segment. ElectricFuel Corp., which makes zinc-air fuel cells, has introducedInstant Power Chargers for inherently power hungry PDAtypecommunicators and other convergence devices.Thenew fuel cells are currently available for the Handspring Teoseries, the RIM Blackberry 5810 and 5820, mm02’s xda, andPRODUCT EXPECT TO OWN FIRSTOVERALL MALE FEMALEPalm Pilot 16% 17% 15%Wireless phone with 47% 51% 44%web browsing/emailDon’t know 37% 32% 42%Source: www.80211planet.com, 2001.the Audiovox Thera. But the fuel cells come as stand-aloneunits or in combination packages with car adapters, USBadapters and travel chargers.The adoption by consumers of new mobile technologiesalso seems to be as much an issue of age as it is cultural(what sells in Japan, for example, versus the U.S.).Confirming CEA’s market study findings, a recent survey byIDC found that younger users have a clear migration planfor adopting new wireless technologies, depending on thedevice.When it comes to interest in PDAs equipped withintegrated wireless features, nearly 23 percent of the 20 to29 year olds and 24.5 percent of 30 to 39 year olds saidthey plan to use an integrated wireless PDA in the next 12months.These results decline in all other age groups.Similarly, only the over 54-age segment indicated a strongpreference for stand-alone products in the CEA study, suggestingthat this group associates convergence with complexity.Overall, 38 percent of wireless phone ownersresponding to the CEA study said they wanted a phonethat could view e-mail, a percentage that jumped to 50 percentamong 18 to 34 year olds.“The key toward growth in the mobile market going forwardwill be in delivering solutions to younger generationsof consumers, who have not settled into specific usabilitypatterns dictated by past devices and applications,” saysRandy Giusto, IDC vice president, wireless and mobiledevices and PC technology.“Younger people are less averseto change and will be more eager to accept convergingtechnologies and new converged devices that sprout fromthe wireless landscape ahead.”The market research seems to validate the direction thatseveral PDA producers already are taking; that is, develophighly segmented products, focusing heavily on youngerusers with a steady stream of new features, while alsoaddressing the needs of business and professional userswith application-specific devices of their own. For others,there is still the plain vanilla PDA. ■12 OCTOBER 2002 5 Technologies to Watch

3DigitalImagingOVERVIEWWhen Paul Simon immortalized the glories of“Kodachrome” in the early ‘70s, neither he nor anyone elsecould have imagined the digital revolution that was to transformso many daily activities, even the simple pleasure oftaking a picture.Digital cameras and camcorders have been broadly availableto consumers since 1997 and today 40 percent of U.S.households owns a digital camera, while 50 percent of allcamcorders in U.S. homes are digital.Although early adoptionrates are sluggish when compared to that of other digitallifestyle products such as the CD and DVD, they are beginningto soar. In fact, digital still camera sales are on track toovertake sales of film cameras in about a year’s time.The reasons for the digital imaging phenomenon’s slowtrot out of the gate are varied and valid. Poor resolution.High price points.The need for a degree in electrical engineeringto retrieve images.Truncated battery life. Limitedstorage space.Fortunately, manufacturers have addressed many of theseconcerns during the past few years, although the road tomainstream usage of digital photography still is dotted withpotholes—both real and perceived.Thanks to technological advances, pictures that only a yearor two ago were not great quality now vie for their placeon the nightstand with their analog counterparts.At thesame time, prices have dropped to a level where, particularlyin the still camera arena, digital photography is approachingthe threshold that separates high-priced hobby andbroad-appeal usage.In the still camera market, the price of a two to threemegapixel camera (the baseline for printable photos) is flirtingwith the $250-and-under mark.A quality digital camcordercan be had for $600.These price points are beckoninga wide array of demographics that stretch the digitalcamera/camcorder’s universe from hospital delivery roomto traveler’s knapsack to college dorm.Companion docking cradles, USB cables and other peripheraldevices—both packaged together with the cameras orsold separately—have cut through the tangle of wires andbrain power once needed to retrieve, edit and storeimages.Additionally, several savvy manufacturers, such asNikon, have begun including “Image Transfer For Dummies”-type written and visual information with their cameras. Ifthe cameras aren’t quite user-ready out-of-the-box, they aregetting close.ACTIVITIES RECORDED WITHCAMCORDER *Family gatherings 87%Vacations / sightseeing trips 78%Significant life events 69%Random events around the home 60%Sporting events 25%Making movies or short takes 8%Source: CEA Camcorder Owner Profile Study, 2001.Software support for digital imaging today is abundant. BothMicrosoft Corp. and Apple Corp. have infused their newoperating systems with software to manage digital images.Hewlett-Packard Co., for another, is releasing some 50 newdigital imaging products this fall and into early 2003, a fivefoldincrease over the amount of peripherals it has hawkedin years past. Company reps hit the road a few months agoin a grass-roots promotional tour to show consumers firsthandthe wonderful world of digital imaging.Now that they’ve somewhat successfully righted digital photography’sinitially tarnished image, camera and camcordermanufacturers are spreading the word about their products’benefits which are bountiful.The majority of digital camera owners—48 percent, accordingto CEA research—cite the desire to post pictures to awebsite as the main reason for purchase.The ability toimmediately view an image, store only desired images andthen transfer them to a variety of platforms are just a fewof the reasons that two-thirds of digital camcorder ownershave upgraded from a prior analog camcorder model.5 Technologies to Watch OCTOBER 2002 13

And it looks as though a picture does indeed paint a thousandwords, as digital photography quickly is becomingpart of the greater communications lexicon.Acceleratedby a shrinking footprint, this new trend finds camera functionalitybeing plugged or embedded in a host of mobiledevices that would, for example, facilitate a user in snappingan image and sending it through his cellular phone onthe fly.In addition the relative lifetime ownership costs vary dramaticallybetween analog and digital cameras. Not having todevelop film saves consumers a great deal in time andmoney with a digital camera. Combine that with a fallingpricepoint and you have a cheaper device over its life.THE ONE THING CAMCORDER OWNERSWANT IN NEXT PURCHASELonger lasting battery 26%Easier transferring or copying 19%LCD view screen 12%Better picture quality 9%More advanced features 7%Improved sound quality 3%Improved focusing capabilities 3%More memory 2%Source: CEA Market Research, 2001.With its growing mass appeal and a windfall of complementaryusage products bombarding the market, the questionfor digital cameras and camcorders now is when, not if, theywill overcome their analog ancestors.STORAGE AND BATTERY LIFEShortcomings in storage capacity surfaced almost immediatelyafter consumers took the first digital cameras for atest run.Today, most cameras incorporate either heightenedinternal storage capacity or come with some sort of flashdigital storage product/card—many with 16-megabytecapacity—that can be inserted, and then popped, out ofthe camera.By most accounts, the storage capabilities that come packagedwith most cameras fall short of consumer expectation. Inshort, this means buyers should be prepared to chalk up additionalcash to purchase any number of the removable storagedevices, which range in price from about $30 up to $200.As is the case with most digital add-ons, there are differentoptions for different needs. Some storage devicesare proprietary to a particular manufacturer’s technology,or even to a specific camera line. Others can play inmore environments.While storage concerns largely have been allayed, if at anincremental cost to consumers, battery power remainsan albatross around the neck of the digital camera/camcorderindustry.When asked what they would most like to see improved intheir current device, the majority of digital camcorder ownerswould opt for longer battery life. LCD is a particulardrain on batteries, and the inadequacy of many batteriesto support a lengthy recording session is among the majorreasons owners leave their cameras in the case.And standard AA batteries—still the status quo for manycameras—are simply not up to the job to support robustdigital functionality.The dilemma has spawned severalresponses, with varying success.In a play for the mass market, Panasonic Battery recentlylaunched the PowerEdge, the first disposable batterySATISFACTION WITH ATTRIBUTES *OVERALLANALOGDIGITALCAMCORDERCAMCORDEROWNERSOWNERSOverall 60% 58% 79%Picture quality or resolution 72% 71% 89%Focusing capabilities 70% 70% 82%Sound quality 66% 64% 91%View Screen 62% 59% 88%Cost of tape or film 61% 59% 61%Size and weight 58% 52% 91%Ease of using advanced features 47% 46% 58%Battery life 36% 34% 74%Ease of transferring recordings to a PC 34% 30% 61%* Percentage shown indicates number of “somewhat” or “very” satisfied camcorder owners. Source: CEA Market Research, 2001.14 OCTOBER 2002 5 Technologies to Watch

HOURS OF RECORDINGS PER MONTHOverallLENGTH OF OWNERSHIP Analog Digital< 1 Year 1 Year to 4 Years Camcorder Camcorder< 4 Years or More Owners Owners1 hour or less 65% 42% 59% 78% 67% 43%2 hours 15% 22% 19% 10% 14% 24%3 hours 7% 12% 8% 4% 6% 13%4 hours 5% 12% 6% 2% 5% 7%5 hours or more 8% 13% 10% 5% 8% 14%Source: CEA Market Research, 2001designed specifically for use in digital still cameras.The batteries,which are priced at $5.99 for a four-pack, are beginningto turn up at retail outlets from grocery stores tocamera shops.DOUBLE DUTYRare is the technology that at some juncture does notenter the world of multitasking, and digital cameras andcamcorders are no exception. But like the combo PC/printerand TV/VCR before them, they walk a fine line betweenversatility and focused performance.With the advent of removable storage devices, many mid- tohigh-end digital camcorders have the ability to shoot stillphoto images.At the same time, newer camera models tout theability to capture a 60-second or longer streaming video clip.Thus far, the dual functionality has raised more eyebrows inthe camcorder market than among still camera purchasers.Camcorder companies with higher-end models tend toadvertise the still photo feature more often, and they areadvancing the capability at a faster rate, with at least onenew model incorporating two megapixel resolution.Nevertheless, manufacturers in both camps are not heavilypromoting the cameras’ ability to step into each other’s shoesfor fear of further confusing an already fragile marketplace.SIZE MATTERSThe bigger the better is a rule of thumb for many consumerelectronics gadgets. In the digital imaging space, it’sjust the opposite.Fourth-quarter 2002 and early 2003 will usher in dramaticreduction in the size of devices from many top-name manufacturers,with several camera and camcorder modelsshrinking to the point where they comfortably can fit in ashirt pocket.With size and weights rivaling a pack of cigarettes,they no longer are relegated to being unleashed onlyfor special occasions but can be carried anywhere, any time,to capture those life moments that occur while planningthe next big event. Swivel lenses and a host of other capabilitieskeep the units ergonomically functional.WHO IS BUYING DIGITAL CAMERAS?Although men buy more digital cameras, women take themajority of digital pictures (57 percent).The "Marketing toMom: Profile of the New Digital Camera User" study conductedby the Photo Marketing Association Internationalfound that among all households that own digital cameras,women are the primary users of 46 percent of digital camerasand 41 percent of digital camcorders. Women alsoare more likely than men (27 percent versus 23 percent)to make prints of their digital images and are more likelyto cite e-mailing images as a primary reason for using adigital camera (73 percent of women compared to 69percent of men).FASHION STATEMENTTaking a cue from the mobile phone industry, cameraand camcorder manufacturers are seeking to parlaythe increasingly diminutive size of their products intoa fashion statement.Many of the smaller, more expensive models soon will beavailable in a rainbow of contemporary color and designpatterns. Close to market-ready, too, are accompanying linesof belts, chains, cases and clips—developed both in-houseand with third-party fashion firms—that will enable trend-SATISFACTION WITH ASPECTSOF DIGITAL CAMERAOWNED 3 OWNED 5OVERALL YEARS YEARSEase of Operation 76% 80% 73%Quality of Pictures 68% 69% 71%Features 48% 50% 51%Cost of Film 39% 43% 34%Cost to DevelopPictures 34% 36% 31%Source: CEA Market Research, 2002.5 Technologies to Watch OCTOBER 2002 15

WHY PEOPLE USE DIGITAL CAMERAS (By gender of primary user)ALL HOUSEHOLDS FEMALE MALETo send photos by e-mail 71% 73% 69%To preserve memories 69% 68% 69%To share later with others 69% 69% 69%For pure enjoyment 63% 64% 62%Like to take photographs 46% 51% 41%To use photos in acomputer for a hobby 39% 36% 40%To give away as gifts 18% 19% 16%To master the skills involved 18% 19% 16%To use photos in a computerfor business 15% 16% 14%To use photos for business 15% 14% 15%As artistic expression 14% 16% 12%To earn income on amoonlighting job 2% 3% 2%To earn income for a regular job 2% 3% 1%Other 7% 9% 5%Source: Photo Marketing Association International, 2001conscious consumers to strap on their camera just as theywould a watch.The move is a clear play for younger consumers, who areas in tune with what’s cool to wear as they are with newtechnology. Select presenters at the recent MTV MusicAwards “wore” versions of Sony’s new Cybershot U cameras,heralding a new campaign that will reach out to the 18to 24-year-old demographic.MULTIMEDIAAs it develops in its own right, digital still camera functionalityis making inroads in a host of mobile devicesranging from personal digital assistants (PDAs) to mobilephones.To be sure, the resolution today is not as goodprint, but the convergence offers a variety of newlifestyle possibilities.In the handheld arena, a growing number of models accommodatea digital camera plug-in and increasingly are incorporatingthe functionality. Users can store images to adevice’s internal memory or to a removable storage mediumand then retrieve them in complementary productssuch as a camera or PC.While it’s safe to say no one is purchasingtheir PDA specifically for its camera capability, withprices ranging all the way down to $200 for a “hiptop”wireless convergence device developed by Palo Alto, Calif.-based Danger Inc., these devices should begin to attract abroad audience.The camera/mobile phone/MMS (multimedia messaging)combination is perhaps the most exciting, but also the mostelusive, development in this area. But what would happen ifyou tossed a wireless communications engineer and a digitalcamera designer into the same room and threw away thekey? Two phones that incorporate such functionality are fromNokia and Sony Ericsson, respectively and will get theirdebut in select European markets but will see scant actionstateside in the near future because the U.S. is still chasingrobust 3G wireless technology.Nokia’s 7650 phone incorporates VGA resolution alongwith MMS capabilities and a 176 x 208 pixel color display.Sony Ericsson’s T68i boasts a similar roster of functions.The phones also incorporate Bluetooth wireless technologyand fast modems.The idea is that you could snap animage of the sun setting over the Seine while vacationingin Paris and instantly send it to your buddy to whom youare describing the scene by phone. Or simply take animpromptu photo to further personalize your electronicphone book.16 OCTOBER 2002 5 Technologies to Watch

“The camera/mobilephone/MMS (multimediamessaging) combination isperhaps the most exciting,but also the most elusive,development in this area.”Ericsson’s CommuniCam camera transforms a mobilephone into an instant imaging device; simply snap thecamera on to the end of a mobile phone, flip the phoneup to the eye and shoot. Ericsson’s first imaging product,the CommuniCam can be used with any of the company’smobile phones that are equipped with a modem.Theimages can be sent as an e-mail attachment with an averagetransmission time for a single image of only about aminute, the company says. Up to five images can bestored in the camera for later use. CommuniCam usersalso can link to the Ericsson Mobile Internet portal andcreate a personal album of images.These images canthen be edited on-line or downloaded from the websiteto a PC.Another way to capture and send digital pictures is totake digital photographs directly on a Handspring VisorPDA with an IDEO eye module-series camera modulethat snaps into the Visor's Springboard expansion slot.Then, by using Electric Pocket's BugMe! Messenger wirelesse-mail software, users can hand write a captiondirectly on the image and the photo can be instantly e-mailed directly to friends, family or colleagues. In effect,this allows users to create and send a personalized electronicpost card.Research and consulting company Strategy Analytics predictsthat 16 million camera-enabled cell phones will besold worldwide this year, with sales ramping up to 147 millionby 2007.Although 22 million digital still cameras willlikely be sold worldwide during 2002, the research firm predictsa significantly slower growth rate of 34 percent forthese products as well as sales of 95 million units by 2007.However, camera-enabled PDAs will not be so widelyadopted, claim researchers.They are expected to accountfor just 6 percent of all PDA sales worldwide by 2007. In areport entitled "Strategic Perspectives on Cellular CameraPhones," Strategy Analytics also predicts that one out ofevery five cellular handsets sold in 2007 will contain anembedded camera.Another design combines a digital camera with MP3capabilities. Kodak's MC3, for example, is a small still andvideo camera that doubles as an MP3 player. Intendedfor the active lifestyle, the Kodak MC3 is designed forsingle-hand operation.To use it, simply flip a switch toselect still (640 by 480 resolution), video (320 by 420, 20frames per second) or MP3 mode (only one mode canbe employed at a time).The unit serves as a fully functional MP3 player.The MC3also can record 20 seconds of video for each MB ofremovable memory recording at 10 frames per second(fps), so on a 64MB CompactFlash card users can storemore than 20 minutes of continuous video in QuickTime format. For better quality video, recording at a 20fps rate translates into 4 seconds of video for each MBof memory.Meanwhile, Polaroid’s PhotoMax MP3 takes still imagesand stores photos and MP3 audio files on a 16MBCompactFlash memory card.Transferring songs or photoswith a PC requires only a drag and drop exchange,which is facilitated via a USB cable. Just switch thecamera to MP3 player mode and press play to listento music through earphones.The PhotoMax also comeswith an audio out for music and a video out to displayphotos on a TV.ONE-HOUR PHOTODespite massive inroads in digital photography, no amountof technological dazzle can overcome an engrained behaviorpattern.Currently consumers drop off more than 200 million rollsof film each year at their local camera shop, grocery storeor mass merchant, and then return one hour or 24 hourslater to retrieve their stack of developed pictures.The wrench the digital camera has thrown into this routinecannot be overestimated—nor can the disappointment inquality still reported by the vast majority of consumerswho print their digital images at home. But the tide is aboutto turn.Several grand-scale marketing campaigns are on tap tospread the word that thousands of locations—including severalmajor chains—will be open for the business of “developing”digital pictures. Camera and camcorder owners simplycan pop out their media storage unit and drop it off asthey would a roll of film and pick up a photo-album readypack of prints.This phenomenon already is established atseveral Web-based companies and a small number of brickand-mortarstores, but it has yet to catch the fancy of manydigital camera owners. ■5 Technologies to Watch OCTOBER 2002 17

4FlashMemoryOVERVIEWClever wags in the entertainment and technology fields liketo say that we’re living in a wired world.Would that theyhad done their homework.People in ever-growing numbers are shedding their adherenceto all sorts of technology that need to be plugged in,and gradually moving toward the ideal expressed by GeorgeJetson when he folded up his compact plane/car and stuckit in his briefcase once he got to work: small and wireless.The most piquant display of this “Jetsonization” in the earlyyears of the 21st century is portable digital media—thegadgets that let you listen to music, surf the Internet, takepictures or nearly whatever else you want—as well as theminiscule memory devices that you plug into the hardwareto make it work.The trend might have started with portable transistorradios, and evolved into mobile cassette and compact discplayers, but now Americans can take all their music, pictures,computer data—whatever they want, really—andtake it almost wherever they want to go.And much likenotebook computers, portable digital media devices are gettingsmaller in rough proportion to how much memorythey can store—more riches on less real estate.Not only are the playback devices, digital cameras, personaldigital assistants and other media getting smaller and“Much like notebookcomputers, portable digital mediadevices are getting smaller in roughproportion to how much memorythey can store—more riches onless real estate.”more powerful, the cartridges, discs and “sticks” that handlethe memory are crammed with more capacity to storedata than at any other time in their nearly five years onthe open market.In fact, as with laptops, shrinkage is not just a compliment,it’s key.WHAT IS IT?At some point in the mid ‘80s, someone somewhere probablyrealized that all they were getting with their massiveghetto blaster was a stiff shoulder and sound in one ear.From that point on, it was up to the finest engineeringminds in the consumer electronics business to make personalentertainment on the go a convenient thing—andmore unobtrusive than a massive portable stereo atopone’s body.As with most kinds of personal electronic devices, it was aquestion of developing technology that allows people toexperience more and better sound and vision, while notbeing forced to lug around an arsenal of battery packs,wires and moving parts.In theory, the steady decrease in the size of personal technologyknows no bounds, especially considering the rise ofnanotechnology.As for the beginning of the 21st century,however, data storage on cartridges and sticks that are thesize of a piece of gum or a teabag seem to be the most hipand comfortable way to carry data.The concept is elegant because of its size and simplicity:Take a digital camera, a computer, a digital music player oryour personal digital assistant.You can take pictures, playmusic or whatever you want to do.To store that data, whyuse a compact disc that could skip while you walk, or otherkinds of storage devices that are too bulky to carry around.Instead, you notice that all of your hardware—from camerato computer—comes with a small port where you can stickin a solid-state storage medium that will hold all the datayou want.Most kinds of portable data storage products rely on flashmemory technology using Electrically Erasable5 Technologies to Watch OCTOBER 2002 19

REMOVABLE STORAGE MEDIA TIMELINEYEAREVENT1991 The first 1.8” IDE drive.1991 The Kodak Professional Digital Camera System (DCS) is introduced.1992 First Type II PCMCIA-ATA (PC card).1993 Apple introduces the first personal digital assistant (PDA).1994 Kodak and Apple release the first consumer-level digital still cameras.1995 Panasonic, Sony, Sharp and JVC introduce the first digital camcorders forthe consumer market.1995 The first SmartMedia card (originally called SSFDC) is available.1995 The first CompactFlash card is available.1996 Kodak introduces the first digital consumer camera with removable memory.1996 Palm Computing introduces the first mass-market PDA.1997 MultiMedia Card (MMC), the smallest solid-state device is introduced.1998 The first Memory stick is available.1998 The first 2.5” and 3.5” flash drives debut.1998 Diamond Multimedia introduces the first portable MP3 player in the U.S..1998 IBM Introduces the Microdrive.1999 The one millionth DV camcorder is sold in U.S..1999 Digital still camera sales top $1 billion worldwide.1999 The secure Digital (SD) card, smallest secure solid-state removable device is introduced.2000 Digital camera sales revenues outpace film-based camera revenues.Spring 2002DataPlay write-once-read-many format is introduced.Source: Digital Tech Consulting, 2001.Programmable Read-Only Memory (EEPROM) chips, thoughIBM has developed a very small hard drive that serves thesame purpose. EEPROM-based flash memory chips are relativelycheap, contain room for several megabytes’ worth ofstorage and are ideal for recording and playing back thesereasonably small packets of data.These chips are packaged as small cards that then can befitted into hardware that is designed to take each particularmodel.With some flash memory cards, people could storea bunch of songs, say, or maybe the equivalent of a coupleof rolls of film.The problem with such small products as ofthe end of 2002, though, is that you can’t stuff a half-hoursitcom on one so you can watch it on the subway. Entirefeature films, of course, still are also out of the question.What is nice, especially on the wallet, is that the price permegabyte for flash memory has dropped. Following fairlylackluster sales over the past year, as reported by the NPDGroup, some of the dominant players in the market—includingSony and IBM—have lowered the cost and upped consumerdesire to get a hold of this still-growing technology.WHO’S FLASHING?Lining up the various flash memory cards reveals an initiallyconfusing array of abbreviations and catchy names, notto mention individual lists of hardware with which eachone is compatible.Sony Corp. has been making a splash for several yearswith its proprietary Memory Stick flash technology, butit’s proprietary. Holding up to 128 MB of data (at up to$2 per megabyte), the Memory Stick stores data for digitalcameras, camcorders, MP3 digital music files and personaldigital assistants.Toshiba has introduced SmartMedia flash memory (oncecalled Solid State Floppy Disk Card) and SanDisk came with20 OCTOBER 2002 5 Technologies to Watch

CompactFlash, both of which claim their own adherents.SmartMedia cards are one millimeter thick and hold about256 MB of data at about $1 per megabyte. CompactFlashcards are a little thicker—3.3 or 5.5 millimeters—andToshiba in September 2002 released the first one gigabytecapacity CompactFlash card. Both formats can be used tostore data for digital cameras and camcorders, MP3 playersand PDAs.CompactFlash and SmartMedia both are considered dominantplayers in the flash memory arena, but more than 100companies also have joined the four-year-old MultiMediaCard Association, which promotes the widespread adoptionof its MMC flash memory device.Working in a similar mannerto the Sony Memory Stick, MMCs can handle up to 256MB of data, costing around $1.50 to $2 per megabyte.MMC serves the same types of products as do the otherformats mentioned above.Secure Digital (SD), developed by Toshiba, Matushita andSanDisk in 1999, also works for these formats and holdsup to 256 MB of data, again for about $1.50 to $2 permegabyte. Unlike some other systems, it features copy protectionunder the Secure Digital Music Initiative (SDMI).IBM’s Microdrive, which is a small hard disk drive, holds upto one GB of data, but only for 38 to 68 cents permegabyte.Although Microdrive is not specifically a flashmemory product, IBM said that devices containing theCompactFlash Type II slot should be able to read the format.Finally, DataPlay has developed a series of small audio playbackdevices, as well as mini-cartridges for holding up to500 MB of data for as little as a penny a megabyte.WHO’S WORKING WITH WHOM?From this field of sometimes competing, sometimes cooperatingdata storage forms, it’s anyone’s guess as to whichone will become the de facto standard—or whether interoperabilitywill eliminate the need for that question.As fornow, however, some key alliances are emerging.CompactFlash: CF technology was introduced by SanDiskin 1994, and now is supported by a number of operatingsystems.Along with Sony Memory Stick and SmartMedia, itfeatures widely as an item for sale at many of the largestconsumer electronics retailers. Some of the companies thatuse CompactFlash include Canon, Casio, Epson, Hewlett-Packard, Kodak, Minolta, Nikon, Panasonic and Polaroid.DataPlay: This company has made several of its flash memorydevices available, but at significantly cheaper prices thansome of its competitors.Whereas some high-powered cardsrun up to $800, plus the extra $30 or $40 you might haveto pay for a card reader, some retailers’ websites are offeringDataPlay flash cards between $5 and $10 for up to 500MB. DataPlay also has fashioned compatibility agreementswith companies such as BMG, EMI Music Distribution, LGElectronics, Pretec, Samsung, SmartDisk and Toshiba.Memory Stick: Works with Sony products, but severalcompanies have designed “readers” that can downloadinformation from CompactFlash cards and Memory Sticksinto your computer.MicroDrive: IBM’s system works with many productsfrom a host of other companies, including Apple, Canon,Casio, Eastman Kodak, Fuji, Hewlett-Packard, Hitachi,Minolta, Nikon and others.MMC: This postage-stamp-sized flash memory card featureswidespread industry support, including Aiwa,Audiovox, Canon, JVC, LG Electronics, Nokia, Panasonic,Sanyo, Sharp and Thompson.SD: New SD products work with MMC products, creatingsome comfortable interoperability conditions.SmartMedia: Originating with Toshiba and Samsung, companiesworking in the SmartMedia Forum include Acer,REMOVABLE STORAGE MEDIA TYPESPLATFORM CONSOLE BOX U.S. LAUNCH DATE FEESCompactFlash Just under $1/MB Digital cameras and camcorders, MP3 players, PDAs 384MBSmartMedia Just under $1/MB Digital cameras and camcorders, MP3 players, PDAs 128MBMemory Stick $1.25 to $2/MB Sony digital cameras and camcorders, Sony MP3players, Sony PDAs128MBSD $1.50 to $2/MB Digital cameras and camcorders, MP3 players, PDAs 128MBMMC $1.50 to $2/MB Digital cameras and camcorders, MP3 players, PDAs 64MBMicrodrive 38 to 68 cents/MB Digital cameras, MP3 players 1GBDataPlay Unknown Due Spring 2002 500MBSource: Digital Tech Consulting, 2001.5 Technologies to Watch OCTOBER 2002 21

Canon, Casio, Eastman Kodak, Fuji, Hewlett-Packard, Leica,Minolta, Mitsubishi, Motorola, Nikon, Olympus, SanDisk,Sharp, Sony,Texas Instruments and Yamaha.WHERE ARE WE NOW?As with most goods that compete for your attention,removable data storage devices contain some benefits anddrawbacks—the task for most customers is to read theproduct specifications closely to determine what worksbest for their needs.The most popular application for these devices now, mostbusiness executives agree, is the digital camera.While thecameras may work best for particular types of flash memory,other uses are on the rise, such as MP3 players and personaldigital assistants.“In the consumer market, primarily digital still cameras(DSC), are the driving force behind the demand,” said BrianKumagai, business development manager for NAND flashmemory and memory cards at Toshiba America ElectronicComponents Inc.“We anticipate that DSC sales willincrease in the fourth quarter, especially due to theChristmas season.”Kumagai added that PDAs, game systems such as thePlayStation and notebook PCs also will show increaseddemand for the diminutive cards.John Osterhout, business line manager for IBM Microdrive,agreed.“Digital cameras seem to be the most popular enduserproducts for removable digital storage today,” he said.“We’re also seeing increased usage in MP3 and other digitalAMONG ALL THE PICTURES CONSUMERSTOOK IN THE PAST 12 MONTHS,WHAT DIDTHEY DO WITH THEM?13%Madeprintsaudio players, as well as multimedia handheld devices suchas the Compaq iPaq and HP Jornada.”Full-length video and other data-heavy applications still mayhave a ways to go before flash memory cards are capableof storing them and playing them back with any ease.“Many users need high-capacity storage to make full use ofthese devices [like Pocket PCs],” Osterhout said.“In particular,devices that are intended to store and ‘play’ music,movies, games, what we refer to as entertainment content,need high-capacity storage.”If the bottom line for consumers is price, then MicroDriveand DataPlay offer more megabytes for fewer dollars.However, while DataPlay is cheap and durable, it requiresan optical drive mechanism and only can be written toonce. MicroDrive, with moving parts, also is sensitive todropping, at least more so than solid state cards.On another note, MicroDrive also consumes power fasterthan systems like CompactFlash.One additional DataPlay advantage, however, is the company’sapparent trend of scoring deals with record companieslike BMG, which has planned DataPlay-format releases ofbig acts such as Pink,Aaron Carter and the seemingly ubiquitousBrooks & Dunn.WHERE ARE WE GOING?Storage capacity issues, as with so many other envelopes inthe technology world, will continue to be pushed and massageduntil the limitations that face us are erased.Toshiba’sKumagai, for example, said that his company would like tosee consumer-oriented flash memory products cost as littleas 10 to 20 cents per megabyte (for solid-state).Then, hesaid,“Consumers will be able to store a two-hour video atan attractive price point.”He suggested that notebook PCs, in particular, will use flashmemory to replace floppy disk drives.18%E-mailed69%Saved, storedor keptOne area of the market that has received more than a traditionalsetback, he said, has been MP3 playback, which heattributed in large part to the demise of Napster.“Thefuture trend will be for other types of equipment to integrateMP3 players, which means that there won’t be as[much] equipment dedicated to MP3 use.”Base:Total pictures taken with digital still camerasSource: 2001 PMA Camera/Camcorder, DigitalWhatever the particular uses are, however, analysts andbusiness executives agree that the trend toward multi-usedigital products will continue (think: cell phones-cum-PDAscum-nearlywhatever digital function you need), and if thereis one method to achieve this goal, it will be through compatible—andcompanionable—flash memory. ■22 OCTOBER 2002 5 Technologies to Watch

5ElectronicEntertainment/GamesOVERVIEWIn the immortal words of Rodney Dangerfield, electronicgames don’t get no respect.The latest consumer researchindicates that about 60 percent of Americans over the ageof six, or a staggering 145 million people, now play somekind of computer and/or video games some of the time,and the number keeps growing swiftly.Yet Wall Street, themainstream press and other powerful influencers of publicopinion still too often treat electronic games as a silly,wasteful pastime for addicted, pimpled kids and geekygrownups.They also see gaming as a solitary, somewhatunsavory pursuit for boys and young men in dark, lonelyrooms.And they view most electronic games as violent,even sadistic, smash-and-crash, mind-numbing diversions forthe lowest common denominator, not stimulating, challengingstrategic matches, sports contests and educational testsfor the overwhelming majority of players.GROWTH IN ELECTRONIC GAMES SALESBut most of these outdated notions are far from the truth.In fact, the electronic game industry is a large, steadilygrowing business, generating a record $6.35 billion in U.S.software sales alone in 2001, according to NPD Funworld.Similarly, sales of game consoles and other equipment forvideo games reached a record $3.25 billion in 2001, accordingto CEA Market Research data.Adding up these twototals, the entire game industry produced somewherearound $9.6 billion in revenue last year. Digital softwaredevelopers sold a stunning 225 million computer and videogame units in 2001, or nearly two games for every U.S.household, far more than the number of pro sports ticketssold last year.Defying the conventional wisdom, electronic games are alsonot just for kids, at least not anymore. Indeed, the averagegame player is actually a surprising 28 years old, accordingto the latest annual consumer survey conducted by theInteractive Digital Software Association (IDSA) in spring2002. Furthermore, the IDSA says, 90 percent of all gamesare purchased by people over the age of 18, albeit many asgifts for children. In another surprise, women now make up43 percent of all gamers. Finally, the ISDA finds, mostgamers play with friends and/or family, and 18 of the 20best-selling games in 2001 rated as either “E” for everyoneor “T” for teens.Source: NPD FunWorld, May 2002.SETTING RECORD STATSBesides being big business, electronic games also seem tobe largely recession-proof. Despite the sluggish economy ofthe last two years, sales of video games, which account formore than two-thirds of all electronic games sold, climbedsteadily in 2001 after a slight dip in 2002, according to NPD.In particular, video game sales jumped 10 percent to $4.6billion in 2001, more than offsetting a slight 1.7 percent dipto $1.75 billion for computer game sales. Overall, NPDsays, sales of both video and computer software gamesclimbed 7.9 percent from $5.9 billion in 2000 to reach therecord $6.35 billion total last year. CEA Market Researchpegs the 2001 total at an even higher $6.7 billion, a 15 percentincrease from the 2000 figure.By all accounts, this growth spike has continued, if notaccelerated, in 2002. In the first quarter of the year, totalvideo game industry revenue soared to $1.9 billion, up 205 Technologies to Watch OCTOBER 2002 23

GROWTH IN VIDEO GAMEEQUIPMENT SALESGROWTH IN TOTAL VIDEO GAMEINDUSTRY SALES (in millions of dollars)Q1 2001 Q1 2002 CHANGEConsoles $467 $548 17%Console Software $716 $895 25%Console Accessories $190 $205 8%Portable Hardware $67 $81 21%Portable Software $138 $179 30%Portable Accessories $36 $32 -13%TOTAL $1,600 $1,900 20%Source: NPD FunWorld, May 2002.GROWTH IN ELECTRONIC GAME SALESSource: eBrain, 2002,percent from $1.6 billion the year before, according toNPD. Breaking the numbers down, video game consoles,console software, portable hardware and portable softwareposted double-digit sales gains ranging from 17 percent(consoles) to 30 percent (portable software).Market research analysts credit this phenomenon at leastpartly to increased “cocooning” by Americans since theSept. 11 terrorist attacks in 2001. Schelley Olhava, senioranalyst for IDC’s Consumer Devices division, says that evenif people stop taking vacations and going on trips in hardtimes, they still lay out plenty of money on home entertainment.In fact, consumers may feel justified in spending evena greater amount on home entertainment than beforebecause they’re making sacrifices in other areas and hangingaround the house more. Olhava also notes that even in arecession, kids continue to spend the money they makefrom after-school and other odd jobs. Plus, she says, electronicgames and video game consoles still make very popularbirthday and holiday presents.As a result of this continuing growth and an industry-widepush toward more Internet game play, analysts project thattotal electronic game sales will top $11 billion this year andmay even reach $12 billion by the times the books areclosed. For example, CEA Market Research estimates thatgame software and hardware receipts will come close to$11.5 billion for the year once the holiday shopping seasonSource: NPD FunWorld, May 2002.draws to a conclusion.That would amount to a 15 percentincrease from the $10 billion in game industry sales thatCEA calculated for 2001.GAME PLATFORMS VENTUREINTO CYBERSPACEAnother major trend in the electronic game industry is therush to go online by video game console makers. In a muchtoutedeffort to catch up with the smaller but more Websavvycomputer game business, which has offered Internetgames over the PC for years, the three major rival platformsare taking their first steps into the online world. Using theadvanced consoles that they’ve introduced in the last coupleof years, they aim to keep their customers from desertingvideo games for the PC variety.They also hope that the longawaitedpush online will draw new customers to the videogameuniverse, which now has about 45 million players.24 OCTOBER 2002 5 Technologies to Watch

Sony hit the market first in 2002, introducing online gamingfor its market-leading PlayStation 2 machines in August byhanding out console network adapters.With the popularPlayStation consoles already in 11 million homes in NorthAmerica and 30 million worldwide, Sony intends to luremany existing and potential customers to the Internet bydesigning a large batch of suitable games itself and offeringan open platform to independent game developers.Toencourage use, Sony is offering its online adventures to customersfor no charge and allowing both broadband anddial-up Internet subscribers to toy with the games.As usual, Microsoft, which entered the video game businesslate last year with its Xbox console, is taking a distinctly differentpath. Unlike Sony, Microsoft—which has sold aboutfour million Xbox machines so far, nearly all of them in theU.S.—plans to roll out its online game service Nov. 19, justbefore Thanksgiving and the start of the most frenzied partof the holiday shopping season.Also unlike Sony, Microsoftis taking a walled garden approach, creating the infrastructureand interface for game developers to use. In otherdepartures from Sony’s approach, Microsoft is charging customers$50 for its console adapter and making online playavailable to broadband users only.Nintendo is sticking its toe more slowly and cautiously intothe online waters. Nintendo, which focuses on younger gameplayers than Sony and Microsoft, aims to unveil Internetcapabilities for its GameCube machines in Japan in Octoberand in the U.S. a bit later.With about the same number ofadvanced consoles shipped and sold as Microsoft, Nintendowill sell its adapter in Japan for about $32.ONLINE VENTURES OF MAJORVIDEO GAME PLATFORMSPLATFORM CONSOLE BOX U.S. LAUNCH DATE FEESMicrosoft Xbox Nov. 19, 2002 $50 for adapterNintendo GameCube Fall 2002 $32 for adapterSony PlayStation 2 Aug. 27, 2002 No chargeSource: CEA Market Research, Sept. 2002.BROADBAND MAKES THE KEY DIFFERENCEIn their drive to go online, a large wild card for all threevideo game console developers is the extension of highspeedbroadband links to American homes.Thanks tobroadband’s wide pipes, game players can tap into onlinegames faster, compete in multi-player games easier, downloadgames to their hard-drives sooner, communicate withother gamers through text messages or voice over IP quickerand more clearly, see sharper pictures and graphics, andhear crisper sound on their console-connected TV set. It’sno wonder, then, that many console gamers already haveinvested in broadband connections.The trouble is that while broadband keeps expanding, ithas spread across the nation slower than many industryobservers had hoped.At the end of August 2002, 14 millionU.S. homes had either high-speed cable TV modem orphone DSL connections to the Internet, according toKinetic Strategies Inc.That amounts to 13 percent of allAmerican households, pretty good for a niche product butnot nearly enough for a mass-market service. So videogame hardware and software makers find themselvesdependent on two other, rival industries—cable andphone—to transform their broadband dreams into reality.If broadband does blossom as hoped, the extension of highspeedInternet connections to game consoles and TV setshas broader implications as well. For one thing, the adoptionof broadband by more gamers could spur even faster, greatergrowth for the high-speed medium, bringing fast Internet linksinto tens of millions of American homes over the next coupleof years. For another, the broadband-video game marriagecould accomplish what WebTV,AOL TV and other InternetTV devices and services have failed to do: turn the living orfamily room, rather than the den or home office, into thefamily’s prime place for tapping into the Internet.In turn, the game console box could replace the PC as thechief Internet-access device in the home and the cable orsatellite TV digital set-top box or the VCR as the family’shome entertainment center. It would then only be a matterof time before consumers could begin using their increasinglysophisticated console machines to download music,order video-on-demand (VOD) movies, play DVD videosand pursue other entertainment options.“It’s (the broadband-connectedconsole) just a likely candidate for bundlingthings like VOD or downloading software, music andmovies,” says Sean Wargo, CEA senior industry analyst.Microsoft’s Xbox already has taken a step in this futuristicdirection, incorporating a digital hard-drive and music capabilityinto its console.ONLINE GAMES: NICHE SERVICEOR MASS APPEAL?When the dust from the holiday season battle clears inearly January 2003, analysts expect the video game businessto have a modest share of online players.The consensusview is that somewhat fewer than one million gamers willsign up for online play by then, CEA’s Wargo says. IDC’sOlhava is more bearish about the initial rollouts, predictingthat slightly fewer than 600,000 video-game households willengage in online play by the start of next year.Analysts saySony will likely capture the biggest early share among thethree major rivals, thanks to its three-month head start onMicrosoft and the far greater distribution of its PlayStation2 machines.5 Technologies to Watch OCTOBER 2002 25

BROADBAND CUSTOMERS OF CABLE TV AND PHONE COMPANIESRESIDENTIAL DSL RESIDENTIAL CABLE TOTALU.S. Subscribers 4.45 million 8.99 million 13.44 millionCanada Subscribers 1.14 million 1.78 million 2.92 millionTotal North AmericaSubscribersNorth America Q2Added SubscribersNorth AmericanMarket Share5.59 million 10.77 million 16.36 million502,005 1.01 million 1.51 million34.17% 65.83% 100.00%Source: Kinetic Strategies, Sept. 2002These early numbers, however, are probably not terriblysignificant.The much bigger issue is whether online videogames will develop into a mass-market business or merelya nice, tidy niche market.Analysts lean toward the latter,predicting that online gaming won’t really take off until atleast 2005, when the next, even more advanced generationof console boxes is expected to start rolling offassembly lines.Wargo, for example, forecasts that onlyabout 12 million video gamers will go online by the endof 2006.Analysts pin the blame for this on low broadband penetrationand little interest and awareness among most videogamers. Olhava notes that it could take years to educateconsumers about online gaming’s benefits, just as it tookyears to educate the public about the benefits of VCRs,satellite TV dishes, CD players and most other new technologicalproducts. She also notes that the console and softwaremakers still must work out their business models forthe service.As stated above, Sony is starting out by offeringonline play for free, while both Microsoft and Nintendo willbe charging extra for their network adapters.PC WILL STILL TRUMP VIDEO INONLINE PLAYMuch of online gaming’s success, of course, depends uponthe quality of the online video games that Sony, Microsoft,Nintendo and the independent game developers design forthis new medium.The three platform providers and themajor independent developers busily are all creating andpumping out games with new online capabilities and features.But, as in the offline world, analysts don’t see toomany online games running on all platforms, primarilybecause Sony and Microsoft steadfastly will keep their platformsproprietary.“Sony would never, ever allow its gamesto be played on Xbox,” says IDC’s Olhava.“Nor wouldMicrosoft (allow its games to be played on PlayStation 2).”No matter what happens, video-game online play willundoubtedly trail way behind online play by PC gamers.Roughly 10 million of the 20 million or so PC gamers payfor Web-based games now, as opposed to a small handfulof the 45 million video console owners. But the gap maybe even several times larger than that. Estimates are thatup to 58 million of the nation’s 60 million-plus computerowners will play either free or pay-for-play games on theInternet by the close of 2002, easily dwarfing the potentialvideo-game market for online games.COMPARISON OF ONLINE PC ANDVIDEO PLAYERSPLATFORM # OF GAME # OF ONLINEOWNERS GAMERSVideo GameConsoles 45 million 0HomeComputers 15-20 million 10 millionSource: CEA Market Research, Sept. 2002.ELECTRONIC GAMING HITS THE ROADAlong with the growing adoption of broadband and thelaunch of online video games, another major trend in electronicentertainment is the increasing portability of gameplay.Thanks to a new generation of smart mobile phones,Web-enabled PDAs, handheld game consoles, MP3 playersand laptop, notebook and other small but powerful computers,players are gaining the ability to tap into their favoritegames from multiple points of access. In other words,mobile devices have started making it possible for gamersto leave their video-game consoles and desktop PCs athome and play anywhere they happen to be, as long as theyhave a dependable online connection.26 OCTOBER 2002 5 Technologies to Watch

REVENUE PROJECTIONS FOR GLOBALWIRELESS GAMING (U.S. dollars)ANALYST FIRM PROJECTED YEARREVENUESIn-Stat/MDR $2.8 billion 2006Ovum $4.4 billion 2006Frost & Sullivan $9.3 billion 2008Source: www.80211planet.com compilation of research forecasts,Aug. 2002.Hailing wireless games as “the next Internet gold mine forentrepreneurs,” Datamonitor forecasts that an impressive200 million people in the U.S. and Europe will be playingmobile games by 2005. Revenue projections, though, are allover the board. Frost & Sullivan projects that the globalmobile game industry, which produced $436.4 million inrevenue in 2001, will generate $9.34 billion by 2008. Ovumsees global mobile game revenue climbing to $4.4 billion by2006. Finally, In-Stat/MDR expects global wireless gamingrevenue to reach $2.8 billion by 2006.THE GAMES PEOPLE PLAYAmong other things, what all these moves mean is that it’sa great time to be a developer of game titles.The explosivecombination of better, nearly three-dimensional graphics,broadband enhancements, online capabilities, multiplayergames, mobile gaming and stiffer competition among thethree main video-game platforms puts game makers in theA DOZEN WAYS TO ESCAPE ELECTRONICALLYGAME CATEGORYDESCRIPTIONFirst-Person Shooter Players look out from behind the eyes of the character. Objective: Seek out anddestroy. Ex.: Quake, Doom and Unreal.Third-Person ShooterAdventureRole-playingArcadeGamblingFamilyFightingDriving SimulationFlight SimulationSportsStrategyPlayers view the game from the side or the rear of the character. Main objectivehere also is to ‘shoot-em-up’. Ex.: Max Payne.Player must complete a series of tasks while venturing through a make-believeworld. Played primarily from the rear third-person perspective. Ex.: Myst, TombRaider, Mario and Crash Bandicoot.Gamers play with one or multiple characters to carry out quests or missions.Objective is to enhance the skills and levels of the character. Ex. Diablo II,Everquest and Asheron’s Call.These games have a simple interface and objective. Generally, they are twodimensional.Examples include all the classic arcade games, such as Frogger,Asteroids, Pac Man and Final Fantasy.Primarily an online category of game. Includes Slots, BlackJack and Poker.Games with an educational and/or family-oriented theme. Ex.: Monopoly, Rugratsand Who Wants To Be A Millionaire.Players fight against others in boxing, martial arts or wrestling matches.Ex.: Tekken III, Mortal Kombat and WWF Smackdown.Player controls a vehicle usually from behind the wheel. Ex.: Crazy Taxi andGran Turismo.Player flies a plane or spacecraft from the behind the pilot’s seat. Ex.: FlightSimulator and Mig 29.Games centered on a sport, such as football, basketball or hockey. Ex.: NFL 2K1and NHL Face Off.Games played from a god’s perspective. Players control resources to buildcivilizations and/or troops to conquer the world. Ex.: Civilization, Age of Empiresand The Sims.5 Technologies to Watch OCTOBER 2002 27

driver’s seat these days. Developers can sign pricey exclusiveagreements with any of the four main platforms, includingthe PC world, limited exclusivity deals with one ormore platforms, or non-exclusive pacts that make theirtitles available to every platform. In other words, as CEA’sWargo puts it,“they can hedge their bets.”All these technological and market changes also make iteasier for game developers to tinker with different, moreenticing distribution and revenue models, including subscriptionand pay-per-play methods. Software designers areexcited about shifting their games from the static, one-time,off-the-shelf purchases they now are to continually expanding,updated products that generate regularly recurringrevenue.A few early successes indicate that these differentrevenue models could work. It’s still too soon, however, toreally know the kinds of titles, if any, for which gamers willpay and the kinds for which they won’t.Certainly, the range of escapist, interactive games is broad.Despite the misconception that electronic games fall intojust a couple of categories, there are actually about a dozentypes of titles from which to choose.WHY DO PEOPLE PLAY ELECTRONIC GAMES?REASONPERCENTAGE OFTOTAL SAMPLEGames Are Fun 87.3%Games Are Challenging 71.4%Like Playing withFamily/Friends 42.4%Lots of Entertainmentfor Price 35.6%Like to Keep Upwith New Technology 18.9%Interested in Stories 17.9%Like Music and/orCelebrities Involved 15.5%Do Same Thing inReal Life 13.1%Source: Interactive Digital Software Association, May 2002.“Software designers areexcited about shifting theirgames from the static, one-time,off-the-shelf purchases they noware to continually expanding,updated products that generateregularly recurring revenue.”THE FUTURE: GIRLS (& BOYS) JUST WANTTO HAVE FUNOne thing’s for certain: Computer and video games aren’tgoing away. Indeed, no matter which delivery and distributiontechnologies succeed or fail in the next few years,electronic games are bound to keep getting bigger.As thereal world becomes a more serious, somber, even deadlyplace, the demand for fun-filled, safe fantasy worlds willonly grow, among both young and old.As people feel theyhave less control over national, international and otherearth-shaking events that seem to have no rhyme or reason,they have all the more reason to retreat to other,parallel universes with clearly defined rules and consequencesthat they can understand, master and control.In short,Americans need their escapist games now morethan ever simply to cope with life.In fact, video and computer games are already America’sfavorite way of having fun, both home and away. In its annualsurvey of consumers in 2001, the IDSA found that an astonishing35 percent of all Americans see computer and videogames as the most fun entertainment activity.TV watchingcame a distant second at 18 percent, followed by surfing theInternet (15 percent), reading books (13 percent) and goingout to the movies (11 percent).Plus, gamers are showing no signs of quitting or even slowingdown. In the IDSA’s 2002 consumer survey, 60 percentof the most frequent players say they’ll be playing computerand video games in 10 years as much as, if not more than,they do today.Among PC gaming homes, an average of 1.6family members play computer games regularly, or at leastfive hours per week. In households with video-game consoles,two people typically play games regularly.And awhopping 87.3 percent of gamers play games becausethey’re fun, while 71.4 percent play games because they’rechallenging and 42.4 percent participate in games becausethey like playing with friends and family.So maybe it’s finally time that we all took electronic gamesa bit more seriously and treated them as legitimate, evenfirst-class, home entertainment for the many, not the few.Perhaps then, we could all have a bit more fun. ■28 OCTOBER 2002 5 Technologies to Watch