The Future of Durable Goods
We have listened to enough speeches at corporate events and in the lecture halls to know what the biggest names in IT want us to know about the future of technology. Did any of those speeches excite you about the future? Most likely. Did any of those lectures influence you to modify your investment portfolio? Possibly. Did any of those speakers give you something actually useful to take your business to the next level? Absolutely not! No business gives away those kinds of pearls of wisdom without a hefty consultancy fee attached. Chances are that if you paid no more than a few hundred dollars to hear a few speakers speaking about the future of technology, you got some entertainment, perhaps exposure, and some networking opportunities to boot. This article attempts to link the bold future with common sense business logic, to take your business to the next level.
History of Electronics
Before we get there, let's take a look back. Many years ago, life was straightforward. To write an email, you turned on your computer and typed away. Today, perhaps while on the train, you might send that email through your phone - a device no longer limited to simply making phone calls. If you were driving in your own car, you might decide to make the call through the car phone integrated in the car's dashboard. Our appliances and tools are no longer limited a singular duty. Due to technology we are integrating multi-functionality into our durable goods. This integration, when used in a complimentary way to the primary function of that durable good, will be the most powerful factor in the revolution of durable goods in the 21st century.
Let us take another step back and think of the life story of the personal computer. Once upon a time, the PC was the size of a room. You could fit a large group of people inside of it. These computers were purchased exclusively by corporations and educational institutions due to the expense of the parts. Today, a teenager could purchase laptop with his or her own money. This laptop would fit in a small book bag; its capabilities would be astronomical in comparison to its room-sized predecessor. This is the history of the computer, but what does it all mean? It means technology is advancing at an accelerating pace, but also that we are becoming increasingly efficient in creating its parts.
How we did it
We increased our efficiencies in creating durable parts by better streamlined processes in factories, more thorough testing centers, and brilliant breakthroughs in the chemical and mechanical engineering that goes into creating longer lasting, cheaper, and more efficient parts. These efficiencies have in turn, caused the producers' cost of goods to decrease - for that same part - which translates to cheaper products with more capabilities. When we combine the technology breakthroughs with cheaper, more efficient parts, and the consumer is made aware of these new ever-changing capabilities, the life cycle of their satisfaction becomes much shorter.
Consumer Behavior and Trends
In other words, it means that consumers tend to "shift interest" in certain durable goods after a specific time period once aware of more advanced products in the market. Consider the laptop computer. A laptop is considered outdated if more than 5 years old (while working for the Government in 2006, the number was 3 years). Now, in 2011, this number is less than 2 years. In fact, institutions doing things right don't even buy computers like they used to. Because of these short er life cycles, they buy contracts with Dell and IBM and return outdated PC's back and receive new ones for free. If your business isn't doing this, you need to make some phone calls. If you haven't had a new cell phone in 2 years, you definitely have an antique in your hands. From the birth of the computer, phone, and most other electronics up to today, we have seen that these products are perceived to be out of date (due to more advanced capabilities released into the market) at an increasing rate - so exponentially. Hence, if the turnover rate for these electronic is increasing exponentially, we have to wonder what could happen down the road, and how to capitalize on it for gained profits.
If consumers are losing interest in electronics faster and faster, it means they are willing to pay less for these products once they are perceived to be outdated. This is an undesirable truth for producers who have to invest more in innovation to stay relevant. However, if producers do become innovators, they will "own" the market (all other factors held constant) - which is certainly desirable. When we combine the fact that the turnover rate for electronics is increasing and consumers' satisfaction lifecycle for electronics is decreasing exponentially, in practical terms this could mean that in a decade, a laptop could be out of date in less than 6 months; a cell phone could be out of date in a couple of months. This could become increasingly expensive and stressful for the consumer. Of course it would be a very profitable arrangement for producers, who would enjoy the overall increase in demand for their products (all other factors held constant).
The Downside and Dangers of Technological Innovation
Inability to Keep Up: The downside for producers is made clear once the product life cycles become intolerably short for consumers. They can no longer afford to keep up to date. There is not only a financial expense for consumers; the level of involvement needed to keep up to date may reach a point where consumers search for new alternatives. This is not speculation, but simply fundamental consumer behavior.
Product Functionality Abandonment: There may be a boycott of certain technology products altogether, and as a result we may experience the first downturn in the history of technology. The only way to safeguard against this is to make your functionality matter; make it save lives, money, or time. Consider these the "Big Three". Anything outside of this is a non-essential and is highly subject to consumer abandonment when the stakes are rightly stacked. This is why "fad" products often have a short lifespan - they don't cater to any of the Big Three.
Alternative Products: Consumers may still abandon a product that serves their Big Three needs will boycott these products with accelerated life cycles only when there is another tolerable alternative, whether it involves using outdated models, reverting to traditional methods used in the past, and so on. While technology itself cannot realistically be boycotted in the developed world, certain appliances/devices that consumers become dissatisfied with can certainly be boycotted when a bearable alternative emerges.
Legal Issues: Due to these shortened lifecycles, there may be an increase in deviant behavior where products are modified by unofficial middlemen for a cheaper price. Today, we might refer to this method as "modding". Producers have fought hard against these middlemen. An important point to note is that producers cannot continue business as usual when it comes to electronics and be caught flatfooted. They must search for solutions to these problems.
Some Predictions
There are many possible solutions to the problems presented. One possibility is to create electronics/appliances that automatically update themselves for the consumer. Are you getting worn out from all the "updates" you have to install? The frequency of this will continue to increase over the years. We need to learn that the value over time of the electronic product is not in the parts - it's in the software. We already see the beginning of this with service packs from Windows, free software updates from vendors such as Apple and Adobe, free automatic updates on our cell phones' firmware, and diagnostic adjustments made to our vehicles by an On Star representative, just to name a few examples. We are making the mistake of placing value on the parts instead of the technology. We are seeing this take place already with cell phones. Users are shifting interest to the "apps" on the phones, where the phones appear to have the same physical capabilities.
Best Buy has been the first company to embrace these aforementioned consumer trends and have introduced a buyback program, whereby consumers can return outdated items and receive 50% of the purchase price back. We are seeing the first signs of adoption for this "farfetched" theory of the increased devaluation of electronics with the increase of innovation.
Most durable products will soon become highly integrated with some form of technology. There will be a spread and implementation of all sorts of integration points in other technologies and appliances we are not used to seeing. Producers will need to design their electronics and similar goods around this new concept. Additionally, with the increasing popularity of artificial intelligence, electronics will be created to "think" on behalf of the user. We have already seen technologies in vehicles that take over the car in crises situations, or even when simply parallel parking. While these capabilities only scratch the surface of artificial intelligence, it lays the foundation for what is possible.
By increasing the focus of more technology in our appliances, producers and consumers save money. In the years to come we will realize that the value is in the software. Companies need to design more around this. This may lead to hardware being sold at a nominal fee, while users pay for updates that drive functionality. This will drive down the cost for producers and consumers in the long run. What it will also inadvertently do is capture the market. Consumers will easily buy cheap or free parts in large loads because we as humans are predisposed to crave tangible possessions. Once consumers have these parts in their possession, they are likely to try to avoid the stress of finding a replacement as long as the updates keep coming
To go even further, there will be a bolder integration of software/firmware updates, not just at the application level, but even on a physical level. Meaning, when new functionality exists, the consumer can pay to upload this, but would get any part to support the functionality for free - it is a switch many consumers will find appealing. This is due to the fact that parts are becoming increasingly cheaper. Producers will soon learn in the upcoming decades that parts will reach a point of "maximum efficiency" where the utility and expense of the physical parts will reach their asymptotes.
Producers will learn that the true profits will lie in the technologies for artificial intelligence. Consumers will experience increasing satisfaction for products that provide utility by adapting to their decision making process - this was the very reason humans created technology. By companies providing cheap or free parts and then charging for application updates, producers focus on what we really care about - innovation! Our research has found that the cost of component parts has decreased while the cost of software has trended up. We will accomplish more by investing in technology than in parts.
In short, the secret to success for producers of widgets is to integrate technology into these appliances/gadgets. These technologies should favor artificial intelligence. Artificial Intelligence will become the driving force for widgets in the upcoming decade. The companies that recognize these truths and reorganize their approaches first will rule the market. We cannot continue to write on this topic due to its potential enormity, but we do hope to leave you with a taste of what is to come - something useful to take an introspective look into your own businesses and re-position yourselves for the inevitable future.
History of Electronics
Before we get there, let's take a look back. Many years ago, life was straightforward. To write an email, you turned on your computer and typed away. Today, perhaps while on the train, you might send that email through your phone - a device no longer limited to simply making phone calls. If you were driving in your own car, you might decide to make the call through the car phone integrated in the car's dashboard. Our appliances and tools are no longer limited a singular duty. Due to technology we are integrating multi-functionality into our durable goods. This integration, when used in a complimentary way to the primary function of that durable good, will be the most powerful factor in the revolution of durable goods in the 21st century.
Let us take another step back and think of the life story of the personal computer. Once upon a time, the PC was the size of a room. You could fit a large group of people inside of it. These computers were purchased exclusively by corporations and educational institutions due to the expense of the parts. Today, a teenager could purchase laptop with his or her own money. This laptop would fit in a small book bag; its capabilities would be astronomical in comparison to its room-sized predecessor. This is the history of the computer, but what does it all mean? It means technology is advancing at an accelerating pace, but also that we are becoming increasingly efficient in creating its parts.
How we did it
We increased our efficiencies in creating durable parts by better streamlined processes in factories, more thorough testing centers, and brilliant breakthroughs in the chemical and mechanical engineering that goes into creating longer lasting, cheaper, and more efficient parts. These efficiencies have in turn, caused the producers' cost of goods to decrease - for that same part - which translates to cheaper products with more capabilities. When we combine the technology breakthroughs with cheaper, more efficient parts, and the consumer is made aware of these new ever-changing capabilities, the life cycle of their satisfaction becomes much shorter.
Consumer Behavior and Trends
In other words, it means that consumers tend to "shift interest" in certain durable goods after a specific time period once aware of more advanced products in the market. Consider the laptop computer. A laptop is considered outdated if more than 5 years old (while working for the Government in 2006, the number was 3 years). Now, in 2011, this number is less than 2 years. In fact, institutions doing things right don't even buy computers like they used to. Because of these short er life cycles, they buy contracts with Dell and IBM and return outdated PC's back and receive new ones for free. If your business isn't doing this, you need to make some phone calls. If you haven't had a new cell phone in 2 years, you definitely have an antique in your hands. From the birth of the computer, phone, and most other electronics up to today, we have seen that these products are perceived to be out of date (due to more advanced capabilities released into the market) at an increasing rate - so exponentially. Hence, if the turnover rate for these electronic is increasing exponentially, we have to wonder what could happen down the road, and how to capitalize on it for gained profits.
If consumers are losing interest in electronics faster and faster, it means they are willing to pay less for these products once they are perceived to be outdated. This is an undesirable truth for producers who have to invest more in innovation to stay relevant. However, if producers do become innovators, they will "own" the market (all other factors held constant) - which is certainly desirable. When we combine the fact that the turnover rate for electronics is increasing and consumers' satisfaction lifecycle for electronics is decreasing exponentially, in practical terms this could mean that in a decade, a laptop could be out of date in less than 6 months; a cell phone could be out of date in a couple of months. This could become increasingly expensive and stressful for the consumer. Of course it would be a very profitable arrangement for producers, who would enjoy the overall increase in demand for their products (all other factors held constant).
The Downside and Dangers of Technological Innovation
Inability to Keep Up: The downside for producers is made clear once the product life cycles become intolerably short for consumers. They can no longer afford to keep up to date. There is not only a financial expense for consumers; the level of involvement needed to keep up to date may reach a point where consumers search for new alternatives. This is not speculation, but simply fundamental consumer behavior.
Product Functionality Abandonment: There may be a boycott of certain technology products altogether, and as a result we may experience the first downturn in the history of technology. The only way to safeguard against this is to make your functionality matter; make it save lives, money, or time. Consider these the "Big Three". Anything outside of this is a non-essential and is highly subject to consumer abandonment when the stakes are rightly stacked. This is why "fad" products often have a short lifespan - they don't cater to any of the Big Three.
Alternative Products: Consumers may still abandon a product that serves their Big Three needs will boycott these products with accelerated life cycles only when there is another tolerable alternative, whether it involves using outdated models, reverting to traditional methods used in the past, and so on. While technology itself cannot realistically be boycotted in the developed world, certain appliances/devices that consumers become dissatisfied with can certainly be boycotted when a bearable alternative emerges.
Legal Issues: Due to these shortened lifecycles, there may be an increase in deviant behavior where products are modified by unofficial middlemen for a cheaper price. Today, we might refer to this method as "modding". Producers have fought hard against these middlemen. An important point to note is that producers cannot continue business as usual when it comes to electronics and be caught flatfooted. They must search for solutions to these problems.
Some Predictions
There are many possible solutions to the problems presented. One possibility is to create electronics/appliances that automatically update themselves for the consumer. Are you getting worn out from all the "updates" you have to install? The frequency of this will continue to increase over the years. We need to learn that the value over time of the electronic product is not in the parts - it's in the software. We already see the beginning of this with service packs from Windows, free software updates from vendors such as Apple and Adobe, free automatic updates on our cell phones' firmware, and diagnostic adjustments made to our vehicles by an On Star representative, just to name a few examples. We are making the mistake of placing value on the parts instead of the technology. We are seeing this take place already with cell phones. Users are shifting interest to the "apps" on the phones, where the phones appear to have the same physical capabilities.
Best Buy has been the first company to embrace these aforementioned consumer trends and have introduced a buyback program, whereby consumers can return outdated items and receive 50% of the purchase price back. We are seeing the first signs of adoption for this "farfetched" theory of the increased devaluation of electronics with the increase of innovation.
Most durable products will soon become highly integrated with some form of technology. There will be a spread and implementation of all sorts of integration points in other technologies and appliances we are not used to seeing. Producers will need to design their electronics and similar goods around this new concept. Additionally, with the increasing popularity of artificial intelligence, electronics will be created to "think" on behalf of the user. We have already seen technologies in vehicles that take over the car in crises situations, or even when simply parallel parking. While these capabilities only scratch the surface of artificial intelligence, it lays the foundation for what is possible.
By increasing the focus of more technology in our appliances, producers and consumers save money. In the years to come we will realize that the value is in the software. Companies need to design more around this. This may lead to hardware being sold at a nominal fee, while users pay for updates that drive functionality. This will drive down the cost for producers and consumers in the long run. What it will also inadvertently do is capture the market. Consumers will easily buy cheap or free parts in large loads because we as humans are predisposed to crave tangible possessions. Once consumers have these parts in their possession, they are likely to try to avoid the stress of finding a replacement as long as the updates keep coming
To go even further, there will be a bolder integration of software/firmware updates, not just at the application level, but even on a physical level. Meaning, when new functionality exists, the consumer can pay to upload this, but would get any part to support the functionality for free - it is a switch many consumers will find appealing. This is due to the fact that parts are becoming increasingly cheaper. Producers will soon learn in the upcoming decades that parts will reach a point of "maximum efficiency" where the utility and expense of the physical parts will reach their asymptotes.
Producers will learn that the true profits will lie in the technologies for artificial intelligence. Consumers will experience increasing satisfaction for products that provide utility by adapting to their decision making process - this was the very reason humans created technology. By companies providing cheap or free parts and then charging for application updates, producers focus on what we really care about - innovation! Our research has found that the cost of component parts has decreased while the cost of software has trended up. We will accomplish more by investing in technology than in parts.
In short, the secret to success for producers of widgets is to integrate technology into these appliances/gadgets. These technologies should favor artificial intelligence. Artificial Intelligence will become the driving force for widgets in the upcoming decade. The companies that recognize these truths and reorganize their approaches first will rule the market. We cannot continue to write on this topic due to its potential enormity, but we do hope to leave you with a taste of what is to come - something useful to take an introspective look into your own businesses and re-position yourselves for the inevitable future.
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