PDF of this tutorialMarket Size
Many organizations have adopted different methodologies for determining the size of the market for high-speed access. Some groups look toward the number of PCs purchased and extrapolate from there, while others look to the number of Internet or on-line users. The falling prices of PCs have resulted in many more consumers purchasing PCs for the first time or purchasing a second or third PC.
PC Owners
According to the Washington Post, PC penetration is now at more than 56 percent of all households in the United States, with an expected rise to 64 percent in 2005. The Department of Commerce's "Digital Divide" study found slightly lower figures of 51 percent. Penetration figures from Parks Associates, a consulting firm, found slightly higher results at 55 percent. Analysts at Parks Associates and at Morgan Stanley Dean Witter estimate that by 2004, PC penetration will be more than 70 percent. PC penetration continues to rise as PC prices drop and as more first-time buyers begin purchasing their first PC.
Consumer demand spanned a range of price points from value to moderately priced models. What has changed is the type of PC purchased and the design. Newer, more compact PCs account for 28 percent of all PC shipments and by 2003 are expected to account for 80 percent of all shipments. The move to compact or portable PCs has been encouraged by the fact that many college campuses require incoming students to purchase either a desktop or a laptop computer. At the University of North Carolina, every one of the 3,500 freshmen is required to own a laptop computer. The move to laptops by universities is connected to the creation of wireless networks in many of the campuses across the United States.
Analysts at Morgan Stanley Dean Witter break down PC penetration into business and home use. They estimate that business use of PCs has climbed to more than 50 percent, while PCs used exclusively for the home have climbed to 40 percent. Moreover, they expect these figures to continue to rise, with household consumer PC penetration rising to 45 percent in 2000. These analysts expect penetration to approach 80 percent over the long term.
The PC has reached commodification because manufacturers now offer it as a bonus for purchasing a more expensive item such as a car. According to IDC, car dealers in New England offered their customers a free Dell PC if they purchased a sport utility vehicle (SUV). The promotion of a bundled PC applied to both leased and purchased vehicles and was extremely successful in selling and leasing SUVs. It is likely that promotions such as these will multiply as companies seek other methods of adding value to their products. A free or heavily discounted PC is one such option. Other establishments will begin giving free PCs to consumers who purchase their high-end products.
Other drivers for PC growth are the sizeable number of large corporations that began offering discounted or free PCs to their employees. Because more than 50 percent of the U.S. market already owns a PC, PC original equipment manufacturers (OEMs) are looking at different ways they can sell PCs, and tying in with a large multinational company is one of them. PeoplePC got a large boost after both Ford Motor Company and Delta Airlines selected them as the primary vendor for PCs to employees.
The main reason why the number of PC purchases has increased is the demand for Internet and on-line access. Most of the major manufacturers have joined with telephone and cable companies to promote broadband access. Broadband access has spurred, and will continue to spur, consumers to purchase newer PCs that have universal serial bus (USB) connectors, DSL, or cable modems built in. All this coordination with other companies outside the industry is geared to convincing consumers that they need to purchase newer PCs sooner than planned.
More than 30 percent of U.S. households own more than one PC. The number of multiple–PC households is increasing very rapidly, by more than 30 percent annually, with large numbers of families purchasing PCs first for their children and then for themselves. As a result, the number of multiple–PC homes is growing faster than the number of single–PC homes. This percentage, along with the percentage of people who are on-line today (about 38 percent), illustrates how large the potential market for high-speed access is. Following these estimates and the rising growth rate for Internet subscribers, we can expect that by 2002 close to 50 percent of all households will have Internet access, with more than 30 percent of these households owning more than one PC. The increasing number of multiple–PC households is a major driver for broadband access.
Internet Users
According to the Department of Commerce, in 2000 a total of 304 million people worldwide had Internet access—up almost 80 percent from 1999. The United States and Canada account for 50 percent of the total. Andy Odlyzko, the head of AT&T's Math Lab, places the number of worldwide Internet users at 500 million. Whatever figure is used, the rapid uptake of Internet and broadband access is occurring regardless of income, education, race or ethnicity, location, age, or gender. In August 2000, there were 117 million Americans on-line at some location. Today, this figure is much larger—more than half of all Americans are using the Internet.
Not only is the Internet growing larger, but the ways it is being used are also changing. The Department of Commerce found that 80 percent of all users send and receive e-mails with files or attachments weekly. Some 22 percent of all users have created or updated a Web page within the last three months. In 1999, more than 3.5 billion e-mail messages were sent in the United States and 5.3 billion worldwide. Analysts at Robertson Stephens expect e-mail volumes to exceed 22 billion by 2004 (10.4 billion in the United States alone). Some 94 percent of all adults on-line, representing 73 million people, access their e-mail at least once a month.
As the volume of e-mail messages rises, the size of messages and the types of attachments also change. E-mail becomes the primary method for delivering multimedia clips such as pictures, cards, digital images, movies, voice messages, PowerPoint files, and large e-commerce-related files. Today, all of the top Web-site destinations offer content, communications, community, and commerce. Sending or receiving e-mail, obtaining information about a hobby, general news, and information for business continue to outrank on-line shopping as popular on-line activities. Internet advertising revenues have more than tripled since 1997, highlighting the importance that businesses place on using the Internet to reach customers.
There was also a transformation in 1999 of how people used the Internet and how integrated it has become in people's daily lives. Some 61 percent of all home users of the Internet go on-line at least once a day, with 50 percent of them using the Internet more than once a day. The Internet has gone from a tool that only academics and researchers use to being a daily source for e-mail, shopping, research, and news. E-mail and Web addresses are everywhere—from ads on buses to receipts to shopping bags. All promotional material and ads now prominently list the store's or company's Web-site address. Practically every store or company has a Web site. The Internet has ramped up faster than any other medium in history. According to the U.S. Department of Commerce, television took 13 years to reach 50 million users, while radio took 38 years and cable 10 years. The Internet reached 50 million users in only four years. Analysts from Robertson Stephens expect the Web's audience to double during the next 12 to 18 months and to reach more than 300 million in 2002.
On-line audience sizes continue to grow dramatically, particularly with the help of both broadband and e-mail access at home and at work. According to a 1999 study by the Department of Commerce, the number of Web users worldwide increased by 55 percent, the number of Internet hosts rose by 46 percent, the number of Web servers increased by 128 percent, and the number of new Web address registration rose by 137 percent.
According to IDC, in just six months from January 2000 through June 2000, the number of Web users increased by more than 45 million to 290 million. Morgan Stanley Dean Witter analysts are estimating a four-fold increase in Web usage within the next two to three years. Moreover, they state that the number of Internet users could double as a result of higher PC penetration and cheaper and easier access to the Net through information appliances and less costly access. Furthermore, they predict that Web usage will double as new applications are introduced and as broadband penetration rises. As the Internet becomes integrated into people's lives, its growth will increase significantly.
Morgan Stanley predicts that Internet penetration will jump by 65 percent of all workers and 50 percent of all households in the United States by 2003. Broadband services will rise significantly beginning in 2000. Merrill Lynch estimates that by the end of 1999, 39 percent of all households had access to the Internet. Because PC penetration is 54 percent, this represents about 80 percent of all PC-enabled households. Moreover, by 2001, on-line access subscriptions will begin to exceed PC households. Merrill Lynch predicts that by 2002, nearly 65 percent of all U.S. households will have some kind of on-line access to the Internet. And according to figures from Parks Associates, two-thirds of all PC households are interested in obtaining high-speed Internet access.
These penetration rates continue to climb. Traffic on the Internet doubles every year, and Web usage appears to be growing at a rate of 10 million people per quarter. In comparison, traditional voice networks are growing at a rate of 10 percent per year. Cellular services, although growing faster (on the order of 30 percent to 40 percent per year), are eclipsed by data and Internet network growth. Data traffic used to grow at rates of 20 percent to 30 percent a year in the1980s and 30 percent to 40 percent in the 1990s, but that was when the only traffic was from private-line networks run by corporations to provide internal communications. However, in today's data economy, where the public Internet is the dominant network, annual growth rates of 100 percent or more appear to be setting the pace for the entire telecommunications network infrastructure.
Morgan Stanley estimates that by 2000, the number of Internet users will reach 160 million and then double every two years. Because no single person or company controls the Internet, entrepreneurs are constantly bringing new applications and markets to the Internet. IDC estimates that by 2003, there will be 723 million Web-attached information devices, up from 87 million in 1998.
