Customers at the Gate
Exerpted conclusions of a 2002 study on demand for broadband, by Sage Research, Inc., for Cisco Systems.
Customers at the Gate:
Mounting Demand for Broadband-enabled Services
Prepared exclusively for Cisco Systems
February 2002, by Sage Research, Inc.
Conclusion
Consumers are clearly willing to pay for Internet-delivered services.
Even using our most
conservative interpretation of the survey results, their willingness
translates into a $25 billion annual opportunity. Surely, $25 billion
is a market opportunity worthy of exploration.
Specifically, it’s an amount of money that warrants exploring what we
as suppliers, providers, and policy makers can do to ensure the
Internet-delivered service potential is realized.
Ensuring this potential will not be an easy task. As reiterated
throughout this document,
challenges exist that threaten the market’s potential to be realized.
And while some risks will eventually be mitigated through skillful
R&D and savvy marketing, those are things that will advance in any
competitive market as suppliers continuously refine their approaches in
their quests for market share.
What is not purely dependent on the dynamics of competition is the
need for ubiquitous broadband access. In this case, evidence of the
need for forces beyond normal market dynamics is everywhere from the
demise of CLECs to the still dismal penetration rates of broadband to
the home. If we want to realize the $25 billion opportunity, we must
have broadband access to the home; and as is, the current outlook for
ubiquitous broadband access is still quite foggy.
Broadband is critical to the customer experience, and ubiquity is
critical to the business case.
Consider the data gathered in this study:
1. The services with widest appeal are those that have multimedia
components. A
satisfactory customer experience demands that these multimedia
components are
experienced with excellence—which requires broadband. A
less-than-satisfactory
experience will derail the demand potential.
2. While impressive percents of U.S. households are likely to subscribe
to Internet-delivered services, in some cases the amount they are
willing to pay per service is fairly low. This makes sense since many
of these services are essentially substitutes—perhaps upgrades, but
still substitutes. Still, this creates a business case challenge;
volume will clearly have to be part of the solution. And to get volume,
providers will need access to a very large population of appropriately
enabled households
Let’s take an example. Potential demand for continuing education is one
of the most exciting results from this research—possibly a $3 billion
annual market. Multimedia components will be part of continuing
education offerings—possibly to view lecture videos (real-time or
non-realtime), share applications, or participate in online study
groups. Further, the most common amount of money consumers are willing
to pay per college credit is just $50—far less than what they would be
charged by online universities today. So how will universities develop
sustainable business models? Most likely, they will need sheer numbers
of students in order to achieve profitability. And to get so many
students, they will need a large pool of broadband-enabled households
to target.
Summary
The $25 billion figure is a very conservative estimation based on the
primary research
gathered—and very likely under-reports the true annual potential.
Still, even with this
conservative number, the economic incentive to vitalize this market
exists. What is not so clear is when the combination of regulatory,
technical, and market dynamics will converge to allow broadband access
become truly ubiquitous. Only then will the customer experience and
business case be compelling enough for a viable Internet-delivered
service market.