Alexander & Associates today released the "Internet Box" findings from their 3rd Annual Computer/Videogame Benchmark Study. In this nationwide study of 1,526 households, Alexander found that the so-called Internet Box has broad appeal to a demographically different audience than the average PC owner.

The entrenched interests in the computer community want to pooh-pooh the Internet Box and the effort by some large component manufacturers to kill this product before it surfaces is at least surprising. Yet the computer community has failed to market its product to consumers outside the narrow boundaries of race, economic class, and educational status. The fact is, the internet box is computing without the hassle of computers. It is the future of consumer computing systems and it will fundamentally change what we think about personal computing.

Survey respondents were told about a device would provide access to the Internet through a television set instead of a computer screen. This internet access system would cost under $500 and offer Web browsing and e- mail capabilities, but it would not offer full personal computer functions like disk storage or other capabilities. (Companies such as Oracle, Sun, Phillips, Apple, IBM, Hitachi and Acer have already announced their intentions to create exactly this kind of low cost Internet hardware.) Consumers were then probed about their interest in an "Internet Box".

The findings from this research are that: (1) there is substantial awareness and purchase interest in the Internet Box among consumers, even before any organized marketing behind an announced product; and (2) demand comes principally from those households that do not have a PC today. Alexander & Associates concludes that the advent of this product will substantially grow consumer personal computing applications, especially consumer internet applications, but that it will change dramatically the way the personal computer industry deals with consumers. Mass market consumer electronics has not been a strength of U.S. electronics manufacturers. US manufacturers risk losing their dominance of personal computing products by trying to avoid an obvious consumer market. This looks to us like a replay of many other consumer electronics products markets with the locus of hardware different from software or content.

Tremendous Awareness and Purchase Interest For An Unannounced Product

The research on which these findings are based reached was conducted in early December of 1995 and included 1,500 respondents selected geographically and demographically as representative of the entire US household population. Additionally, results were adjusted to represent then current PC penetration levels based on separately conducted research totaling 10,000 households. Statistically, the error of estimate of PC households is less than one-half of one percent; the error of estimate of Internet Box interest is in the plus or minus three percent range.

This study showed that even before the usual advertising and awareness building efforts that are associated with the launch of any consumer electronics product, there is tremendous awareness and purchase interest in this product. Of 96.6 million total US households, a projected 29.7 million were aware of the Internet Box described above, while 12.6 million said they would definately or probably purchase such a device.

Internet Box: Awareness and purchase intent

This high level of interest is not unusual, with nearly every Sports Center program on ESPN, almost every motion picture advertisement, and many ads on national prime time television include some reference to a 'Web Site'. The broad market is bombarded every day with information about the internet -- but the broad market does not have access to it. Why shouldn't they be interested in an Internet Box?

PC Households Are Not a Mass Market -- And Not Likely To Become One

PC households are a very special market. Among other differentiating characteristics, they are more likely to be white; their average income is 50 percent higher than the non-PC household group, and they are almost three times as likely to have graduated from college.

Alexander & Associates' annual studies over the last three years have shown little or no change in who owns a PC from a consumer perspective, and these findings are supported by other research. We are completely confident in our finding that this is a very special market segment. Making a comparison to the automobile market, if what you're selling is a BMW, this is a good group to pitch to. But what about all the other people that need transportation? Who will be the Ford or Chevrolet for the personal computing market?

Approximately 13 percent of all US households (12.6 million) said they would definitely or probably purchase a $500 system that would connect to the Internet, use a TV as the screen, and have e-mail capabilities.

The simple finding from this study is that the households that are interested in the Internet Box have demographic characteristics that parallel the total population. This is an absolute prerequisite to identifying a product with potential to be a broad consumer product with broad consumer support.

Internet Box vs. Total Population. Compared to the total population, households that expressed purchase interest in the "Internet Box" are: at the same income level ($39.8k vs. $38.8 k), younger (36.9 yrs. old vs. 44.9 yrs. old), more likely to be Black or Hispanic (32 percent vs. 19 percent), just as likely to have completed college (27 percent vs. 26 percent), and more likely to have children (53 percent vs. 42 percent).

Going back to the automotive analogy, this product looks akin to a Chevy!

The chart below shows demand for the Internet Box, broken out by whether the interested household has a PC or Videogame system or not.

Most of the early demand for the "Internet Box" comes from households that have only a videogame system. So- called "No System Households" -- those that do not have either a PC or a Videogame system -- have nearly as high a purchase interest in the "Internet Box".

About 30 percent of the purchase interest in the "Internet Box" (or about 3.5 million households) comes from those who say they already have a PC. But this group is overshadowed by the 48 percent who say they do not have a PC -- and do not plan on buying one!

The PC industry seems intent on selling more and more elaborate systems to its existing base, which is a recipe for fragmenting and shrinking the market. The Internet Box, however, brings some of the most attractive consumer functionality of personal computing to those households with little or no interest in personal computers. For our clients in the home electronic entertainment markets, especially on the content side, this is an obvious growth strategy.

According to the Alexander & Associates research and analysis, the "Internet Box" is a consumer product that is just evolving in the marketplace. This may develop as a standalone product, something that you buy at the Wiz or a Circuit City or CompUSA and put on top of your TV set -- or it may be incorporated by many cable companies in the standard package of services they offer. We have no doubt about the appeal of the product concept to the consumer market, however.

The firm's research and planning efforts in this area are currently focusing on the likely impact of the widespread adoption of the "Internet Box" on the content offered over the Internet. While it's all a bit intellectual, right now, e look for it to be a lot more fun over the next few years.

What's not clear is why so many top computer makers have raised their voices in objection to something the market wants. It won't really matter, because the market usually gets what it wants. They will just miss out on the opportunity.