Putting the Home Network

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Putting the Home Networkto WorkA Parks Associates White Paper

Author: Kurt Scherf 2005 Parks Associates


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Putting the Home Network to Work

2005 Parks Associates

Attribution and Disclaimer i

Attribution

Authored by: Kurt ScherfPublished by Parks Associates

June 2005 Parks AssociatesDallas, Texas 75230

All rights reserved. No part of this book may be reproduced, in any form or by any means,without permission in writing from the publisher.

Printed in the United States of America.

DisclaimerParks Associates has made every reasonable effort to ensure that all information in this report is

correct. We assume no responsibility for any inadvertent errors.


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Table of Contents ii

Table of Contents1.0 The Stages of Home Networking ..................................................................................... 1

2.0 Why the Need for Managed Services? ............................................................................ 2

3.0 What Vexes the Home Computer User?......................................................................... 3

3.1 Security and Home Computer Performance Issues ........................................................ 53.2 Home Networking Challenges........................................................................................ 6

4.0 The Opportunities for the Industry ................................................................................ 7


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List of Figures iii

List of FiguresFigure 1 What Content is Shared in a Home Network?................................................................. 1Figure 2 Home Networking Stages: Key Applications.................................................................. 2Figure 3 Percentage of Internet Users with Digital Content Stored on a Home Computer/Other

Hard Drive .............................................................................................................................. 3

Figure 4 Home Computers and Data Network Solutions in U.S. Households .............................. 4Figure 5 Overcoming Hurdles: Home Computer and Home Network Use................................... 5Figure 6 Problems Associated with PC Use: The Role of Viruses and Spyware .......................... 6Figure 7 Who Helped Fix a Problem Associated with a Home Network? ..................................... 7Figure 8 Opportunities within each Stage...................................................................................... 8


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A Parks Associates White Paper 1

1.0 The Stages of Home Networking

A key factor to consider regarding the rapid adoption of home data networking equipment since

1998 is the very practical purpose that these solutions have and continue to serve in the vast

majority of U.S. households. Although the industry is quite keen to sell next-generation home

networking equipment to link home computers to consumer electronics platforms (multimedia

networks), the main benefit to consumers remains the ability to access broadband Internet access

from multiple locations in and around the home (see Figure 1).

What Content is Shared in Home Networks?(Broadband Networked Households)

19%

22%

33%

41%

53%

91%

26%

33%

62%

72%

90%

n/a

0% 25% 50% 75% 100%

Games

Video

Music

Photos

Documents

Internet access

Percentage of Households with Home Networks (%)

Q4 2004 (n=542) Q4 2003 (n=989)

Sources: Broadband Networked Households , 2004 Parks

Associates; Profiles of PC Usage 2005 Parks Associates

Figure 1 What Content is Shared in a Home Network?

The use of a home network as a broadband-sharing mechanism is just the first stage of several in

the evolution of home networking. Both consumers and broadband and applications carriers will

find benefits as connectivity expands beyond shared Internet. For consumers, shared multimedia

content (music, photos, and video) from both home computers and other storage platforms will

drive them to seek digital media adapters, either stand-alone or integrated with other platforms

such as set-top boxes. For carriers, the deployment of home networks now is a service

differentiator and a customer loyalty measure. However, the carriers will seek to monetize their

customer premise equipment (CPE) deployments by tying them into additional services, notably

voice and multimedia. We expect to see them deploy residential gateways (RGs) as part and


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parcel of their next-generation voice services and for multiroom video applications. As the telcos

in particular become more aggressive in offering music and video services to supplement their

broadband and voice offerings, look to them to seek residential gateways that support multiroom

distribution of this content. Figure 2 provides an overview of the stages of home networking

deployment.

Home Networking Stages:

Key Applications

Stage 1: Shared broadband Managing the network

with software, securityapplications

Stage 2: VoIP applications

Carrier-deployed CPE Limited multimedia andentertainment networks

Additional storage

Stage 3: Media servers deploy ingreater numbers.

Mobile-to-fixed voice

convergence through CPE

Figure 2 Home Networking Stages: Key Applications

2.0 Why the Need for Managed Services?As residential and portable technology solutions provide end users with new ways in which to

access and share content, they likewise create new challenges. Home computer hard drives often

fail, home networking solutions are in many cases not as easy to install as advertised, and

printers sometimes fail to print!

For a great many consumers, dealing with these problems has often been a case of manifest

destiny insofar as they have fixed them on their own or sought the assistance of a technically

minded friend or family member. However, we are entering an era in which consumers will have

new software solutions and professional support to provide an enhanced level of home computer

and home networking monitoring, maintenance, and support. There exist a number of drivers for

the growth of these solutions:

1. The segment of consumers with multiple computers and a home network to link a single

broadband Internet connection has now surpassed the definition of early adopters. Theseconsumers are less technically proficient than the very early market for connectivity, andthey may simply not have the time or desire to provide IT support for their home.

2. For end users, the stakes of technological catastrophes such as hard drive failures growsignificantly as they rely on their home computers to function more as media servers. Inaddition to storing productivity content (finances, addresses, etc.), home computers areincreasingly serving as entertainment hubs platforms to which consumers are


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downloading photos, music, and video (see Figure 3). To lose an entire collection of thisinformation is more than merely inconvenient; the loss of personal memories through a harddrive crash, theft, or other household disaster (flood, fire, etc.) can be heartbreaking.

3. Companies providing home networking products and broadband services are examining waysin which they can reduce the complexity of these services in order to mitigate potentialcustomer service challenges, such as increased calls to customer support centers.

Percentage of Internet Users with Digital Content

Stored on Home Computers/Other Hard Drives(n=2,682 PC users with Internet)

84%

59%

36%

26%

17%

0%

25%

50%

75%

100%

Movies and TV

shows

Personal videos Video clips Music Digital pictures

Type of digital content

PercentageofInt

ernetUsers(%)

Source: Profiles of PC Usage , a survey of 2,682 U.S. PC Users with Internet


Figure 3 Percentage of Internet Users with Digital Content Stored on a Home Computer/OtherHard Drive

This white paper examines the challenges that face home users of computers, the Internet, and

home networks and provides insight into how the industry is addressing the need for improved

management, monitoring, and maintenance services and solutions to home users.

3.0 What Vexes the Home Computer User?Depending on the number of home computers owned and the manner in which they are

configured (i.e., are they networked?), consumers are going to experience different issues as theyuse them. PC households without a home network (an estimated 61 million at the end of 2004, as

Figure 4 indicates) are obviously not going to experience networking problems. On the other

hand, households with a data network used for Internet connectivity for at least one home

computer may experience connectivity challenges or glitches associated with the home network


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itself (interference affecting the performance of a wireless solution, the inability to connect

devices and resources such as shared drives and printers, etc.).

U.S. Households with Home Computers

and Data Network Solutions

(Millions of U.S. Households, year-end 2004)

Households

without a data

network, 60.8

Households with

a data network,

18.2

Source: Home Networks and Rsidential Gateways: Analysis and Forecasts


Year-end 2004:Parks Associates estimates that 79

million (73%) of U.S. households hadat least one home computer.

Figure 4 Home Computers and Data Network Solutions in U.S. Households

The potential problems facing todays home computer and home network user are listed in

Figure 5. These challenges can be grouped in three basic categories: those facing all home

computer users; those associated with the setup and configuration of a home data network; and

those that refer to more advanced home and public network use (such as setting up shared

resources, managing port functionality for such applications as multiplayer gaming, and ensuring

that security settings are established for both private and public networks).


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General PC/Internet Use

Viruses

Spyware

Establishing limits andcontrols for childrens

Internet use

Managing performance

utilities (disk scan, disk

defragmentation, etc.)

Backing up content

Overcoming Hurdles:Home Computer and Home Network Use

Home Network Set-up

Installation and

configuration for all devices Establishing security

settings

Home Network Use

Troubleshooting (the

network has gone down)

Resource sharing (printers,drives, etc.)

Router port management

Ensuring seamless

connectivity and establishing

secure connections for bothprivate (in-home) and public

(hot spot) networks

All Home Computer Users Home Network Users

Figure 5 Overcoming Hurdles: Home Computer and Home Network Use

3.1 Security and Home Computer Performance Issues

The problems that consumers are experiencing with their home computers are also related to

maladies coming from the Internet. As Figure 6 illustrates, home computer owners with Internet

access at home are significantly more likely to have experienced problems related to computer

performance if they also reported problems with computer viruses or spyware in the last 12

months. Executives at Best Buy and CompUSA, who provide in-store and in-home computer

installation services, indicate that the proliferation of Internet viruses and spyware is a significant

reason that their services business are growing rapidly. Best Buys Geek Squad, for example, is

expected to expand services to 45 markets and 425 stores by August 2005.1

1 Best Buy 2004 Annual Report


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Problems Associated with PC Use:

The Role of Viruses and Spyware

13%

28%

55%

79%

21%

34%

60%

89%

17%

33%

61%

89%

Hard drive

failure/lost files

PC lock up

Loss of Internet

connection

Pop-up ads

Percentage of Respondents (%)

Consumers reporting spyware (n=1,440)

Consumers reporting viruses (n=1,127)

All Internet households (n=2,682)

Source: Profiles of PC Usage , a survey of 2,682 U.S. PC Users with Internet 2005 Parks Associates

54% of home computer users have reported a

spyware issue in the last 12 months;

42% of home computer users report a virus

problem in the last 12 months

Figure 6 Problems Associated with PC Use: The Role of Viruses and Spyware

3.2 Home Networking Challenges

Data networks are certainly a success story. Penetration of connectivity solutions for sharing a

broadband connection between a modem and one or more home computers has grown from 2.5

million U.S. households at the end of 1998 to more than 18 million U.S. households at the end of

2004. Consumers have clearly embraced these solutions, particularly those using Wi-Fi foruntethered connectivity. At the end of 2004, approximately eight million U.S. households were

using wireless solutions.

The success of home networks also presents new challenges to both developers of customer

premise equipment (CPE) and broadband service providers deploying home networks as

integrated residential gateway (RG) solutions. As reported by many companies, return rates for

home networking equipment are as high as 20%, and some customers still struggle with basic

configuration and setup or experience frustration with connectivity issues (lack of range withwireless networking products, for example). As Figure 7 indicates, the broadband service

provider is often the first call that consumers make when attempting to fix a home network issue.

With customer support costs estimated at anywhere from $7.50 to $15.00,2 the costs to

2Source: Service Excellence Research Group


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broadband carriers for home computer and home network-related issues could be enormous an

estimated $700 million to $1.4 billion in a year!3

Who Helped Fix Problems Associated with Home Networks?(n=219 networked users with problems)

5%

7%

8%

17%

21%

22%

22%

31%

Not Sure

Retail store of equipment

PC/ home networking professionals

Home network equipment manufacturer

None of these

Family members

Friends

Broadband Service provider

Source: Profiles of PC Usage , a survey of 2,682 U.S. PC Users with Internet


27% of current home

network users havereported problems with

their data network.

Figure 7 Who Helped Fix a Problem Associated with a Home Network?

4.0 The Opportunities for the IndustryGiven the challenges that consumers are facing with home computers, Internet services, and

home networks, we anticipate significant interest among both home network OEM players and

broadband carriers in deploying a host of more advanced products and services. These solutions

will include the following types of applications:

Internet security and parental controls features that will increasingly come from abroadband provider (in addition to those solutions sold at retail);

Home computer utility solutions that help consumers automate basic performance utilities(disk scan, disk defrag, virus and spyware scans, etc.);

Helping consumers more easily configure home networks, especially in settingappropriate security protocols;

Assisting consumers with resource sharing (drives, printers) on their home networks; and

Providing broadband carriers with tools to help better manage home network installation,configuration, and troubleshooting.

3 The Digiticians LLC


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Stage 1: Shared broadband

Stage 2: Shared broadband Shared drives/printers

Stage 3: Shared broadband Shared drives/printers Shared content

Ease set-up and

configuration of home

networking products.

Secure the overall Internet

experience

Provide an enhanced

security experience both in

and outside of the home.

Utility dashboards that

tie basic PC performance

and management functions

into a simple interface and

automates the functionality.

Make device discovery and

diagnostics/troubleshooting

as easy as possible through

GUIs and other tools.

Set the stage for shared

content by helping to

manage drive sharing.

Router port management to

provide for rich Internet

content experiences

(gaming) while keeping the

network as secure as

possible.

Bandwidth optimization and

remote configuration/

troubleshooting.

Delivering and managing

true end-to-end content

services (music, video).

Ensure QoS for voice

services over the home

network.

Opportunities Within the Stages

Figure 8 Opportunities within each Stage

About the Author: Kurt Scherf is vice president of research for Parks Associates and studiesdevelopments in home networking, residential gateways, digital entertainment, technologydevelopment in the housing market, and residential and building management and controls. Mr.

Scherf is the sole author or contributing author/analyst of more than 30 research reports and studiesproduced by Parks Associates since 1998. His most recent work includesHome Networks andResidential Gateways: Analysis and Forecasts.

About Parks Associates: Parks Associates is a market research and consulting firm focused on allproduct and service segments that are digital or provide connectivity within the home. Thecompanys expertise includes home networks, digital entertainment, consumer electronics,broadband and Internet services, and home systems.

Founded in 1986, Parks Associates creates research capital for companies ranging from Fortune 500to small start-ups through market reports, multiclient studies, consumer research, workshops, andcustom-tailored client solutions. Parks Associates also hosts two executive seminars, both part of theFall Focus series, and co-hosts CONNECTIONS (in partnership with the Consumer ElectronicsAssociation) each year. www.parksassociates.com.