Tech ‘Upgrade Fatigue’
Though wired to the hilt, Dana Theus has lost her appetite for high-tech gadgets.
Theus had her house wired for high-speed Internet access in February. But so far she hasn’t spent a dime on the high-tech gear--from video games to videoconferencing--that can exploit the higher speeds.
Instead, she and her husband use the same two PCs, two Palms and two wireless phones they’ve had for three or four years. She even decided not to upgrade to a $300 wireless Internet phone after she discovered it was not compatible with her Palm.
“I’m the kind of person that likes to drive a car into the ground before I trade up,” said Theus, head of marketing at Washington-based Bantu Inc., an instant-messaging firm. “Right now there’s no reason to trade up.”
So it goes across regions and economic sectors. Nearly every major business is wired for high-speed Internet access (or broadband, as it is known). So are 8 million homes. The nation seems to be poised for a new burst of spending on equipment to take advantage of the high speed.
But somebody must have forgotten to tell consumers. Instead of rushing to the stores, the public is actually spending less on high-tech equipment this year than last.
Corporations will cut their spending on high-tech hardware by 0.2% this year, to $178.5 billion, after a double-digit increase last year, predicts International Data Corp. of Boston. And consumers are following suit.
“Upgrade fatigue” is Michael Erbsol’s phrase for it. The head of Carlsbad, Calif., consulting firm Computer Economics said people are saying, “My computer is just fine; the last thing I need is another” piece of software or hardware.
As a result, high-speed Internet access is proving to be something less than the foundering high-tech sector’s ticket back to the good old days of the “new economy.” And more broadly, it is not resuming its role as the engine driving America’s record prosperity.
“Right now, people with broadband are using the same applications they are using on narrowband, but just faster,” said Peter Jacoby, a vice president and lobbyist for AT&T; Corp. “You need to think about developing new applications, like maybe the ability to e-mail video clips of your children to their grandparents or some other as-yet-unimagined application that will drive deployment.”
The ripple effects of upgrade fatigue are pronounced:
* Sales of Intel Corp.’s microprocessors plunged 20% in the first quarter of the year despite a flurry of product introductions. And second-quarter shipments will prove to be flat at best, Lehman Bros. analyst Dan Niles wrote last month.
* Shipments of MP3 players fell by 20% to 138,152 units, from 170,550 in the first quarter of last year, the Consumer Electronics Assn. reported.
* A host of wireless phone makers, including Nokia Corp. and Motorola Inc., have forecast a sales slowdown in recent weeks just as a recent survey by Gartner Inc. found that business users were unwilling to spend more for next-generation high-speed wireless phones.
* Sony Corp. stunned investors Thursday with unexpectedly poor earnings--operating income plunged 90% during the quarter to just $24 million--due to weak demand for products such as TVs and mobile phones.
Even the mighty PC, whose sales exploded with the spread of e-mail and e-commerce in the mid-1990s, is suffering a decline in sales growth for the first time, said research firm International Data Corp. Hewlett-Packard Co., a major maker of PCs, printers and scanners, announced 6,000 layoffs Thursday as it warned that its revenue would be well below Wall Street expectations because of plunging consumer sales.
Other factors also are contributing to high tech’s hard times, such as the collapse of hundreds of dot-coms and the strong dollar, which makes U.S. microchips, software and related goods more expensive overseas.
Only a few months ago, it seemed broadband would be high tech’s savior.
Music file-sharing service Napster Inc. briefly became a smash hit, riding the popularity of broadband and fueling interest in MP3 players, bigger computer hard drives and recordable CD-ROMs.
But music companies enlisted the courts to crack down on the free swapping of copyrighted music. Traffic to Napster’s Web site slowed. This month, a federal judge allowed Napster to resume operation, after temporarily shutting it down, if it could show that it could effectively bar access to copyrighted music on its file-sharing computers. As of Friday, service had not resumed.
Meanwhile, consumers have grown weary of the increasing complexity of high technology and of products that do not offer a quantum leap in performance or utility.
Digital cameras, for instance, were a hit with the technically savvy, who bought them early. But nontechnically inclined consumers continue to favor ordinary film cameras over digital ones, which produce instant pictures but often require a host of accessories to manipulate, transfer and store images.
“Consumers often feel they’re having their pockets picked when buying high-end digital cameras because of the hidden extras,” technology writer Leonard A. Hindus wrote in the May issue of Advanced Imaging magazine. “There’s the storage media . . . then the cost of buying functional software. . . . The list goes on and on.”
Forecasts that digital camera sales would take off proved wildly optimistic. In fact, retailers have had to resort to deep discounts to prevent a drop-off.
“What we are really seeing here is a maturing of the category,” said David Stewart, deputy dean of USC’s Marshall School of Business. “Lots of people flocked to buy Windows 3.1. But by the time we got to Windows 98, people said, ‘I’ll get around to it.’ ”
Covina architectural consultant Thomas Breese has at least gotten around to Windows 98--but no further. His family has two personal computers with Windows 98, but it has not switched to Windows ME, the latest version.
Breese acquired a high-speed digital subscriber line connection in February and calls it a good deal even at roughly double the cost of his dial-up connection to America Online. Although he had been a regular upgrader, he now shuns other technology.
“What I have now is sufficient,” Breese said. “I’m going to wait until the last possible minute to upgrade, when things are a lot cheaper than now.”
In the short term, some experts say, Microsoft Corp.’s forthcoming Windows XP personal computer operating software--due out Oct. 25--may spark more buying in the sagging technology sector.
However, Microsoft’s critics have been pushing government antitrust authorities to seek a court injunction to halt the release of Windows XP. They say some of its features--such as its multimedia player and messaging software--are anti-competitive because they disable or conflict with similar products offered by rivals.
More complex and lifelike computer games and higher-speed wireless phones also could prove tempting to consumers, said Peter O’Kelly, a technology analyst at consulting firm Patricia Seybold Group in Boston.
Ultimately, Silicon Valley will have to persuade consumers to embrace technologies that require more complex electronic gear, such as two-way video communications. That won’t be easy. In the 1970s and 1980s, for instance, consumers gave a cold shoulder to Jetsons-like picture phones peddled first by AT&T; and then by consumer electronic companies such as Sony and Mitsubishi Electric Corp.
More recently, the computer industry has found tepid response to computer-based videoconferencing, which can set up a video communications link between two people over a standard dial-up or a broadband Internet connection.
“If broadband applications like videoconferencing were as simple as picking up your phone and dialing, people might use it,” said Kristy Holch, principal of InfoTrends, which does digital imaging consulting work. “But it’s actually less convenient than e-mail. . . . Creators of technology products always think people are eager to upgrade to get extra features, when in reality all they want to do is save time and money.”
Such shortcomings aren’t likely to persist in the fast-changing technology industry. Analyst O’Kelly, for one, said Microsoft and other software developers are making high-bandwidth applications such as telephony and videoconferencing easier to use.
In Windows XP, O’Kelly said, Microsoft has “made it much simpler to do videoconferencing, and audio quality is significantly improved--to the point where I expect a lot more users will make PC-to-PC telephone calls.” If those catch on, O’Kelly said, sales of large video monitors, microphones, scanners and digital cameras, among other gear, could grow sharply.
In a speech to cable executives last week, Microsoft President Rick Belluzzo said the company is betting much of its future on broadband.
“Microsoft is committed to helping make the broadband experience more useful, fun and engaging for consumers,” Belluzzo said. “The challenge is for the leaders from the key technology and media industries to develop the kinds of services that will really make a difference in people’s lives and stimulate new business opportunities.”
