Cultivating Desire: Investing in Market Insights to Reap Digital Content Profits

Sophisticated digital devices and content delivery models are shifting market drivers from the supply side to the demand side: market drivers and barriers are less about what is technically possible and accessible and more about what is preferable and believable in consumers' evolving mental model of the digital ecology.

Several related dynamics drive this shift. First, the innovation saturation factor: consumers simply cannot grasp or fully take advantage of the wealth of technology potential available. Even as expanding options accelerate adoption curves for technologies like VoIP and movie downloading, this ramp-up affects the way consumers assess the next new product on the market. The more consumers view technology as an experience-enhancing innovation rather than a staple appliance, the more willing they are to invest in learning about new features and benefits and actively consider purchasing new technology. And there is a "worth it" hurdle: the incremental benefit to the consumer, divided by the cost and hassle of experiencing that benefit (including evaluating alternatives and learning how to use the new technology). For many consumers, as digital options expand, this hurdle can be set higher and higher.

A second reality of today's technology marketplace shift is the blurring of the lines between access points (airwaves, cable, RBOCs), interfaces or devices (PCs, cell phones, PDAs), and content providers (especially with the increased use of content customizing tools like PVRs, RSS feeds, wikis, and blogs). Further, renegades and pure plays (the biggest of which is Amazon) act as catalysts, forcing more conventional businesses to innovate (such as Internet telephony provider Skype moving into the instant messaging arena, T-Mobile's WiFi pioneering, or the iPod and iTunes synergy).

While these dynamics involve both supply-side and demand-side considerations, the task of managing opportunities and risks rests more on tech firms' market development initiatives than in product development. Thus, strategic market insights are more critical than ever in creating successful consumer content engagement strategies.

Anticipating Shifts in Digital Music Consumption

Tracking trends and primary research helped digital innovators anticipate consumer preferences, such as the explosion in the digital music category. In 2002, TEMPO, Ipsos' quarterly research program that tracks American consumer digital music behavior, used predictive choice-based conjoint modeling to simulate the music downloading market conditions and uncover emerging consumer preferences for online music acquisition.

In 2002, there was a vastly different digital music landscape. Peer-to-peer file sharing was rampant, and the only legitimate fee-based options were highly restrictive subscription-based services, often heavily biased to benefit the content provider rather than the consumer (for example, permanent downloads that would allow CD burning and the transferring of music off the computer were not permitted in many cases). Indeed, for many, the inherent benefits of purchasing music were missing, like unlimited portability and--most importantly--ownership.

Not surprisingly, many music enthusiasts flocked to file sharing services rather than use the relatively more restrictive fee-based subscription options available, leaving many industry pundits to wonder whether legitimate fee-based digital music could ever truly flourish while the free alternatives existed in the market.

To better understand this dynamic and developing market, Ipsos presented a representative sample of U.S. downloaders aged 12 and older with simulated music market environments consisting of various options for obtaining music, including traditional retail, online P2P, fee-based subscription services, and a hypothetical а la carte pay-per-download option (which was not available in the marketplace until July 2002).

What the research revealed about consumer preferences in online music was quite astonishing. The entry of an а la carte downloading service at 99 cents per song into this simulated market environment immediately captured 19% consumer preference--much more than the three existing subscription services combined. It also appeared to lure many downloaders who had previously embraced peer-to-peer into a fee-based option.

This clearly suggested that a low-cost transaction-based music service that offered flexible usage rights, portability, and burning would have a significant impact on the market. Indeed, flexibility and ownership appeared to be critical components in a fee-based online music service offer.

Perhaps most telling about this research was that it was conducted nine months prior to the release of Apple's iTunes Music Store, which offered precisely these consumer benefits, and subsequently ushered in a new era in fee-based online music acquisition.

Three years later, the proportion of Americans who have paid to download music (12%) is now nearly equal to those who have used a file sharing services (13%), underscoring the importance of offering consumer-friendly engagement methods when assembling digital content offers and services. Interestingly, legal threats have played a less visible role in this growth, with primary functional benefits more likely cited by fee-based downloaders as purchase drivers. Of people who paid a fee to download music from the Internet, "I only wanted to purchase one song from the artist" (47%) and "more convenient to download songs from the Internet" (38%) were the most popular reasons cited, versus "concerned about legal issues with downloading music" (2%).

While this demonstrated choice-based conjoint modeling was effective in understanding consumer preferences for digital music, similar insights can be gained from this analytic approach for today's emerging content acquisition fields, such as movies, videos, television shows, or new media devices, such as hand-held computers or portable entertainment devices.

Unpacking the Mental Model to Anticipate Market Development

The must-have drivers of digital content consumption are the classic functional benefits: quality, ease of search and use, broad content selection, and good value. Also, increasingly important in this era of digital convergence are the product's seamless integration with existing equipment or systems and flexibility of use (file formats, device portability). In cementing purchase and driving brand choice, emotional benefits matter too, particularly brand trust, freedom in usage or perceived fair rules of engagement, and aspirational elements such as whether the product is cutting-edge, exciting, hip, or cool.

Out of understandable enthusiasm and self-interest, the tech sector too often focuses on these drivers of interest and not enough on the barriers to consideration. This is significant because consumers--perhaps with the exception of technophiles and early-adopters--are faced with perpetual information overload in the tech sector and the underused functionality of the digital devices they already own, which can block their consideration of new technologies.

The most brilliant product engineering and product development cannot shine if the consumer has concerns or uncertainties that outweigh the perceived benefits the new technology can deliver. Too often, marketers fail to assess the "no need or benefit" perception, which can result in overstated near-term market potential and can lead marketers to talk about why consumers should prefer their brand, when consumers aren't even sure if they want to participate in the category.

Among those consumers who might perceive a new product fulfilling some unmet need, in the tech sector, consumers often have concerns over hidden costs, including "hassle costs." For example, a consumer might not want to invest in the new wave of DVD player--with all the hype about Blu-ray Disc versus HD DVD--because they do not want the hassle of learning about a new tool, particularly if they are not sure what would be involved in them switching to a new format.

Once consumers are reasonably satisfied that they can deal with the hidden costs and hassles, a new set of considerations often emerges--performance uncertainties, or the possibility that the promised benefits might fall short of expectations. For the technology sector, this is a significant consideration, given the evolving barrage of options requiring time to evaluate and money to commit (at least for hardware and ongoing subscriptions).

Assessing the Digital Den with Shapley Value Analysis

Ipsos conducted a penalty/reward analysis, based on Shapley value analysis, of the key considerations for the Digital Den--the use of media hubs and media servers to connect digital content around the home. This approach quantifies the relationships between the drivers and Digital Den purchase intent by assessing the strength of that relationship with (and without) each one of the discrete variables.

A large proportion of consumers in our summer 2004 survey indicated no interest in the Digital Den approach to content management. However, the next tier of responses--the hidden costs--indicated that a subgroup of respondents was considering the Digital Den model, but perceived hidden or hassle costs to be a barrier. The tier of market drivers that would be considered the "performance uncertainties" in the mental model were mostly latent, indicating that the market remained mostly nascent--most consumers hadn't looked into the concept deeply enough to consider the functional or benefit uncertainties.

In the most recent wave of the Digital Den syndicated study, the overall barrier/driver profile is largely the same, but with two key differences: two hidden or hassle cost factors ("Sounds too expensive" and "Don't have broadband Internet access") have declined, both as barriers and as drivers. Of course, broadband penetration in the U.S. has increased in the eighteen months since our first study, and we know from other data that consumers have also become more educated about media hubs and their costs.

Thus, there is some growth in the Digital Den marketplace, albeit slow so far, along the sequential growth path outlined in the mental model framework. Of course, specific segments might demonstrate considerably more interest. Beyond underscoring the benefits of the Digital Den model, marketers wishing to reach consumers with Digital Den products should next focus on addressing consumer concerns about the hidden or hassle costs involved in connecting multiple devices, both with their product designs and with their communications.

Anticipating Technology Market Trends through Strategic Research Investments

As these examples show, strategic investment in understanding and monitoring demand-side developments are critical to anticipating business risks and potential in the tech space. Monitoring markets over time does not necessarily forecast outcomes, but it does frame the big issues and help anticipate key market insights. As consumers are flooded with digital content options, demand-side understanding is more valuable than ever.

In an environment of increasing consumer choice and control, it is critical to unpack the mental model and understand what drives--and hinders--user consideration, perceptions, and choice of tech products and services. Customized market insight strategies rooted in well-established measurement and analysis methods, and filtered through sector knowledge/experience, can decode market perceptions and preferences. The resulting strategic market intelligence helps tech firms and marketers manage the flood of features endemic to the sector and pursue the opportunities with the greatest ROI potential.

View the webinar Cultivating Desire: Investing in Market Insights to Reap Digital Content Profits, which offer more insights into how consumers think about technology.