Next in Tech | Ep. 202: Consumer Electronics at CES

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Eric Hanselman: Welcome to Next in Tech, and S&P Global Market Intelligence podcast with the World of Emerging Tech lives. I'm your host, Eric Hanselman, Chief Analyst for Industry and Company Data at S&P Global Market Intelligence. And today, as we kick off the new year, we're looking at not only the year ahead, but maybe a little further out beyond that. And to discuss that, I've got 3 of the analyst leadership team members here with me, returning guests, Sheryl Kingstone, Rich Karpinski and Justin Nielson. Welcome back to the podcast to you all.

Rich Karpinski: Thanks, Eric.

Justin Nielson: Yes. Thanks, Eric.

Eric Hanselman: It's great to have you all here. I hope you've made your New Year's resolutions, especially as it comes to technology. But there is a lot that has been happening as we've sort of been rolling through the new year. There's this little AI thing and then so many other pieces of all of the things we've been looking at in terms of research that seem to have taken some pretty notable leaps in the course of the recent past. It'd be great to get some thoughts from you as to where you think these are going. First and foremost, how do you think we need to be thinking differently? So much of where we looked at technology is focused around a lot of the new shiny things that are out there, and there's nothing shinier than AI, but I sort of wonder whether or not that's starting to crowd out other things that we should be considering when we start looking at technology and really how we're thinking about how we should plan with it and look at the year ahead. Sheryl, you got some thoughts. especially when we start looking at consumer experience, this is an area talk about how things have changed. The holiday shopping season, I think, was one of those things that was probably one of the more significant indications of not only how much more technology is in play, but how much less people are actually seeing it, even though it's doing so much behind the scenes.

Sheryl Kingstone: Yes. So, one of those interesting topics that you did mention is why everyone is talking about the shiny coin of AI, right, and where it's going. That's an interesting angle. And yes, we did just come off of a really great shopping angle or holiday angle, considering everything that's going on in the economy and the prices that have increased in the whole macroeconomic environment isn't fabulous right now. So, there's a lot of stress. But when we look at the future, this is something I've been trying to do is we're still failing at the fundamentals, right? So, when we quantify the customer experience across that buying journey, we now are calculating around $450 billion revenue opportunity through technology improvements. Part of it is AI, absolutely. But AI is only so good if you don't have the data to drive it and if you don't have the infrastructure to drive it. So, here's just a couple of data points. When we talk about things that were near and dear to our hearts around recent shopping experience, we have to do with online shopping, right? And we still have a $48 billion poor performance of a website that's driving abandonment, right? So, think about that. $48 billion was lost because of performance in the actual website or the application. Then if you take a look at where that's driving it, we've got $31 billion in abandoning online shopping due to browsing experiences and completing the purchase. There's friction points in the payment experience. There's friction points in the lack of information adequately responded to support those, right? So, when we talk about agentic AI, we're talking about maybe using the technology to improve customer service and support. to understand what the right channel is that we want to engage in. And it can be done actually accurately because we do see improvements and AI is part of it. Cross-sell and upsell personalized recommendation is an incremental of $14 billion or loyalty rewards, which still is about data, which is driven off of predictive and generative AI, which is $33 billion. So, there's a lot of opportunity to improve through revenue optimization, but there's also through improving that margin optimization.

Eric Hanselman: And so much of that, when we think about the fact that there are tens of billions of dollars of unrealized revenue just simply because of aspects of technology that we ought to be able to address, that's not exactly a small change. If we think about consumer behavior, though, and you were talking about some of the macroeconomic pieces, that starts to shift into a lot of other areas of technology and technology marketplaces and brings me to thoughts about consumer interaction with media. And Justin, there's a lot of data that's coming out about how those shifts are taking place, what is this next transition in cord cutting, a lot of the things that are happening in terms of media consumption are being fueled by a lot of these consumer perspectives at the same time.

Justin Nielson: Yes, chasing viewers and dollars in the media space. And the advertisers have switched a lot of their spend now into the digital world, be it through new offerings on streaming services like Netflix, the Netflix NFL Christmas game was a big example of that. Other things that have been happening in the media space have been geared towards the consumer experience on streaming. So, streaming offers a lot more opportunities to kind of personalize for the consumer. But on the linear side of the business, there's still more of a value proposition, I would say, in terms of bundling. So, a lot of these traditional media companies like Disney and others have been trying to attract those viewers or retain those viewers in the subscription packages, offering different direct-to-consumer type services like Disney+ and Hulu. And there was a recent announcement just the other day about Disney buying 70% of fubo, which is a sports virtual multichannel service. And they're also looking to launch an ESPN direct-to-consumer service. So, the media space has been transformed and is trying to attract those new viewers that are being a little bit more specialized with their subscription dollars.

Eric Hanselman: Well, and when you talk about something like the fubo transaction, here's something that you could identify as maybe niche sports content, but yet something that still generates on your $200 million transaction and everything that sort of follows on with the loan guarantees and everything else that sort of rolled into that whole package. That's an interesting marker to place in the linear to streaming transition because we've now got also Netflix, who just signed a deal for the Women's World Cup, an exclusive deal, Holy cow.

Justin Nielson: Yes. The rise of women's sports has really transformed the business model where you looked at the evolution of the WNBA over their last season and kind of the rise of Superstar, Kate and Clark and others. Yes. And then it was leading into the Paris Olympics. Most of the women's sports actually out viewed the men's sports. That was very interesting.

Eric Hanselman: And something where if we think about the extent to which technology starts to go drive into this. It's been interesting watching Amazon's coverage of American football, a lot of the statistics that are driving it. This is really starting to do a whole lot of real-time performance sensing that are now that upfront in front of the consumer kinds of things, things that have been happening on the Internet of Things world for ages and ages and ages. -- now suddenly starting to do some of the metrics treating players as one more source of data. These are things that we see parallels on the industrial side as well. It's not just that granted, they're now more visible in the sporting world, in some of these venues, but we're starting to see similar kinds of, I think, that next stage transition that are happening in industry. And Rich, that's something that you've been looking at.

Rich Karpinski: Yes. I mean there may be no larger jump than from LeBron James to like a V of oil, right? But I mean, they're both --...

Eric Hanselman: Hey, but I'll make that leap.

Rich Karpinski: There does make the leap. So yes, I mean, they're both sensor. That's maybe the common -- the starting point anyway of this discussion. So yes, I mean, you started with AI, and I think AI sits at the center of the world where I work, which is mostly around IoT, enterprise IoT, industrial software and a lot of the use cases that enterprises in the industry is using to transform themselves leveraging all of that data. The first way that AI has inched its way into the IoT world is that it took some of the buzz off of IoT. If you look back, I don't know, 4, 5, 6 years, a lot of the vendors in our markets were positioning themselves for their IoT play. That's faded away and now AI sits at the middle of everything, I think, fairly enough as well. But if you look at AI and the training of models and the making of decisions using those AI models, for a lot of companies, where does that data come from, especially in that industrial world of manufacturing and utility and transportation, it becomes from that IoT data being pulled off of sensors and machines and other things. So, the need to grab that data and do something with it and then feed it into AI that can work with it and make decisions more autonomously is the thing that everybody in the sectors I look at are wrestling with today. So, it's exceedingly paramount, both the data and the decision-making on the back of that data, but it's also very unclear how we're going to move forward with it. There's challenges around comfort level in moving from a lot of people knowledge into AI insight, driving really mission-critical manufacturing assembly lines, automobiles and trucks decision-making, right? How utility and other energy systems operate, right? These are life and death sorts of systems. And there's also just the same concerns about complexity and cost, et cetera. So, it absolutely sits at the center, I think, of everything enterprise focused these days, but we're really in an early stage where folks are trying to sort out from a sort of a capital markets point of view, it's good because they're also spending, right? There's a lot of infrastructure needed to support this and a lot of infrastructure decisions that need to be made.

Eric Hanselman: But it starts to get into that question of what's necessary to bridge the manufacturing, industrial, operational technology side of things with the information technology side and a certain amount of friction there in terms of what is needed for that transition and how we actually start to bridge that gap itself.

Rich Karpinski: Yes. So, I mean the way we've been thinking about that and talking about that, and it's not unique necessarily is the idea and the requirement for that IT side, so the traditional IT department and all of that infrastructure. And then the operational or OT technology side, the systems that have been running utilities and power plants and manufacturing lines for really the decades and decades for -- at those enterprises for the decision-makers to come together, right? -- sit at the same table, all of those older OT technologies are having to move on to very straightforward IT products and services, right? So, whether it's cloud or compute infrastructure, et cetera. So, they need to make those decisions together. So that was more of an enterprise point of collaboration. the synergy between the 2 sets of vendors in IT and OT, we see really accelerating at this point, almost blurring completely. Now certainly, there are different vendors in each category, but they're chasing the same problem these days with exactly the same tools. They need to pull together a lot of data to move it, to store it, to compute against it and to build AI intelligence against it as well. So, whether you're talking about AWS or Microsoft on the IT side or Honeywell or Rockwell or someone like that on the OT side, they're really starting to play in what's a very similar playing field in terms of technology.

Eric Hanselman: It's getting all of that interaction to really happen well. And we see that in so many other areas of technology when -- especially we think about business integration and a lot of business-to-business transactions. It is one of the things we've talked about on earlier episodes this year is being able to go find what those technology commonalities are and bring them together in ways in which you can now start to automate business-to-business transactions. But that, again, fundamentally is trying to get this technology to all bolt up. And Sheryl, those are things that your team is talking about. I'm curious where you see that headed? And what should organizations be thinking about as they start wrestling with what is that next stage of integration between partner ecosystems in the business-to-business realm?

Sheryl Kingstone: Yes, absolutely. And the problem is we're still very behind there. So, around a little under 50% of businesses are still siloed, right, within individual departments or just a few across multiple departments. So, when you're trying to truly automate across both the enterprise, exactly what Rich was saying, even in the extended enterprise. If you don't have your house in order today on just within your own extended enterprise, how are you truly going to automate? And then when you go to it, it really becomes what is the infrastructure, where is that data sitting? And again, a lot of companies are still in very legacy applications. They're not really shifted to the cloud yet. And so that's where we like to take a look at, well, who's leading, right? So, when we take a look at things like digitally driven organizations, they're much more likely to be more cloud-enabled. They're much more likely to have more customer processes and customer data managed across the enterprise and throughout the extended enterprise. And then that's going to give them the advantage to take advantage of the intelligent automation, right? So what Rich was saying about bringing everything together between OT and IT. But if you look at it from the point of view of putting it in terms of what you can do for the customer, the whole approach is so that you can be optimized in real time so that you can make those decisions across the entire customer journey. You can't do that if all your data is siloed. You can't do it if some of it is sitting in one other area and the other part is sitting up into the cloud. right? So, this is where -- how are we going to take a look at data residency issues? How are we going to take a look at hybrid cloud issues? What are we doing when we're a little bit of premise-based, a little bit of SaaS-based, a little bit of hybrid cloud, right? So, this is where we really do have to take a benchmark and understand where we want to be to provide those intelligent experiences. Everyone is jumping on things like agentic AI, right? Well, that's fabulous. But what are you automating? And that's another area that's going to need some insight that we're just not ready for.

Eric Hanselman: Sheryl, come on, the technology is the end in and of itself, right? You just -- you become agentic and then life is good.

Sheryl Kingstone: Absolutely. Life is fabulous. But honestly, there's a reason for it, though, right? There's so much opportunity, and we just -- we have to jump on it.

Eric Hanselman: The thing is that the challenge, of course, is that -- and so much of this, it's raising the level of the abstraction with which we are levering technology to address the problem. It's one of those things I keep harping on. It's getting to that point. I think everybody has talked about, all of us today have talked about the importance of data and the need to be able to really get up to a point at which data is not the stuff that's over there that is the byproduct that it really is, whether or not you want to say the data is the application to get all the network is the computer kinds of things. But we have to start thinking differently about how we're putting this to work and what capabilities we need to be able to leverage it, to your point, Sheryl, to be able to get to the point where you can actually capitalize on the value that's contained in it. This is -- it presents some challenges. Although I think it presents some challenges also as our consumers and as the markets are able to ingest this, it's been really interesting to see some of the transitions that are happening. Justin, you talked about some of the media consumption pieces. But there also are shifts that are taking place in terms of what those vehicles look like. I was interested to see some of the rise of thoughts about podcasts right back in the spotlight, but there are a number of other things that are in play there as well. Yes, podcasting, for sure, made a big impact, I guess, you would say, in the last presidential election. There was a lot of talk around political advertising in the media space. And if it would transition more to connected TVs and social media, the lion's share of political advertising is still spent on broadcast TV. And that number hit about $4 billion this last year. But looking at it from a perspective of, okay, with the new administration, where the focus will be on technology and in the media space, there is a lot of talk about deregulation and how that will impact the business, and we'll see more consolidation or we'll see more choice, I guess, you would say, in terms of media distribution strategies. And the other part of it is infrastructure. A lot of talk was on broadband infrastructure and serving those rural communities that can't access a lot of this content, be it through a wireline, an old coaxial line and then the rise of fixed wireless. So Starlink and some of the other 5G outlets have been serving those communities and serving them pretty effectively and how that investment will future proof those new distribution strategies from the media companies. Well, you raised a good point there about infrastructure build-out. And in fact, Starlink didn't qualify for the broadband expansion dollars. You certainly -- it would be an interesting question as to whether or not any of those decisions about infrastructure funding change in the new environment in which we exist. But especially when we think -- York, you made the point about advertising dollars basically becoming increasingly digital. Now we've got to have the media to support it. That starts opening questions about where those media preferences go and as a result, where those ad dollars get directed.

Sheryl Kingstone: So, I have an answer to that, Eric. Strangely enough, when we take a look at a point of differential on ad spending between like 2023 and 2024 when we're tracking a lot of this, we actually see a 7-point decline on advertising on nondigital channels and an 8-point increase on advertising on connected TV. We also see an increase in advertising on social channels. And then we also see the use of influencers in those environments. So, a huge change as it relates to the shift of advertising. And it isn't necessarily just the new digital channels, right? So, we do see a decrease in the traditional search web channels for more of the social and connected TV, and that's what's really different. And the biggest jump, the huge jump is on the connected TV experiences. And that's really going to be interesting, especially as it relates to also the shift in increase in social because when they play together, a lot of times, they're integrated, right? So, a lot of the consumers are using both devices, they're interacting on the TV. And that's where the role of content is changing because we're starting to see a lot of interaction on embedded content. So, the minute you click on an image or a video or something that is in that experience, you're able to truly check out. And we've been talking about this forever. But now with embedded commerce as part of the heart of the technology, hopefully, that will become a lot more frictionless for the consumer. And then we'll see an increase in spend on these social channels and connected TV channels as incremental shifts have already begun.

Eric Hanselman: Well, you have brought us full circle on that, Sheryl, because you've tied together a lot of the concerns for media, the needs for infrastructure to be able to support it, the technology that's behind it. I actually, we're getting -- we'll be talking a little bit about the Consumer Electronics Show and a lot of the things that are coming out of that actually in a couple of episodes. But in the near term, there are the whole set of announcements that have come out with not only Google in the smart TV world with their partnership with MediaTek and basically a semiconductor provider behind this. Some of the things that NVIDIA has announced at CES a lot of these things that are now starting to create the end device capabilities, so Sheryl, to your point, so that you can actually engage and transact that way. You've got to deliver the media to it that is engaging, which is just a lot of things you've been talking about. And Rich, you got to have the infrastructure behind this to be able to support it, all of the connectivity that actually gets built out in whatever form that connectivity winds up. So, a lot of things to pull together, but it seems like we've actually maybe done that.

Rich Karpinski: Yes. I mean let me steal your host chair a bit. And as just a consumer myself, right, I have some real interest in what Sheryl and Justin have been talking about today on the content side, right, or the device side. So, I'm very curious, and we've got an analyst -- on our team, the IoT team looked out at CES this week, looking especially at the auto sector, right? So very curious what cars are going to look like in the next 5 to 10 years. Really curious about what comes after our smartphones, right? Really curious based on what Justin was talking about the top-down media versus the bottom-up decentralized podcasting, still semi-blogging social influencer environment. These are some really fundamental changes. And I think each of us as consumers and ourselves, some of us, including me, might be on the older side. I know on Sheryl's team; she's got a younger analyst who is an influencer himself. And so, it seems very generational as well about how these things are going to play out, Eric. And so, I think as a consumer who's not in these industries, right, that Sheryl and Justin are tracking all the time, I certainly think about that. And then on the infrastructure side, you just have to look at NVIDIA and sort of the rocket they've been on to see how very traditional companies, maybe in the past, not so much exciting technology at chip here with server here, et cetera, are going to just be booming businesses in this world as we transform digitally.

Eric Hanselman: And this interconnection across all of them. Well, this has been great. I appreciate all you guys' perspectives. Unfortunately, we are at time. But thank you all for being back. And clearly, a lot more conversation to be had as the year shakes out to look at where we're headed in the future. So, thank you all for being back.

Sheryl Kingstone: Thank you.

Justin Nielson: Thanks, Eric.

Rich Karpinski: Thanks, Eric.