Abstract

Adjustment in Strategies Needed

There is considerable evidence to suggest that digital photo frames have already crossed the chasm and gone mass-market, ushering in a new era of competition in this market. First of all, many leading European, US, and Japanese digital imaging brands and distributors have launched various digital photo frames. In addition, vendors have started to place contract manufacturing orders with Taiwanese ODM/OEM providers, which in turn have stimulated the development of the digital photo frame supply chain in Taiwan. Many leading Taiwanese ODM/OEM manufacturers have been encouraged to expand into the digital photo frame business. Secondly, as the number of Taiwanese companies manufacturing digital photo frames has risen, prices have fallen; this in turn has contributed to the continuing growth in demand for digital photo frames. Thirdly, while crossing the chasm, several leading vendors decided to focus on the niche market. The digital photo frames that they developed -featuring easy operation and convenient image sharing capabilities -have proved extremely popular in the European market, encouraging other vendors to develop similar products, and stimulating rapid market growth. Lastly, besides the gift niche market, digital photo frame vendors and distributors have also started to develop other niche markets such as home furnishings, and digital image transmission, editing and management services. This aggressive development of niche markets has helped to boost the overall size of the digital photo frame market. Now that digital photo frames have crossed the chasm, the competitive environment that Taiwanese companies face is significantly different from the situation when only early adopters were buying these products. Manufacturers need to analyze their competitive advantage and decide whether they have what it takes to establish a dominant position in the digital photo frame manufacturing industry, or whether they should focus on niche markets, or adopt a low-price strategy. Some Taiwanese companies have noticed the changes in the digital photo frame market in 2007, and have begun to adjust their strategies, such as expanding production capacity, extending product lines, adding new distribution channels or distribution partners, cutting prices, and introducing new digital imaging service models. However, some manufacturers appear to be sitting on their hands.

The Bullwhip Effect

Within a supply chain, information about market demand travels upstream from the retailers and distributors to the manufacturers and assembly firms, and then further upstream to the materials and component suppliers. Actual shipment performance can deviate significantly from shipment forecasts for any of the following reasons: (1) Erroneous demand forecasting; (2) Batch ordering; (3) Price fluctuations; (4) Loss of equilibrium between supply and demand. The further up the supply chain one goes, the more pronounced this deviation is; this is the so-called Bullwhip Effect. Fox example, a certain digital photo frame controller IC supplier may state that the company will ship six million digital photo frame controller chips this year, and will achieve global market share of 50% (indicating that a total of 12 million controller chips will be shipped worldwide this year). It can be assumed that the combined shipment volume of all TFT-LCD module makers this year will be 12 million units minus X (where X is the deviation between the TFT-LCD module maker's original shipment forecast and its actual shipment performance). The combined shipment volume of all digital photo frame ODM/OEM providers this year will be 12 million units minus X minus Y (where Y is the deviation between the ODM/OEM provider's original shipment forecast and its actual shipment performance). The combined shipment volume of all digital photo frame vendors this year will be 12 million units minus X minus Y minus Z (where Z is the deviation between the vendor's original shipment forecast and its actual shipment performance). That is to say, the total number of digital photo frames shipped this year will be 12 million minus X minus Y minus Z, rather than 12 million. Assuming that the value of Z is 1.5 million units, then it can be estimated that the total number of digital photo frames shipped worldwide this year will actually be lower than 7.5 million. Therefore, if the shipment forecasts of mid- or upstream manufacturers are used to forecast annual shipment volume in the downstream segment of the digital photo frame supply chain, there is a high risk of over-estimating the actual shipment volume.

Innovative Service Model

Within the Taiwanese digital photo frame supply chain, the international competitiveness of Taiwan's own-brand vendors is generally weaker than that of the Taiwanese chip suppliers, TFT-LCD module suppliers and ODM/OEM providers. Most of the Taiwanese branded vendors have been relying on low-price strategies; this is true regardless of whether the vendor's main distribution channel is online sales, 3C chains, or mass merchandisers. However, some Taiwanese digital photo frame vendors have been developing niche markets, such as the home furnishings channels Nordic, Kuan's Living, and City Super, or other channels such as FNAC. By developing digital photo frames that combine attractive design with high display performance, the vendors are able to charge a premium for these high-quality products. However, leading international digital photo frame vendors have been making a systematic effort to boost their sales performance by cutting prices and improving the availability of their products through department store sales, directly-owned retail outlets, and online sales. The big international vendors are thus starting to claw back market share from their smaller rivals. Taiwanese makers will be faced with great challenges if they continue to focus merely on developing distribution channels in niche markets as it is difficult to raise the entry barriers to discourage new entrants. As the number of firms competing for a share of a given niche market grows, vendors will be forced to cut prices, with little hope that they will ever be able to raise them again.

In Europe and the United States, some companies have already begun to apply innovative new service models to the digital photo frame business. In the United States, Ceiva Logic launched its PicturePlan service back in 2000, providing an innovative service platform that integrates digital photo frame image transmission, editing, and management functions; recently, Ceiva Logic has also begun to develop overseas markets. In Europe, i-mate launched its Momento Live digital photo frame image transmission, editing, and management plan in the UK in 2007.

Focusing on New Panel Specifications

Currently, the mainstream specifications for digital photo frame TFT-LCD panel are 7-inch 480RGB x 234 pixel a-Si TFT-LCD and 7-inch 800RGB x 480 pixel a-Si TFT-LCD. With this size of panel, when choosing a panel supplier, digital photo frame manufacturers focus mainly on price; as a result, price competition in this segment of the market is intense. Some panel manufacturers with higher cost structure have found themselves making a negative gross profit on 7-inch panel production, and even the most efficient panel makers make only very slim profits on this panel specification. To overcome this problem, some Taiwanese TFT-LCD panel makers have begun to adjust their product mix, de-emphasizing 7-inch panel production and focusing on building up their production capacity for 5.6-, 8-, and 10.2-inch TFT-LCD panel instead. Some of the new panel specifications that leading Taiwanese panel makers have developed for digital photo frame production include 8-inch 800RGB x 600 pixel a-Si TFT-LCD (4 : 3), 5.6-inch 720RGB x  480 pixel a-Si TFT-LCD (3 : 2), and 10.2-inch 800RGB x 480 pixel a-Si TFT-LCD (5 : 3) panel. There is a strong possibility that, in 2008, these three panel specifications will replace 7-inch panel as the mainstream TFT-LCD panel specifications for digital photo frame production. One significant point is that over 40% of the digital photo frames that have been developed by Taiwanese ODM providers provide video playing functions; products of this type require higher-end TFT-LCD panel to support the additional functions. Taiwanese panel makers have responded by developing TFT-LCD panel that incorporates a digital display interface; this type of product already accounts for 68.1% of Taiwanese panel makers' digital photo frame TFT-LCD panel specifications. With the dramatic fall in price of White LED (Light Emitting Diode) over the last year, more Taiwanese panel makers have begun to incorporate LED backlight modules -which provide enhanced color saturation -in their digital photo frame TFT-LCD panel. Of the 21 different panel specifications that Taiwanese panel makers have introduced so far, 57.3% feature LED backlight modules.

Appendix

List of Companies