Dear Kings of the Magi: This year, because I have been pretty good, I have decided to ask you for several presents that are really “in.” First, I will need a new cell phone. My old model is already obsolete because it doesn’t take photos and it cannot connect to the Internet. Next, I have decided that I also need an MP3 player so I can listen to my favorite music while I am in the subway or walking down the street. I’d also like you to bring me a digital camera because all my co-workers have one already. Besides, that way I can send photos via the Internet, retouch them with Photoshop, and save on development costs.


This Christmas, high technology will play a major role when Santa Claus distributes his gifts. The latest survey by NPD, a Port Washington (New York) research firm, shows that toys are losing their popularity, while high technology is becoming more popular. In 2003, 53% of respondents said that they would buy toys for Christmas. This year, the percentage dropped to 49%. Meanwhile, the percentage of people who intend to buy high technology products rose from 40% to 42%, making such products the fourth-ranked in popularity behind clothing, toys and video movies. “All the latest trends point toward the world of high technology,” notes Antonio Papale, director of Acer Ibérica.


High-tech experts agree on the products that will stand out: MP3 players, digital cameras and pocket computers. The top-rated products differ depending on market segment and spending power. Universia-Knowledge at Wharton looks at the high-tech products that will stand out under the Christmas tree this year, and which products will be most popular in 2005.


Affordable Gifts with a Digital Beat

Among younger buyers, MP3 players are the indisputable star of the season. Several high-tech brands sell this product, ranging from companies that specialize in computers such as Acer, Apple and HP, to consumer electronic electronics giant Sony.


MP3 players allow people to listen any song that is compressed with this format. They can download from such legal Web pages as Apple’s iTunes, Wanadoo’s Jukebox or Terra’s service, or such illegal services as eMule and eDonkey. “Prices for these players have continued dropping down to €100, which has made them more affordable this year,” notes Jaime García Cantero, research director of IDC, the consulting firm. For example, Acer offers 128 megabyte players for about €80; so do BenQ and Creative.


“The number-one gift this Christmas season will be Apple’s iPod, both in Spain and the rest of the industrialized world,” says José Ignacio López Sánchez, director of the Internet business management consulting division of the Complutense University of Madrid. Weighing a mere 158 grams, iPod is quite a small device. It comes in two versions – 20 gigabytes and 40 gigabytes, which sell as €319 and €429 respectively. With the larger iPod, music lovers can store some 10,000 songs. Apple, which pioneered personal computers, also offers a smaller version, the iPod Mini, which weighs only 103 grams and stores up to 1,000 songs. It comes in five different colors, and costs €259. The iPod phenomenon has been compared with the emergence of the Sony Walkman in the 1990s. Apple is even calling these devices substitutes for the Discman, a portable CD player. Currently, Apple sells more iPods than it sells computers. During the third quarter of 2004 alone, Apple sold more than two million units worldwide. Steve Jobs, Apple’s president, said that some locations will run out of stock in these products.


Digital cameras are another star product, enjoying a boom for two years. Consumers are attracted by their small size and the way they store photos without taking up space. You can also download photos onto your computer and store them on compact discs. “2004 will be another good year for digital cameras,” says García Cantero. “People are already deciding to upgrade the cameras they bought a couple of years ago; they are now obsolete.” The gradual decline in prices has stimulated demand, he adds. “Nowadays a camera with four megapixels costs the same as a one-megapixel camera cost a couple of years ago.”  However, an NPD analyst adds, “The market for digital cameras could start to look like the market for personal computers, where people don’t like to spend money on more functionality than they know they will need.”


On Amazon’s list of 10 most popular products, the top three are Apple iPods and another three are digital cameras.


A Classic Christmas Gift

For several Christmas seasons, mobile phones have continued to be a smash hit. “Manufacturers of computer products have a hard time competing with the aggressive advertising campaigns of cell phone companies, and the companies that manufacture cell phones,” says López Sánchez. “These companies’ Christmas ad campaigns play a major role in determining their cash flow for the year that follows. This Christmas, second-generation (GPRS) multimedia cell phones that provide access to the Internet will be quite popular,” he adds. Javier Fernández, an analyst for Gartner Group, is focusing especially on those mobile phones that have a built-in digital camera.


In contrast, third-generation (UMTS) devices, which provide high-speed Internet access, have not yet managed to take off, despite aggressive advertising campaigns by several cell phone operators. In Spain, one of the countries where cell phones have quickly penetrated the market, Telefónica Móviles, the market leader, has embarked on a campaign for promoting the use of third-generation (UMTS) devices. Those customers who buy a UMTS device before the end of the year will get a discount if they replace their devices before the end of 2005. For its part, Vodafone is doing promotions that lower the cost to €300. Meanwhile Amena, which launched its service four months later than its competitors, has begun an aggressive ad campaign, offering its devices for €400, while providing €500 in free data transmission during the first months. “We’ll have to wait until the middle of the year to see if the UMTS network makes a definitive takeoff in Spain,” says García Cantero. He expects phones equipped with cameras and video screens to do well.


Blackberry-equipped phones have become quite popular among business executives and professionals. Much like Palm devices in their heyday, Blackberry devices are becoming a status symbol. They allow users to receive e-mail over a cell phone.  The market leader is Research in Motion, a Canadian company. Nokia has just launched a new device (Nokia 6820) which is likely to be very popular, and Siemens has its own model, the SK65.


Video games are another Christmas classic, selling more units over the holiday season than during the rest of the year. That’s why so many new games are launched this time of year. On the other hand, sales of video consoles have fallen 20% this year, as users await new third-generation devices that will be the industry mainstay in 2005 and 2006. PlayStation, the Sony platform already in its second version, will move ahead by launching its third-generation, the mobile PlayStation (PSP), next March in the United States. In Japan is already available, although without its multimedia features. 


At the High End of the Market

Another Christmas classic, the DVD player, is also responding to the demand for innovation. “People are starting to ask for DVD devices that make their own recordings, not just play [pre-recorded] discs. In the United States, sales (of these new DVD devices) are growing at a spectacular rate. They take the place of video cassette recorders, which are now obsolete. They allow consumers to record on DVDs and on a hard drive. In Spain, they will attract attention throughout the coming year,” explains López Sánchez. Set Top Boxes are also beginning to become important because they enable users to record television programs for later viewing, without the ads.


When it comes to televisions, flat screens are this season’s star. “Plasma screens are becoming an indispensable part of the home theater, both as a technology and a decorative element,” notes López Sánchez. Fernández sees a great future for small flat screens (15 or 17 inches); they have an affordable price and don’t take up much space. Prices are also going down. “Liquid crystal (LCD) screens are beginning to win fans because of the rising importance of the home theater, which brings together several devices without using wires. They are interconnected and very stylish,” notes Papale. Laptop computers are also very attractive. “The most popular items have built-in wireless capability.”


According to Salvador Cayón, director of personal systems marketing for HP, “the hottest products this season are laptops and PDAs. We expect their sales to double, compared with last year.” Above all, he stresses demand for mobile devices. “The supply of products is so high, everyone can have access to these devices. PDAs start at €200, and laptops start at €900.”


What does all this tell us about the world of technology in 2005? According to García Cantero, two products that are already in the market will be the big winners next year. “First, there will be the mobile leisure products, including MP3s, wireless game consoles, and DVD players built into mobile phones; and devices that combine music, video and games. Second, there will be the digital home theater products: projection TVs, large screens and, above all, digital integration.”


The digital home theater involves connecting all these electronic devices to one another without using cables. As a result, wireless technologies, including Wi-Fi and WiMax, will play a major role in the home of the future. However, manufacturers have yet to agree on which particular component will play the leading role, bringing all these technologies together. On one side are those who support laptops, arguing that they will interconnect every component. On the other hand, some people defend the unique role of each device; they say that each device should take the lead, but always in relation with the rest.


“There is no specific technology that is going to play a dominant role, but a combination of technologies, all related to the digital lifestyle,” says García Cantero. “In this combination, computers and communications will work together to promote a change — away from the analog realm, into digital formats for music, photographs, videos and mobile communications.”