• by Diane Mermigas , November 28, 2007

Robust consumer electronics sales this holiday season may be good for an ailing economy and advancing digital interactivity, but it will be bad for a challenged environment.

Consumer electronics--including laptop computers, flat-panel TVs, Wii and mobile devices--are expected to drive electronics sales as much as 7% to $48 billion in the fourth quarter, up from $44.8 billion a year earlier. Consumers' desire for computers and electronics over clothing and even peace (according to a survey conducted by the Consumer Electronics Assn.) will spur electronics sales 8% for all of 2007.

Consumer electronics is also expected to spur online shopping, which will comprise 8% of all holiday sales, and boost overall e-commerce retail sales about 20% to $42 billion in the fourth quarter, according to Retail Forward. More than one-third of all online shoppers were expected to place their holiday orders on Cyber Monday, although the busiest days online are still several weeks away.

Clearly, consumer electronics sales online and offline are a major contributor to the overall consumer spending that drives an estimated 70% of the domestic economy. A more dubious and rarely mentioned distinction: Those robust sales also will result in more than 2 million tons of discarded electronics (or e-waste) this year, only about 11% of which is expected to be recycled.

Enter Al Gore, who now is tapping the same digital technology in attempt to reset the time clock on a green world gone bad. At a time when consumers are more likely to indulge in interactive devices more for amusement than substance, Gore and his portfolio of key venture capital and lobbyist affiliations want to clean up the environment with alternative energy, greener practices and environmentally friendly tech.

The capital requirements to rebuild the U.S. energy industry are more formidable than they have been for building Internet, software and other companies at the core of Silicon Valley's lifeblood, many of which Kleiner Perkins has financed from scratch. Gore recently joined the VC firm as a participating partner to assist with the shift to "clean technology." It may require as much time and patience to nurture the same wealth creation from developing and capitalizing on a sustained green movement. Gore recently told Fortune that virtually ending global warming and reinventing the global-energy business will cost at least $6 trillion. Some part of that effort will likely involve the manufacturing of electronics with more environmentally friendly components as well as the eco-supportive recycling of parts. It also would be nice if the consumer electronics firms most advantaged by the digital movement would proactively contribute funding, new technology and compliance commitments to the cause.

The codifying Gore and Kleiner Perkins campaign could be an important catalyst for the disparate federal, state, corporate and private efforts to regulate e-waste with mandatory compliance or voluntary efforts rewarded with tax credits.

With a long-term goal of recycling one pound of discarded electronics for every pound of new electronics sold, Sony Corp. and Waste Management say they plan to create enough drop-off centers within 20 miles of 95% of the U.S. population. Dell launched a "plant a tree" program intended to offset the carbon emissions produced by its fast PCs. IBM recently announced a new semiconductor wafer reclamation project to remove "intellectual property" codes in order to recycle wafer-related parts to the solar cell industry.

If nothing else, such efforts are good business--and great PR. Improving the green nature of consumer electronics (and the planet) will become more of a focal point for companies, which will be forced to compete more on consumer interest and value-added levels as their product lines temporarily plateau. The products that have ruled throughout 2007 will continue to lead the pack, with a shift to wireless devices and virtual platforms: Wii in video games, Apple's iPod in mobile media players, large-screen HD TVs, and mobile smartphones. Multimedia phone sales are expected to exceed TV sales for the first time ever in 2008 with combined MP3 audio, video playback and image sensor capabilities generating more than $76 billion in revenues, according to Multimedia Intelligence.

Other corners of the consumer electronics universe are evening out. Slingbox and TiVo technology are increasingly being integrated into various platforms and other devices. Discount pricing continues as the primary driver of dueling Blu-ray and HD DVD player formats, which appears to be a losing proposition. Overall, sticker-price-sensitive consumers generally opting for lower-priced electronics this holiday are ready to settle for quality over quantity. There is plenty of room for improvement. Per the results of a Customer Experience survey just released, retailers are at the high end of the satisfaction scale, anchored at the low end by media, communications and entertainment firms.

Consumers spent a record $733 million for Cyber Monday, up 21% over the prior year, according to comScore. Much of it was lavished on electronics, but it is telling that Wired's Top 10 gifts is headed by the very low-tech Slinky, and the motorized Legos Imperial Walker from George Lucas' "Star Wars." Deeper into the list are electronics like the Olevia 747i TV; the Bang & Olufsen Beo5 universal remote that resembles a roving eye; and the "Guitar Hero"-inspired Harmonix Rock Band that provides percussion instruments to accompany guitar simulation for Xbox 360 and PlayStation. If the preference list is any indication, consumers are responding to simplicity, functionality and participatory interactive gadgets that include multi-player action and the use of ongoing social networking with other users.

The power of word-of-mouth marketing, a byproduct of such interaction, will play a surprisingly potent role in this year's holiday sales and beyond. Forrester predicts the U.S. interactive marketing spend will top $18 billion this year on the way to nearly $25 billion in 2008, representing an entirely new dynamic for consumer electronics and other industries. In the age of digital interactivity, it appears that what goes around comes around. This holiday's consumer electronics tug of war online will be the first round in that new contest.