Many businesses are now involved in the digital marketplace. Yet Gianvito Lanzolla and Jamie Anderson argue that the new reality of numerous companies offering overlapping digital products means that it is critical for managers to understand digital convergence and to observe the imperatives for remaining competitive.
There was a time when the industry your company was part of clearly defined the technologies at the core of your business. Publishers were associated with paper and printing technologies, music companies with vinyl disc or magnetic tape technologies, camera producers with chemistry and physics. In the past, telephones were used to make telephone calls, portable stereos were used to play cassettes and one could not use a radio to show pictures or make a telephone call. That time is gone.
The pervasive diffusion of digital technologies has made it possible to break the symbiotic relationships between technologies and industries. For instance, it is now commonplace to convert different kinds of content – a radio programme, a book, a magazine, a song, a phone call – into digital data. What has emerged, in digital terms, is a transfusion of technologies among industries that were once disparate. There is now no difference between the product provided by a telecom company (for example, a voice call) and the product of a music company (for example, a song or a symphony). The products generated by both industries are, in essence, a series of transmitted digital 0s and 1s
Moreover, as a result of this, several digital “products” can now be bundled, or converged (hence, the term “digital convergence”); that is, some products are, in reality, the convergence of hardware, software, audio, video and data into a single interface or device. And the era of digital convergence is just starting.
The success of companies that have intermixed products that used to be the exclusive domain of enterprises in other industries (think of the phone companies that now pride themselves as purveyors of music) has been decidedly mixed. What can be learned from successful inter-industry convergence? From our studies, we offer four important lessons.
Forget end-to-end, inter-industry convergence; it’s not likely to be successful. Our research shows that the required capabilities for content production (including artist management, creativity, idea scouting and content marketing), for telecommunication network management (including coverage, quality, network reliability and customer service) or for information technology and consumer electronics development (including R&D, technology testing, manufacturing and industrial design) are inherently different and “divergent”.
Despite the increasingly common underlying digital technological structure, there’s no example of any one company excelling at all three facets of the digital product world. In the media industry, for instance, digital technologies affect the content’s technological structure and the modalities through which it can be produced, distributed and enjoyed – but not the raw content itself. Thus, it has been difficult, for instance, for a software engineering company to produce raw content, such as a news programme or televised entertainment. As one studies the attempts to become a one-source-for-all digital enterprise, it becomes obvious that there are required capabilities across legacy industries that are so hard to equal that de facto barriers exist to block sustainable, endto- end, inter-industry convergence. The recent disposal of Endemol (a content production company) by Telefónica (a telecommunication company) or the announced divestitures of AOL (Internet services) by the Time Warner Group (media) provide anecdotal evidence to support this conclusion. Build strategic predominance in your capability space by focusing on your core strengths and by building trust. Analysing the commercial digital world, we identify two basic capabilities spaces, one tied to content, the other one tied to technology. The content capability space is filled with companies such as Disney, EMI and Fox; these are the originators of music, television shows, movies, sports programmes, video games, maps or “Web 2.0” content (ad hoc online communities, wikis, blogs and so on).
The technology capability space is comprised of six kinds of companies, all of whom either distribute, transport or otherwise provide access to content:
- Traditional content distributors include video stores such as Blockbuster or bookstores such as Borders
- Analogue device manufacturers include companies such as Sony
- Providers of access to content include companies such as Google or YouTube
- Digital device manufacturers include companies such as Apple or Nokia
- Telecom network operators include companies such as Vodafone or Sky
- Digital technology developers include companies such as Ericsson, Microsoft, Siemens and IBM
As you are probably now thinking, there can be overlap in the above five categories; Sony, for example, manufactures both analogue and digital devices. The most significant implication of viewing these two spaces in this way is that it emphasizes the critical importance of building predominance within a capability space if a company wants to profit the most from the opportunities related to digital convergence. Our research shows that two strategic avenues are available to build predominance: focusing on core strengths and building trust.
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