Accenture Communications Solutions
Bridging the Cloud of
Convergence
Achieving High Performance in the Converging Media,
Executive Summary 4 1. Introduction Research Objective 5 Research Methodology 6 Defining Convergence 6 Importance of Convergence 6 2. Key findings 10
Key finding 1: Convergence is not a distant event -
it is happening here and now 11
Key finding 2: Convergence is changing the fabric of competition 14 Key finding 3: Convergence is introducing multiple business models 16 Key finding 4: Convergence speeds up the pace 18 Key finding 5: And few companies feel ready 21
3. Implications 22
Implication 1: Access to content and customer centricity is key 23 Implication 2: Convergence puts innovation at the top 28 Implication 3: Convergence requires flexible and creative partnerships 32 Implication 4: Growth strategy requires agile cost structure 34
4. Conclusions 36
Appendix: Critical Success Factors per sector 38
Content Creators 39
Content Aggregators 40
Service Providers 42
Content Distributors 44
Device Creators 46
Appendix: Company overview 48
Accenture's Bridging the Cloud of Convergence study canvassed the opinions of over 50 industry leaders and experts in the Netherlands, gauging their views on industry convergence and the blurring bound-aries between Media, Entertainment, Communications and High Tech. Our research focused on current developments, critical success factors and strategies.
The development of industry conver-gence can hardly be denied. Both scientific literature1and former Accenture research2have shown that industry convergence is occurring at a global scale.
This new, groundbreaking research shows that industry convergence is also taking place in the Netherlands. The majority of the companies inter-viewed saw convergence trends reach-ing mass market within 1 year while only 5% thought these trends would occur after 5 years or more. Convergence trends, such as multi-play offerings, digitalization of the value chain and new advertis-ing-based business models, are reaching mass market quickly in the Netherlands.
Convergence, caused by technological innovations, changing user prefer-ences and deregulation, is drastically altering the entire landscape of Media, Communications and High Tech. It is also changing the fabric of competi-tion - tradicompeti-tional forms of competicompeti-tion will decrease significantly while it seems cross-sector competition and the introduction of substitutes will be the key form of competition. More than 75% of our respondents expect-ed both forms of competition to be dominant in the 2012 converged market.
1 Wirtz (2001), Stieglitz (2002) and Christensen (2008).
2 Boiling Point: Convergence finally heats up (2006).
Convergence is reshaping the value chain, and companies cannot afford to continue doing business as usual. They either run the risk of being put out of business or of missing out on major growth opportunities.
As this study identified, if a company wishes to become a high performance business in the converging markets, it should focus on:
• Securing access to content and building up close customer relation-ships that have the highest potential value. For example, 40% of the respondents saw the content sector as claiming the largest share of the pie. By 2012 over 50% of the industry players expected to see content cre-ators claiming the largest share of the revenues. Equally, as convergence leads to increased competition levels and lower entry barriers, customer centricity is the only long-lasting strategy. Cost leadership is only for the happy few.
• Innovation at all levels of the company (i.e. technology, market, process and partnership innovation) as product life cycles become radically reduced. Key to this is the need to launch new products and service concepts - by 2012 only 10% of the companies interviewed expected to generate 90% or more from old products (i.e. those that had been on the market for longer than three years).
• Flexible and creative partnerships for achieving convergence business strategies. Internal growth is no longer an option. Only 10% of indus-try leaders we interviewed considered internal growth as an option. Flexible partnerships are a necessary part of a converging market as they bring together a full set of integrated capabilities and new creative insights making it possible to launch products rapidly and at a low risk.
• Having a growth strategy (either through customer intimacy or product leadership) based on an agile cost structure. In the high-paced converg-ing market, first-mover or exclusive-content premiums only last a few months. Moreover, prices will have to drop - we found that over 30% of consumers delay their purchase for this reason. Clearly, under such market conditions, cost reductions remain key.
Convergence creates exciting opportunities for companies - as Apple, Skype, YouTube and many others have demonstrated. Although it is hard to forecast the winners and losers in a converged world, one thing is certain: companies have to rethink their way of doing business and act quickly.
Research Objective
During the 1988 finals of the Dutch Soundmixshow, 1.2 million televoters overloaded the telephone network, causing a complete breakdown. Televoting was a new phenomenon, at a time when more than 6 million people were simultaneously watching a 60-minute TV show.
Two decades later and YouTube users view over 4 billion videos each month and add more than 10 hours of new video each minute. These figures rep-resent a dramatically different viewing habit, as each video is only viewed about 50 times, for an average dura-tion of 2.8 minutes.
Clearly, the way we consume content and communicate has changed, but so has the way in which content is distributed and created. And these changes in consumption and commu-nication habits are only a few of the headlines which Accenture identified as drivers for convergence.
Since the European Union commis-sioned whitepapers on convergence in the 1980s, convergence has frequently appeared on and disappeared from -the agenda of many parties. But while many changes have already occurred in the industries of Media, Communication & High Tech, we are still in the midst of a radical transfor-mation of these industries.
Research Methodology
Bridging the Cloud of Convergence is a ground breaking initiative. It is the first occasion on which convergence of Media, Communications and High Tech in the Netherlands has been sur-veyed in such detail, with industry leaders from every industry being interviewed. We believe the findings make necessary reading for anyone with an interest in the future of con-vergence on the Dutch markets of Media, Communications and High Tech.
• This study is based on more than 50 in-depth interviews (of 60-90 min-utes), which were conducted in June and July 2008. These interviews took place with industry leaders and other visionaries such as industry experts from different consultancy firms. For certain companies, which are active in multiple sectors, we have interviewed several people to take into account their wide span of activities. We have included a list of interviewed companies3 in the Appendix.
• Accenture asked these decision and policy makers for their views on con-vergence developments. We focused on current developments, critical success factors, strengths and weak-nesses in industry, and firm character-istics and strategies. We also asked our interviewees about the importance of certain factors in the converged marketplace and on industry readi-ness. Crucially, we also got their views concerning the companies which are best-positioned for capturing revenues in the converged marketplace. We would like to thank all participants for both their time and insights.
This report presents the key findings from our study, as well as highlighting the implications for all companies in the reconfigured value chain, as they aim for high performances in today's dynamic and evolving converged marketplace.
Defining Convergence
Many definitions of convergence exist. In most cases, industry convergence refers to the process by which bound-aries become blurred between differ-ent industries (see side box 1). One example of this is telecom operators. They have to invest heavily in broad-cast technology - such as video-on-demand services - in order to package and deliver television content to their customer. Similarly, when a Hollywood studio makes a popular animation series available on their website, it blurs the boundaries, as they cut out the commercial broadcasters. Device creators are also joining the game. Apple is by far the best-known exam-ple here, being active in the field of music aggregation through iTunes, its online music store.
From a consumer perspective, industry convergence can also lead to changes. Accenture, for example, notes a con-sumer's ability to access and experi-ence digital content and services any-where, anyhow, anytime. This oppor-tunity removes the limitations of a user's communications, information and entertainment needs.
Catch-up TV and mobile television appear to be only the first step in the convergence journey. Developments will not stop here; instead, the next generation of services may be similar to the 'mobile social networks' which companies such as Gypsii offer. With Gypsii, your GPS-enabled mobile phone allows you to see the where-abouts of your friends.
More importantly, however, it also offers an excellent opportunity for micro-targeted advertising. These mobile social networks are like Hyves, TomTom, Flickr and Twitter combined into a single mobile device.
As extensive research and our own experience have shown, industry con-vergence is driven by three major dri-vers - technical innovations, change of user preferences and deregulations of markets (see side box 2).
These factors not only drive conver-gence, they also interact with each other and together reinforce the convergence process. For example the digitalization of content is also causing a shift in consumer prefer-ences. Consumers increasingly expect to be able to watch anywhere, any-how, anytime, rather than being limited to the airtime of the broad-caster.
Importance of Convergence
As this study will demonstrate, con-vergence is by no means a distant, future event. Rather it is taking place here and now on the Dutch markets. Convergence melts industries together and lowers market and technology barriers. For this reason, competition levels will increase dramatically while new - and unexpected -players seem likely to enter the market.
As an example of this, the introduc-tion of digital cameras on mobile phones undermined the revenue base of traditional high tech players. This development meant that Nokia dis-placed companies such as Canon and Nikon to become the largest digital camera producer in the world. The launch of the TiVo services and advanced Electronic Programming Guides, similarly forced broadcasters to rethink their position and added value. And the impact of Google launching its free Chrome and Android software4 (based on Google's
advertis-ing business model) upon traditional software companies remains to be seem.
But perhaps more importantly, conver-gence also offers huge growth oppor-tunities as companies such as Skype, YouTube and Hyves have demonstrat-ed. The worldwide availability of broadband access combined with changing consumer preferences has provided these companies with a plat-form from which to develop their businesses.
3 Excluding those companies who wished to remain anonymous.
Convergence impacts upon every business in the value chain, meaning Dutch market players must ask them-selves some important questions in order to revise their corporate strategies and prioritize their operational activities. These include:
Capabilities:
What are our capabilities in content service creation, distribution and cus-tomer interfaces?
Assets:
Which of our assets are relevant to convergence offerings and how can we develop these? Assets include media content, distribution platforms, intellectual property rights and cus-tomer relationships.
Sourcing:
What are the gaps in our current abil-ities and propositions? And which areas should we develop internally, rather than outsourcing, partnering or acquiring to meet our needs?
Business models:
Which business models are most appropriate for which convergence offering (e.g. advertising, subscription or hybrid models)?
Brand:
Is our brand positioned to deliver convergence offerings? And how can we elevate our brand within the converging market place?
In the following chapters we will discuss this study's key findings and offer insights that will help companies in the converging industries by answering these key questions.
This report consists of two main sections:
Key Findings:
In this section, we present our five key findings, and we offer a detailed description of the current and future developments on the Dutch converg-ing Media, Entertainment, Telecom and High Tech industries.
Implications:
This section will detail the impact of the convergence trends on companies and will outline growth strategies and critical success factors necessary to become a high performing business. We have identified four major impli-cations.
Content Creators Content Aggregators Service Providers Content Distributors Device Creators Key Activities Support or enhance the operations and marketing of content and servicesManage client relationship Create content and
services • Endemol • Eyeworks • Financieele Dagblad • Radobank • Nederland 1, 2 & 3 • ANP
• ARROW Classic rock • RTL • Apple • Joost • Nokia • Endemol • Radobank • Bbned • Colt • Amazon • Google • KPN • UPC • Ziggo • KPN • UPC • Ziggo • Microsoft • Motorola • Nokia • Philips • Sony Aggregate content
and services into customer-oriented packages Provide infrastructure or manage access to ordelivery of the content Provide navigation and interfacing equipment or software Device Creators Procurement Production
Sof t / Hardware Logistics / Sales Content Creation Content Aggregation Content Distribution Media
Net Providing Transmission Basic & added
value services CRM / Sales
Communications
Traditional Industries
Converged Industry
1 Adopted from Wirtz (2001) and Chan-Olmsted. & Kang (2003)
Side box 1:
Reconfiguration of Value
Chain Structures
1Accenture believes the convergence of industries will lead to a new com-bined value chain for the converged industry, as demonstrated in the figure (see below). However this does not mean that companies will perform exactly the same activities in the new value chain as they did as separated industries.
Instead Accenture sees that compa-nies will focus on the activities with which they create most value ? their core activities. This results in a new value chain in which activities are being reconfigured.
As the diagram above demonstrates, several changes in the value chain will happen simultaneously:
• Companies will shift from their traditional industries to new sectors in the value chain (e.g., Nokia becomes a content aggregator). • Companies from completely differ-ent industries will differ-enter into the value chain (e.g., Rabobank acting as a telecom service provider and content creator).
Device Creators
Direct Effect Feedack loop
Technological Innovations
Convergence cloud Communi-cations Media Media & Com. MarketChange
of User
Preferences
Deregu
-lation of
Markets
Side box 2: Drivers of
Industry Convergence
1Industry convergence is driven by three major factors, as shown in the above diagram.
• Technological innovations:
Technology can be seen as the enabler of convergence. Digitalization of the complete value chain makes it faster and easier to distribute and store content as it is created, transmitted or received. The so-called 'dicing & slicing' of content for different platforms and devices also becomes easier. Standardization of formats increases interoperability between different devices. Finally, these devices - for example, cell phones - now have the capacity to process more demanding applications such as displaying video.
• Changes in user preferences:
On the demand side, convergence is driven by changes in user preferences. Such changes are demonstrated by alterations in the consumption and viewing habits of consumers. As Accenture research2 indicates, only 15% of young people are happy with current TV offerings, but more than 50% would still enjoy watching TV on a mobile device.
• Deregulation of markets:
To stimulate competition across different sectors and industries, European and national legislation has been introduced, such as a dereg-ulation of cross-ownership rules for media companies. This functions in a similar way to the introduction of the telecom Acts in the nineties, which was designed to open up telecom markets. Recent rulings made by the Dutch Independent Post and Telecommunications Authority (OPTA) in relation to the opening up of cable markets indicate that these changes
will continue. We sometimes touch upon these issues within our analysis, but in-depth legal implications are not included in this study, as this is a different field of research.
1 Adopted from Wirtz (2001).
"As one industry after another looks at itself in
the mirror and asks about its future in a digital
world, that future is driven almost 100 percent by
the ability of that company's product or services
to be rendered in digital form"
Nicolas Negroponte
Founder of MIT's Media Lab
81% 71% 72% 74% 56% 58% 53% 47% 19% 26% 26% 21% 41% 40% 45% 50% 0% 100%
New models for advertising
Consumers increasingly make use of multiple media platforms
Media increasingly tend towards niche content
Consumers increasingly use multiplay
Users expect seamless interoperability
Availability of the cloud
Users want to consume content anytime, anywhere, anyhow
Digitalization of the complete value chain
within 1 year within 5 years after 5 years
Key finding 1: Convergence is not a distant event - it is happening here and now
When do you see the following convergence developments reaching mass market?
Nearly all industry executives and experts expected to see the conver-gence trends reaching mass market in the next few years. Less than 5% saw these trends reaching mass market after 5 years or more. Trends such as the development of new deliv-ery platforms, multi-play strategies, advertising-based business and exploitation of the 'long tail' (i.e., offering targeted niche content), are likely to become common place in the near-future. Nearly 80% of our interviewees already saw these trends occurring, and more importantly, felt that they provided growth opportuni-ties for their business.
Although nearly all our interviewees saw convergence trends taking place quickly, when we looked in more detail at the outcome of the survey, we found that content aggregators saw convergence developments reach-ing mass market significantly quicker than device creators (see side box 3).
Accenture has already stated that convergence is building up a momen-tum5. Convergence is precipitated by
key developments such as the univer-sal availability of digital content, broadband connectivity, high perfor-mance consumer electronics devices and online advertising business mod-els. Our interviewees clearly acknowl-edged that all these developments were taking place here and now. Convergence is a global phenomenon and the Dutch market is no exception.
86% 60% 80% 22% 71% 44% 57% 44% 14% 40% 20% 78% 29% 56% 43% 56%
CA - Availability of the cloud DC - Availability of the cloud
CA - Digitalization of the complete value chain DC - Digitalization of the complete value chain CA - Users expect seamless interoperability DC - Users expect seamless interoperability
CA - Users want to consume content anytime, anywhere, anyhow DC - Users want to consume content anytime, anywhere, anyhow
within 1 year within 5 years after 5 years
0% 100%
Side Box 3: Content
aggre-gators see convergence
developments reaching
mass market quicker
The survey details suggested that con-tent aggregators (CA) were more closely in contact with converging markets than device creators (DC) as they saw some key technology trends developing much faster.
For content aggregators, the need for content anywhere, anyhow and any-time is daily business. They therefore felt that one of the key challenges of the future would be the integration of all the different delivery channels for video and rich media. Hence the avail-ability of the Cloud, digitalization and interoperability are key developments that content aggregators need to understand and be able to apply. As early as the nineties, media pub-lishers and film distributors introduced online offerings, transforming their
companies from logistics to IT-driven businesses. As an example, companies such as the NCRV and MTV acknowl-edged the transformation in IT, and with it the challenge of balancing creative and technologically-aware people in one company.
53% 40% 5% 12% 40% 58% 14% 28% Intra-sector competition Cross-sector competition Consumer-based competition Substitutes 2008 2012
Key finding 2: Convergence is changing the fabric of competition
Where does competition arise from at the present time,
and how will this have changed by 2012?
1Converging markets are characterized by a high level of cross-sector compe-tition and the introduction of substi-tutes. Both these factors force busi-nesses to change their offerings continuously. In our survey, we found that the industry leaders and experts clearly saw that cross-sector competi-tion was on the rise: by 2012, cross-sector competition is expected to be the key form of competition, while intra-sector competition will be of lesser importance.
Rather than seeing these market changes as a threat our interviewees saw them - surprisingly - as growth opportunities. Endemol, for example, has started to offer its content direct-ly to the end market, meaning it will begin to cross-compete with broad-casters, who were traditionally its clients.
Similarly, Google Enterprise has launched office applications on the Cloud, as well as an operating system for mobile phones that will compete with device creators.
Content creators in particular already see cross-sector and consumer-based competition (such as user-generated content) as an on-going reality. Nearly 80% of the content creators we inter-viewed saw competition as stemming from cross-competition and when asked about predictions for 2012, this percentage rose to 90%.
Consumer-based competition is still included as a factor in a firm's growth strategies, but it is not considered key. Only companies such as BDU, a news publisher, saw competition from blog-gers as a key issue. But they have also attempted to turn consumer-based competition to their advantage. They have used their own expertise in that area to enrich their articles, and boost their own positions.
When comparing the results of Accenture's Global Content Study 2007 and 2008, we have also seen a slowdown in management plans with regard to social media and user-gen-erated content.
Through our experiences in the mar-ket, we have found that the opportu-nity of 'user generated content' is so complex, and requires such a broad set of capabilities to harness its power, that companies are finding it difficult to realize its revenue potential. Respondents in our survey indicated these challenges, mention-ing not only the difficulty of attract-ing enough traffic for advertisers, but also problems such as the quality of the clips, the limited number of views per clip and the lack of clear relationship between the viewed clip and the advert, making advertisers reluctant to become involved.
Traditionally, value chain sectors were clearly separated; they not only required distinct capabilities but also very often capital intensive assets (such as studio equipment) or unique assets (such as requiring a govern-ment to grant service concessions and frequency rights). Entry barriers were high for companies wanting to oper-ate across the value chain. Product and services offerings were also less complex.
For the current converged offerings, companies have to bring together an ever-increasing range of distinct capabilities. Device creators, for exam-ple, need to understand digital con-tent management because their devices are also required to register, report and protect digital content rights. In a similar fashion, content creators must build capabilities in client relationship management when they offer their content directly to the end-consumer. But on the other hand, as the value chain is digitalized from end-to-end, cost levels and entry bar-riers are lowered, enabling companies to operate across sectors more easily. A good illustration of this convergence trend is when content creators and aggregators begin to distribute their content over the internet.
Traditionally, broadcasters have left the distribution of their content to specialized firms such as terrestrial or satellite network operators. But when internet technology enabled content-distribution at a much lower cost level (e.g., the BBC's annual bill for
terres-trial and satellite distribution is, respectively, £7m and £700,000 per television channel in contrast to £70,000 for internet distribution), broadcasters began to launch parallel channels on the internet, competing directly with their key suppliers. However, they also had to build up additional capabilities in the areas of digital content management and dis-tribution.
This convergence trend is reflected in our findings: over 80% of the compa-nies interviewed operate in two or more sectors of the value chain, and 40 % of them operate in three or more sectors. In addition many inter-viewees indicated that it is now com-mon for a company to be both incum-bent and challenger at the same time, requiring different market approaches: • Endemol mainly used to produce television formats, and concentrated on content creation. Nowadays, the company offers narrowcasting, mobile content, games and sponsored for-mats. The company has also recently launched its own digital television channels, moving it into service con-tent aggregating and provisioning. Endemol therefore exists as an incum-bent player for content creation but at the same time, it is a challenger for content aggregators such as public and commercial broadcasters. • Ericsson traditionally produced network equipment and communica-tion devices, and these generated the
majority of the company's revenues. At present, part of the company's strategy is to develop long-lasting client contracts with recurring r evenues. For this reason, Ericsson extended into the business of out-sourcing network operations, which helped their clients to reduce their operational expenses.
• Google is already the incumbent on the market for internet search services, as well as the clear market leader for online advertising (from a service provider role). However, the company is currently positioning itself as a device creator (e.g., with its Android mobile device platform). In this sector Google is considered to be a powerful challenger, and a company to be watched carefully.
Clearly, convergence is changing the competitive landscape. Competition is 'anywhere, anyhow, anytime'. Today's customer is tomorrow's competitor. This changing landscape will force companies to keep repositioning themselves. Focusing on what you already have is no longer an option. 1 NB. Percentages do not add up to 100% because respondents could select a maximum of two answers. 19%
38%
27%
16%
1 2 3 4 and more
89% 22% 44% 67% 67% 33% 40% 40% 70% 25% 50% 50% 29% 29% 86%
Advertising based models
Volume based models
Fixed price models
Content creators Content aggregators Service providers Content distributors Device creators
Key finding 3: Convergence is introducing multiple business models
Which business models will be most prevalent in your
sector in the next five years?
1Business models -defined as the way a company exchanges value with its clients - can be categorized into three base models. Of course, these different models can also be combined in dif-ferent grades.
• Fixed price: In this model, a one-off or periodic use of a product is sold for a fixed price (not excluding discount schemes). Revenues in this model are independent of actual use. Examples are unit pricing and subscription fees. • Volume based: In this model, the client pays for use of, or access to, a product based on the units or volume consumed. Examples include pay per minute, per Mbyte, pay per view and data/voice bundles.
• Advertising based: In this model, the use of the product or service is free for the end-user. The client relation-ship exists with the advertiser who must pay for the provider's advertising space or inventory. Examples are exposure (gross rating points), cost per
click, cost per transaction, cost per lead and revenue sharing.
As our research data demonstrates, in the converged market place, compa-nies do not have one single applied business model. Our interviewees expected that their company will apply different business models simul-taneously, contributing to an increase of industry complexity. Very often, companies are faced with the dilem-ma of cannibalizing existing revenue streams when introducing new busi-ness models. Newspapers, for example, feared a dramatic impact on their subscription base when they intro-duced ad-supported web publishing. The introduction of mobile television was similarly hampered by fears that it would eat up mobile telephony rev-enues (as people will not make tele-phone calls while watching TV on their cell phone).
In addition, companies are faced with the introduction of new business models, which require different
capabilities and assets in the compa-ny. Philips, for example, plans to introduce internet-enabled television sets, and this will place the company in a position to build up a client database and charge a usage-based fee (either to advertisers or content providers). Charging fees based on usage will necessitate a sophisticated, mass market client service, as well as skills and systems in management that are currently unfamiliar to Philips. Similarly, when Nokia was advocating the use of its mobile television solu-tions, the company proposed the introduction of a volume-based model in which a fee was paid per potential or connected mobile television sub-scriber. Consequently, Nokia had to develop skills in end-market business modeling in order to determine the earning capacity of mobile operators.
Although convergence will introduce multiple business models, our study also suggests that the most prevalent business model depends heavily on the value chain position of the different market players:
• Content creators and aggregators: The content creators and aggregators interviewed expected that advertise-ment-based models would remain the most prevalent model in their market. However, for this to be the case, different and more sophisticated models would have to be applied across multiple screens, involving an advertising technique that is more interactive and performance-based. As digitalization makes customer interaction and behavior measurable at an individual level, the advertising market will move towards cost per completed transaction, or full revenue share models. Accenture's recent Global Digital Advertising Study con-firms this trend;79% of participants in our survey agreed that advertising would become more performance based, imposing a new discipline on the industry.
• Content distributors:
Volume-based models remain the prevalent model for most content distributors. As most communication networks are switched networks, capacity remains limited. Volume should be priced in some way to keep traffic flowing. On the other hand, content distributors indicated that customers do not want to pay per unit and would instead like to see a simple tariff structure. Technology advances, especially in compression and trans-port technology, will allow them to offer flat fee models. Such flat fee models should be carefully planned and introduced. As the wide scale introduction of 'catch-up-TV' services has taught that Internet Service Providers (ISP) were faced with a hefty increase in their network costs. Internet traffic exploded, but ISPs could not raise their prices because they promoted unlimited access.
• Service providers and device creators:
45% 9% 27% 36% 15% 33% 12% 21% 2008 2012
Less than 10% 10% - 30% 30% - 50% More than 50%
Key finding 4: Convergence speeds up the pace
What percentage of your total revenue is generated by products
that have been on the market for less than three years?
Almost half of the companies inter-viewed said they generate 90% or more of their revenues from products that have been on the market for longer than three years. But this is expected to have changed dramatical-ly by 2012. By 2012, ondramatical-ly 10% of the companies expected to generate 90% or more from 'old' products.
Device creators in particular are faced by this ever-shortening product life span. As our survey results suggested, 80% of device creators already have a current product portfolio that is com-prised of at least 30% new products (i.e. less than three years on the mar-ket);and in some cases, this figure reaches over 50%.
Considering the last decade in the media, communication and high tech industries, such a trend is not surpris-ing. Even 'killer' devices like iPods do not last for long. The second genera-tion of iPod Mini lasted only 7 months before being replaced by the iPod Nano. Even though technology life cycles have already been slashed dramatically, the industry expects this trend to continue.
The implications of this trend upon companies are significant. Companies have to be able to introduce new and successful products and services if they are to generate new revenue streams. However, are companies in a position to manage this?
The results of this study show that all key market players anticipate that these factors will increase:
Churn:
As technology barriers are lowered and cross competitions becomes more frequent (as discussed earlier), churn levels will continue to be high and are expected to go up. The cost of churn may be around € 500 for each lost (wireless) client - a major cost for (mobile) operators. However, our re-search suggests effective churn management is not about 'locking' in customers or offering exclusivity. Stra-tegies such as the 'sim-lock', intended to tie down prepaid clients, did not last for long. Similarly, offer-ing exclusive television content in a 'walled garden' proved ineffective. These initiatives failed in particular in the Netherlands, when Sport 7 and later Versatel, attempted to gain exclusive football rights. In the converged market place, churn management is more than ever about winning customer loyalty, because clients are able to switch so easily.
ARPU:
In general higher ARPU levels will prevent clients turning to other providers. For triple play clients, it is considerably harder to switch than it is for clients who only subscribe to one single service (see side box 4). Convergence is being embraced as an excellent opportunity to increase ARPU and simultaneously reduce churn levels. Package deals such as triple play are only a first step in convergence. Convergence is about fully integrated services, going beyond packaging and having a single device (this will be discussed further in the Implications chapter, see below). Another implication of convergence is that devices are becoming increasing-ly software-based and easiincreasing-ly scalable. Increasing ARPU very often implies increasing investments per customer and so a higher down-side risk of losing the client. Very often these investments are in Customer Premises Equipment, or CPE (e.g., the set-top-box and mobile phones). Software
developments such as Tru2way, which offer a software platform for condi-tional access and decoder capabilities, will reduce the investment risk per client, as it will replace the physical set-top-box.
0 200,000 400,000 600,000 800,000 1,000,000 1 2 3 4 5 6 7 8 9 10
Number of value added services Size of base 0% 2% 4% 6% 8% 10% 12% 14% Churn rate
Size of base Churn rate
Side Box 4: Churn rates decrease as
the number of value added services
per customer increases
1Asked to rate on a scale of 1 - 7 how ready their firm was for convergence (with 1 being 'at an early stage' and 7 being 'at an extensive and mature stage') our interviewees on average rated their firms at just under five. In particular, content distributors felt they were not yet ready (average score of 4.2). On the other hand, it seems that content aggregators perceived themselves at the forefront of market developments. They seemed to be well on their way to transforming their businesses ready for convergence. This is in line with the earlier observation that for most content aggregators, content anywhere, anyhow, anytime is already daily business.
In the following chapter we will more closely analyze the key success factors for companies embarking on their transformation journey. In the appen-dix of this report, we have included a more detailed overview of the critical success factor per sector of the value chain. 4.0 4.5 5.0 5.5 6.0 Content creators Content aggregators Service providers Content distributors Device creators Average
Key finding 5: And few companies feel ready
"I think we can bring the whole BT story together
in one single slide, and the slide is very simple.
It talks about a strategy totally based on
convergence and innovation."
Ben Verwaayen
Former CEO
BT
Nearly 40% of our respondents saw the content creator as claiming the largest share of the pie. By 2012 well over 50% of the industry players expected to see content creators grasping the largest share of the revenues. Content creators appear to gain momentum from the possibilities the digital value chain is offering. The wide availability of broadband access means content creators and aggrega-tors are able to directly offer their content to end-consumers. In the Netherlands, we have seen TSS and Endemol taking up this opportunity, and exploiting their content and distribution rights directly. Internationally, we have also seen many initiatives for video-on-demand services over the internet such as the Vongo service from the Starz Entertainment Group, or Walt Disney Internet Group's services.
As we identified in the Accenture Global Content Studies, content is king but it is realized in a quite par-ticular way: Consumers determine what, when and where they consume content. Having a profound under-standing of your customers and being able to access the right content or format is crucial. The Telegraaf Media Group acknowledged the importance of this, as it enables them to offer content relevant to their different target groups, at the right time.
40% 37% 53% 12% 12% 13% 18% 18% 17% 14% 10% 8% 16% 22% 9%
Content creators Content aggregators Service providers Content distributors Device creators
Implication 1: Access to content and customer centricity is key
Offering correctly 'sliced and diced' content to end-consumers has its impact as far back as the value chain. For example, offering video or television service on small portable devices will require differ-ent production formats (e.g., short frames and tailored to the device's interface) and separated digital production lanes (e.g., no video integrated overlays, like news tickers).
In addition, content aggregators must acknowledge the importance of the 'Electronic Programming Guides' as this will be a necessary aid for consumers to find content. This could be a web based guide, and companies such as Google and Yahoo should be considered serious contesters. The importance of hav-ing access to content and customer focus helps to explain the increase in the many 'over-the-top' (OTT) offerings (see side box 5).
Beginning with Apple's iTunes success, it seems that a clear trend in OTT offerings is for more and more companies to link their service to a proprietary device. This com-ment is clearly demonstrated by the recent launch of the Slacker portable radio player or Amazon's Kindle (a portable book reading device with digital paper).
Video-based OTT offerings still lack quality of service and are not able to handle live formats of rich media (such as video and television) at mass scale level. Technology advances in compression (including MPEG4) and distribution (such as Peer-to-Peer) are likely to overcome these barriers, and it seems to be a mere matter of time.
However, it is equally important to resolve the underlying faulty economic model. The launch of the many catch-up-TV offerings has clearly demonstrated a flaw in the model. Content creators and
Side box 5: Over the top
and the rest stuck in the
middle?
Over-the-top (OTT) offerings seem to reduce the relevancy of network oper-ators, very often integrated with the service provider. The relevancy of net-work operators seems to be an on-going industry discussion which is becoming increasingly important. Nowadays, having better network service levels (including bandwidth, availability and reliability) hardly seems to be a competitive advantage. For example, mobile operators do not compete over network coverage or ISP over having higher bandwidth. Questions of outsourcing or selling off network assets also keeps appearing on the agenda of top managements, as networks are considered commodity assets with low margins, ROI figures and high capital exposure risks.
As Industry EV/EBITDA comparisons Show (see next page), the most prof-itable companies are either on the service side or the device side of the value chain.
Regulatory frameworks keep putting pressure on companies to either split networks from service provisioning functions or else to regulate access (e.g., open network provisions) and the associated wholesale pricing of
network capacities. Recent OPTA rulings do not indicate that these regulations will relax in the near future.
Consequently, margins will be topped and innovations slowed down (as R&D development costs are very difficult to recoup in regulated prices).
Content Creators Content Aggregators Service Providers Content Distributors Device Creators Network Resources Service Device
In the light of these developments, integrated companies are increasingly faced by two basic options:
1. Split and grow:
Split service provisioning from net-work operations and focus more closely on customer relationship and brand management in the service provider. Differentiation for these net-work operators comes from reach capacity. The network operator should focus on relentlessly cutting costs and executing a growth strategy based on economies of scale (perhaps on an international scale?).
2. Continue and leverage:
Exploit the huge possibilities of cus-tomer databases and insights across different platforms and services by combining them into truly converged services. Content distributors should differentiate between reach and capacity, and attractiveness to devel-opers and service creators. This con-version from "dumb pipe" to "smart
pipe" will add value to both end-users and suppliers. For example, simplifying the billing for users by offering a solution for micro-payments, will also prove attractive to creators of content. It results in the sharing of revenue between the content creator and the content distributor, and also in the provision of 'normal' revenues for connectivity, capturing higher revenues per transferred MByte. This implies upgrading the delivery net-work to a digital supply chain (includ-ing e.g. port(includ-ing and metadata man-agement) for all content, like video, music and games. EV/EBITDA compar-isons show that "smart pipe" distribu-tors have significantly higher ratios (e.g. Akamai; 22.1, Global Crossing; 21.7 and Level 3; 14.7), suggesting that the market can see a value in delivery platforms.
EV/EBITDA comparisons1
Company EV/EBITDA Sector
RIM 38.3 Device Creator
Google 25.7 Content Aggregator
Yahoo 24.8 Content Aggregator
Apple 24.0 Device Creator
Ebay 13.1 Content Aggregator
China Mobile 11.2 Content Distributor
News Corp 11.2 Content Creator
Microsoft 10.8 Device Creator
America Moviles 9.8 Content Distributor
Vodafone 8.9 Content Distributor
Disney 8.9 Content Creator
Liberty Global 8.4 Content Distributor
Sony 8.2 Device Creator
Comcast 7.8 Content Distributor
AT&T 7.1 Content Distributor
Nokia 6.9 Device Creator
AOL/TimeWarner 6.9 Content Distributor
Telefonica 6.4 Content Distributor
Deutsche Telekom (DT) 5.5 Content Distributor France Telecom (FT) 4.9 Content Distributor Telecom Italia (TI) 4.7 Content Distributor British Telecom (BT) 4.6 Content Distributor
Verizon 4.3 Content Distributor
All the companies interviewed agreed that the ability to launch innovative concepts was the most critical success factor, innovation was given an aver-age score of 6.3 (out of 7). This out-come confirms the importance for companies of continuously renewing their product portfolio. By 2012 only 10% of the companies expected to generate 90% or more of their rev-enues from products with a longer life span than three years. Under these market conditions, companies have to innovate, or else they may risk putting themselves out of business in a few years.
The study results also show that most other critical success factors vary across the different value chain sec-tors. A further analysis of the success factors per sector can be found in the appendix to this report.
5.5 5.6 5.7 5.8 5.9 6.0 6.1 6.2 6.3 6.4
Have a focus on speed Have a focus on flexibility Have a better design of products Have tailored offerings for specific segments Have a focus on user friendliness Effectively manage human resources Have a focus on quality
Have a strong brand Have a focus on reliability Launching innovative concepts
Implication 2: Convergence puts innovation at the top
Innovation is imperative, and for this reason, Accenture believes innovation should not only focus on the imple-mentation of cutting edge technology, but should also be addressed at differ-ent levels in the company:
Market innovation:
By achieving far greater insight into customers' need and desires, companies are able to design products or services that have a greater proba-bility of success, minimizing the risks that are so often inherent in short-life-cycle products. As we emphasized the importance of not over-researching breakthrough ideas and short time-to-market processes, crowd sourcing tools can be applied successfully. Companies such as Philips, Dell and Microsoft - but also Lego - utilize these internet-based tools to tap into large pools of end-users, transforming initial concepts or ideas into marketable products. Traditional innovation processes can take up to one year, including large customer surveys. Next generation innovation programs are divided into smaller innovation projects, with some project cycles being as short as 4 weeks. (see also side box 6)
Process innovation:
To support shorter product-life-cycles, processes must change from the beginning to the end - from prototype development to end of life liquidation. Rigorous product life-cycle manage-ment will increasingly become a criti-cal success factor. The focus should be on the key elements of product development - product portfolio strategy, ideation and configuration management. Equally important, the supporting managerial and governance processes should also be aligned. Balanced score cards for top management should include critical performance indicators such as the share from new products and go-to-market lead times. Our interviewees indicated that existing reporting structures often hamper the introduc-tion of new products. Converged offerings require several service lines to be brought together across
different technology platforms, each with their own profit & loss reporting. As we discussed previously, cannibal-ization, or shifting revenue streams, very often become part of the game and without an aligned reporting structure, launching new products can be tiresome and slow.
Partnership innovation:
To increase the chances of successful innovation, and share both the risks and rewards of today's fast paced markets, companies in the converged market place often have to collabo-rate intensely in order to develop new services or products. Companies are creating new ecosystems in which customers, suppliers and competitors work together to standardize solu-tions, assure interoperability and lobby for access or spectrum rights. The Wimax forum, the Open Mobile Alliance and Digital Living Network Alliances are all good examples in which competitors and suppliers set standards and ensure interoperability across the value chain. Companies who do not become involved in such partnerships run the risks of facing a VHS/Beta-type of war, witnessed in the 1980s or the recent face-off between Blu-ray and High Definition DVD.
The survey results clearly demonstrate the importance of innovation in the converging world. Innovation should be directed at all levels of the firm's business processes and not only be confined to the R&D domain. Today's convergence offerings are very often stuck at the level of service packaging or device convergence. In studying the multi play offerings we found most current offerings are still packaged offerings, or else services integrated onto one device. Innovation should bring market offerings to the next level: service convergence (see side box 7).
Service convergence is not about just adding another service to the multiplay bundle (such as adding mobile phone services in order to
form quadruple play instead of triple play). Service convergence should instead be seen from the end-user perspective, as the seamless mobility experience. This means a single, transparent, solution for all media and communication needs. A converged service scenario could look like this: in the train on your way home from work, you watch the live MTV awards on your IPTV- enabled mobile phone. You like the nominated songs, and so you order four MP3 music clips from your mobile, asking for them to be delivered both to your mobile and to your media centre at home. When you arrive at the railway station, you have to stop watching, even though they are about to announce the winner, because you need to get on your bike and cycle the last few kilometers home. But when you get into your house, you switch on your television, and you continue to watch the MTV awards from the point where you stopped watching it in the train.
Side box 6: Crowd
sourcing - hands on
Bug Labs offers crowd sourcing tech-niques and tools to help developers exploring new personalized devices and applications. They claim that with the aid of their platform, developers can find solutions to problems that many current devices are unable to solve.
The platform is designed to enable a collaborative development environ-ment. BUG net, their online communi-ty, is tied in directly to the BUG Software Development Kit- SDK - that allows developers to connect with others, share information, and jointly build products or services. With BUG, you can, for example, easily assemble and program a GPS and digital camera device that auto-matically publishes geo-tagged photos as a web service.
Side box 7: Beyond technology:
service convergence innovation - triple
play example
Unified platforms Telephony
Delivery platform
Television
Delivery platform Delivery platform
Telephony Delivery platform
Television
Delivery platform Delivery platform
Single platform
Converged service
Multiple offerings by individual providers Different delivery platforms
Multiple brands and customer contact points/order fulfillment
Different pricing schemes, billing and business models Multiple offerings by single provider
Different delivery platforms
Single brand but very often different contact points/order fulfillment
Single pricing scheme, billing but different business models Multiple offerings by single provider
Single delivery platforms
Single brand and contact point/order fulfillment
Single pricing scheme, billing but different business models Converged offering by single provider
Only 10% of our interviewed industry leaders considered internal growth as an option in order to achieve their strategic ambitions on the converged market place. An overwhelming majority believed their corporate strategies will have to be externally focused - either as mergers & acquisi-tions (M&A), as joint ventures or through strategic alliances. In our interviews, the need for flexibility and speed was clearly emphasized. Our survey consequently showed a greater preference for forming strategic alliances than for M&A, as even these were often considered to be too slow and inflexible.
Accenture believes that flexibility and external focus is needed in the converging market because:
Integrated set of capabilities:
The converged market requires control over a full set of capabilities. This can be seen with, for example, telecom operators who move into television services. They will need to build up
capabilities in new areas of content acquisition and selling advertising inventory. Moreover, these capabilities need to be quickly integrated as they will be applied across platforms and screens.
Time to market is critical:
When product and technology life cycles are slashed, companies simply do not have the time to build up skills internally. Under current market con-ditions, internal growth incorporates too many risks. In a high-risk market in which a slow pace could quickly leave a product obsolete, companies often have no real track record in the sector into which they are trying to expand. The time taken to build up a client base, or to access critical con-tent, may also take (too) much time.
"Ready-fire-aim" approach:
As competition is available anywhere, anyhow, anytime, new unexpected market changes and substitutes arise. Companies have to respond quickly. Do not over-research breakthrough
ideas, but get good enough insights and risk-awareness (ready) to bring a beta product to the market ("fire") and then use market forces to help fine-tune the product ("aim"). Flexible alliances can help companies speed up this process with less risk.
Convergence will force companies to question the building blocks of their corporate strategy - specifically scope, ownership and organizational design. The trend is toward a new corporate structure of virtual conglomerates that is more flexible. This patron can be observed in recent partnerships, such as when TomTom and Vodafone launched a "traffic messaging" service. In turn Vodafone teamed up with MTV to introduce their "Soundbites" music service while simultaneously MTV has formed a partnership with Microsoft in a bid to challenge the iPod hege-mony.
51%
29%
66%
10%
M & A Joint Ventures Strategic Alliances Internal Growth
Implication 3: Convergence requires flexible and creative partnerships
When we asked our respondents what growth strategies they intended to pursue in the light of a converging market, a distinct picture arose. Less than 5% of the interviewed compa-nies indicated that they would pursue a cost leadership strategy through operational excellence (i.e. a strategy in which a firm sets out to become the low cost producer in its sector or industry). Cost leadership strategies were considered to be risky and only suitable for a limited number of big global players.
Almost 70% sought growth through customer intimacy. Building up a long lasting client relationship based on a deep understanding of their needs and behavioral patterns was considered key in building up competitive advan-tage and growth.
A differentiation strategy, offering unique or exclusive services in a com-pany's sector or industry, scored near-ly 40%. As the score indicated, such a strategy is more difficult to execute
successfully in a converging industry in which market barriers are low and product life cycles spin at warp speed. Although our research data clearly indicates the importance of customer intimacy and differentiation strate-gies, companies equally stressed the importance of carrying out cost reduction strategies. For example Ziggo (a merger company from Casema, @home and Multikabel) sees itself as the 'result' of an industry wide cost reduction imperative. Philips commented that differentiation as such is not enough; it is first neces-sary to have competitive cost levels. Most device creators said having low cost production facilities is an indus-try prerequisite and companies will continue to seek explore new opportu-nities in this area.
Accenture strongly agrees with this point of view: competition is fierce and expected to intensify. In the high pace converging market, first mover or exclusive content premiums only last
a few months. Moreover, prices have to drop because consumers often delay product purchases or service subscriptions as they wait for the price fall. In Accenture's Global Digital Home Study we found that one third of the 10,000 respondents interviewed have delayed a purchase during the past two years for this reason. This study also showed that price is easily the most significant purchase decision factor - ahead of features, ease of use and brand reputation. 68% of the respondents cited price among their top three considerations when making a purchase. Clearly under such market conditions, cost reductions remain key.
1 NB. Percentages do not add up to 100% because respondents could select a maximum of two answers.
68%
38%
5%
Customer intimacy Product leadership Operational excellence
Implication 4: Growth strategy requires agile cost structure
Examining cost reduction schemes more closely, our respondents ranked scale and technological advantages as the most important cost reduction strategies. These two strategies have a relatively long term focus. As was commented, cost reduction programs have their limitations, because their focus is very often on reducing opera-tional expenses. For device creators and distributors in particular, opera-tional expenditure is often relatively small in comparison to capital expen-diture. Cost improvements programs must go beyond a simple reduction in operational costs.
Both cost reduction strategies can be clearly observed. Scale advantages are pursued by Ziggo and also by the mobile operators such as KPN and T-Mobile. By consolidating networks and client databases, telecom operators are rigorously reducing network costs - and their associated costs alongside this. In the converging market, tech-nological choice is not simply about interoperability or having the best
functionality; it should also consider platforms that will guarantee long term cost advantage. Telecom opera-tors, for example, are facing tough decisions at the moment about what the next generation technology plat-form should be: wireless, fiber-to-the-home or hybrid solutions. Similarly, device creators are mainly looking for technology platforms that have the potential for global standardization.
0 1 2 3 4 5 6
Policy choices
Having access to rare/low costs resources Having a steep learning curve
Technological advantages Having scale advantages
4. Conclusions
As we identified earlier, convergence is taking place at a global scale, but this study offers a closer insight into the changes that are happening in the Netherlands, where convergence is rapidly gaining momentum.
Convergence trends, such as multiplay offerings, digitalization of the value chain and new advertising-based busi-ness models, are reaching mass mar-ket quickly. The majority of the com-panies interviewed saw convergence trends reaching mass market with 1 year and only 5% saw these trends occurring after 5 years or more. Convergence, caused by technological innovations, changing user prefer-ences and deregulation, is drastically transforming the entire landscape of Media, Communications and High Tech. It is also changing the fabric of competition - traditional forms of competition will decrease significantly while it seems cross-sector competi-tion and the introduccompeti-tion of substi-tutes will be the key form of
competi-tion. More than 75% of our respon-dents expected both forms of compe-tition to be dominant in the 2012 converged market.
Companies will be forced to deploy new activities and business models in additional sectors of the value chain. Convergence is reshaping the value chain and companies cannot afford to continue doing business as usual -they run the risk of being put out of business or else missing out on major growth opportunities.
As an example of this, the introduc-tion of digital cameras on mobile phones undermined the revenue base of traditional high tech players. This development meant that Nokia dis-placed companies such as Canon and Nikon to become the largest digital camera producer in the world. In the 1980's, the European Union commissioned convergence whitepa-pers that suggested the incumbent telecom operators remained the most
But more importantly, convergence offers considerable growth opportuni-ties to companies who understand the key drivers of convergence and adopt their offerings to changing market conditions. Apple has demonstrated this through its i-device strategy, occupying end-to-end control points in the converged value chain (Think, for example of the iPod with iTunes content and outlets, the iPhone with exclusive service provider contracts and the recent launch of the Apple TV box, adding television content to Apple's portfolio). Since the introduc-tion of its device strategy in 2001, and the serious take off of the iPod in 2004, the company value has grown 8 times.
However, convergence also offers a launching platform at a micro-scale, as the Dutch Esmee Denters demon-strated. Her video clip on YouTube generated 17.7 million views and earned her a recording contract with Justin Timberlake.
Clearly, convergence will force compa-nies to act, and as this study shows, becoming a high performance busi-ness in the converging market place requires access to key content and customers, innovation at all levels of the company and flexible partnerships that help to launch new convergence services in a relentless pace.
Appendix:
Critical Success
Factors per sector
To become a high performer in
the converging industry, firms
in the different sectors must
pursue different critical success
factors.
Content Creators
Have effective human resource management
The transformation to cross-medial companies means that more than ever, businesses need people who are technology and IT-aware. Content cre-ators must attract and maintain personnel for these new activities, but -as the NCRV stated - this is not e-asy as they compete with other companies such as the large system integrators. Media Convergence, advisor of de Volkskrant, addressed the importance of good personnel, stating "good edi-tors are able to make appointments with the best CEO's". Talented person-nel have to be retained as they increase the firm value.
Finally, many content creators are project organizations which hire addi-tional personnel for specific produc-tions. This implies that content cre-ators have to attract and maintain personnel for new activities, retain talent within the firm and secure access to good contractors while maintaining a low employee base.
Have a strong brand, properly positioned for convergence
Any brand must be strong in order to be the pick of the choice. But as the ROOS stated "the challenge lies in obtaining and keeping the viewer". Content creators have to sustain an audience that will follow them wher-ever they go, knowing that their brand provides the right content at the right time, wherever it is needed.
Convergence offers content creators opportunities to create cross media brands. A successful example of a converged brand is de 'GoudenKooi', where viewers watched the program on television, accessed special content on the Internet, and gained additional information on their mobile.
Have a focus on speed
The focus on speed is particularly important for news publishers. People want to be informed whenever news occurs, regardless of the media chan-nel. "If something happens, viewers want to see images and videos of the actual occurrence. Those channels that provide these images and videos first, create value", ANP stressed. For instance, if CNN is unable to provide viewers with the latest news, viewers will tune in at the BBC.
Content creators must incorporate speed into their DNA. Technology is a crucial aspect involved in producing content at warp speed. So, too, is building a robust capability to produc-tize and moneproduc-tize content managing rights, technology and content for-mats. This must be done rigorously to ensure that content can be repur-posed, packaged and bundled quickly and effectively across different devices and geographies. Content Creators Content Aggregators Content Distributors Device Creators Service Providers
1. Have effective human resource management
Content Aggregators
Have customer insight
Content aggregators must be able to offer content which fits customer demand better than the products provided by their competitors, and this is this core activity in the value chain. As Communication Television Group argues; "if a firm like Google under-stands the customer better than content aggregators, Google will take over their role in the value chain, but this could also be a device like the Tivo". Think global and act local. Local content aggregators should apply flexible 'glocalized' management of the three-way balancing-act of content genre, consumption device, and local infrastructure and offerings. In order to striking the right balance, companies must have the right tech-nology in place to know their cus-tomers and their habits, aspirations and expectations. This implies know-ing the customer, meanknow-ing that con-tent aggregators need to ensure they have the ability to monitor and under-stand consumer behavior through sophisticated CRM techniques.
Have user friendly products and services
In a world of plenty, content aggrega-tors must offer products and services which are user-friendly and easy to operate. The main reason that consumers might not use several different social networks is because they do not want to have to create a new profile. But why is it not possible to migrate one profile across to another social network? According to MTV and TMF this should - and will - be possible in the future. In the multi-screen media environment of the future, effective and responsive customer service will be more impor-tant - but even more challenging to deliver. Crucially, challenges will vary depending on the legacy capabilities that each participant in the value chain brings to the party. Forming alliances with the right partners will be more important than ever.
Content Creators Content Aggregators Content Distributors Device Creators Service Providers
1. Have customer insight
2. Have user friendly products and services
Have a strong brand, properly positioned for convergence
According to a leading Dutch radio broadcaster, "branding determines awareness; awareness determines the possibility for consumers to find a firm". For instance, there are thousands of internet radio channels. But only those that have a strong brand are able to attract a large number of listeners. Branding gains importance because aggregators generally focus on a spe-cific theme. The brand should be asso-ciated with that theme. For instance, Radio 538 is becoming a lifestyle. In a similar way, a theme such as jazz can provide a platform for attracting adver-tisers across different media solutions. Viewers can listen to the radio, search their website, visit concerts and later watch the same concert on the televi-sion. Equally, magazine publishers can launch an associated TV channel as synergies occur between the different methods of reaching a customer and digital distribution channels become widely available at low cost. By
Service Providers
Have a focus on reliability
If new (or newly-converged) services malfunction, a firm's churn can increase dramatically; and this is often magnified by negative publicity. Both in the Netherlands and abroad, these problems were faced by service providers introducing IPTV or VoIP Reliability is even more challenging due to a complex in-home environ-ment with a complex access network, home gateway, home network and multiple devices. In the majority of cases, this environment is not man-aged by the service provider, but it does form a part of the reliability experienced. Consumers are willing to adopt new technologies and new ser-vices such as Video-On-Demand or IPTV, but they expect it to be at least as reliable as their 'old' television ser-vice. To ensure reliability, it is impor-tant to have a tight integration between the Operation Support Systems and the platforms that are used.
Nonetheless, simply managing techni-cal performance indicators is not sufficient, because the perceived value of the consumer is not only based on actual performance. Service providers should also manage consumer expec-tations, aligning marketing efforts with actual performance.
Have tailored offerings for specific segments
Clearly mass marketing is out: seg-mentation is critical to maximize value. According to Ziggo, traditional segmentation (e.g. based on income or age) is no longer sufficient as people increasingly act in different roles depending on time and location. In the converging market place, the abil-ity to create tailored offerings is often the only way of increasing customer value. "If you can deliver the best tai-lored solutions, you gain the highest margin", according to Troi Inc., a nar-rowcasting company. Companies must understand the household make-up if they are to create and sell the right base package at the appropriate touch
points. Providing flexible option pack-ages can facilitate customization to all household members, shaping offer-ings to their needs. Along with a rich-er set of data, high prich-erformance com-panies will require new analytic capa-bilities to deliver insights about cus-tomers' buying habits, needs and desires within households and social networks. Data-mining and business intelligence capabilities provide the ability to see purchasing patterns and to create more compelling household offers, taking these insights from the expanded customer-household view.
Content Creators Content Aggregators Content Distributors Device Creators Service Providers
1. Have a focus on reliability 2. Have tailored offerings for
specific segments
