Facing digital convergence

Despite a history of hype and limited actual success in the 1990s, digitalconvergence has now become a reality, says a new report from Deloitte’stechnology, media and telecommunications (TMT) industry practice, which warns that companies not adapting to the trend face failure.

The report, “Digital Convergence: The Trillion Dollar Challenge,” asserts that convergence will create new product categories and new markets. But, more importantly, in some cases it will change the structure of existing industries, shifting the balance of power and altering the basis of competition.

“Convergence became a buzz word during the dot-com boom, but it didn’t deliver,” said Garry Foster, national director of the TMT practice. “The concept was based on future technologies — but with the expectation of immediate revenue — and companies didn’t stop to consider and understand what customers actually wanted and needed.”

Now, the report says, a wealth of convergence products and services is emerging, from online music to Internet Protocol (IP) appliances. Each of these offerings satisfies a real customer need — and most are already generating real revenue and earnings.

Some of the most significant converged services are expected to be from voice over IP, with industry analysts forecasting US$1 trillion in revenue by 2010. In addition, IP appliances, which will include next-generation digital music players, home entertainment services, home video phones and enterprise collaboration services, will also generate sizeable revenue. Other emerging products and services expected to generate substantial revenues by 2010 include enterprise collaboration software, IP television, mobile phone content, networked games and online music.

“Businesses that leverage digital convergence as a competitive advantage have the potential to benefit greatly,” said Foster. “However, convergence will also have the power to obliterate business models in a relatively short time frame — for example, the way increased bandwidth and advanced devices are challenging the long-term viability of wireline voice. The extent to which convergence adds or destroys value is a direct function of the extent to which a company anticipates, plans for and takes the lead in convergence.”

Convergence is being driven by three underlying trends. The first is proliferation of digital data, which provides a common base for handling diverse types of information — numbers, words, music, pictures, video, and more — using the same devices, processing techniques, and media. The second is widespread connectivity, which helps bring diverse information together, and extends the value and capabilities of a device beyond its out-of-the-box functionality. The third is continuous advances in technology, from battery life to processor speed.

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