Fresh Perspectives: Managing Technology Convergence

By Tom Oser, Ph.D
Consulting Practice Leader for Telecommunications, Technology and Media, DSI

In the early to mid-1990’s, there was an expectation that technologies would converge to create fully interactive video-on-demand (FI-VOD) services. This convergence was seen as the Holy Grail for competitive dominance among both “old school” telephone companies and the “new age” media moguls and cable service providers. FI-VOD promised two-way, broadband-networked connectivity with 500 channels of video content, online access to transactions with major retailers, and a rich range of personal communications and productivity applications.

Allowing themselves to get swept up in their own hype, executives at the major telephone carriers made bold statements to the market that they would deliver FI-VOD like services to the hundreds of thousands of customers in a two-year timeframe. In the rush to achieve “first mover advantage,” they obviously ignored, or gave short shrift to the required levels of integration of technology and content to achieve their promises. (Recall that in 1993, the big unknown to all players was that in less than a year’s time, the Mosaic browser would be commercialized by Netscape to open up the Internet to the commercial world. As we now know, this unknown would play out to completely change the game.)

Less than two years after the announcement by the telecommunications firms, several major carriers delivered a single joint message of retreat to Wall Street. They collectively backtracked on the predictions to deliver FI-VOD. The reasons given were that they had “under-estimated the complexity” of integrating the technologies, infrastructure operations and management software required to realize such advanced services. In other words, they had overestimated the speed and misjudged the trajectory of convergence.

Convergence occurs when technologies that were previously considered separate come together to create something new. Not only are the trajectories of individual technologies uncertain but the way they combine and their acceptance by consumers add to the uncertainty. The forces of convergence drive continual integration of processes and technologies. Buying and using “already converged” technologies, systems and services are easy. These tend to be widely used and accepted by the market, typically enjoying economies of scale and other benefits of mature positions in the market. But, it is the on-going convergence of a continuously widening field of technology options that makes convergence a source of risk, which in turn presents an increasingly difficult set of decisions for business.

Challenges of Convergence

During the 1990’s, there was an urgency to be a “first mover” in the adoption of the newest and best technologies. Like the players in FI-VOD, many businesses invested heavily in technology, based on the promises of convergence: increases in market reach, productivity enhancements, and the achievement of low cost position. However, the fragmented environment of choices forced businesses to choose among solutions with high financial and operational investments in immature and proprietary technologies. Some of these choices were satisfactory, while many decisions were “too much and too soon,” or just wrong.

The questions for potential business users and buyers of converging technologies today include:

• How can I interpret the real messages of importance about convergence separately from the hype?
• How will my company and industry environment be affected by convergence and at what pace?
• How do I intelligently invest in areas of converging technology so that I don’t get burned again?

Considering the Signposts

How can managers do a better job of addressing these questions? Managers need to look carefully at the signposts along the way. In the case of FI-VOD, the signposts were there but were largely unseen or left uninterpreted. Each promise to provide FI-VOD in the space of two years would fly in the face of common sense to those who had performed basic due diligence in setting out a roadmap toward success and reading the signposts along the way. There were signs of problems with the FI-VOD that should have pointed to trouble:

1. Silicon Graphics was the main vendor for the set-top box technology in this field. A demonstration of their equipment would have managed the expectations of any observer. Their developing set top box had a flashy prototype navigation front end, but it had limited commercially viable business or consumer functions beyond “pay-per-view”-like selection for pre-scheduled programming
   
2. Arguably the cable industry leader of the time, Time Warner Cable, was engaged in an FI-VOD test initiative in Orlando. After more than a year into a $20 million live test market to provision 40,000 consumers with FI-VOD services, they had hooked up no more than 4,500 households; and those were being provided mostly standard cable services.
   
3. The US West Advanced Technologies Labs’ hybrid coaxial-cable/fiber optic infrastructure system was the technology of choice for distribution. It was largely based upon modified systems that traditionally provided one-way transmission of broadband analog signals. This was not the best strategic bet for an interactive future.

How the Industry Was TiVo’ed

In 1993, TiVo wasn’t around yet, so no one understood the true nature of interactive multimedia applications that might emerge. As noted, the Internet was just about to ride to prominence on the success of the Netscape browser. While managers might have anticipated these development if they had thought more broadly, the biggest mistake was not so much in failing to see these other technologies but in their absolute belief in the hyped vision of convergence aroud FI-VOD.

In 1999, TiVo came onto the market and since then has become the “Kleenex” brand name for digital video recorders (DVR). It was also the product of convergence, but not the convergence envisioned by proponents of FI-VOD. As a proxy for FI-VOD services, TiVo is still the best reference on how to offer the service in a way that can change the lives of consumers. It combines the ability to store hours of video from any commercially available broadcast televised, cable or satellite distributed scheduled video programming. It does so automatically or at the user’s request, using information it aggregates on published program schedules. And, it is accessed by the user through probably the single best example of a straightforward navigation system of user menus of functions and features. If a user already knows how to use a VCR by popping tapes in an out and hitting the play, fast forward and rewind buttons, then they are ready to move up to TiVo.

Three fundamental components combined to provide the service and experience of TiVo:

• Hard disk storage of video information defeats the time consuming serial access of separate VCR tapes, providing “on-demand” access to all stored programming.
  
• Dial-up access to download the “TV-Guide” is the core element of the service that makes programmed recording of any scheduled program possible
  
• A truly intuitive navigation system (not like some Apple computer architect’s misguided notion of “intuitive” windows drop down navigation) that leaves the blinking “12:00 A.M.” of the VCR era a distant bad dream.

Analyzing Convergence:

For any converging system, if one is expected to make an investment decision, one has to consider:

• The level of system dependence on each component within the system
  
• The role and readiness of individual components (time to market availability)
  
• The complexity of integration (taking into account experience of disparate vendors), and
  
• The market’s state of readiness to adopt the use of the converged system (real value to users, built upon adjacent behaviors they have already adopted)
  

Predicting Success for Converged Products & Services:

In the FI-VOD example, the lessons of evaluating and succeeding in convergence are writ large. Success in an environment under technical convergence depends upon:

• Combining well established technologies in user environments (e.g. hard drives, menu driven navigation, scheduled dial-up data downloads over night)
  
• Solving real user needs, actually perceived as life changing (e.g. users being truly able to easily schedule recording sources weeks and months in advance, and stop-action control of live TV are examples)
  
• Leveraging current infrastructure without locked-in dependence upon it (e.g. DVR’s such as TiVo attach to any scheduled programming source, separate from the network delivering the programs. This is analogous to a traditional analog telephone’s universal ability to plug into any jack in the country and expect service.

Managing Convergence:

How can managers better address the challenges of convergence? There are things that every business decision maker can do to deal with convergence:

• Set up a scanning process to understand the implications of convergence relevant to their business
• Estimate impact of convergence on the firm’s productivity, business mode, and customer base
• Determine signposts and decision point conditions in the market where convergence is acting
• Develop options to deal with early effects of convergence on an incremental basis to gain experience

DSI advises clients in the use of heuristic methods, scenario planning, real options thinking, and discovery-driven planning that can be applied to one’s approach to dealing with uncertain forces like convergence. Exact prediction is impossible. Many smart managers expected to see a strong market for interactive television by the mid 1990s. While prediction is impossible, proper framing of the problem, scenario planning, experimentation and creating real options can help companies to avoid major errors associated with simply reacting to the hype.

Convergence will happen but not always in the way that is expected. Convergence is an evolutionary process, and so dealing with it in proactive ways should be as well. And, in the full spirit of scenario planning, managers should always contemplate a scenario in which convergence slows done or disintegrates. Just as our kitchen still exhibits numerous devices and tools that are not fully integrated, although they could be in theory (like a Cuisinard version of the Swiss knife). After all, the market place, rather than the technology, ultimately determines the extent and scope of technological convergence.

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