CONVERGENT MARKETPLACE - An end to divide and conquer
Thomas Breuer explores consumer power in a convergent communications marketplace whose 
motto should now be ‘supplier beware'
As history often shows, when technological developments hit the market there is always a struggle for market share as disparate players make their bid for ownership of customers and future revenue streams.
The converging telco and media marketplace is no different. Telecoms operators, broadcasters and content owners alike are setting out their strategies, building new partnerships and working out revenue models as demand for consumer and business markets for fixed, mobile, telecoms and broadcast services gathers pace.
This article explores the theme of consumer power - this market is not one that can be dictated to by a group of controlling suppliers, as companies such as AOL and TimeWarner found to their cost. Consumers will seek out or, as we have seen with the rise of social networking sites such as MySpace and Facebook, even go out and set up their own environments - leaving supplier-led portals trailing behind in their wake. For perhaps the first time in the history of IT, this market is not so much a case of ‘buyer beware' as ‘supplier beware' - get it wrong and fail; use your judgement to get it right and succeed where others crash and burn.
The biggest development in the converged telco and media market is the delivery of basic and premium services to consumers and business users via their
channel of choice, 24 hours a day, wherever they may happen to be.
The three most important questions that the industry is facing today are:
- Which services consumers will want to use?
- Who should be responsible for delivering those services? and
- How should those services be charged?
There are two sets of commercial protagonists for whom the answers to these questions matter most: telecoms operators who typically own the ‘plumbing' and delivery channels and media groups who typically own the content that users want. In general, it is the telecoms operators who own the relationship with customers, having spent many years (and many euros) setting up systems to enable them to provide an individual (billable) service to home and business users.
Media groups are approaching the converged marketplace from a different direction and are more used to broadcasting to the masses than narrowcasting to individuals using multiple devices. They are less likely to know their customers and typically charge per view or service rather than according to individual preferences and usage.
This is beginning to change, and more recently there have been attempts by organisations to build hybrid models where either an operator partners with a media group or a media group extends beyond television to encompass computer and mobile phone platforms into their services. This is confirmed by the consolidation of major players in the market, such as NTL and Virgin Media in the UK.
It is encouraging to see this development, but not quite so encouraging to follow some of the efforts by both sides of the equation to ‘land grab' and attempt to stand against the tide of customer preference. As happened with so-called ‘walled gardens' established in the earlier days of web browsers, where users could access only limited services provided in partnership with the host, consumers will bypass these arrangements and find a new way to get what they want.
The key point to remember is that nobody outside the telco industry cares how content and services are delivered from a technical standpoint - they just want easy access.
To understand the context for this, it's worth thinking about the retail sector and how it has had to change over time. A hundred years ago retail was driven by local producers who sold only through small shops.
This changed dramatically as retail became a national and then international business, with retailers effectively charging suppliers a fee for providing space to sell their products. They continue to sell a range of their own brand goods in order to boost the lower margin business of running the retail ‘infrastructure' but know that they have to provide what customers want alongside this range - otherwise the customer will go elsewhere.
The same kind of ecosystem is emerging in the telco and media space. Telco operators are beginning to understand that they will not succeed by providing their own portals with limited access to own brand services (or even access to one or two partners). The Internet has shown how easily accessible content is, and the genie cannot be put back into the bottle.
Our view is that while telcos own the plumbing - and the billing relationship - with customers it is the media groups who hold most of the cards in the convergent marketplace. With few notable exceptions, there tends to be an engineering culture in telcos that means they have ‘mechanical' mindsets that concentrate on high quality delivery rather than creative and innovative approaches to how customers wish to experience different media.
As a result, we have seen some spectacular failures in Europe as telcos invest in new channels that don't deliver the content that users want, and experience extremely low levels of take-up and return on investment (ROI).
The future is in the ability to host and deliver services seamlessly using multiple devices which are of an extremely high quality. Just thinking about three of the most popular consumer devices, the BlackBerry, the iPod and the personal video recorder (PVR) helps to explain where the market is heading and the roles that
organisations will need to adopt.
1. The BlackBerry
Research in Motion's BlackBerry has revolutionised e-mail usage by businesses. Users can send, or respond to, e-mails wherever they are and whenever they want to - and are always connected. Users are now beginning to experience the benefits of accessing web based information services from wherever they are using this handheld device, although most of us would rather do this via a web browser on a desktop computer or a laptop.
2. The iPod
Apple's iPod is the consumer sensation of the early 21st century. The ability to store an entire CD collection on a small MP3 player and listen to a selection of tracks without having to carry around physical media is hugely convenient and exciting. The potential danger of Apple's ‘closed loop' iTunes service has, so far, not been a barrier, while the recent launch of the iPhone takes Apple even further into consumer territory.
3. The PVR
Personal video recorders such as Tivo and SkyPlus are changing consumer behaviour in the home and are, again, hugely liberating. Consumers can record and keep programmes and watch at their leisure rather than be dictated to by the broadcast schedule (and the accompanying advertising). Programmes can be stopped, rewound and even burned onto DVD at the consumer's convenience.
The benefits of these technologies cannot be argued with, and it's clear that their vendors are providing products with customer convenience in mind. However, there are still technology gaps that make working with these products difficult. For example, users access e-mails and web-links from a BlackBerry through different interfaces, while patchy mobile phone coverage means that access to 3G services is not always reliable or of a good quality. The overall feeling of consumers and businesses is that they continue to need to carry around multiple devices for multiple functions and interfaces between them is still fairly ‘clunky'.
But looking ahead, it's not difficult to build a vision of the future in which all content in the home is stored once in digital format and accessed when and where it is needed; in which a single mobile unit can act as MP3 player, phone and work access device, such as the recently launched iPhone; and in which the currently separate regimes of TV and PC are integrated. Progress towards the digital home is slow, but there is clear demand for a more integrated approach.
And while technology suppliers continue to develop proprietary formats such as Blu-ray and HD DVD, consumers are demanding increased accessibility. Vendors such as Lucky Goldstar have responded by developing a DVD player compatible with both formats. We believe that consumers will drive suppliers to deliver this integrated vision. Consumers already have their own preferred set of services on the Internet, which to a large extent is based on social circles. They will increasingly expect easy access to these services from their mobile phones, TV devices and PCs, and will increasingly see the operator as an access provider - as they view their ISP today.
The mass introduction of high speed, high bandwidth communications for all users will enable these services, but operators and media groups need to work together to guarantee a joined-up approach. The organisations that can provide users with the capability to create a personal service environment across devices and access content and services (such as home pages, games, information and personal content) at will are those who will succeed.
Thomas Breuer is Managing Director, Telecoms and Media International Line of Business at LogicaCMG
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