NOW CONVERGENCE IS COMING TOGETHER

NOW CONVERGENCE IS COMING TOGETHER

IN the late '90s, technology, media and telecommunications companies became zealous prophets of "convergence".


They were preaching a brave new world where TMT companies would all work together to provide multimedia products and limitless content to businesses and consumers.

These companies jostled for position in a series of very costly inter-sector marriages, takeovers and landgrabs. Markets are still struggling to recover from corrections in value.

The picture is very different for 2004. Despite the flattened promises and frenzied overspend of the '90s, this dream of convergence is not dead. Digital technology continues to advance - but this time more intelligently and incrementally. We are now in a more mature and cautious era where developments are rooted in new, but financially robust, business models. But how are companies within TMT positioning themselves to exploit opportunities now? Telecoms companies are trying new formulas to maximise the use of their bandwidth; technology firms are getting directly involved in media delivery. Microsoft now supports several technology investments (MSNBC, MSTV), Sony is gambling the future of its PC and console business on the success of multimedia devices, and BT's broadband alliance with Yahoo! is in train, promising music distribution and TV delivery over broadband. Hutchison 3G is pressing ahead, and profits are beginning to materialise in other areas: SMS, ring tones, and voice-over IP.

Because the market is now more cautious, activities are based on clearer routes to profitability. In broadband, the successful link-up of SBC and Yahoo! has spurred other cross-sector initiatives: MSN-Verizon, MSN-Qwest, BellSouth Earth Link and BT/Yahoo. After the success of iMode in Japan, offerings such as Vodafone Live!, Orange World, 02 Active and TZones have appeared. And after the success of SMS voting in shows such as Big Brother, other TV programmes and media companies are expected to follow.

Trying to win a market by going solo goes against the spirit of convergence. Companies need flexible partnering rather than formal M&A arrangements.

Deloitte research showed that in 2002, 79% of infrastructure and 82% of content businesses intended to increase their activity in broadband by strategic alliances.

Examples are Pixar's partnership with Disney and Nokia's with Electronic Arts to develop games for the n-Gage platform.

Meanwhile, Sony provides the console and broadband connector for online gaming and leaves the customer relationship and games hosting to telecoms companies and game publishers. Companies should be flexible to meet market needs and customer demands, focus on the core products and services they do best, and use strategic partnerships to fill in the gaps.

As convergence continues to evolve, TMT companies should recognise the benefits of confining their opportunities to proven technologies with a clear route to profitability.

Consumer "pull" considerations relating to enthusiasm for new technology should be balanced against the technology "push". TMT companies will also learn to manage their brand in a more sophisticated manner.

Fragmenting distribution channels combined with the strength of a good hub creates an interesting dynamic and makes the role of the brand even more crucial.

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