I was surprised to read earlier today how 'content' and 'community' appear to be gaining a renewed life with online retailers in a NYTimes article entitled "More E-Commerce Sites Aim to Add 'Sticky' Content". How could content and community ever not have been a central component of online retailers' strategy?
As I had mentioned in our study of Netflix last week, I see the fundamental 'service strategy' of any digital player to comprise of content, commerce, community and communications all built around the customer in a customer-centric model. Combined these form the C5 service strategy that I advocate.
Interestingly on the Content front, Stuart MacDonald, a senior VP at Expedia states that "We've always seen content as very important, but recently we've taken it to the next level. For a lot of people, the trip almost starts when they start to plan. To the extent we can make that easier and more fun, it's good for business. It's a significant investment but the reson we do it is that we get the return." I find it particularly relevant to see how a player like Expedia continues to expand upon delivering end-to-end solutions and his statement about involving the company at the earliest stages of the purchasing decision process will in my view have some very significant financial rewards in both the short and long term.
Meanwhile, Elaine Rubin a senior VP at 1-800-Flowers.com and chairwoman of Shop.org said that she had "seen a resurgence of interest in how to do community. Not message boards or chat rooms, but new ways to get consumers helping others. The idea with community is that people who post things to the site will come back more frequently because they're more engaged. They've left a piece of themselves behind." Stated in this manner one could argue that blogs would form an extremely complementary functionality to any company's community implementations. As she goes on to mention this is just "another dimension of how we can build value for customers", which in a customer-centric model is what must matter above all else.
Take the easy routes that you may find but don't mistake this to mean that the journey is easy. Also consider that the route less travelled may be longer and more tortuous but you will have acquired a great deal more knowledge by the time you reach your destination which will serve you well as you embark upon your next journey.
Let me start by saying that I know next to nothing about fluid dynamics. However, the little that I do know has helped to provide me with a great many insights of the 'digital customer' and by extension a very good vantage point from which to evaluate the future of digital entertainment convergence.
You see, I have painted a picture in my mind of the millions of digital customers as one massive stream of water rushing downriver while digital entertainment businesses are the dams whose turbines generate revenues as digital customers come gushing through them.
While I use the above analogy to gain a better understanding of some of the dynamics of digital entertainment convergence at the 'macro' level, I similarly apply it at a 'micro' level when evaluating a particular digital business offering and also at the 'nano' level to determine the level of 'fluidity' of a specific functionality for example. Here I will discuss mainly the macro level.
So let's look again at the key elements which form part of this 'digital stream'. We have water (digital customers), the dams (digital businesses) and the turbines (digital systems & processes). Each element has a particular function and objective. Water wants to flow to the 'other side' and it will pass through the dam's turbines to get there (digital customers want to use or purchase a digital offering); the dams want to contain as much water as possible to power their turbines (digital businesses will grow and thrive in proportion to the number of digital customers they are able to attract) and finally the turbines will attempt to use the flow of water as efficiently as possible so as to maximize the energy produced in the process (the more efficient a digital system is the more revenues it will be able to generate, the more profits it will derive and the faster it will thus be able to grow).
Assuming for a moment that two competing parties are targeting identical markets (the location of the dam and its associated water flows) and that their 'construction and engineering' teams have matching capabilities, the key issue will turn to which of these two parties is able to maximise the returns from its activities through the superior design of its systems and processes (the design and efficiency of its turbines).
Unfortunately, I have repeatedly come across situations where people believe that the mere fact of locating and building their digital business within close proximity to a large stream of digital customers will automatically grant them untold riches. There are two issues that they fail to properly take into consideration. Firstly, they are not operating in a void but have many direct and increasingly indirect competitors who will fiercely attempt to divert as much of the digital stream for themselves. Secondly, they spend significantly more time looking at the big picture of the water and the dam than the minute details of the turbine where all the energy will actually be generated.
Again, I am often faced with instances where managers are not immediately concerned (or worse, aware) that while their dam may be generating 400 megawatts their competitor is also generating 400 megawatts but failing to recognise that this competitor is able to achieve the same level of output with a dam that is two thirds the size of theirs through the use of more efficient turbines. Within the context of a dynamic digital environment there is little doubt that the more efficient operator will rapidly eclipse the other.
In conclusion, while many digital businesses are in the right location and have developed a digital offering of one kind or another the ultimate winner will be determined by which player is able to design the most efficient and fluid system to exploit the Digital Stream.
I would like to thank my good friend Stephane K. for the many conversations which have greatly stimulated my thinking on this as well as other issues.
As I have stated previously, consumer attitudes and expectations have changed dramatically over the past decade and they continue to morph at an accelerated pace. In this environment, one of the critical issues facing CEO's is how to develop the right strategies to guide the efforts of their organisation to meet these new expectations and exploit its opportunities.
In order to help explain these and other changes, we developed an ongoing research program called Digital Foresight™ and although our focus has been primarily on digital entertainment convergence you will note that its relevance goes beyond this. The slide below is extracted from this program and illustrates in simple terms the changing communication dynamics between companies and their customers.
Traditionally in a consumer environment, companies have structured themselves so as to 'push' as many products or services out of the door as possible. Companies are essentially telling customers: "We have a million products/services." which in times past would probably have sounded mighty impressive but in the cacophony of messages today it becomes fairly meaningless. Confronted with this message a customer would attempt to ask: "Which one of your million products is right for me?" but unfortunately have no means to convey this message back to the company. So in the 'product centric' case, the company pushes products and there is no direct customer communication.
Today the technology exists to cost-effectively permit a communication between customers and the recipient organisation. Customers can then begin their search for a product or service by asking a question: "I am looking for a product with these characteristics" and the company can in turn respond by presenting the products that best match the stated customer criteria. Together they can further refine the search. So in the 'customer centric' case, the company responds proactively to a customer need by pulling information from him/her in order to develop a dialogue - thus creating an ongoing feedback loop.
I am always reminded of the title of one of Regis McKenna's chapters in his book "Relationship Marketing":
A product is a service and a service is a product.
Having had a good ten years to mull over this, another good way to discern the attitudinal differences between a product and customer centric organisation is to look at their sales mentality. Why? Because a product sales process ends when the product is purchased while a service sales process only begins when the product is purchased.
A good example to help illustrate the 'product centric' mindset that still plagues many organisations comes from my experience working on a large online banking project a few years ago - we'll call it MegaBank Online.
Like most banking organisations MegaBank had a number of independent business units [the 'products'] (checking accounts, credit cards, mortgages, personal banking, loans, etc.) all operating under one common branded umbrella. As the project got underway each unit began to convey its view of what its own independent online offering should look like. Each business unit was thinking about its own unique needs without much consideration for the other units and communication and coordination among these was minimal. The net effect of these early discussions was that we were asked to develop one credit card website, one mortgage website, one loans website and so on.
One of the issues that surfaced early was that nobody had taken the trouble to ask MegaBank's clients what they might be looking for in an online offering from their bank. As it turned out, our early client research quickly revealed that clients who had a number of MegaBank's 'products' did not particularly warm to the idea (an understatement) of having to, for example, repeatedly login online across the many proposed websites that they would have to use for each of the products that they 'owned'.
Quite rightly, the customer perspective was that they had 'one' relationship with 'one' bank and not multiple ones with a credit card provider, mortgage provider, etc. The customer essentially could not have cared less that what he/she perceived as one business entity - MegaBank - was in fact a multitude of independent business units. Clients demanded a seamless solution from MegaBank - one that would take a holistic view of their relationship with all the products that the bank offered.
With this customer feedback, MegaBank Online was eventually developed as a 'portal' of sorts (the umbrella) for all its banking offerings and it proved to be extremely successful.
So what, if anything, does this MegaBank example have to do with digital convergence? It has everything to do with digital convergence.
I don't want to waste time defining what digital convergence is or is not but in the most simple terms it could be stated that:
Digital Entertainment Convergence is the result of an integrated provision of hardware, software, content, services and connectivity that facilitates consumers' enjoyment of digital media.
As I stress above, the key issues are 'integration' without which digital entertainment convergence simply has no place to 'converge' on and 'facilitation' without which the entire convergence experience will remain too complex to appeal to a mass audience.
In this respect, the MegaBank Online example serves us well because of how it managed to bring together 'divergent' business units. By using a 'virtual integration' model where only the backend systems were brought together MegaBank was able to leave the independent business units to operate as they had previously. In the end, this delivered a win-win proposition for MegaBank and its clients.
Within the context of digital entertainment convergence however, we could at present not be further away from achieving a win-win proposition. In fact, many of the players in the industry are currently engaged in an all-out internal war, a war among themselves (Apple & RealNetworks but the latest salvo) or worse against their customers (RIAA rings a bell...). With the notion of integration, harmonisation and standards so anathema to the actual debate - a few but not very serious exceptions notwithstanding - one is left to wonder yet again if the entire discussion of digital convergence is nothing more than the flavour of the moment and if it will really ever come to see the light of day.
Furthermore, many people have confused the debate by promoting the notion that 'convergence devices' - devices that can play or manage multiple forms of digital content - is equivalent to digital convergence. It is not and should not be labeled as such. For example, the personal computer has been a convergence device for decades but it is clear that it has not delivered digital convergence as per our definition.
Until many of the players can work together to deliver an end-to-end customer solution there's little more than zero chance that digital entertainment convergence will ever take off. To deliver the required integration, I predict that we'll either see an absolutely massive amount of consolidation across industry players or a real entente developing to promote a faster customer adoption. Hang on tight to your seats, this one promises to be a wild ride...
Please contact me if you would like to learn more about our Digital Foresight™ program and how we can adapt its learnings to your organisation's particular requirements.
As we suggested in our previous post 'Treo 600 Music Quest' consumers should be able (and want to be able) to repurpose their digital media content on any platform so the recent announcement by RealNetworks of the introduction of its 'Harmony Technology' came as a welcome surprise.
As I discussed two weeks ago:
"While we're on the subject of music, I really thought that I should bring up an idea that I have been thinking about for some time and which Photo Matt recently wrote about that I think is a superb (if perhaps somewhat impractical) idea. Essentially the suggestion is that if you buy an album on iTunes or another digital music store that you also get a hard copy of the CD shipped to you (or vice-versa, buy it at Tower Records and get the MP3 download version as a bonus for free!).
Take this one step further and you wonder why this is not being used to promote the faster adoption of eBooks (which as I've stated before I'm beginning to find addictive) by allowing you to purchase a digital copy of a book like 'The American Prophecies' for $1.00 if you purchase the hard-copy for example.
You must consider that the implications of this go well beyond just music and could impact the entire transition from physical to digital entertainment products. Why for example could we not buy a DVD of say the Star Wars Trilogy and then for a small additional fee (or subscription) get a Palm version to watch on our Treo 600 or a Portable Media Player.
Projecting into the future where we can watch movies on our television, mobile phone, laptop, desktop, portable media player, portable games device and probably countless others that don't yet exist, will we really buy a movie that can only be played on one device? Of course not, once it's digital we should be able to easily choose which device we want to play any digital media on without tedious restrictions of file compatibility or other. This is the same reason that people are unlikely to buy two copies of the same movie but one on DVD and the other on VHS - now really what would be the point of that?! If consumer and computer electronics companies want to increase the sale of their devices they need to sort out the digital content equation first (and fast).
Yes, I agree with you, what a wondrous mess this whole digital convergence is likely to be... but eventually smart entrepreneurs will come and provide us all with a great solution and we'll be able to finally enjoy our music, movies, games, etc. anytime, anywhere and on any device we want."
However, at present this idea of 'repurposing' content is exactly what content owners absolutely, positively, 100% do not want us to do. Why? Because someone somewhere dreamed a beautiful business plan (but deeply flawed in the practical aspects of business) where we would be buying a DVD for our DVD player, a digital copy for our PC, yet another for our Treo 600, and on and on ringing a cash register at every step... As I've stated before, can anybody genuinely tell me how many people will go for this nonsense? I guess that common sense is not something currently being imparted in business schools!
One of the most intelligent commentary that I have read on the topic came as Richard Wolpert the Chief Strategy Officer of RealNetworks recently higlighted at the Jupiter Plug.IN conference: "Incompatible media players are becoming a drag on adoption rates and growth curves. The music industry still has to focus on making sharing music among a variety of devices as easy on the consumer as possible. No more if you buy this, you can only play it with this device -- that's confusing for people and a concern of music labels. Current device/store incompatibility will slow adoption." Thank God, at least someone is thinking straight...
Strauss Zelnick, the CEO of media company ZelnickMedia, also had some extremely insightful comments when he stated that: "the four main trends that are driving true media convergence have begun to accelerate along with the economic recovery: digitization of media, globalization of that media, consolidation of media ownership, and conversely, fragmentation of audiences with the proliferation of new media channels." He goes on to say: "[Digital Convergence] will link billions of people, not just with words, but with music, video and other media. This will usher in possibly the most creative and disruptive time in the last 50 years of the media business."
Judging by all the dis-harmony that Real's 'Harmony' is generating it is obvious that companies are still not focusing on the key stakeholder: the customer. All the battles to create technology 'lock-in' diminish the focus on delivering superior value propositions and customer experiences by other means - everyone wants to take the easy route...
BW Online | June 21, 2004 | Big Bang!
By Stephen Baker and Heather Green
With Bruce Einhorn in Hong Kong, Moon Ihlwan in Seoul, Andy Reinhardt in Paris, Jay Greene in Seattle, and Cliff Edwards in San Mateo, Calif.
For nearly two decades, industry sages have heralded the coming age of converging digital technology. But it remained an empty slogan. Now, thanks to faster chips, broader bandwidth, and a common Internet standard, technologies are quickly merging. The market for personal digital assistants, so hot in the late '90s, is vanishing as customers get the same functions in a cell phone -- often with a camera to boot. The latest televisions from Royal Philips Electronics and Sony Corp. have enough computing firepower to grab streaming video off the Net. "Convergence is finally really happening," says Gottfried Dutiné, an executive vice-president at Philips. "Digitalization is creating products that can't be categorized as tech or consumer electronics. The walls are coming down."
One of the strongest cases to date by the elite business press trumpeting the advent of digital convergence. Business Week states that it is "likely to produce the biggest explosion of innovation since the dawn of the Internet". Considering how big a bang the Internet was, we'd all either brace for cover or start calling our broker to place our bets. Better yet you could become a convergence entrepreneur and really go for it!