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January 19, 1998. Total Convergence

Author: Dr. Augustine Fou, Marketing Science, Inc.

The Internet not only enables but also necessitates the convergence of media types, revenue models, and technologies. In the not-too-distant future, individuals around the world will be able to get information, products, and services from anywhere, at anytime, and in any way.

We begin with the hypothesis that the lines will blur between media types (television, print, radio), revenue models (advertising, subscription, transaction), and technologies (telephone, television, computer) and that the Internet is responsible for initiating, enabling, and necessitating these changes. We will look at examples of how the Internet is impacting traditional media and try to understand the cause of this convergence, cross-pollination, or reciprocation. Essentially, the way individuals get information, products, and services will converge to a point where they can get these things from anywhere, at anytime, an in any way. By understanding the factors that drive this convergence in media type, revenue models, and technologies we will ultimately arrive at a perspective about how companies should act or react.

Converging Media - new value is created

The concept of media convergence is not new. For years we have seen what we collectively call "traditional media" (television, print, radio) converge, overlap, or reciprocate, e.g. books being made into movies, big screen characters launch television series, radio shows brought to life on cable, etc. However, with the advent of the new medium called the Internet, we see the rate of convergence increase dramatically, especially with respect to the convergence of traditional media with new media. This is fundamentally enabled by the true multimedia capabilities of the Internet: text, data, graphics, audio, video, and voice. The medium is itself a convergence of media types.

There are many examples of how the Internet and traditional media are converging. In many cases companies extend their brands into the new medium by essentially doing "something similar." Newspapers around the world are up-selling classified ads and personals on their websites. For a few extra dollars, the person who placed the ad will be able to reach many more people through the newspaper's website. AudioNet, a large website, broadcasts traditional radio content from a large collection of sources to a global audience using Internet-based streaming audio technologies. National Public Radio is using their website as an extremely effective and low-cost way of reaching a global audience with their existing programming, which was once geographically limited by broadcast range.

Other examples of traditional media players embracing new media and doing "something more" with it include Hearst Publishing's HomeArts website. Instead of developing individual websites for each of their vertical magazine titles, they created a new online brand called HomeArts. On this website, they draw content from their collective family of magazines and deliver it in relevant and useful ways to an online audience with demographics of its own. Also, the CNN Interactive website was launched to provide more in-depth information about the stories, individuals, and topics reported on during the regular cable news segments. In highly complementary fashion the cable station constantly reminds viewers that they can get more in-depth information from the website; and the website drives viewers to the cable news shows. Audience members can now satisfy all levels of their information needs. We also see brands that were born online extend their brand into traditional media, e.g. Yahoo! created a paper magazine called Yahoo! Internet Life.

In addition to just doing "something similar" or "something more" in new media, traditional media companies are finding that the characteristics of the Internet such as interactivity, open standards, and global reach make it uniquely powerful in enabling them to do things that simply were not possible before, doing "something new." For example, NBC uses the Internet to deliver "Homicide: The Second Shift" which is an online series that parallels the popular television series Homicide. The online version is not a rehash or promotion of the television show; rather it is based on the lives of the individuals in the "other" twelve-hour shift of Homicide. Audience interaction and contributions make this online series significantly different yet complementary to the television series. Another good example comes from Discovery Channel Online. Their innovative use of the Internet is dramatically showcased in an interactive expedition across the Sahara. The Discovery Channel commissioned a scientist to trek across the Sahara with a laptop computer, digital camera, and satellite uplink for Internet access. Students from around the world logged onto the website to see daily journal reports and pictures from the day's expedition. They could communicate with the scientist, even giving him suggestions for what to do the next day. Never before and in no other medium could the students participate first-hand in such a learning experience.

  • "something similar": newspapers' classifieds; National Public Radio
  • "something more": Hearst Publishing's HomeArts; CNN Interactive
  • "something new": NBC's Homicide, the Second Shift; Discovery Channel Online

Just the few examples above show that the Internet medium has enabled companies to extend their brand and use media in complementary fashion. More importantly it enables companies to do new things not possible with traditional media which are inherently one-way and broadcast in nature. In the convergence of media, new value is created. Companies will capture part of this value by employing various revenue models. And end-users, the consumers of this new value, will also benefit.

Converging Revenue Models - companies capture value

Because of the convergence of media types, companies must also consider the convergence of revenue models to capture part of the new value. No longer will one revenue model, which was well defined for one industry, suffice. By using a combination of revenue models that is suited to the new exchanges of value, companies stand to benefit from the convergence of media types.

The Internet takes on characteristics of other media, so it is understandable that revenue models are also based on existing revenue models. For example, the Internet grew up initially being modeled after magazines or broadcast television. Hence the advertising/ sponsorship revenue model was the dominant way of generating revenue. All of the major search engines and all other large websites sold "eyeballs," "impressions," or "pageviews." And their sole focus was to drive more traffic to the websites with any means possible, even spending exorbitant amounts of money in traditional 15-second television ads or full-page magazine ads.

However, companies soon realized that there were other revenue opportunities and that to depend solely on advertising revenue was incredibly dangerous, especially when switching costs for advertisers were near zero. So just as the cable industry evolved, the Internet took on subscription and pay-per-view revenue models. But it had significantly more growing pains than the cable industry because its global reach, untamed nature, and sheer youth meant that users who were accustomed to everything being "free" would never want to pay for content they could find elsewhere for free. After much trial and error, companies then discovered that subscriptions and pay-per-view models only worked if they could deliver something new and unique to customers, which they could not find anywhere else in any other medium.

By doing something new and unique online, companies started to aggregate targeted audience members who came back to the site for things they could not get elsewhere, content and community. They could receive or contribute content and communicate and interact with others who shared similar interests, whenever and wherever they happened to be. With such a targeted audience, companies could even further exploit the unique characteristics of the Internet medium, such as better information about the customers' geographic, demographic, and psychographic profiles. They could use this information to deliver relevant products and services and even execute the transaction online as well. This gave rise to the many flavors of the transaction revenue model.

On a higher level, the evolution and convergence of revenue models paralleled the evolution of consumer needs, expressed in their usage patterns of the new medium. Furthermore, revenue models converge, blurring the lines of distinction between advertising and editorial or between entertainment and merchandising; this in turn cause more blending of the revenue models. For example, 1) using free content that was available exclusively online, Disney Online attracts a target audience whose demographic was appealing to advertisers. While the "captive" audience members are at the website, Disney offers related merchandise for purchase. Advertising and transaction revenue models thus converge to capture value for Disney. 2) Newspaper websites offer low-priced subscriptions for the online edition because advertising revenues supplement the income. 3) On a website where visitors can read product reviews and testimonials (advertorials), an online store that contained those very products would reap the benefits of high-probability transactions. 4) In the very near future, consumers can listen to free music clips or view free movie clips, sponsored by the movie production companies, and then purchase the whole CD or movie online at the touch of a button, bringing in transaction revenues.

As is evident, the unique characteristics of the Internet medium like one-to-one interactivity and transactional capabilities create new value for the consumers of information and services. By using the Internet medium, companies take advantage of the following unique benefits: 1) superior customer aggregation - customers self-select into communities of common interest; 2) simpler and less costly distribution - electronic dissemination of information and communications is less expensive than some traditional media such as print or television; 3) better customer information - the interactive, two-way nature of the Internet gives companies unprecedented information about customers, down to the individual level; and 4) fewer timing difficulties - the on-demand nature of the Internet better serves customers' need to get information at their convenience, not just when it is broadcast. Thus, in order to capture some of these benefits, companies have started using hybrid revenue models in the Internet medium to satisfy the different and evolving habits of online users.

Converging Technologies - consumers capture value

As new value was introduced to end-users, the level of their sophistication as consumers of information and services rose and their needs evolved. For example, 1) if a consumer of sports information got live scores and more in-depth information about a favorite athlete from a website, his consuming habits evolve to demand this information when he is on the road. 2) If a busy executive depended on email as vital business communications, his needs evolve to demand access to it when he is away from his desktop computer. 3) If a customer benefited from the convenience of online comparison shopping, his needs evolve to demand similar comparison shopping capabilities while in a brick-and-mortar store. Each of these examples show that the Internet initiated new consuming habits and more sophisticated demands for information and services. These rapidly evolving needs and the omnipresent need for simplicity and access to information and communications drive the convergence of technologies.

The trend towards technology convergence is already occurring. For example, consumers can now access the Internet through their television sets with an inexpensive device called the WebTV. People can also send and retrieve email through their alphanumeric pagers or cellular phones. Consumers can watch television or listen to the radio through the computer. People can send and receive phone calls and faxes through their computer. All of these trends point towards a future information appliance, which will be a central information and communications hub for each household or individual. They can get television, radio, Internet access, home banking, phone, email, video conferencing, etc. all through one central "box." And there would only need to be one ultra-highspeed pipeline into such a device for carrying all the different forms of information. Fundamentally, communications and the exchange of information so similar that the various technologies that consumers currently use (television, radio, phone, computer, etc) will converge. This convergence of technologies brings numerous benefits to consumers: 1) convenience - they can have the information they want at their fingertips at any time; 2) random access - they can access the information from anywhere, such as public library, cybercafe, or on an airplane; 3) on-demand - they can get it when they want it and in the form they need it.

The Internet thus initiated the trend towards the convergence of technologies by accelerating the evolution of consumers' needs. Then it enabled such a convergence because open standards allow different information to be transmitted using standard formats and different devices to communicate by standard protocols. For example, a person can get now text, voice, and graphics through a computer, cell phone, or personal digital assistant, etc. because of open standards. Finally, the Internet necessitates this convergence of technologies, driven by greater standardization, which in turn leads to more rapid convergence.


Using the examples in this short article, we have seen that the similarities of the Internet medium with traditional media precipitated a more rapid convergence of media types because new value could be created. It is also clear that the various media types are complementary in nature and should be used in that way, not just to do "something similar." If companies embrace the concept of media convergence and resourcefully use different media for the unique characteristics of each, they will be better able to serve the evolving preferences of consumers. Companies will also have to adopt hybrid revenue models to capture some of the new value that is created. As consumers of information and services evolve in their needs and sophistication, revenue models must fit the new exchanges of value. Finally, even a convergence of technologies is driven by the evolving needs and demands of these consumers. Consumers demand to get information and services from anywhere, at anytime, and in any way. It is thus that the Internet medium has initiated, enabled, and necessitated the total convergence of media types, revenue models, and technologies. Companies should then embrace these changes and take advantage of them. The rate of change in the business environment as we know it necessitate an aggressive and committed approach to using this medium. ___________________________________________________________________ 1998, Dr. Augustine Fou

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