Page 1 of 1 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.
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.
Conclusion
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.
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