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Al Berrios
Contributing Editor
Management Strategies
Al Berrios is Managing Director of al berrios & company inc., a hybrid management consulting firm he launched in 2000 to advise leaders on the impact of human behavior on their strategies and on how to change their organizations to address the behavior. Mr. Berrios also serves as the inexhaustible Editor of the Consumer Strategies Report, the highly-acclaimed al berrios & co. management publication. Contact Al at al@alberrios.com.

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The Convergence Conflict: Exploring Why Businesses Fail and What it Takes to Succeed

Written on
Dec 20, 2006 
Author
Al Berrios  |
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The Convergence Conflict: Exploring Why Businesses Fail and What it Takes to Succeed

For a $2500 admission fee, you’d think that attendees at the recent Economist Media Convergence Conference would arrive prepared with something more innovative than ogling Google, fondling MySpace, and bragging about how much they’re spending online and how. It should come as no surprise to anyone familiar with the media industries that this is the extent of their preparedness to the utter change to their business and revenue models from this convergence thing.

Convergence started really when content was renamed “data” and digitized. By this point, books, music, software, and even video were all being swapped digitally on the internet. Now, voice is also digital data and calls can be placed with your cable company, through internet companies, and of course, your local carrier (remind me again what they carry?)

At a broader level, this means that the same “pipe” can carry content originally intended for any output (this is the convergence part, in case you missed it). But put convergence under a microscope, and you can see that it gives consumers the ability to control how they want that output to look like, whether it’s via a big screen or a little one, a printout of a book or a podcast, and just like space isn’t an issue, neither is time, as the convergence force also conspires against content controllers to empower consumers to enjoy their content willy-nilly on their own schedules. (The scoundrels!)

But convergence doesn’t really end where media like broadcast and print converge; it implies the simultaneous divergence to any channel of content originally intended for specific channels. And when the channel no longer matters, media becomes a business of brand, not distribution; (and distribution a business of commodities (1)).

And this is the key to succeeding in a converged media universe. Sure, getting access to television, radio, internet, and phone data from a single provider who can bundle everything into a nice, neat discounted package makes economic sense, but remember that consumers are irrational and in no industry have they permitted themselves to be willingly tied to and directed by a single provider. So, before we discuss how branding will save your (content) business, let’s discuss how convergence killed it.

(The only answer for distributors of content is to keep doing what you’re already doing and offer everything to everyone; it costs you almost nothing additional — except a little marketing — and it’s already well-proven to work in growing your profit per subscriber after decades of stagnation.

In a few more years, the geographical distances between competitors that once preserved your virtual monopolies will also cease to be an obstacle to convergence, propelling your business models once again to commodity status, where service is the primary differentiator, and pricing the second.)

Why Convergence Killed Your Business

Based on an al berrios & co. analysis of industries, there are certain conditions that need to exist in order for multi-product, single-source business models to fail. One of these conditions is that the products they’re offering, which were previously unrelated, somehow standardize. The other condition is that once standardized, end users have to be able to enjoy them at near-zero or zero-cost (including switching costs) and without loss of (intrinsic) value. And once these conditions are met, they are irreversible.

(Despite media executives’ beliefs, anonymity during consumption isn’t necessarily a condition in order for someone to exploit your product offerings.)

In the travel and tourism industry, the more you fly, lodge, or even spend on credit, the more miles you rack up until you get upgrades and all sorts of free goodies. Because your “spending points” are convertible to miles, then actual, tangible services, travel services no longer possess the same value they used to when they were purchasable exclusively with cash.

Consequently, the travel industry has unintentionally standardized their services by allowing consumers to pay for them with miles, while simultaneously, they’ve let consumers enjoy them at near-zero or zero cost. (Due to the personal “asset-like” nature of miles and points, I can now buy tens of thousands of airline miles at auction sites from others travelers for a couple of hundred bucks, never having actually earned them to use them.)

When banks, stock brokerages, and insurance companies converged in the late 90s, it was hailed as the birth of the financial supermarket, where every conceivable financial product could easily be peddled from a teller’s window. What? Financial groceries? Yea right!





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