Boiling Point:

Convergence finally heats up

A primer on convergence
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Future
shockwaves
It was the seminal 1930s cartoon
detective, Dick Tracy, who first pio-
neered the concept of the two-way
TV wristwatch. Although mechanical
television had only been demonstrated
in 1926, the human imagination had
already extrapolated new and exciting
usages for the invention.
It was another 60 years before Dick
Tracy, the movie, unspooled in theaters
around the world, with Warren Beatty
talking earnestly into his wrist com-
municator. However, even in 1990, the
concept of mobile TV—let alone one that
would allow video communication—was
still science fiction for most people.
But the 1990s were a decade in which
cell phones evolved from clunky bricks to
slim fashion statements, and computers
moved off the desktop and into laptop
totes. As the decade unfolded, the prom-
ise of converged devices and services
began to come true for consumers and
business people around the world.
Why are people talking about conver-
gence today when it has been con-
ceived of for nearly a century? The chief
reason is the complexity of what is
required to bring convergence offerings
to the mass market. The sheer number
of industries involved—technology, tele-
communications and media—as well as
the integration of all the moving parts—
network, devices, content and services—
have meant that an enormous amount
of coordination has been necessary to
harness the potential of convergence.
Lest we forget, it took nearly 30 years
for a device as simple as the radio to
achieve widespread market penetration;
similarly, TV and VHS both took nearly
20 years to reach critical mass.
But today—for the first time in history—
we see all the components in place
for the delivery of convergence. While
there are still challenges ahead, the
blueprint of convergence architects
is finally being realized in a practical
and scalable fashion, which promises
a dazzling vision of mobile TV, wire-
less music access, on-demand movies
on any device, free and portable global
communication, networked videogame
communities and much, much more.
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The future has arrived
In this point of view, Accenture will
demonstrate why convergence is a real-
ity today, what we see as the challenges
to operating a convergence business,
and most importantly, what we believe
it takes to reach high performance.
Surfing the crest
While the dictionary defines conver-
gence as “the occurrence of two or
more things coming together,” market
definitions of convergence vary widely.
For example, manufacturers of consumer
electronics emphasize the coupling of
technologies, such as a combined cell
phone with personal digital assistant
(PDA) functionality. Similarly, videogame
consoles now boast both computing
and communication capability. On the
other hand, content and service provid-
ers focus on the ability to consume their
assets across multiple devices, while
communications companies accentu-
ate the ability to seamlessly move from
fixed to wireless conversation.
At Accenture’s Convergence group, we
favor a simpler conceptualization that—
in the spirit of Occam’s Razor—cuts to
the fundamental principle of conver-
gence: the ability for end users to expe-
rience their digital content and services
any time, any place and any how. This
experience should remove limitations on
the consumption of users’ communica-
tions, information and entertainment
needs. We see this come to life in a
number of ways:
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What do people want?
They want content they enjoy and
that is relevant, including video, music
and gaming. They want solutions that
increase productivity and efficiency,
such as location-based services, unified
messaging and communication.
When do they want it?
Users want content on their own
schedule, and not when broadcast-
ers or advertisers want them to watch
it. Business people want services in
real-time, on-demand and in a reliable,
secure fashion.
Where do they want it?
Convergence consumers want their con-
tent and solutions everywhere that they
are. This means wireless and portable,
both in the home and on the road.
The user, empowered by technology,
is more in command than ever—creat-
ing, editing, viewing and interacting
with content and services. In particular,
consumers’ desires for community, self-
expression, personalization and simplic-
ity in services and products are becom-
ing drivers for changing usage patterns,
distribution models, business models and
blurring market boundaries.
In this sense, we see that convergence
is reality today. But it is by no means
flawless; Accenture research on the
digital home identified that two of the
most important consumer concerns were
around complexity and expense. Many
convergent offerings available today
require technical knowledge that is
beyond the grasp of most mass market
users. We shall address these challenges
and many others in the coming section.
However, most importantly, we know it
is possible to deliver convergent solu-
tions today because of the confluence of
a large number of technical and market
factors. (See “Convergence is happening
now,” to the right, for overview.)
Enablers of convergence
Firstly, the marketplace is finally coor-
dinated, with a critical mass of enabled
devices and broadband networks on
which to distribute content and services.
Most critically, intellectual property
owners are now embracing mobile and
online distribution as a feasible and
lucrative channel.
Secondly, technological trends are driv-
ing convergence, including digitization,
shifts towards Internet protocol (IP),
common standards and interoperability,
flexible architectures, improvements in
security, compression, rights manage-
ment and micro-payments.
Finally, all this has resulted in increased
activity along the convergence value
chain, creating fundamental shifts in the
corporate landscape between the com-
munications, high technology and media
industries. The boundaries between
markets involved in convergence are
becoming increasingly blurred, as tele-
communications operators move into
offering content, device manufacturers
launch IP-based delivery channels and
content companies move into voice over
Internet protocol (VoIP) offerings. These
shifts are manifesting themselves in new
offerings for both consumer and enter-
prise users.
What is At Accenture, we view convergence
as the ability for end users to experi-
on the Internet—the future offers
a plethora of services that, although

convergence? ence their digital content and services

any time, any place and any how. This
conceptualized today, will take time
to reach the mass market. Therefore,
experience should remove limitations convergence is best viewed as a journey
of users’ communications, information that is just starting down the road
and entertainment needs. of possibility.
Although much of what convergence
has to offer is already available—
whether listening to music on a cell
phone, time-shifting programs on a
television or making free phone calls

Convergence is Accenture believes the arrival of

convergence has been precipitated by
• Online advertising-supported business
models allow companies to deploy

happening now certain major developments:

• Content is now predominantly digital,
including not only proprietary con-
tent, such as movies and music,
but also personal content, such as
digital photos.
• Most end users in developed nations
can enjoy persistent connectivity to
the Internet through a broadband
connection at home or work, or via
a wireless device while on the move.
• Consumer electronics devices finally
provide the requisite performance,
including processing, storage, power,
screen size and form factor.
highly-valued Web services to end
users, on any platform, free of charge.
• Where an industry may endeavor
to prevent consumers from achieving
the benefits they desire, the nature
of information technology allows
an individual to create a disruptive
application that meets the need of
all consumers, and then to rapidly
disseminate the application for adop-
tion in the mass market.

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Convergence offerings

Devices
During the 2005 holiday season, we saw the launch of
Microsoft’s next-generation gaming console, the XBOX 360.
This device is a quintessential convergence play. Under its
hood Microsoft combined videogaming with computing
and communication functionality.

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Microsoft XBOX 360
For example, while playing the best-
selling game, Halo 2, a user can talk
with other players, using the XBOX Live
service. When gamers have finished
saving the world from virtual alien
combatants, they can use the integrated
capabilities to view photos, videos and
music wirelessly from their home PC,
and display them on a plasma screen
television. The same device can play
audio CDs, video DVDs, as well as digi-
tally record television programming as
a personal video recorder (PVR).
The XBOX 360 has been described
as a Trojan horse in the living room,
creating a hub through which Microsoft
can control the digital home. Although
Microsoft is well on its way to fulfilling
its "computer in every home" mission,
the company recognizes that a more
user-friendly, consumer electronics-
centric strategy will help convince users
to trust a software company with their
entertainment, communication and
information needs.
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Sony Playstation 3
Simultaneously, Microsoft’s convergence
strategy demonstrates the importance
of occupying multiple control points
along the value chain—from content
and service ownership (XBOX develop-
ment studios), through delivery (MSN)
and platform (XBOX 360). This is a
strategy that has cost Microsoft billions
of dollars, by its own admission, but it
speaks to the importance of creating
an integrated, end-to-end environment
for consumers—one that allows them to
easily consume their digital assets when
they please.
Sony—traditionally seen as an electron-
ics manufacturer—has been pursuing
a similar convergence strategy, with
the combination of its Vaio computers,
Wega TVs, PlayStation gaming consoles
(portable and home versions), all being
fed Sony-owned content (music, video-
games, movies and TV) through
its stores (Sony Style) and online
distribution channel (Sony Connect).
Apple iPod Nano Motorola Rokr
Apple is seen as a market-leader in
convergence offerings, with its inte-
grated iPod device and iTunes service,
which enable users to purchase music
online and easily port songs over to a
digital music player. The iPod has been
an enormous success, with an estimated
45 million units sold to date and iTunes
being the sole source of 80 percent
of the world’s legal music downloads.
There has been much speculation about
a converged phone from Apple; the
Rokr has been the first iteration of such
a device, allowing users to download
music from the iTunes service. The
market did not embrace this offering,
due to issues with functionality and
design. Together, this demonstrates the
potential pitfalls of merely combining
different technologies into a single unit
and hoping it will stick with consumers.
Palm Treo
A more successful example of a con-
verged portable device has been Palm’s
Treo series, which combines a cell phone
and PDA with e-mail and Internet func-
tions. Depending on the wireless car-
rier—for example, Sprint in the United
States or 3 in the United Kingdom—the
subscriber is able to watch live TV on
their Treo, using MobiTV’s mobile video
service. MobiTV has signed nearly one
million wireless subscribers to its service
in the US alone. This device has been a
great hit with both consumer and enter-
prise users for its seamless integration
with personal and corporate e-mail and
data networks, Microsoft Outlook cal-
endar and contacts, as well as enabling
Bluetooth dial-up for laptops.
Bluetooth wireless technology
In regards to Bluetooth, this technology
enables not only connectivity between
devices, but empowers a functional-
ity that is proving to be a boon for
communications; presence and unified
messaging. With a laptop and phone
‘paired’, in Bluetooth parlance, the PC
detects when your cellphone is close at
hand. As most users carry their handset
everywhere, it begins to act as a virtual
‘homing beacon’. Therefore, as the user
moves from office to office, or from
home to on the road, the Bluetooth
function will interact with the user’s
various devices, and enable others to
track the user’s movement.
Bluetooth could also facilitate the
interaction of non-communication
devices, such as lighting, security and
other automation functions. In short,
Bluetooth and similar connectivity
technologies are making devices—
especially cell phones—a hub for one’s
mobile life and proxy for one’s presence.
Additionally, the impact of these trends
is making the boundaries between voice,
video, and IM more nebulous.
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Convergence offerings

Communications
In the convergence landscape, offerings are not always
launched merely to capitalize on new opportunities, but
also to defend existing products and services that are
being eroded by competitors.

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Microsoft Live Communications Server
Take the example of telecommunications
companies that have recently seen core
voice and data products being taken
by cable companies offering triple—
and now quadruple—plays, with fixed,
wireless, cable and broadband bundles.
Telecommunications companies have
seen subscribers churn to cable, as cable
companies can undercut voice and data
products in order to capture margin on
television content.
This has led telecommunications com-
panies to move aggressively into offer-
ing converged solutions of their own
through deals, such as that announced
by Sprint Nextel with Comcast, Cox and
Time Warner. The $200 million pact
creates an integrated cable-cell-digital
video recorder (DVR) ecosystem, as well
as an entente-cordiale between part-
ners to avoid cannibalization of each
others’ markets.
Indeed, Sprint’s convergence play,
particularly in wireless content, is indic-
ative of a broader trend of operators to
branch into mobile rich media. Wireless
companies consider television via mobile
phone one of the most promising third-
generation (3G) applications, with
western operators looking to data usage
in Japan, where non-voice, non-text
message revenues account for around
20 percent of average revenue per user
(ARPU). For the typical European
customer, such services account for less
than 5 percent of ARPU.
Users are becoming used to receiving
video content via what is being dubbed
the third screen, extending beyond the
TV and PC and onto the mobile phone—
and operators are hoping that this habit
translates into cashflow. The value at
stake is considerable. The content busi-
ness in the US is estimated to be around
$250 billion annually so it is little won-
der that wireless carriers are focusing
on the rich possibilities.
Carriers are finding themselves in a
market where subscriber penetration is
saturated, and they have to justify their
investments in next-generation, high-
bandwidth networks, such as evolution
data only (EVDO). Coupled with a need
to increase ARPU, as well as reduce
churn, the wireless operators are push-
ing content as a key platform to drive
uptake of data services.
To this end, Orange France launched
its television offering in November 2004.
By mid-2005, approximately half of
its 3G users subscribed to the service.
Orange UK launched a similar service
in May 2005. It is charging subscribers
£10 per month to access one gigabyte
worth of television, equivalent to around
20 hours of viewing time. Its content
includes news, entertainment and chan-
nels devoted to reality television shows.

Users are becoming used to receiving video content via what is being
dubbed the third screen—the mobile phone.
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Additionally, Scandinavian operator
TeliaSonera began offering broadcast TV
on its network in 2005, while Vodafone
and Hutchison’s 3 are expected to
follow soon with broadcast TV trials
of their own.
Even more aggressive, from a telecom-
munications perspective, has been
Verizon’s strategy, which has seen the
company launch a broad fiber upgrade
to provide FiOS TV. Trialed in Texas in
early 2005, the service provides custom-
ers 180 channels (including content
from Fox, NBS, NFL and MTV) for less
than $45 per month, with the aim
to roll-out to three million of its 30
million subscribers by the start of 2006,
with a 12 million target by 2008. The
investment is estimated at $1 billion in
the first phase and up to $25 billion to
reach all its customers.
Verizon’s FiOS play is part of a broader
convergence strategy, which includes
Verizon Wireless’ heavily marketed
VCast service, which offers mobile video,
music and gaming. The ultimate goal is
to integrate its cross-platform offerings
and then extend through search, person-
alization and commerce, and converge
through content portability and remote
access. The strategy includes enterprise
plays, such as field force management.
While aggressive, this strategy is a direct
reaction to the increased competition
that convergence brings to bear on the
participants. For example, investment
bank UBS predicted that without an
effective video strategy, the Bells likely
will lose 30 percent of their telephone
market to cable companies in the next
10 years (limited to 15 percent if tele- user-presence to their contacts, enabling
communications companies can provide colleagues, friends and families to track
video bundles). Given the size of the the availability of mobile workers.
markets, these numbers are significant This functionality—presence—is a key
and call for bold plays. theme on the mind of convergence
Indeed, Verizon is not alone in its companies today. And as fixed/mobile
content-related strategy. Thirty five integration becomes more widespread
of the top 40 global communications and ‘free’ VoIP calls over mobile
companies are investing in Internet networks increase—as trialed by 3 in
protocol television (IPTV). Already, many the UK—the seamless convergence of
companies have started to scale opera- communications will become a reality
tions, from PCCW in Hong Kong and for both business and consumers.
Shanghai Media Group in China to Fast
Web in Italy and Telefonica in Spain.
There are already more than two million
IPTV customers in the world today, with
analysts predicting a tenfold increase
by 2010. Global revenues are projected
to pass $7 billion by 2007, according to
Datamonitor. The appeal to consumers
is not only an alternative to cable and
satellite offerings, but also the promise
of video programming with Internet-
type interactivity, on-demand view-
ing and integration with VoIP, PC and
Internet services.
Another convergence technology that
focuses mostly on communication is
Microsoft’s Live Communications Server
(LCS), which launches VoIP with voice, Google Talk, VoIP and IM
video and instant messaging capabili-
ties. This will improve business efficien-
cies by enabling information workers to
find and communicate with people in
real time, through a security enhanced,
enterprise-grade environment that is
integrated with the Microsoft Office
System and Microsoft Windows Server
System. As mentioned in relation to
Bluetooth, this technology will signal
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Convergence offerings

Content
Simultaneously, every major media and entertainment
company is scrambling to make content available on these
new digital distribution channels, including online and
mobile video downloads.
Warner Brothers and AOL have per-week video soap opera for cell
announced the In2TV venture, while phone. This move comes on the back
aggregator Starz has gone live with of 2005’s mobisodes of Fox’s series
its Vongo service. Apple initially 24 and The Simple Life on VCast. As
launched video services within iTunes Viacom CEO Tom Freston told Reuters,
with Disney and NBC, extending it to “We want to have our content on as
include MTV, Nickelodeon and USA many platforms as possible, be it cable,
networks. And Google has recently video-on-demand, in videogames, or
inked a deal with CBS, producers of online over broadband and wireless.”
content such as CSI: Crime Scene In music, the Warner Music Group was
Investigation, to distribute their shows the first major label to announce a deal
on the portal at $1.99 per episode. for VoIP ringtones, with Skype, signaling
CBS is also in the process of filming a the first significant step to monetizing
mobisoap, which will be a five-times- this nascent space.

Mobile video
downloads
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Convergence offerings

Online
Just as telecommunications companies move to offer content
and content owners move to direct distribution, so another
convergence play emerges: Internet companies moving
into communication.
One recent market development has $2.6 billion. The strategic rationale for
been for portals and other online prop- the acquisition was to remove transac-
erties to offer cheap-to-free VoIP calls. tion friction, accelerate electronic com-
Initially a telecommunications company merce and monetize new marketplaces.
offering, VoIP has now become feasible As an acquisition, it was a pure con-
for other companies to offer, as broad- vergence play, fusing information and
band networking reaches mass market telecommunication assets. All this has
penetration. This has enabled companies been enabled by the fact that conver-
such as Google to launch their free gence opportunities are now there to
Google Talk application, while eBay be realized in the marketplace, having
purchased VoIP company, Skype, for moved beyond the conceptual phases.

Skype VoIP

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Deal making
Indeed, such large scale deal making is indicative of activity
in the space. This year, media content is central to telecom-
munications and technology companies’ growth strategies.

Mobile gaming

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In mobile content—video, gaming and
music—wireless operators are driving
some of the biggest corporate deals of
the day and this is changing the identity
of some convergence companies.
Mobile video
The Asia Pacific region, viewed as being
bleeding edge, has seen significant
activity, with Japan’s NTT DoCoMo
paying nearly $180 million for a three
percent stake in Fuji Television Network.
The two companies hope to bring digital
TV broadcasting to mobile phones in
spring 2007.
United Kingdom broadcaster ITV
and mobile operator 3 announced a
content partnership that gives 3 access
to ITV’s biggest properties, including
Wireless operators are driving some of the biggest corporate deals
of the day...changing the identity of some convergence companies.
I'm A Celebrity and Coronation Street.
The content will be designed specifically
for mobile, and will include highlights
and behind the scenes footage.
Mobile gaming
Mobile gaming saw the hookup, worth
some $680 million, of the world’s big-
gest videogames publisher Electronic
Arts (EA) and mobile gamer Jamdat.
The largest acquisition in EA’s history,
it is an aggressive move that signals
growing confidence in the mobile game
sector. Last year, Jamdat completed an
initial public offering on a rich valuation,
reflecting Wall Street sentiment. EA/
Jamdat plans to publish more than 50
games for mobile phones in the first year,
including popular titles like FIFA Soccer.
Mobile music
MTV announced an investment of
$50 million in a joint venture with
Amp’d Mobile to provide content from
Comedy Central, MTV, VH1 and Spike
TV. MTV was attracted to the wireless
music market in the United States, as
revenues are expected to skyrocket
from $19 million in 2005 to more than
$1.2 billion in 2009, according to IDC.
Other deals with music labels include
the launch of full-track music down-
loads to cell phone for both Sprint and
3. The latter service offers dual down-
load, which allows users to own the
track on their mobile as well as their
PC, for the same price.
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Corporate strategy
As these deals are struck, we are seeing a trend of telecom-
munications and technology companies—such as Yahoo!,
3 and Sprint—rebranding themselves as media companies.

iTunes video downloads

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Other than the glitter of such a label,
there is business sense; media indices
have outperformed the S&P 500, as well
as telecommunications and technology
composites, during the past 10 years.
Consumers in the United States spend
$250 billion annually on content alone.
However, data shows that media pure-
plays have performed better than
conglomerates. This is interesting,
as the notion of convergence draws
together diverse industries, which is
necessary as no single company has
all the capabilities to deliver complex
convergence offerings.
Companies will begin questioning
the building blocks of their corporate
strategy—namely scope, ownership and
organizational design. There is a danger
of replicating the sprawling conglomer-
ates of the 1970s and 1980s. However,
today’s market is seeing more emphasis
on related diversification. The focus is
on creating ancillary revenue streams
for core products—studios love mobile
entertainment, as box office receipts
“People don’t buy technology, they buy content…you have got to have
content that is married to (technology).”
slide and home video stagnates; wireless
operators are thrilled to increase ARPU
and reduce churn.
This is allowing convergence compa-
nies to reduce risk, realize economies
of scale and leverage assets. The trend
is toward a new corporate structure of
virtual conglomerates, which are more
flexible partnerships. These are encap-
sulated in broad-ranging deals, such as
that struck between Disney and Apple,
to provide Disney, ESPN and ABC video
content to iTunes; this in itself has been
part of large strategy, encompassing
Disney/Pixar.
As illustrated by the Disney/Apple pact,
there is often tension inherent in such
end-to-end arrangements. As Sony’s
CEO Howard Stringer points out, content
and technology are strange bedfellows,
but bedfellows by necessity. And as
such, DirecTV’s Chase Carey's observa-
tion is prescient, namely that “People
don’t buy technology, they buy content…
you have got to have content that is
married to (technology).”
Despite such concerns, convergence is
becoming a strong draw for investors,
who are exploiting lower capital costs
and higher valuations of convergence
companies. Wall Street is looking for
the next story and media valuations
have placed greater emphasis on growth
expectations, averaging 70 percent of
total value, versus telecommunications
stock valuations, which are averaging
50 percent on future earnings.
These growth predictions, coupled with
the size of the prize—Accenture believes
the convergence value chain in the
United States alone to be $500 billion—
are luring corporates, start-ups and
investors into a land of promise the likes
of which we have not seen for a decade.
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22
Convergence storm-front
As more and more companies explore
the convergence landscape, players
will find themselves up against inher-
ent challenges that must be overcome
before the opportunity can be realized.
Complexity
The first, and most daunting, hurdle is
the sheer complexity of the convergence
landscape. From different competing
industries and companies, to the lack
of coordination and interoperability
between technologies, convergence can
often seem like a Gordian knot that
cannot be untangled. To add insult to
injury, the message that companies
continually hear from end users is
“make it easy to use.”
And it is not just complexity of conver-
gence itself that is at play, but the host
of inherent challenges that a company
must face during any form of diversifi-
cation and new market entry. A case in
point is IPTV, which is being heralded by
telecommunications companies as the
next-generation of the TV-viewing expe-
rience. In order to move from concept
to delivery, each provider must over-
come significant hurdles. (See IPTV
challenges, page 25.)
The challenges of IPTV are replicated—
with some variation—across the spec-
trum of convergence offerings, from
mobile entertainment to the digital
home. Key themes emerging are the
importance of analyzing the current
market conditions, company assets Partnering
and partnerships, products and business Once a sober and pragmatic audit
models, brand and going-to-market of a company’s capabilities has been
strategy, drivers of adoption and usage, executed, and potential market entry
and the end-to-end user experience. scenarios identified, then areas where
No single company has all the capabili- partnering is necessary will become
ties to deliver the complex offerings more obvious. These areas will chiefly
that a convergence play requires; be where a convergence company
therefore, many are reaching out to currently has limited assets (such as
partners for joint ventures or building a telecommunications company in
expertise through acquisition. content), where scale or local knowl-
Defensible core edge is necessary (such as moving
into foreign markets) or where cost
Before partnerships are investigated,
is too high a barrier to entry (such
however, each convergence company
as the deployment of a new network
must first take an internal inventory of
for mobile virtual network operators
its competencies, assets and capabilities.
(MVNOs). Mergers, acquisitions and
This exercise is necessary to see whether
joint ventures all require a significant
a company can expand into new areas,
investment of time, resource and cash
but additionally to identify the defen-
to execute successfully, not least at
sible core of its business.
the moment of creation, but in post-
To help ensure a long-term foundation event integration.
for competing in industries impacted
by convergence, companies should first
evaluate their strengths along the entire
value chain, and then select those few
strategic points of control where they
will commit to win. The convergence
value chain stretches from content and
service creation, through to distribu-
tion channel and device/platform or
customer ownership. At each juncture,
market control and investment returns
vary significantly, as some areas fall
victim to commoditization, while others
approach natural monopolies through
network effects or entry costs.
23
Need for speed
Yet a further requirement in this pro-
cess is the implied need for speed that
companies are facing in the fast-moving
world of convergence. The consumer
is constantly looking for the new, new
thing, while the marketplace—driven
at the corporate level by the likes of
Wall Street—is looking for innovation
to spur growth. Google, Yahoo! and
Apple are at the forefront of shortening
product release cycles. This enables a
more responsive approach to changing
consumer demands, scaling services or
iterating product roadmaps to maximize
the market opportunities.
In the case of Apple, version 5 of iTunes
lasted only 30 days before version 6
was released. The second generation of
the iPod Mini lasted only seven months
before being replaced by the iPod Nano.
Similarly, Google and Yahoo adopt a
product development approach that
brings applications from concept to ini-
tial consumer beta in months. Consumer
feedback is built into beta development
and hot properties are scaled quickly.
It is these types of launches that are
setting the bar for speed in the conver-
gence marketplace, and it is incumbent
upon participants to keep up, or con-
sumers, business people and investors
will lose sight of their offerings.
Interoperability
While there is no doubt that conver-
gence is here today, the ease with which
users can utilize content and service
any time and anywhere has its limits
in the current market. The underlying
24
technical components may be there to
allow such flexibility, such as broadband
access, low cost computing and digi-
tized content, the reality is the technical
complexity and lack of interoperability
hinders mass adoption.
Examples of true convergence success
are generally limited to closed ecosys-
tems in focused solution areas, such
as Apple’s success with the iPod and
iTunes and Skype’s success with VoIP.
Interoperability outside of such closed
ecosystems is variable at best, as com-
panies compete to produce the gold-
standard format for all platforms or
prefer to monetize proprietary intellec-
tual property in lieu of open-format.
In the US, the success of services like
Geek Squad from Best Buy demonstrates
there is demand from consumers to fix
their digital experiences. As Accenture’s
Digital Home survey illustrates, support-
ing the digital consumer is one of the
most critical, unmet needs to acceler-
ate the adoption of new convergence
services.
However, in order to move beyond fixes
to a longer-term solution, industry
associations and partnerships will have
to move quickly and collaborate around
interoperability; otherwise, they risk the
type of VHS/Beta format war witnessed
in the 1980s, and the face-off between
BluRay and high definition-DVD
(HD-DVD) we see today. Such inability
to agree damages consumer confidence
and uptake, as well as relationships
between technology companies and the
owners of content.
Limitations on value
As more companies seek to extract value
from convergence, the question remains
as to how much value there is to be
divided between the companies. As the
telecommunications companies’ defen-
sive race to launch IPTV demonstrates,
each company is in danger of canni-
balizing each sector’s core products in
their quest to achieve higher margins in
ancillary revenue streams.
Adding to this quandary of revenue
erosion are the high costs of entering
into adjacent markets. These costs take
the form, not only of investments in
R&D and new networks, but also in the
costs to acquire and retain customers.
The danger may be that there is a limit
to the value pie and companies will
be left chasing crumbs. However, data
shows that consumers now have more
leisure time and are spending more
money on content per household than
ever before. This is witnessed by the
ever-increasing list of digital bills people
are accumulating, from cell phone and
cable payments to Napster and Sirius
subscriptions.
As with other challenges, the possibility
of too many companies chasing too few
dollars is a strong incentive to be selec-
tive about where a company invests and
to collaborate strategically with partners
to minimize cannibalization.
IPTV challenges
IPTV business case
IPTV is a challenging business to prove,
as much of the rationale is based less on
new opportunity and more on customer
churn reduction.
Although users will embrace the
interactivity and localization that IPTV
services allow, it will take creativity
to monetize these functions.
The TV market is busy, not only with
competitors and content. IPTV is viewed
as being the fifth channel (after ter-
restrial analog, terrestrial digital, cable
and satellite) of choice for consumers.
Convincing subscribers to switch will
be an ambitious marketing task and
may require lowering prices on other
bundled offerings, such as voice and
broadband access.
IPTV technical platform
IPTV is a developing market. Currently
there is no clear standard defined,
in terms of interoperability, networking
and formats. Collaboration will
be required.
While it is still in its nascent stage,
companies are finding it a challenge
to provide platforms that are reliable
enough to provide the 24/7 faultless
viewing experience users expect.
Furthermore, as telecommunications
companies are experiencing in their
trials and medium-term deployment,
there are hurdles in achieving a scale- IPTV operations
able and secure network/storage capa- IPTV operators will need to integrate
bility in a cost-effective manner. Look their television operations with
at the staggering investment predicted existing organizational and technical
by Verizon for their FiOS rollout to get infrastructure for the core telecommu-
a sense of its scale. nications and access offerings.
IPTV content From a customer care perspective,
As with a drilling operation, there is no companies need to seamlessly mesh
point having a fancy pipeline without their new and existing operations
the oil flowing through it. In the case involved in marketing, ordering,
of IPTV, content is that oil. The chief servicing and billing.
challenge is that telecommunications In terms of network management, the
companies have to develop competency telecommunications and IPTV operations
in content. must be coordinated from a deploy-
Key issues to come to terms with ment, user installation and maintenance
include how to acquire compelling perspective to ensure network reliability
content (whether to create it or buy and product quality for large numbers
it), where to acquire it (whether direct of new and current subscribers.
or from aggregators) and what type of
content (whether repurposed, original
or exclusive).
Finally, with few benchmarks for such
offerings, and little experience in the
process, IPTV telecommunications
company providers will need to over-
come challenges in sourcing content
at a reasonable price. There are already
anecdotes about operators overpaying,
compared to cable and satellite compa-
IPTV menu screen
nies, for similar content. Another issue
is how to create a sustainable business
model for the end user by finding the
correct mix of paid versus ad-supported
revenue streams.
25
Head above
water

“A pessimist sees the difficulty in every opportunity;

an optimist sees the opportunity in every difficulty.”
26
Although the challenges are daunting,
there is no doubt that there is a size-
able prize for companies that pursue
a focused and well-planned strategy.
As Winston Churchill said, “A pessimist
sees the difficulty in every opportu-
nity; an optimist sees the opportunity
in every difficulty.” For the optimists,
here are some of the key lessons that
Accenture has learned—both through
hands-on implementations, primary
research and market analyses—that
will facilitate success in convergence
enterprises:
Create a seamless
user experience
The potential complexity of convergent
products and services means that those
companies that focus on reducing that
complexity in fulfilling a consumer need
will win. They should enable the end
user to consume, pay for and receive
customer support across software and
hardware interfaces. Apple clearly
achieved this in music and video,
taking responsibility for every compo-
nent of the music buying and listening
experience. Wireless operators such as
Vodafone, Sprint and NTTDoCoMo are
adopting similar strategies in their wire-
less portals, integrating the experience
with the handset interface.
Provide a compelling
and relevant proposition
Place the consumer front and center
of the equation. By providing conver-
gence content and service offerings
that are localized or personalized (such
as Google Local and Yahoo! Local),
users will have a reason to switch and
stick to a service. This means giving
them what they really want, not just
what is technologically feasible, by
leveraging real differentiators and
idiosyncrasies on each platform,
such as the interactivity in IPTV or
mobisodes for wireless handsets.
27
Test new business models
Given the breadth of new products,
services and channels that convergence
offers, companies will need to iter-
ate new pricing structures that move
beyond traditional business models.
For example, research by Points North
Group suggests that consumers prefer
watching commercials to paying for
TV shows on-demand. (In the coveted
demographic of consumers aged 18–34,
68 percent chose free, ad-supported
versus 26 percent favoring pay and 5
percent undecided.) This demonstrates
that in the new landscape, business
models will include both standalone and
hybrid combinations of subscription,
a la carte and ad-supported.
Integrate networks
and ecosystems
This will allow the porting of content
across platform, from cell phone to DVR
to cable, truly giving users the freedom
to experience their digital assets any
time and anywhere.
28
Beta fast and small
Bring new products and services to
market in accelerated manner, launch-
ing beta products that are de-scoped
to be low risk. This means accepting
failures and moving on—to quote a vice
president of a leading portal: “If we
are going to fail, we try to fail quickly
and move on.”
Scale success quickly
When products and services prove
successful in beta, have the associated
technical architectures and business
operations to scale the success fast.
Develop flexible partnerships
As no single player is positioned to con-
trol the complexity that convergence
requires, companies must move to
create agile, adaptive partnerships that
enable them to extend their capabilities
at scale and speed.
Become more open technically
Interoperability makes it easy for exter-
nal parties to make a company’s plat-
form more valuable by building on it.
Proprietary formats and walled gardens
have low appeal for consumers and
partners, as well as a limited shelf-life.
Plan for long-term
operational efficiency
From a technical infrastructure
perspective, consider architectures
and business decisions that bring
down the core technical operations
costs over time.
Develop content and
service-centric organizations
Many companies that wish to offer
end-to-end convergence solutions will
need to develop competencies in new
areas. Many technology or communica-
tions companies historically have had
no capabilities in content. Indeed, many
are far from the gravitational centers of
content-creation, such as Hollywood. In
developing and launching iTunes, Apple
had to work closely with all the music
majors and continues to do so today
to maintain its market-leading position.
In so doing, the company developed
new content-focused functions within
its organization, thereby capturing and
growing internal expertise in music
and video programming.
Key questions As companies look to seize the oppor-
tunities of convergence, there are some
for convergence important questions that they must ask
themselves to help prioritize their
strategists activities, including:
• What are our capabilities in content/
service creation, distribution and
devices/customer interfaces?
• Which of our assets are relevant to
convergence offerings and how can
we develop these? (Assets include
media content (e.g., video, music,
gaming, text), services (e.g., connec-
tivity, VoIP, messaging, fixed/wireless
integration) and solutions (e.g., home
automation, security.)
• Where there are gaps in our current
abilities and propositions, which
should we develop internally, versus
outsourcing, partnering or acquiring?
• Who are the most attractive partners
with which we could partner, and who
are the most important competitors?
• How big is the opportunity in the
emerging convergence space, and are
there high-margin growth areas that
we are uniquely positioned to capture?
• Which business models are most
appropriate for which convergence
offerings (e.g., ad-supported, a la
carte, subscription, hybrid)?
• Who are our target customers?
What are their wants and needs and
how are they segmented?
• Is our brand positioned to deliver
convergence offerings (e.g., a pure
play telecommunications company,
a media company or a hybrid)?
• What technical and operational
capabilities does our company have
to realize end-to-end offerings
(e.g., integrate networks and customer
care solutions)?
• What are the costs and benefits of
deploying improved infrastructure and
how does our existing cost structure
compare with competitors?
• Is our organization structured in a
way that allows us to grow expertise
and innovation in convergence, and is
our corporate DNA flexible enough to
change with market needs?
29
A buoyant
future
Skeptics argue that convergence is still
an ethereal proposition. Others posit
that the pursuit of convergence has
been a costly and unrewarding endeavor
for companies to date. However, history
demonstrates that winning ideas take
time; famously, IBM’s chairman in 1943,
Thomas J. Watson, predicted: “I think
there is a world market for about
five computers.”
30
Therefore, although it is still hard to
forecast the winners and losers in
convergence—which technologies will
succeed, which content consumers will
embrace—there is no doubt that there
are opportunities that lie ahead that will
change the way we entertain ourselves
and do business.
So, while pragmatists may wish to ask
themselves some key questions, vision-
aries among us will plunder the realms
of our imaginations in search of the
next big thing in convergence. If Dick
Tracy’s comic book detective could
prove so prescient 70 years ago, then
we could do worse than looking back
to the future.
The Accenture
convergence group
Accenture is well regarded as a leader
in convergence—the space where com-
munications, media and high technology
sectors overlap to deliver digital content
and services—with a global reach and
client relationships.
The Convergence group’s offerings
include solutions around mobile rich
media, the digital home, IPTV, VoIP,
interactive advertising, video search
and content strategies.
Accenture’s Convergence group has
access to a global team of subject
matter experts and practitioners,
servicing clients including:
• 22 out of 24 communications compa-
nies in the FORTUNE Global 500
• 40 out of 55 electronics and high
technology companies in the FORTUNE
Global 500
• 7 out of 9 media and entertainment
companies in the FORTUNE Global 500
Additionally, the Convergence group’s
assets and capabilities include:
Business consulting
• Business case development
• Market entry strategy
• Product roadmaps
• Corporate strategy
• Merger and acquisition and partnering
• Organizational design
Technology services
• Digital end-to-end
• VoIP solution
• IPTV solution
• Customer relationship
management (CRM)
• Digital resource management (DRM)/
Digital asset management (DAM)
• Accenture Technology Labs
Outsourcing
• Customer care solutions
• Billing solutions
• Network management
• Service provisioning
• White space business process
outsourcing
Contact
For more information on convergence
and what Accenture can do to help
you reach high performance, please
contact us at:
comms.and.high.tech@accenture.com
and write ‘Convergence’
in the subject line.
Authored by: Greg Douglass,
Robin Murdoch and Jamyn Edis
31
Copyright © 2006 Accenture
All rights reserved.
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High Performance Delivered
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About Accenture
Accenture is a global management
consulting, technology services and
outsourcing company. Committed to
delivering innovation, Accenture col-
laborates with its clients to help them
become high-performance businesses
and governments. With deep industry
and business process expertise, broad
global resources and a proven track
record, Accenture can mobilize the right
people, skills and technologies to help
clients improve their performance.
With more than 129,000 people in
48 countries, the company generated
net revenues of US$15.55 billion for
the fiscal year ended August 31, 2005.
Its home page is www.accenture.com.