You Ain’t Seen Nothing, Yet... The Internet and the Future of Network Convergence

And that’s exactly what happens when convergence really enters center-stage: It’s a great opportunity for some and an evenly great threat for others in the Telco-, IT- and Media-Industry. Nevertheless: Convergence is the single most important trend in Tele-Communications today since it is the one trend that makes all the others possible, at last.

We’ll get back to that in a moment. Let’s just have a look back at where this all once started out. The moment the Internet or more precise: The Web went commercial – a whopping 10 years ago.

Around that time we all – Telcos, IT and Media – had a dream. For some it turned out to be a nightmare soon after, but still a dream – and it was called “The Internet”.

And sure enough did the Internet look like the “promised land”, the Holy Grail of Communication where everybody who went online was well connected and “networked”. For others the same thing looked like the ultimate solitary confinement: anti-social nerds “flabbergasted” in front of their computer-screens which independently of the OS inside felt like windows into the abode of evil, a world where perverts and criminals roam.

At the same time the same thing looked like a magical source of some new found wealth: The new buzzword “E-Business” seemed to be the final solution of all economic rules and problems as we knew them. Everybody who did not want to be “square to the bones”, hopelessly outdated, changed directions and went into the “New Economy” where every “fresh” idea could thrive, where millions were thrown by VC’s at everybody who mentioned the magical term in their business-plan. The whole situation felt like the perfect capitalist “kindergarten” where nobody cares about reality, where all is about visions.

Not so for Big Media. Big Media from Hollywood to commercial TV, from the Music- to the Print-Industry looked at the Internet with all the arrogance and disapproval they are able to show. And boy, do they know to be arrogant. They all but ignored the Web. They looked at it as some freaky nerd’s “pipedream” that had come true in a worldwide hype they even agreed to spread themselves from time to time. The Web might have made for a good headline or even a movie but God No, not for the future of media-business: “Heaven Help Us All!”

But then, after a couple of years, Big Media - not known to be the fastest of all business-species – realized that the Internet might render their current business-model obsolete. And they started to hate it. And they decided to sue what they hated. Well, at least the people who used it – to exchange their music and videos over P2P-Networks, used their hard-drives to skip commercial-breaks on TV or for any other “criminal offence” against Media’s proven business-models.

Anyway, whatever you might think about the Internet and it’s users, it is definitely not the best idea to sue people you want to do business with, first. Especially when you want to do serious business with them. And we all want to make Internet-Users pay more than 2.3 Billion Euros for paid contents and services on the Internet by 2010 – according to a recent study by Booz Allen Hamilton.

The burst of the stock-bubble and of Dotcoms pipedreams, lawsuits and other protectionist ideas – that’s what you call “depression” in both Economics and Psychology. The kind of depression that always tends to follow Euphoria. And we are still recovering from both.

Only recently did we realize that both were mere exaggerations of the same phenomenon: the birth of a truly new media. It’s new because it allows us to do what no other media did before: Send and receive multimedia-contents at the same time – that’s what we call “Interactivity”. And since IP-packets can contain almost anything, anything that can be digitized to be precise, it’s multimedia in the true sense of the word. Whether this indicates a convergence of media remains to be seen.

This all made the Internet so attractive that it grew faster than any other mass-media before. And it is still growing: Every day new people come onto the Web. And they start buying their books at Amazon and their digital music at Apple’s iTunes-Store while selling their old records, books and whatnot at eBay. And by the way they also start exploring and understanding the future potential and possibilities of the Internet.

And since everybody seems to be doing so we all tend to forget how young this new convergent and interactive media still is – it’s only been 12 years since Sir Tim Berners-Lee proposed his concept of a “World Wide Mesh” at CERN in Geneva.

We all still need to learn how to use the Internet to understand our customers better to provide better services to them. And even more do we have to learn how to use it to manage a worldwide enterprise. But we also have to learn that the Internet per se will not solve our businesses future: We have to learn how to combine elements of both the analog and the digital world in our supply-chain and delivery, in accounting, billing and any other business-process. All to provide our customers with better services since they will decide whether this long and hard way of learning will be successful and profitable for both of us.

How can we achieve all that? By constant learning. What we need to learn and understand, Tim Berners-Lee has written in his fabulous book “Weaving the Web”:
“The Web brings the working of society closer to the workings of our mind.”

That simply means we have to learn to work and function like our own minds – on the scale of a globally networked economy and society. Sounds simple? But it’s all the harder to accomplish when you remember that our mind, just like the Internet, lacks any central intelligence as well as central government to synchronize action. Minds have to receive new sensatory impulses, match them with existing contents and deliver appropriate reaction synchronized with all affected parts of the network in real time. Otherwise you might burn your finger – or even your business on the Internet!

But before we drill deeper into the grounds of future Network- and Media-Business to discover core trends there let’s turn to the present state of the Internet for a moment:

- 600 Million people have access to the Internet today (190 Mio in EU, 187 in Asia/Pacific according to NUA)
- 55 Mio. Web-Domains are registered worldwide
- 5 Billion Web-Pages are online today (not counting “dynamic” contents fed by DB’s and Media-Streams)
- Jupiter Research predicts $ 21.6 Billion in Retail-Sales over the Web during this year’s holiday-season alone
- Even more important: 50% of consumers will make their purchase-decisions based on information gathered on the Web!

This development makes the Web not only the fastest growing mass-media of all times. It makes it an integral and not disputable part of our daily life, of our work- and our leisure-time. Furthermore these figures indicate the fundamental, structural change of our buying-habits and the ways we learn, work and do business with one another.

But above all these figures indicate that we all need to precisely understand this all-new and “networked” lifestyle that’s spreading together with this truly World Wide Web. We have to comprehend what took off so fast, there was no time left for reflection. In other words: We and the Web have to grow up now, together. And there’s no time to be wasted since what we are witnessing here is nothing but the dawn of information-age.

Sounds great, I know. But mind you: fundamental changes touch us all. And they might even hurt. Not only our own business-models, but even the industrial parts of our national economies as a whole.

To give you an example: In earlier times we all used to secure competitive advantages by keeping the information on which they are based a secret – our whole system of technical patents is based on this simple idea. Now, with worldwide networks in place we find the contrary even more of an economic advantage.

We open up our networks and the information they carry. “Open” like in “open source”: In an “OS-Project” every developer on a network can contribute to any given project. Not only your staff-developers whose numbers are finite by definition. The result: A faster accomplished and better solution and a competitive advantage. Made possible by opening the network, producing the so-called “network-effect” that was introduced by Robert Metcalfe of Ethernet and 3Com fame.

What are these advantages that make the Internet so attractive that everybody wants to be online? What has the Internet – I use this term now synonymous for all IP-Networks – to offer that no other media before had?

For one it’s the Internet’s capability to offer interactivity on many different levels and with more than one media involved. The other is the possibility to converge networks and the media they carry – like Telephone, TV and any other data on one single IP-Network.

Both obviously seem to be technical advantages at first sight. But if you look at it closer, you find that technology is only the necessary foundation on which convergence can grow. And economics is why it’s finally happening in the real world.

An IP-Network can carry all data, written words and images, sounds and video, everything that can be digitized on one single network – that’s technology. But would “Uncle Joe” buy it? Probably not! But this potential and the open standards of the Internet Protocol (again technology) make networking cheaper and more feasible for everybody. Buy one network instead of many, reduced maintenance and TCO, and still get all the media you want together with all the new and exciting ways to interact with them – that’s what “Uncle Joe” likes, may he be a consumer or an enterprise.

The sheer economics of network convergence draw a clear picture of the future trend: There will be one network, in your office as well as in your home and it will be an IP-Network. At the same time and for the same reason – everything’s moving IP – the technology of convergence will fade away behind the applications and contents the network provides.

People still want to make a phone-call or watch a movie no matter what technology fulfills the task.

Therefore the ubiquitous IP-Network of the future will be pretty much like the Power-Grid of today in one respect: Everybody is using it but nobody gives a thought about it. It just gotta be there. It’s commodity, always at your disposal. No big deal.
If the technology and economics of convergent networks are fading into commodity (-business) – who is to be in the driver-seat? Who is to decide what directions to take? It sure is the consumer, your highly valued customer.

Whether you look at the figures of growth in retail-e-commerce or at the adoption of broadband-access to the Internet – consumers have always been faster understanding and adopting the advantages of the Internet than large enterprises. And the same is true for other innovations of networked communication: from P2P-Networks to Weblogs, from Online-Banking to E-Learning - users e.g. consumers have been driving their commercial deployment.

The simple reason being: As soon as the user faces networking as a commodity and uses it like one, it’s becoming a lifestyle issue. Remember SMS? That’s exactly what I mean.

The economy at large can only identify and market already existing lifestyles while consumers are not only able to consume a certain “Zeitgeist” but they can experience it, design it and drive it until it becomes a lifestyle.

Moreover can the industry in a networked economy only influence and direct their own products while being highly dependent on components, products and services of other suppliers. The consumer on the other hand is the only one to be in direct touch with all parts and aspects of the network. And he uses them to communicate and exchange with others on the network. This direct relationship sets him apart from all other players and positions him right at the “core” of the network: The customer, former object of sales, is becoming the acting and deciding user of your network.

And that’s exactly why the next big developments in networked communication will be defined and driven by consumers.

This new and self-conscious user-consumer is not really interested in either the technology or the economics of any given solution. He is interested in the result. And that has to fit and suit him perfectly well. This perfect fit of a tailored solution was impossible to achieve in industrial mass-production. But the “digital workshops” of the future will deliver products and services on demand if the user is not tailoring the greater part of his “personal” products himself. With Digital TV and a TiVo You are director of programming – not the BBC or any other station. With the right software in place You decide not only the “Look & Feel” but also the functions of almost any digital device according to Your needs and desires. That’s personalization in the true sense of the word.

This trend is not only about further segmentation of industries and the personalization of products. It indicates a huge desire for self-determination together with the need of more self-responsibility in a society that obviously cannot provide all the care- and security-systems it once used to. This is all but an issue in public debate – “public” as in politics and big media. But it’s an experience shared on a network and in a chat-room near you.

And it’s something new. It means becoming aware of one’s own position by interacting with others – remember Berners-Lee? And with this experience your customer turned user also realizes his power, he will finally feel like the “King” marketing has always promised him to be.

And the industry will have to treat this individual customer as a friend. First thing to learn: Don’t sue your customer like the music-industry still does and Hollywood follows. And you can see the result: File-Sharing still growing. Only if you learn to understand your customer’s desires and habits, only if you start sharing his experiences can you propose him a suitable offer.

Every single enterprise in today’s networked economy has to learn this lesson: Start to share customer-experience. Turn to customer value. Find ways to utilize customer-energy.

How can this be accomplished? By establishing a customer-centric organisation that watches closely what early adopting “user-customers” like best doing today in order to identify the underlying trends that will become mainstream tomorrow.

Let’s give it a try. If you look around airports and train-stations: There are more people everyday who are not only talking to their mobile. They use their Smartphones or Blackberry to read E-Mails. Or have a look at offices and dens: more and more people are using headsets and Web-Cams with their computer to make phone-calls and even video-conferencing over IP-Networks. And in the living room: increasing numbers of people using their stereo and TV on the receiving end of IP-Media-Streams or as displays for their networked game-consoles.

Now, is that what you call convergence of media? Actually it’s not. It’s digital devices used for new and different purposes. It’s digital technology converging on IP-Networks. Digital Media, on the contrary, are diverging. Digital media are becoming Personal Media.

Look at Network TV: Their market- and time-share is going down as their commercial revenues. Even more so in households with a Digital VCR in place: people start choosing their own personal programs here. At the same time Internet-usage is increasing – even more so in broadband-households. And what do people use the Internet for, besides communication? Shopping and Downloads of music, videos, software and games - all their personal media.

The next, even bigger step: Video On Demand over DSL – there you have people who use the IP-Network as their VCR. And people with Digital Video Cameras and some editing software start competing with Hollywood about the eyeballs of their family and friends. That’s local as of today but why not over the Internet tomorrow?

Economics of bandwidth and spectrum prohibited the proliferation of personal media until today. But with digital media it’s a whole different game: production and distribution is becoming cheaper every day – you don’t even have to make it a business but you can be part of the move just for the fun of it.

Now, with digital media obviously diverging into personal media as they are, what we really want and need are equally tailored and specialized devices. Personal devices that perfectly suit my individual needs and desires. Devices that are easy to use in terms of that they do exactly what I expect them to do.

Think, for example, a personal phone. Mobile or fixed line is out of the question. But a phone that accompanies me wherever I go and that makes use of the best connection and rates available. A phone that gives me access to my contacts and schedules wherever I need them, reminds me of business meetings as well as of private dates.

Or think of a personal server that stores and forwards all of your personal data and media. A server that sits on an “intelligent network” where devices introduce themselves and their functionality to one another. So the server can stream music to my stereo and video to my TV. It should also allow for my remote access, so that I can manage my data or listen to my favorite music-playlist from my hotel-room.

Of course, all storage- and access-devices need to have “IP inside” since a great deal of their functionality depends on their networking capabilities. For me it doesn’t really matter what Chip-Set or what Operating System they have inside – as long as they are easy and safe to use and do exactly what I need to get done. So they will, for daily more purposes, need to have access to the IP-Network.

What you actually see here – besides some crazy futurist visions – is that the further development of tele-communication and digital media is driven by ever faster changing work- and lifestyles and by new patterns of communication and entertainment. Digital technology sure is the door opener, the “enabler” if you will. But what really counts for people is something else, something that they would really love to see.

Wouldn’t it be a neat and logical step for Apple to provide their phenomenally successful iPod with network-access? Do I really need ever bigger and still expensive Hard Drives on my iPod? Not really. A good G3-Connection with my personal “Air-Tunes VPN” in place would just do fine. And it would cost only a fraction to build. It would even open up some nice business-opportunities along the way: For IP-Telcos who connect my iPod with my Personal Server, obviously. But also ASPs might join the game to provide me with other people’s favorite Playlists, suggestions of new music and even new services. Or maybe I’ll get a new headset with a microphone attached – and here comes my favorite mobile VoIP-Device. You get the picture.

Too wrap up this “tour d’horizont” in fast forward mode; let’s take a good look at some of the hottest trends in networking and media:

Trend 1
The single most important trend to me is the technical convergence of all legacy network-architectures towards IP. This convergence is happening for many reasons: from the economics of packet-switching to the open standards that all developers can contribute to, making the Internet-development the largest open-source-project ever.
Mind you: this is not a consumer perspective. What makes IP attractive to the consumer is: one network instead of many, ever increasing numbers of possible applications and contents while prices drop like in any given digital economy – remember Moore’s Law.

One of the more interesting sub-trends here is definitely mobile-fixed-line convergence because this trend will not only bring new devices. It will also bring all the neat functions that you are used to at your office’s PBX to your personal device because they will live on the network. From recent DSL-developments we know that more bandwidth is not only good for faster and more convenient use, it also spurs new applications and contents, which then again will increase network-usage even more. That’s the network-effect at work. And wait until Wimax is here, but not for Telabria to make it happen – that will bring you true broadband whenever and wherever you are online.

Triple Play
The next trend to watch is “Triple Pay” – the integration of Voice, Video/TV and Data over IP, like it is offered by Fast-Web in Italy and Bluewin in Switzerland. But again, the customer does not care about the technical solution. For him it’s all about convenience: all the communication, all the information and entertainment you can think of over one single broadband-connection, from one single provider at one price with lots of choices. So after personal communication by means of VoIP and the Web here comes personal entertainment: Your music, your movies, and your news. Not what some TV-Station has programmed at best guess but what you selected for yourself.

Together with this new wealth of contents one technology that still drives users nuts might become obsolete: DRM and copy-protection. Not because Internet-users are criminals at heart but because they both make sense only for a very few digital products. DRM and copy-protection may make sense for a $200 Million Hollywood production or the new U2-album since stealing those assets means a huge economical damage. Not so for a $5.000 documentary, or a digital remix produced at home – on the contrary: it might even cost more to protect than to produce them. And since users feel more at ease and convenient without DRM they might again turn away from mainstream-media to more personalized contents – freely available in abundance.

Here we go again: Personalization seems to be something like the general means of usage in networked communication and in digital media. Why? Where all contents and services exist in abundance you have to select, make your personal choices. This makes “searching” for the right thing a need and a general usage-pattern of IP-networks.

That’s the single most important reason for Google’s success-story: whoever contributes valuable information to your search (think Amazon’s recommendation-system) increases not only the value of the search-results itself but also becomes a trusted partner for their users. This way Google increases the value of its customer relationships and of it’s own network. The more information this customer brings onto the network the more valuable he gets. That’s why he will be in charge – in exchange with other users on the same network – to decide on new products and on deals to be closed. He decides.

Customer is in the driver seat. What again contributes to their own value. You have been looking for a business-model based on P2P-Networking: It’s here, look at eBay.

Every new user who brings his goods to the auction makes eBay’s platform more popular and more attractive for even more users. But he also increases eBay’s revenues based on a share of the auction-revenues. E-Bay’s evaluation-system for sellers (the stars!) has established a highly valued Internet-currency: Trust. The trust of a peer-system. And to be a trusted partner of their customers increases the value of the eBay-Brand, again.

But what can a brand be worth on a network where the customer is in the driver seat to make or break value and success. Look at Apple and it’s iPod that gained a market-share of more than 50% against much cheaper no-name-MP3-players. Why? Because the iPod is more: it represents a whole network, an eco-system of software and music, information and entertainment. The iPod shows a cool alternative to a boring music-industry and it’s obviously outdated marketing-strategies and business-model.

Brands have to stand for more than just a good product. They have to communicate lifestyle-value and status in an intelligent way. Brands can be “intelligent” when they start living on a network and build relations, in an eco-system that goes far beyond a single product. Brands have to reflect what networking is all about: extending the reach of the individual user by providing directions and a vision of what more could be out there.

Now: Here’s a list of the trends I would like to share and discuss with you. What’s in it for digital media? They will have to become flexible and innovative enough to be available on users’ demand and to be customizable to their taste and interest. That’s nothing for big media: Small will be beautiful in the digital realm. That’s true for the digital media-channel, not necessarily for the enterprise providing it.

And what’s in it for Telcos: With every Mega-Bit of bandwidth added to the IP-Network time spent on it will increase as the contents and services add even more value to it – Jupiter already predicts an amazing 57 Mbit/second as average on any given Home-LAN by 2009!
Enjoy the opportunities of the network-effect! And thank Dr. Robert Metcalfe for the insight.

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