"Convergence - How to Compete and Win", March 15, 2004

Business & Technology Panel Discussion, sponsored by Business Technology Group, Rotman School of Management, March 4, 2004, 6 p.m.

These participant's notes were created in real-time during the meeting, based on the speaker's presentation(s) and comments from the audience. These should not be viewed as official transcripts of the meeting, but only as an interpretation by a single individual. Lapses, grammatical errors, and typing mistakes may not have been corrected. Questions about content should be directed to the originator. These notes have been contributed by David Ing (daviding@systemicbusiness.org) at the Systemic Business Community ( http://systemicbusiness.org ).

Introduction

[Ajay Agrawal, Professor of Strategic Management]

Business Technology Group is the student group that put together the panel.

Panel diverse: 

• Alister Mitchell, Moontaxi as 25 employees;
• Don Morrison - Chief Operating Officer, Research in Motion
• Charles Salameh, Vice President, Emerging Solution, Bell Canada Holdings
• Michael Raynor, author of Innovator's Solution (with Clay Christensen).

8-minute presentation by each of panelists, then Q&A.

[Alister Mitchell, Moontaxi]

• Cook's toor of how technology started, in the music industry.
• Started with records on vinyl, a breakthrough technology.
• Then 8-track, cassette (for cars).
• Cassette as collaborative technology.
• Then CDs, also collaborative, record industry surprised at the money they made.
  • The harbinger of trouble to come.
• Computers, with a CD drawer:  can rip, mix and burn.
  • Disruptive technology for recording companies.
  • Napster:  was a source of free music, now legit, wouldn't have a dialogue with the recording industry
• MP3 players:  use files through file-sharing technologies.

The 9 lives of music commerce:

• CD is overpriced, and has too many dud songs.
• MP3 unlocks the digital music from CD:  the hard drive as the mix tape.
• Internet redefines the mix tape:
  • Research indicates billions of files shared per month.
• High speed enables file sharing -- rich content, not e-mail, feeding off music
• Meanwhile, traditional 38-song list on radio is not satisfying customers.
  • Music industry depends on radio for promotion.
• Record companies struggle with change:  intellectual property lawyers can't keep up.
• Retail takes it on the chin:  Tower Records in Chapter 11, others switching to DVD.
• Device bonanza:  that's what's cool, fill it with music.
  • Pits Sony (the equipment manufacturer) against Sony (the record label).
• General perception:  it's possible to do, thus it's right to do.
  • Alternative view:  something that needs to change.
• This kills the cat
• ITunes, Kazaa, Puretracks etc. causes heartburn.
  • People say 99 cents is fair, if they're willing to pay
  • Artists disinterested, but now on the list to pay the artist.
• The music industry realizes that there's no turning back.
  • It's a multi-billion dollar operation, and today, a flea on the back.

Puretracks.com:

• A value-added service
• e.g. pick up Metro newspaper on the subway, but still pick up Globe & Mail and Star

[Don Morrison, Research in Motion]

A graduate of Rotman.

Some insights into the Blackberry, and some challenges

3 ways you know you're in a convergent industry:

• Doing well, biggest issue is globalization.
  • In strategy, don't have anyone on staff who thinks about strategy.
  • If in the size of AT&T and Bell, with diverse products, value proposition is diverse, but RIM is a few thousand people.
  • Everyone works:  no strategy department.
  • Simple concept of extending e-mail onto a device.
  • Original paper was about what the service wouldn't be, and it's what was level.
• Device has to be more than e-mail extended.
  • Hired smart people, and virtually everyone talks to clients.
    • "Relentless":  talking to customers is too important to be left to experts.
• Strategy is about technology.
  • Great at innovating
  • Too much opportunity.
  • What it was, versus what it is today.
  • Now, it has voice, that is just an application on the device.
  • Where Blackberry is going is that it's going to be an information medium:  can decide what you want on the device, pay for what you want.
• Technology isn't something that is intuitively purchased, it has to be sold
  • Have to convince people that they want your dog food.
  • Absolute avalanche of capitulation, where the market is coming for you.
  • In the beginning, not a time to be spending on advertising.
    • Should be giving the technology to users, to see if they like it.
• Lots of learning and education to channels
  • Need to understand the value it brings to the market.

Converged:  software, terminal business

• Most people enter from one of these origins.
• Wireless data space, ecosystem is still much in formation.
• People trying to figure out how they will make money.
• Partnering
• Bet:  key to be working with carriers, because they own the networks, and sustain the relationship with the customer.

Where have new technologies, a mass market should suffice.

• Application and experience are universal.
• Companies that succeed and compete will move from homogenous, into clusters (e.g. lifestages or different industries).
• Will need to bring smart marketing people into the company.
• Not trying to rush, but trying not to fall behind.

[Charles Solomon, Bell]

• Bell has been facing technology convergence, in cycles.
  • PBX, now data.
• What technology convergence is doing

Bell: longstanding products and services, embedded regulation for 140 years.

• Opportunity:  communications are changing.
• Three industries:
  • Telecomm, voice, regulated
  • Information and information processors, primarily IT companies.
  • Cable tv, also regulated
• Markets were different, assessed differently.

15 years fast forward

• Internet, broadband, wireless
• Voice, data and video is a reality
• Difference between providers is not what, but how:  DSL, cable modems, ...
• Commoditizing access

Customers and investors also changing

• Have to rethink the customer.
• Disruptive technology, ties together country

Bell offers:

• Voice, data
• Customer support
• Leapfrogging technology

People cutting back on land lines

• People use cell phones, even though land line nearby
• Half of users are on IM > 6 hours per week.
• Some homes fully wireless

Competitive free-for-all

Have done telerobotic surgery

Voice over IP:  today over 12% of international traffic

• Telecom and cable companies will face off:  on east coast, Eastlink
• Primus and Vonage

[Michael Raynor]

Two elements of strategy making in convergence spaces:

• Consequence of innovation and uncertainty.
  • Innovation is important, but companies are forced to do this with enormous uncertainty.

Innovation isn't about technology

• Technological innovations are about which customers you serve, not which technologies you choose.

Sustaining innovation and disruptive innovation:

• Sustaining are targeted at a single customer.
• Disruptive with new customer

If you take advantage of sustaining innovations, will be moving heaven and earth on technological issues, to serve customers.

Disruptive technology gives you an advantage today, but then long-term riches.

Strategy is about which hard problem you want to solve

Uncertainty:  given choice on which problems to solve, need to make almost irrevisible commitments

• Technologies, alliance partners, ...
• Picking wrong will cost you the company

Recent advances:

• Scenario-based planning
• Real options
• "Flexible" planning:  an oxymoon
  • Yogi Berra:  when you come to the fork in the road, take it.

[Panel]

Question:  "IT doesn't matter" article in HBR.  How to overcome this argument.

• Raynor:  Reading of the data that this isn't true, IT does matter.
  • Notion that it's been commoditized is defensible.
  • Convergent technologies allow ability to compete on price and value.
  • If you're working too hard to convince someone, you're probably overselling.

What technologies are converging, that we haven't seen in a public forum

• Salomon: Convergence in the wireless markets.
  • 802.11 is starting to lock, converging with 1X-RTT.
  • RF technology, e.g. RFID
• Morrison:  Technology is a consequence of the value produced, thus it's the application.
  • Lots happening in wireless:  infrastructure and devices are there, now have applications coming on.
  • e.g. electronic prescriptions, fewer errors.
  • How to recreate computer applications on a smaller, portable technology.

Question:  Is 99 cents the price that people will pay?  Elasticity of demand on music?  Importance of hardware being matched.

• Mitchell:  iTunes and other that follow -- have launched a market economy.
  • iTunes is selling droves of songs
  • Prices will move.
    • Why 99 cents for all songs?  Different artists, different lengths.
  • Beatles catalog is not online:  what is the price point?
  • 10,000 songs in your pocket:  absurd idea, will be more absurb 3 years from now.
    • Accessing from the catalog will take us away from this.
    • Access to a celestial jukebox.

Question:  open or closed standards?  Don't see open cellular telephone standards.  Instant Messaging.  Gaming platforms are proprietary.

• Morrison:
  • Wired-line industry is mature, open standards, 3 countries in the world that aren't connected.
  • Wireless industry since 1981 is moving towards universal standards.
  • In device manufacturers, trying to obfuscate proprietary features
  • Ultimately, all device manufacturers will have to move to open standards.
  • Java seems logical.
  • Eventually, will move towards standards on networks.
  • TDMA is gone, have CDMA and GSM.
  • Everyone is working towards one standard.

Question:  Listening to customers, but to what extend to we lead customers?

• Salomon:
• • Both leading and listening.
    • All wireless companies working towards hot spots.
    • Other cases
  • Balancing act.
• Morrison:
• • At some point, you have to make bets.
  • Once you get there, and want to tweak it, can talk to customers.
  • Creative process isn't democratic.
• Mitchell:
• • Gift horse was Napster.
  • Changed the way we think about distribution of music.
  • • Music industry sat on it, and didn't respond to it.
    • Didn't respond to customers' needs.
  • Launch of commercial file sites recently is recognition of opportunities not classified.

Question:  The most important thing to win in convergent markets?

• Mitchell:
• • Cop-out answer:  small company is the simple space, but complicated.
  • Groping in the dark.
  • Can see where we want to go, but exploiting it is a challenge.
  • Many converging needs, it's a moving space.
  • Choosing one hard line on strategy is a mistake -- flexibility.
• Morrison:
• • Make something that someone is willing to pay for.
  • Mike Lazarides is obsessed with all details of the Blackberry.
  • One of first changes was the width of the exclamation mark.
  • Obsessed over the experience with the technology.
• Salomon:
• • Finding the unique application, on the platform that is already there.
• Raynor:
• • The single most important thing is not picking the single most important thing.
  • Convergence is about innovation.
  • Need to figure out whether it's sustaining innovation or disruptive innovation.
  • • Everything else follows.

Question:  WiFi technology?

• Morrison:
• • Have demonstrated working on WiFi technology.
  • Customer advisory council:  expectation that WiFi is important.
  • Will see it on Blackberry over the next 12 months.
  • As a standard, should be seen as something to watch.
• Salomon:
• • 802.11, 802.16 and then 802.20
  • Whether it will exist
  • Immature from a business model perspective:  no one knows how to make money at it.

Question:  How do convergent technologies impact?  e.g. RIM and Nokia.

• Morrison:
• • If Blackberry is going to survive, it can't survive on just Blackberry devices:  licensed to Nokia and Pocket PC, will be showing at CeBIT this week.

Questions:  Open standards, versus DRM.  Software piracy?  Will DRM be the meter?

• Mitchell:
• • Can imagine a world without DRM.
  • Genie back in the bottle?
  • Now, war between Microsoft and iPod.
  • • Jobs has decided to keep it contained.
  • Could see where it should be all about providing value, not providing access to a library.
  • In the music space, more value than just the file -- more than a product, it should be a service offering.
  • If focus on value, protecting content is less the issue.

Questions:  employees, and engaging their hearts and minds.

• Mitchell:
• • Benefits of being small
  • Can sell millions of files with 20 to 30 people
  • Motivation is driven by excitement of new deals.
  • Puretracks.com were offering inaugural, then Telus as provider of choice, then Bell.
  • • Excitement with each signing.
    • Excitement with deployment of each module.
  • Taking on large projects, in a short period of time.
• Morrison:
• • When growing and winning, everyone likes that.
  • Want to perpetuate a sense of urgency.
  • Iconoclastic:  trying to break down some of myths of how companies are run.
  • Culture is quite stoic, not touchy-feely.
  • Put a lot of value on young people.
  • Average age of people at RIM is 30.
• Salomon:
• • Have been with the company for 15 years, have always been at the leading edge.
  • The company has two types of people:  average age of service is 28 years, was 32 years.
  • • Strategies to keep people who run the legacy services
    • Plus the new regime, to emerge
  • Company understands these better.
  • Covey:  can make multiple deposits into the emotional bank accounts of your employees, but a few withdrawals can lose a lot of people.

Question:  Blackberry not into games, whereas Palm does

• Morrison:
• • This stuff is coming, and it's coming from carriers
  • Carriers understand that people understand how important games are.

Question:  Puretracks.com, 99 cents profitable?  Harder to find older selection, is it possible to request?

• Mitchell:
• • Listening to your customer:  ability to provide this through help desk, are also getting surveys.
  • Wealth of catalog missing:  classical
  • • Some licensing, then getting content from Rounder or smaller indy label that doesn't have the capability to encode content.
  • Profitability:  need to be in play.
  • • Wholesale rates need to drop.
    • Prices may change:  pre-release or first-in-line access.
    • At the moment, it's skinny.
  • Upsell to subscription market, where the margin is better
  • • Value-added of programming
  • It's a new space, have to see how it plays out.

Question:  How do you bill for all of this?  Keeping up with new product needs.

• Salomon:
• • Bell provides it all on one bill.
  • Industry hasn't figured it out.
  • Even the cable companies struggle with this.
  • With companies cross-border, it's a challenge.
• Morrison:
• • Billing is the albatross of the industry, and the carriers will figure it out.
• Mitchell:
• • Being able to place it on your phone bill is much more attractive to people than putting it on your credit card.
• Salomon:
• • Four bills at $25, versus $200 on a single bill.
  • • People cut services on the large bill.

Moderator:  favourite sound bites

• "No one knows how to make money on this business"
• • On the back of "listening to your customers, and providing what they want"
  • In strategy, the challenge is appropriation:  providing what customers want, and making money at it.
• "We inhabit the gray area"
• • We are in dangerous places.
  • Digitally-distributed music isn't something that no one else has thought of.
  • Gray in a lot of respects.
  • Willing to take the risk as a 22-person company, as substantial upside with little downside.
• "Not religious about pursuing disruptive or sustaining customers"
• • Largest howl from students who read the book:  the choosing.
  • It's the choice of those who cut cheques.
  • Cutting off your own arm.
• "Making bets"
• • CEOs say that they make two or three important decisions per year.
  • Irreversible decisions.
  • Not obvious that everyone on the panel will be winners.