The mysteries of convergence

This week’s Economist has an article by Tom Standage (“Your television is ringing” — click here, it is free access). Standage doubts consumers really want convergence — that is, things like a TV with a phone. And there is a sense in which, of course, he is correct.

“What problem is convergence solving?” asks Andrew Odlyzko, an expert in the economic history of telecoms at the University of Minnesota. “It is solving complexity issues for service providers, but it is not actually solving much for consumers.”

The convergence being discussed there is in telecommunications: the idea that there is a single provider of your telephony, internet and cable television services. Now this is not driven by the idea the consumers see all of these services as the same thing. Instead, it is part of the idea that they are all delivered by the same means: there is a shared network. From an economic perspective, such potential for convergence can be an avenue for competition or alternatively the opposite: the potential for those with market power in the network to leverage it across many services. In the latter case, there is no good news for consumers.

But the drive for bundling occurs elsewhere. In media industries, we see it being driven by shared content. Again, it is not that consumers really care whether their trusted news source is the same on television, online or in print but instead that it is the same content that can be disseminated in different ways. Once again there is a fine line between competitive pressure and the leverage of market power. Control of one or more key dissemination ‘voices’ can potentially be leveraged back through shared content to monopolistic conditions across the entire media market.

The final area where convergence seems to be driving businesses is in product development. The pages of the gadget blogs are littered with products that combine two or more functions that used to be separate. The technologies are such that this can be done fairly easily but consumer behaviour does not always match this and there has been resistance to bundling functions in a single product.

Some products where convergence has been technologically possible do appear to have succeeded in satisfying consumer wants. Some examples include:

  • The computer and the calculator: I don’t own a calculator any more and routinely use the Microsoft special.
  • The computer and the music player
  • The mobile phone and the camera
  • The street directory and the portable PC: the in-car navigators provide this.

But equally, there are plenty of products that we don’t see bundled that technologically speaking could easily be that way:

  • The fax machine and the computer: where is a fax on Skype?
  • Voice mail and email: why doesn’t voice mail come in my in-box.
  • The computer and the book

Now before I get comments pointing me to services that do this, let me say that I know. The interesting thing is that they are not successful services. People own computers and still have fax machines and read books. They do their voice and email separately. Why?

I am going to speculate here that there is, in fact, enormous resistance to bundling two or more things that you habitually do. Instead, bundling has succeeded where it has opened up new ways of doing things. iPods reinvigorated listening to music and talk. The in-car navigator does something street directories don’t (they tell you where you are). It is early days yet for the mobile phone and camera where many haven’t shed the stand alone version of the latter. The only thing where there might be true bundling is the computer and the calculator but that might be just me.

My point is not that bundling habitual products will never work but instead that there is more resistance to doing that than current product developers seem to think. How many people will buy a PlayStation 3 for the Blu-Ray DVD?

Bundling is not necessarily convenient when it comes to choosing things. It complicates the choice and makes comparisons more difficult. Sometimes it is simplier easier to keep things separate just like you always do. This happens no matter how cool it seems to combine distinct products into two. Everyone loves the Internet fridge but no one buys one.

If there is a place for habitual convergence, I think there is a stronger case in services. In banking, I like having a single provider of financial products. This is not because there are fundamentally linked but if you can do that it makes it easier to shift funds around. In utility services, I like having a single biller but thanks to Australia Post (with I have got that for much of my stuff. I do not have to say my credit card details everytime a new bill comes in (a couple of clicks and I am there). Now if only I could have that with household services? Something goes wrong in the house whether it be plumbing, electrical or something else and I ring one person just to come and fix it. How hard could that be?

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