Convergence: A Winning Business Strategy, Now Ready for Enterprise Information

There is a clear benefit to assembling the things needed for a particular task in a single place. This is incredibly true in business, where managing the distance between design, manufacturing, delivery and service is vital. Doing so not only reduces costs, but also drives meaningful competitive advantage.

In the world of tangible goods, this strategy is manifested in many interesting ways. In the 70's and 80's, many companies began building platforms on which variations of the same product could be assembled. The Chrysler K-Car. The Sony Walkman. A common "core" drives down cost and thus increases profits. Another variation was the "platform store", offering vast numbers of products at the lowest possible prices. Companies like Wal-Mart and Lowe's used their buying power to expand their reach, pass on greater savings to customers, and produce record profits.

In the 90's, the Internet emerged as an exciting new mechanism to deliver and support unprecedented combinations of goods and services. Companies like RCN began offering phone, Internet and cable TV services as a single product with a single bill. In retail, Amazon, consolidated what would previously have been an entire mall into a single website. Markets that were once safe and discrete, like movie rental, are now gone — mere products in a much larger catalog, available from a few huge online players (Amazon, Netflix) at historically low prices. The ultimate evolution of this strategy is a platform that supports consolidation, which in turn helps provide a complete, high-level customer experience.

The emergence of mobile computing produced an even bigger consolidation opportunity: to grab entire markets with a single platform. Apple's iTunes, combined with the iPod, iPhone and/or iPad, literally replaces thousands of products in the B2C space. Here's the list of products one might reasonably expect to replace with an iPhone 5:

Phone, Rolodex, Calendar, Still Camera, Video Camera, TV, VCR, DVD Player, Digital Picture Frame, Map, Globe, GPS, Browser, Weather Report, Calculator, Note Pad, Email, iPod, Music Store, Voice Recorder, Flashlight, Travel Clock, Stock Portfolio tracker, Newspaper, Zagat Guide, Compass, Dictionary, Language Translator, Magic 8-Ball, Portable Hard Disk/Flash Drive, Metronome, Video Game Console, Encyclopedia, Book, Remote Control, Radio, White Noise Generator, Guitar Tuner, Barcode Scanner, Video Conferencing System, Guitar Amplifier, DJ Station...

How many companies will lose huge amounts of market share because of Apple's juggernaut of a platform? It's hard to imagine but one might be tempted to say "most of them" — the B2C ones at least.

Google has its own version of this, though not quite as complete. Google's web search plus their various services cut across many online services, and their Android phone offers much of the same replacement effect as Apple's does, especially especially in light of their just announced purchase of Motorola Mobility.

It is not short-term analysis that leads to Apple's massive valuation. Apple is pursuing strategies that will lock consumers in for decades and produce massive profits and growth beyond what any single market leader could expect. It is also not an accident that the mobile Internet enabled the company. Intangible goods are a growing currency with worldwide adoption potential. Companies like Microsoft and Sony, which couldn't move past incremental improvements in their huge product lines will need to work very hard at catching up, and it may well be too late.

Many people, myself included, have begun to refer to the general approach of building a platform that enables consolidation as a "convergence" strategy. The telecom industry has used the term for years, and the dictionary definition certainly supports it: "...the merging of distinct technologies, industries, or devices into a unified whole ..."

In my next post, I will discuss how a convergence strategy can produce equally great results within the enterprise.

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