October 2004

The Digital Race

Digital technology, as recent figures show, is no longer the 'next big thing': it is here in spades and part of everyday life. More than half the population now use digital services, including digital TV and the Internet. The race is now on to decide what devices we will carry with us, use in our homes and install in our cars – because one way or another, digital devices will link us with the wider world, wherever we are and whatever we are doing. More and more we are using these devices to buy things and to transact business - making decisions which affect companies in every area of business.

Some companies will not survive the digital transition; others will only do so in much reduced form. Some, however, will prosper and grow. Exactly how the digital transition will affect different types of business is just now becoming apparent.

Unlike the heady dreams of the dot.com era, what is at stake is not new money and existing jobs. Digital technology is redistributing existing money and existing jobs with gay abandon. While some new income will be created, some existing ways of doing things – perhaps entire industries – may disappear for ever. This race is for real.

Already, to take a few examples, the music industry has been thrown into turmoil by digital downloads and portable players; Kodak's conventional film business is in terminal decline; air travel has been transformed by the direct purchase of plane tickets; conventional travel agents are becoming an endangered species as people arrange their own travel online; and leading British retailers such as WHSmith, Marks & Spencer, Sainsburys and Boots face a battle for survival as buying habits change. These are only the preliminary skirmishes; the big battles are yet to come, and they will be fought in every industry sector.

The old world

Once the world was simple, and neatly divided into separate compartments. Broadcasters gave us TV and radio; record companies gave us music; publishers provided newspapers, magazines and books; computers allowed us to process data; photographic companies gave us cameras and film; telephone companies allowed us to communicate.

All of these previously separate industries – and a few more for good measure – are now being thrown into the digital whirlpool. Why? Because they all now use essentially the same technology, and are all coming to depend on devices that look more and more like different kinds of computers, in different shaped boxes with different sets of buttons.

The mobile invasion

Take the telephone industry, for example. Worldwide, the old dominance of national telephone companies has given way to powerful new mobile operators, who earn more money – and certainly make more profit – than the old providers of wired phones.

84% of the British population now have a mobile phone. Figures in other countries are similar, in some countries even greater. Mobile phone revenues will shortly overtake global crude oil production. What are these mobiles? Basically they are multimedia computers in phone's clothing, with a simplified set of buttons. The features offered by modern mobiles, from text to picture messaging, downloadable games and ring tones, reveal the digital wolf beneath the familiar telephonic skin. Mobiles have become the advance guard of the digital invasion.

Music in crisis

Take the music industry: it has been turned upside down by Internet downloads and portable players. The new force in the music business is Apple, with its iPod portable player and iTunes online music store (see previous article Music after iTunes).

Once again, the iPod is basically a computer in a stunningly designed case with a simplified set of controls. Apple has fired the starting gun; heavyweights such as Sony and Philips have entered the race with their own devices. But the key question being asked in industry circles is whether Apple can retain its lead, or whether in the long term it will inevitably yield to the dominance of Microsoft, as happened with the PC. Watch this space.

The broadcast explosion

Take broadcasting. Once, the allocation of scarce radio spectrum limited competition to a small number of channels. Digital technology has caused an explosion of new channels, and changed the media landscape forever. According to Ofcom, the UK's new media and telecoms regulator, 53% of the British population are now receiving digital television. The latest DAB digital radios are, yet again, portable computers at heart, with a limited set of buttons and a loudspeaker (or earphones) attached. They come in fixed or pocketable form, many with a retro case and familiar-looking knobs and buttons, but they beat with a digital heart.

Meanwhile, televisions look more and more like computers every day, with a digital receiver connected to a display that, nowadays, is likely to be a flat LCD or plasma screen – or even a digital projector. What is the world coming to?

Both TVs and radios are now acquiring hard disk storage, which allows you to record programmes for future listening and viewing - even to pause programmes while you make a cup of tea or answer the phone, and carry on where you left off. As with digital music, the task is making the new tricks of digital technology understandable, usable and cool for viewers and listeners.

Staying apart

For now at least, the industries creating these products, and the services that go with them, stay more or less separate. The barriers keeping industries apart are strong. Habits of use change slowly. Few people use a fraction of the features that are already built into their mobile phones, let alone the new ones that are emerging month by month.

Huge investments, and thousands of jobs, depend on industries operating the way they do at present, and on distributing money in old familiar ways. The music industry reacted with powerful legal force when Napster first introduced Internet file sharing, because it threatened their livelihood. Why go to the record store and buy a CD if you can get tracks for free from a friend on the Internet? It has taken several years, and Apple's patient and prolonged work with music publishers, to create a legal and workable way of distributing downloaded music, that the recording industry can accept.

Converging force

But if the barriers preventing change are large, the wheels of 'digital convergence', though they grind slowly, are ultimately unstoppable. Digital technology delivers more, at lower cost. Having one device that allows you to (for example) phone, text, listen to the radio, and play your own selection of music makes some sense. But who should sell it to you, and how should you pay for it and what it offers? How exactly should it work, and what should it look like? What organisation can put all this together, and get it right? What else should it do - pay bills, for example, or is that a step too far? Providing generalised Internet access through mobiles proved too much for most people.

A new class of device

What is now emerging, in slow and rather painful fits and starts, is a new class of device that we predicted some years ago, and christened the 'media processor'. (See, for example, our IEE Review article from 1999) The media processor has a computing heart and it performs some complex tasks, but it does not look or feel like a computer. It fits with the way people live their lives, and it is something they want to own. It does things that they want to do, the way they want to do it. It takes digital technology off the desktop and places it at the heart of people's lives, wherever they are and whatever they are doing.

The race is on to create the definitive types of media processor for different purposes - for they will come in different shapes, sizes and functions, adapted to different types of use. What you leave out is as important as what you put in. As we said in Music after iTunes, Apple has shown how to succeed in the race: design a simple, elegant device that is easy and obvious to use; link it to a service that delivers what people want (whether music, TV, radio, news or anything else); and work out a business model that pays everyone involved an acceptable amount. The last point, especially, is difficult for organisations used to dominating their sector, and not used to sharing their income with third parties.

Regulating convergence

A sign of the powerful forces behind convergence, and of the issues and problems it creates, is the British government's creation of converged regulator Ofcom. Ofcom has been built from five previously separate regulatory organisations to form one body that now regulates all the fields of media and communications, including TV, radio, telephony, and wired and wireless communications. OFTEL, ITC, BSC, the Radio Authority and the Radio Communications Agency are no more: their functions have been assumed by Ofcom.

Key tasks now on Ofcom's plate include digital switchover: how to persuade the remaining viewers of analogue TV to switch to digital, so that the analogue frequencies can be freed up and sold for other uses.

Riding the storm

The race is on; and it will affect – is affecting – every company involved in media, communications and information processing. But it also affects every user of information, which means every business. If you do not use converged information, you will be stuck in the quill pen era as the rest of the world moves on. The results of not adapting quickly enough can be seen in the profit warnings, and the share prices, of some major household names. But organisations of any size are vulnerable. Sectors as diverse as financial services, insurance, government and even transport are being drawn into the digital melting pot, as they become critically dependent on the use of converged digital information.

Digital technology brings both opportunities and threats. It cannot be swept under the carpet: it is happening now. Do you have a clear view of what you need to ride the digital storm?

©2004 Mediation Technology