Thursday, 14 November 2002 8:30 am
Perhaps it is time to reconsider convergence.  For 25 years we have spent enormous amounts of effort and money attempting to bring about the convergence of communications, television and computing, to no avail. Today the communications industry with its products and services, are just as separated from the computer industry with its products and services, and the television industry with its products and services, as they were 25 years ago.

It wasn't for a lack of trying or willingness to spend money on convergence.  As early as the 1970's, IBM attempted to enter the communications business by creating Satellite Business Systems, while AT&T invested billions in its NET 1000 computing service (a forerunner of the internet ecommerce).  Both were later abandoned.  In the 1980's AT&T, undeterred, willingly gave up the Bell operating companies in a deal with the Department of Justice to allow it to enter the computer business.  When AT&T's computer business was unable to turn a profit, AT&T bought NCR.  Still unable to turn the business profitable, and unable to converge its communications products with NCR's computer products, AT&T spun off NCR at a loss in 1996. Still undeterred, AT&T went on to spend another $50 billion or so to buy cable TV companies to enable a telephone/TV convergence. Yesterday, the FCC approved the sale of AT&T's cable TV unit to Comcast.

Microsoft bought WebTV in 1997 and then announced that 1998 would be the year of convergence between the PC and the TV.  But convergence did not come about.  More recently, Microsoft has attempted to spread its operating system base into cell phones with their Smartphone operating system.  But this may end up failing as well.  Almost every day brings more news that cell phone makers, who had opted for the Microsoft Smartphone operating system, are canceling their introductions and/or switching to the Symbian operating system.  At present course and speed, Microsoft will be out of the cell phone software business shortly, leaving it to specialists such as Symbian and Nokia.

Convergence was also cited as the reasons for the merger of AOL and Time Warner, the purchase of Excite@home by AT&T, Microsoft's money-losing investments in cable TV and satellite communications companies, etc.  All mistakes, viewed from the vantage point of 2002.

We have all witnessed or been part of various attempts to merge PC's with TV's, PC's with telephones, PC's with set-top boxes, etc.  The first attempts go all the way back to the 1970's.  All failures.

The reason that we don't give up is that we know that these products are technologically nearly identical.  They share the same chips (with notable exceptions, of course), similar software concepts (well, somewhat similar), use the same programming languages, the same approaches to circuit board design, and similar packaging.  So it is tempting to think that if your company is successful in one of the industries, it should be able to grow horizontally into the others and "converge" the product offerings.  Seems reasonable, but it has never worked.

Why has it always failed?  I believe the reason is that the assumptions and instincts that work so well in each of the markets do not work in the others.  Managers who grew up in the computer business and developed their instincts in that market, find that their instincts do not serve them well in the telecommunications or TV markets, and vise versa.  When your instincts do not serve you well, you either make mistakes or you are slowed down because you need more time than your competitor to make critical decisions.

The other reason is that the customers never really asked for convergence.  Some market surveys have shown that consumers think of TVs, PCs, and telephones as being different products. Within corporations, buyers who buy telecommunications services and equipment are different people from those who buy computers and software.  

Perhaps convergence will finally succeed with cell phones and PDAs, cell phones and video games, or cell phones and digital cameras.  Perhaps not.  We will soon know.  If it does not work, I propose that we put the dream of convergence behind us.  There must be more productive endeavors for our efforts and our investor's capital.