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Separating hype from reality seems almost impossible when talking about digital convergence. Droves of start-ups are pouring into the information superhighway, best-selling books are being written about "being digital,"1 politicians are proclaiming the age of new electronic democracy, and multi-billion dollar deals are inked almost daily in the name of digital convergence. But how much substance is behind the hype? Are we on the verge of a true technological revolution that will reshape the global economy? What should companies and managers do to prepare for such a turbulent world?
There is something real to the excitement over digital convergence. If only a small portion of the convergence-related R&D pays off, our lives could be materially altered by the turn of the century. In the consumer segment of the market, for example, firms are undertaking huge investments in videoon-demand, interactive television, on-line services, and new forms of digital entertainment content; in education, companies are exploring ways to use multi-media technology to enhance student-student learning, teacher-teacher sharing, and continuous learning; and in business, enhancements to corporate networks, and the internet are creating opportunities for new channels of distribution, new methods of communications (e.g., personal video conferencing), and new vehicles for delivering real-time corporate information. While some firms are making big investments to enhance the PC as a general purpose device that will equally serve the home, business, and education, others are proclaiming the death of the modern PC, with the emergence of a ubiquitous network and cheap internet appliances.
How can we understand the consequences of convergence? The argument in this article is that mastering digital convergence does not require a magical new set of technologies. Too many companies have sought, and failed, to master digital convergence with a big technological breakthrough or grand acquisition. Instead, I suggest that success will emerge by adopting a strategy that I summarize in the acronym CHESS, which stands for creative combinations, horizontal solutions, externalities and standards, scale and bundling, and new production techniques, called system-focused development.
A CHESS strategy means rethinking many traditional approaches to convergence. The entertainment business and telecommunications industries, for example, have focused their strategies on huge infrastructure investments or big bets that will reorganize the hardware and software industries. But the lesson we have learned from...