Industry Dynamics And Types Of Convergence: The Evolution Of The

Industry Dynamics and Types of Convergence: the Evolution of the Personal Digital Assistant Market in the 1990s and Beyond by Nils Stieglitz, Philipps-University Marburg (Germany) One recurrent theme in the discussion about the impact of ICT technologies on ‘old economy’ markets is the claim that some of the traditional industries are converging. For example, it has been predicted for years that the PC computer industry, the telecommunication industry, and the media industry will one day merge into a huge multimedia market. What has been lacking from the theoretical and managerial discussion is the precise definition of what is meant by ‘industry convergence’ in the first place, and how different types of convergence influence innovations and competition. Often, authors only consider one case of industry convergence, or define convergence indiscriminately as a ‘blurring of industry boundaries”. Building on the evolutionary theory of the firm and modern demand theory, it is argued that four generic types of industry convergence have to be distinguished which differ in their impact on industry evolution and corporate behaviour. Specifically, these four types vary in their effect on a) types and sources of innovations, b) learning regimes, c) corporate strategy, d) market positioning, and e) the strategic paths of established firms. To illustrate the developed taxonomy and its underlining theory, it is shown in depth how different types of industry convergence shaped the evolution of the PDA industry from the beginning in the early 1990s up to the present at one point or another. While regulatory changes sometimes trigger convergence, technological innovations from new or incumbent firms are usually the driving forces of industry convergence. Existing industries become technologically convergent if their different products or processes start to rely on the same sets of technological assets. Two types of technological convergence are possible. A technological convergence in upstream markets indicates the case in which the production of dissimilar products increasingly depends on the same set of technological assets. A recent example is the semiconductor industry, and the related discussion about general purpose technologies. A technological convergence in downstream markets indicates the case in which the technological assets of existing industries are jointly used to develop new products or services. An example is the formative stage of the PDA industry, in which firms from telecommunications, computers, entertainment, and the calculator industry competed to develop the first PDAs. The remaining two types of market convergence change the functional characteristics of existing products and services. While technological convergence has an impact on the technological assets of firms, market convergence changes the demand patterns in different industries. A product convergence of substitutes is the classical case of one industry offering product functions which rapidly evolve into a close substitute to another existing market. Examples include the convergence of financial services like banking, brokering, and mutual funds, and which is facilitated through the deregulation of financial markets. A more technology-intensive example is the present PDA and mobile phone industries. With the advent of the 3G standard, there will be considerable product convergence between PDAs and mobile phones since they increasingly offer the same functions (e.g. e-mail, Internet access, word processing, etc.). A product convergence of complementarities occurs if existing products or services become complementary to each other. For instance, Internet standards and technologies made computers (“data processing”) and telecommunication services (“data communication”) mutually complementary for private users. While these four types are generic, they nonetheless allow to identify and explain empirical patterns of industry convergence. To illustrate this, the dynamics of the PDA 1

industry are mapped and analysed. Three stages of industry evolution are identified. In the formative stages in the early 1990s, industry evolution was driven by technological convergence in downstream markets. Following this convergence, the industry entered a growth stage (mid-1990s to the end of the 1990s), which was characterised by incremental innovative activities and stable growth. Since the early 2000s, changes in the competitive landscape of the industry are increasingly shaped by product convergence of complementarities and substitutes, and technological convergence in upstream markets. Consequently, to fully appreciate the evolution of this particular industry, it is necessary to take account of these different kinds of convergence.

Author: Nils Stieglitz Department of Economics & Business Administration Universitaetsstr. 24 35032 Marburg (Germany) Phone: +49 (0)6421 282-6592 Fax: + 49 (0)6421 282-6595 [email protected]

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