What you should know about digital media

In May, Canadians will converge to Stratford for Canada 3.0 – Canada’s digital media forum.  The open invitation gathers individuals and organisations to discuss Canada’s role in the digital economy. The two-day event will cover all topics on digital media including infrastructure, regulations, commercialisation, and Canada’s competitiveness. What should Canadians accomplish at this forum?  Here are some highlights from last year’s forum.
Where to begin?

A productive discussion mapping out the future of digital media is not easy.  There are many moving parts and each part has many layers.  For instance, there are content creators, aggregators, white label service providers, retailers, B2C (Business-to-Consumer) service providers, delivery enablers and more. With so many parties, where does one begin?

First of all, stop the groupthink and step back for a more holistic overview. Appreciate the scale and complexity of the digital economy today – the interconnections and the interdependencies.  In previous blogs, I have framed the issue into its three basic components: content, platform and applications.  However, this only provides a basic framework for individual organizations.  A holistic view of the overall landscape requires maps.  Since there is no need to “reinvent the wheel”, here is a map from FirstPartner presenting the mobile media landscape (download the FirstPartner maps here). Can you locate the Apple App Store?

Although this map seems overwhelming, it is already oversimplified. If you drill down to the “Mobile Networks” layer near the top, where wireless carriers like Wind Mobile and Rogers are represented, you will find another layer of the landscape with different parties and technologies. Similar encapsulation applies to mobile commerce and location-based services.  The “digital media” landscape is huge and each line item is another layer of interconnection and interdependency.

In this context, what are the right questions to ask? For one, asking about the future of digital media in a three to five year horizon is overly generic. Not only is it not actionable, but it is also mistakenly nearsighted. For instance, the App Store was not on the map 20 months ago. Now, there are more than 20 micro-ecosystems in that subcategory alone.

To illustrate the interconnection and interdependency in another example, if you try to map out the value chain for the iPhone 3GS, you will find that its components are sourced from multiple companies in multiple countries and not all value is captured equally.  Here is a breakdown of the estimated market value of each major component.

Notice anything?  Why is Canada not in this global value chain? Is it because Canadians do not have the know-how? Should Canada have a role in this global value chain at all?

Again, the digital economy is huge and the answer is one of prioritization.  This table illustrates only the value captured at the component level of the device layer in the mobile consumer ecosystem (see slides below for a review of value creation vs. value capture).  Money flow through many conduits and the value chain for devices is not the only play.  However, this only further illustrates the importance of the decisions we make today and their repercussions in tomorrow’s global economy.

Although Canada has no footprint in the making of the iPhone at the device level, its unveiling in Canada has driven consumer demand for monthly data plans and the growth of data revenue for Canadian carriers.  These two Canadian parties have benefited without any direct Canadian footprints in that iPhone value chain.  Imagine the economic impact domestically and internationally when Canada chooses to compete.

A primer

Focus on paradigms; not technologies.  Consider the paradigm shift for personal computing in the last 30 years:

“What’s the next paradigm shift that would allow an entry? We made this bet that the paradigm shift would be the graphical interface and that the Mac would make this happen. We really bet our future on the Macintosh being successful, then the graphical interface in general being successful.

The big debate wasn’t Mac vs. Windows. The big debate was character mode interface versus graphics mode interface. When the 386 came and we got more memory. The speed was adequate. Some development tools came along. That paradigm bet on GUI paid off for everybody who got in early and said this is the way.” —Bill Gates

Yet, many of the group discussions today are between devices like iPhone vs. BlackBerry, or individual features like touch screens vs. QWERTY keyboards. This is a problem because it misallocates group attention.

For instance, devices are becoming platform-agnostic, carrier agnostic, content agnostic. Talking about devices in isolation gives the impression of hardware limitations, when in fact, the commercialization gaps are license- and usability-related.  Incorrectly amalgamating separate issues or framing discussions based on current products create illusionary rules of engagement for tomorrow’s marketplace.

Moreover, devices and features could mature down the product life cycle as soon as the next design iteration – typically in 18-month cycles. This is why discussions should focus on paradigms, not technologies or individual solutions – especially when a platform and the intellectual property (along with the negotiation power) belong to a competitor.

In Stratford, there will be more paradigms to discuss than the two-day forum could adequately address: single input vs. multiple inputs, indirect interface vs. direct interface, general platform vs. targeted solution, digital representation vs. analogous realism. Yet, the strategy here should be debating the paradigms and challenging their underlying assumptions rigorously without prejudice.

Tactic vs. strategy

Striking a balance between tactical and strategic issues would also prioritize attention.   Group discussions tend to bias toward day-to-day, operational tactics – sometimes, to the level of specific company or individual product features.  For instance, is advertising a better business model for app developers?   Or, can the iPad (and tablet form factor computing) be leveraged to save the news industry? However, these are not the right questions to ask for long-term sustainable competitiveness and prosperity.

As a precursor, what is the difference between tactic and strategy? A tactic is a short sequence of calculated maneuvers which limits a competitor’s options or differentiates for tangible gain – more operational and regional in nature. On the other hand, a strategy is a long, non-sequential series of interdependent decisions based on premeditated attitude for cohesive alignment – more directional and global in nature.  More information is available from Michael Porter in the videos below, but the takeaway point is this:

“It doesn’t matter so much what particular field a region competes in  – whether it is in shoes or semiconductor – it actually turns out not to matter that much.  What matter is how sophisticated and productive you are in whatever you do.  Many people get in the mindset that they have to get into a specific industry or sector like high-tech.  Actually, that’s not correct.  What you need is to be productive in all your industries across the board.  Don’t be seduced by picking winners. They are all winners. You don’t have to be in semiconductor [for example] to be prosperous.” – Michael Porter

Digital Media Ontario

There are many other activities in Ontario on the pursuit for long-term, sustainable competitiveness.  At MaRS, our ICT practice has experienced advisorsmarket intelligence, educational programs, self-guiding instructional articles and workbooks and help for you to find money.

In November, the Ontario government announced plans to invest up to $26.4M (24% of the $107M project) in the Waterloo region to create the Communitech Digital Media and Mobile Hub.  At the national level, the federal government has created the Canadian Digital Media Network also to be based in downtown Kitchener and Stratford.  Then, there is the $250M Ontario Emerging Technologies Fund (OETF) to co-invest with VC firms including Celtic House, JLA Ventures and Tech Capital.

I believe Canada’s role in the digital economy of the 21st century and the opportunities that she creates for herself, will rest on our collective ability to

(i) identify asynchronous and asymmetrical patterns in the relevant ecosystems,

(ii) think rationally with the underlying economic drivers such as cost and exclusivity, and

(iii) capture as much value as possible through complementary products and services up and down the global value chain.

Building on paradigms and key elements will stimulate growth in any economy: digital or analog, knowledge-based or manufacturing, products or services.

Tim Tang

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