WORLD SCENARIO SERIES
COMMITTED TO IM PROVING THE STATE
OF THE WORLD
Digital Ecosystem
Convergence between IT, Telecoms,
Media and Entertainment:
Scenarios to 2015
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To understand how the Digital Ecosystem could plausibly evolve in the coming 10 years, we need to look at the critical uncertainties and those factors shaping the ecosystem’s evolution.
Broadband adoption, technological advances and decreased operating costs have pushed the IT, Telecommunications and Media and Entertainment industries into a period of great flux. As they converge, they are forming a space we could call the Digital Ecosystem.
This emerging Digital Ecosystem is generating many risks and challenges for government policies, as well as presenting new opportunities for creating social and economic value. Just as any healthy eco-system enables its stakeholders to interact to the benefit of all, a healthy Digital Ecosystem will simulta-neously enable its commercial participants to create economic value and deliver well-being to society.
The critical uncertainties we focus on are user empowerment, market structure, market regulation, Intellectual Property Rights, security and privacy.
User empowerment
Digital users are taking control of when, where and how they consume digital content. They are no longer mere consumers: they increasingly participate in the Digital Ecosystem in other ways – as contributors to online communities and as creators and distributors of digital content and services. Communities are also being created around infrastructure development, such as when members of a community agree to share their wireless internet access.
Through communities, users interact and share digital content with like-minded people and get access to specialist knowledge and advice. Communities also present opportunities for opinions to crystallize. Most are not industry-led, but rather evolve organically. Their power is growing as pressure from communities increasingly often influences business decisions.
Increasing numbers of digital users are creating digital content in forms such as blogs, web pages, photos, videos, characters in games, animations or
music. These creations can be original or remixed from existing content. South Korea and Japan, both considered more mature digital markets, show very high levels of involvement and growth in user-generated content and community participation (figures 1 and 2). In time, the young and highly active contributors to online content will grow older and their behaviour patterns will become the standard.
Increasingly we note the fertilization of the traditional media by the online world. For example, user-generated content is increasingly seen on traditional media channels, such as television programmes and newspapers. Services are arising to facilitate this – Scoopt, for example, brokers blog content to news editors and takes a commission.
Introduction
Source: 2006 Informatization White Paper, National Computerization Agency, Republic of Korea contribute to online content
South Korean young internet users actively
Purpose of using the Internet – South Korea, 2006
Percentages
6-19 20s 30s 40s 50s 60s +
Community Home page/Blog
Internet
Users Age group
0 10 12 13 17 11 14 3 20 20 22 25 30 37 40 46 48 50 52 60 70 74 80
Source: U-Japan Policy, Ministry of Internal Affairs and Communications, Japan, October 2006 generated content and social networking services Japan experiences a rapid rise in users adopting
user-Number of registered users of blogs and social networking services, Japan
Million persons
Blogs Social Networking Services
March 2005 March 2006 545% 159% 0 1.11 2 4 6 8.68 7.16 8 10 3.35 Introduction 2 Figure 1 Figure 2
“The world was so recent that many things lacked names, and in order to indicate them it was necessary to point.”
Gabriel Garcia Marquez,
One Hundred Years of Solitude
Digital Ecosystem
“Digital” means any data that exist in binary form. An “ecosystem” is an interdependent and dynamic network of living organisms and their physical environment. The “Digital Ecosystem” is the space formed by the convergence of the media, telecoms and IT industries. It consists of users, companies, governments and civil society, as well as the infrastructure that enables digital interactions.
Digital user
Any consumer, producer and/or distributor of digital content or services, personal or business, for purposes such as communication, information, entertainment, education or civic engagement.
Digital community (or online community)
A group of people who are connected online, for purposes that include communicating, sharing knowledge or exchanging content. Many communities are highly cooperative and establish their own unique culture. Contributors put in significant time for typically no monetary gain, at least at present.
Digital content
Any digital information, such as music, video, text, graphics or games that can be consumed.
Digital services
Any service that assists users in making the most of the digital infrastructure, such as aggregating or customizing digital content, enabling communication and supporting hardware or software products.
MEDIA & ENTERTAINMENT INFORMATION TECHNOLOGY USERS COMMUNICATIONS GOVERNMENTS
DIGITAL LEXICON
Digital Ecosystem: Scenarios to 2015 Introduction 3Some artists and bloggers have successfully parlayed their digital creativity into an income producing activity or a professional career. Also we find increasing coverage in the traditional media on events and celebrities born and bred online, such as the FIFA Interactive World Cup 2006 and Kamini, a French rapper who became famous on YouTube, was signed up by a major label and received in about every television show.
Collaboration enabled by communities, for example wikis, remains largely a leisure activity. But there is a nascent trend towards commercial online user collaboration, as in open source software community projects. Platforms for user-generated content are increasingly supported by venture capital. In the last year, many leading platforms of user-generated content have been acquired by media giants and internet portals: Google acquired YouTube and Jotspot; Viacom acquired iFilm, Atom Films, iVillage and Quizilla.com; Yahoo acquired Jumpcut, and Newscorp acquired MySpace.
There are various models for capturing economic value generated by user creativity. Users of Second
Life can make money as they keep the intellectual property rights over content they create. Contributors to YouTube and MTV Flux, on the other hand, give up the right to commercialize their content. A middle way, revenue sharing, is exemplified by Revver, which distributes user-generated videos along with advertising and pays the creator half of the advertising revenue. It is still early days for user contribution and collaboration through communities. As communities mature, who will take the leading role in defining their operating processes and systems: industry players or, through an organic process, users themselves? Will industry capture more of the economic value arising from user creativity or will grassroots communities increasingly incubate commercial innovation as users pool their skills and resources?
Market structure
Players in the Digital Ecosystem are moving beyond their traditional boundaries. Aggregation and distribution of content are especially hotly contested, as shown in figure 3.
Players move into adjacent activities and new players emerge
Content Generation Delivery platforms Aggregation Connectivity / Transport Consumer devices Interface
Source: Based on McKinsey analysis
Content creators
move into delivery
Network operators
enter into content creation and delivery
Cable & satellite providers
enter the telephony services
Attackers
deliver content via new networks
Portals
develop content, expand into networks/WiFi/telephony expand into platforms
and services
Users Generated Content Platform Providers
Device manufacturers
Introduction
4
For example, content creators are implementing delivery platforms, and device manufacturers aggre-gating digital content. Convergence services blur the lines between traditionally separate functions such as in the case of Internet Protocol Television (IPTV) bringing together network and broadcasting activities.
Convergence is also driven by new and independent players with innovative ideas about bringing together existing technologies to create something new. This raises the question of whether established companies will be able to adapt proactively and quickly to changing market conditions. Or, could they fail and die as innovative businesses take over the market?
Some providers operate on open standards and make their products and services available through open systems. Others use proprietary systems and closed platforms. Increased business cooperation could lead to more interoperability and common standards, increasing the interconnectedness of networks, IT platforms and devices. But it is also plausible that vertical integration will lead to partnerships and consortia delivering exclusive content over closed systems, with proprietary networks, IT platforms and devices featuring interoperability only within silos.
Market regulation
Regulation and licensing are creating headaches for governments and uncertainty for industry. In most developed countries, broadcasting and telecoms have traditionally been regulated separately, meaning that new services such as IPTV1 and VoIP2 are competing in the same space without being overseen by the same regulators. Nine OECD3countries have already established single regulatory frameworks and institutions, and others are planning to follow suit.
Licensing requirements for new services and networks can also help to determine market structure. For example, a VoIP provider requires ministry approval in South Korea but does not currently in
the US; in India under the recent government clampdown, companies will not be allowed to use unlicensed foreign VoIP providers such as Skype, Yahoo and Net2Phone. South Korea recently gave trial licenses for new IPTV network services to two consortia formed by key players from the telecom and broadcasting industries.
There is also uncertainty about the strength of governments’ commitment to fostering competitive-ness in the Digital Ecosystem with the aim of growing the “knowledge economy”. Many governments promote interoperability and open systems by enforcing anti-trust regulations and adopting open source software and open standards in their own digital activities.
European public authorities are particularly active in promoting interoperability. French legislation, for example, mandates that when digital content is protected by proprietary digital rights management technologies, providers must give other software and hardware developers access to the necessary technical documentation to make their systems interoperable with it. Apple’s iTunes is under scrutiny both in France and elsewhere in the EU.
Will policy-makers and regulators be able to keep pace with emerging technological developments and business models, and foster an open and competitive digital environment?
Intellectual Property Rights (IPR)
Digital content is easier than analogue content to share and adapt. Owners of IPR face difficulties in tracking and controlling how their digital content is used, while creative users do not always find it easy to identify and trace rights holders. CreativeCommons.org seeks to tackle these dilemmas by enabling creators to define “some rights reserved” licenses that are more flexible than the two traditional extremes of “all rights reserved” and “public domain”.
1Internet Protocol Television 2Voice over Internet Protocol 3Organisation for Economic
Cooperation and Development
Digital Ecosystem: Scenarios to 2015 Introduction 5
Digital Rights Management (DRM) technologies are widely used to protect IPR. Many industry players are developing competing corporate DRM platforms. Others promote global open standards such as the Digital Media Project, often with the support of public institutions.
Countries throughout the world have adhered to the WIPO4Internet Treaties, the international framework for copyright in the digital environment. However, IPR are determined by national laws in individual countries that differ both in details and in levels of enforcement. This creates uncertainty. For example, computer software code is protected by copyright, but opinion differs widely among national jurisdictions on whether business models enabled by software’s functionality should be patentable.
The Digital Ecosystem’s stakeholders need to balance the interests of rights owners and the public. Will intellectual property laws be able to ensure that creators can commercialize their work and protect it from plagiarism, while also providing a framework that encourages creativity?
Security and privacy
For the Digital Ecosystem to create an enabling framework for economic and social development, the online environment must command trust in terms of privacy, security and protection from harmful digital content. Identity theft and fraud are increasing, despite advances in technologies to protect users and transactions; in addition, public awareness of online security and privacy issues is low.
Tracking techniques such as Radio Frequency Identification and location detection systems will add further to the information users already reveal about themselves through their consumption of
digital content and services. Data about the behaviour of a user’s online identity are used to provide them with customized services, but there are privacy dangers when the organizations who collect or have access to this data do not behave ethically.
Parental control and other filtering systems are increasingly used to protect children from harmful digital content, amid concern about information they can access and are providing about themselves. A majority of teens admit to doing things online that their parents do not know about.
Cross-border enforcement of laws on privacy, security and protection from harmful digital content are costly and difficult. Standards differ among jurisdictions, and to enforce national regulations requires international cooperation and human investigative resources. Furthermore, what is considered to be harmful is strongly influenced by local values and political regimes.
Are the industry and public institutions able to cooperate and build the required trust of users in the Digital Ecosystem? Or, will it descend into an anarchic and uncontrolled state?
4World Intellectual Property Organization
Introduction
The Digital Ecosystem is forming as the Information Technology, Telecommunications, and Media and Entertainment industries converge, users evolve from mere consumers to active participants, and governments face policy and regulatory challenges. Its stakeholders are questioning the shape and size it will take. They are aware of their inter-dependencies necessary to enable the Digital Ecosystem to evolve into a healthy environment that both creates economic value and adds well being to society.
The key questions for the scenarios
When reflecting on the future of the Digital Ecosystem, two critical questions stand out:
Executive Summary
INDUSTRY CONTROLLED AND LED ORGANIC AND COMMUNITY-LED
OR
OR
AN OPEN SYSTEMA CLOSED SYSTEM
SOCIAL AND ECONOMIC VALUE CREATION IS
DIGIT
AL BUSINESS ENVIRONMENT EVOL
VES TOW
ARDS
2. Will the digital business environment evolve toward a more open
or closed system?
1. Will social and economic value creation be industry controlled and led,
or organic and community-led?
• Processes and systems by which users contribute and communities operate are defined by industry players.
• Aggregation of products and services is performed by industry players. • Users contribute to value creation but
most valuable digital assets are commercialized by industry players. • Innovation is mostly industry-led.
• User and community contribution occurs through independent, open platforms. Members of the communities set the rules for the underlying processes and systems. • Aggregation of products and services is performed by users and/or their communities.
• Users and communities contribute signifi-cantly to value creation and successfully commercialize their products and services. • Communities are incubators for innovation through an organic process in which skills, competences and resources are pooled.
• Closed systems with proprietary networks, platforms and devices; interoperability
within silos.
• Vertical integration between content, services and conduits. • Regulatory environment that limits openness.
• Interconnectedness of networks, IT platforms and devices enabled by more interoperability and common standards.
• A constellation of players.
• Regulatory environment that supports openness.
Executive
Summar
y
Other issues are also key to how the Digital Ecosystem will evolve in the coming years:
•
The extent to which established companies will be able to adapt proactively and quickly to changing market conditions;•
The degree to which stakeholders will cooperate – businesses amongst themselves, with users and with government – to build an ecosystem where all stakeholders can thrive;•
Whether the industry and public institutions will be able to cooperate to build trust in the Digital Ecosystem and ensure the robustness of the internet infrastructure;•
The level to which intellectual property rights and patents can be exercised and protected without losing the richness of incremental distributed innovation;•
The intent of governments to foster market competitiveness and harmonize legal frameworks and cross-border enforcement.Guided by these issues and key questions, three scenarios emerge for the Digital Ecosystem. The different paths for the Digital Ecosystem through to 2015 are shown in figure 4.
Digital Ecosystem: Scenarios to 2015
Figure 2.1
Middle Kingdoms Youniverse
Safe Havens
SOCIAL AND ECONOMIC VALUE CREATION ORGANIC &
COMMUNITY-LED CONTROLLED & INDUSTRY-LED OPEN CLOSED ENVIRONMENT BUSINESS
Digital Ecosystem: Scenarios to 2015
Digital Ecosystem: Scenarios to 2015 Executive Summar y 9 Figure 4
providers. The author reflects upon the forces that shaped the Digital Ecosystem between 2007 and 2015.
Middle Kingdomsdescribes a digital world in which consumers, governments and forward-looking businesses push for interoperability, enabling a bewilderingly wide array of niche offerings to become viable propositions – and a Digital Ecosystem dominated by intermediaries that effectively connect users to like-minded individuals and to the highly specialized suppliers that can best meet their needs. In the middle of the space between consumers and suppliers lie the kingdoms where the power lies.
The scenario is written as an official company blog of a leading intermediary in which the company founder reflects in a series of blog posts on how the Digital Ecosystem’s evolution enabled his business to grow from being a start-up in 2007 to a powerful global player in 2015.
Youniversedescribes a digital world in which the rise of organic grassroots communities as powerhouses of economic value creation turns traditional business thinking on its head. This leads to the rise of new organizational structures and to digital experiences that are highly personalized. Some companies find ways to capitalize on this distributed innovation – they survive the period of uncertainty and change to see a new day dawn in the digital world; on others the sun sets for good.
This scenario is written as extracts from a community website between 2007 and 2015. The community is set up for members of the tech-savvy young generation to discuss the Digital Ecosystem’s evolution after the website’s creator finds this scenarios document lying on her boyfriend’s kitchen table.
Middle Kingdoms
Youniverse
Executive Summar y 102007-2008:In a context of geopolitical stability and government support for open markets, fundamental change is underway in the Digital Ecosystem. There is an unstoppable push from a small but highly active and influential segment of digital users and communities to take control of their digital experience. Consumers become dissatisfied with traditional industry offerings. Grassroots communities grow in power and pose fast-developing threats to businesses that do not ride the wave of user and community participation. 2009-2012: Established businesses face a stark choice: find ways to attract a community or face obsolescence. Novel organizational structures and price differentiation models emerge. Distributed innovation models, leveraging
community strength, become mainstream in software, media and entertainment. Traditional aggregators are superseded by Personal Digital Agents that collate the opinions and experiences of friends and specialist communities.
2013-2015:A new paradigm emerges based on
interoperability, open systems and common standards. The line between users and producers is further blurred as open-source supporting software and collaborative community structures become more sophisticated and back-office support services increase efficiency and reduce costs. The internet becomes extremely decentralized. Community connectedness creates focal points for common interests, and spurs distributed innovation across the world. a sense of concern engulfing the digitized world. The public
demands virtual gated environments. Governments react by de-emphasising antitrust concerns and developing close working relationships with dominant players. Consolidation, mergers, acquisitions and exclusive deals gather pace. 2009–2012: Amid apparent stability, digital service conglomerates offer a broadly similar range of bundled, customized services based on proprietary platforms that lock users in. Governments gain much-needed control through cooperating with a few powerful providers in national-level regulatory forums and licensing new converged services. Less tech-savvy users appreciate advances in convenience, privacy and stability. However, disruptive innovation outside the walls quietly gathers momentum.
disruptive activities. Conglomerates retaliate through the courts, but “Independent Online Communities” (IOCs) become more numerous and influential as mainstream consumers increasingly believe that industry control is too powerful. Governments remain supportive of digital conglomerates, but are no longer so public about it.
2007-2008: Consumers demand open and interoperable products and services; governments actively support open systems and competition. This joint pressure moves the Digital Ecosystem inexorably towards more openness. This is a time of great dynamism, competition and
experimentation as businesses prioritize harnessing user-generated content and community involvement to improve the development of services.
2009-2012: Amid a stable geopolitical environment, industry-government co-regulation establishes common standards on privacy and security. Intermediaries become the de facto leaders of the digital world as a virtuous circle emerges that mutually strengthens the need for
intermediaries and the viability of niche products and services.
2013-2015: Stability and choice become established features of the digital world. The value network is organized around a few large and powerful intermediaries – whose success is determined by their expertise, quality of service and brand identity – and a fragmented market of specialized providers. It becomes easier to exercise intellectual property rights and more consumers start to earn revenues from industry platforms. Digital Ecosystem: Scenarios to 2015 Executive Summar y 11
This table compares some of the most import aspects of the scenarios.
Safe Havens • Unstableglobal geopolitical
environment spurs protectionism. • Societies unite around their local
distinctiveness.
• Industry accepts user and community involvementas part of corporate strategy, but tightly controls it. • Industry succeeds in capturing most of
its economic value.
• Grassrootscommunities play afringe – but growing – role.
• Locally and regionally based large and vertically integrated consortiums dominate, offering end-to-end customized bundles on proprietary, closed and incompatible platforms. • New entrants face huge entry barriers. • Distinct Digital Ecosystems
emerge, both regionally and within and outside industry control.
• Anti-trust concerns and non-discrimination by service and content providers are de-emphasized.
• Networks and convergence services are subject to licensing.
• Industry players implement corporate proprietary IPRtechnologies. Infringement is energetically pursued through legal channels.
• Close cooperation between governments and industryplayers leads to more control and security. • Limited privacyas consortia track all
a user’s digital activities.
• Innovation takes place inside the consortiaand focuses on distribution infrastructure and packaging services. • Limited grassroots disruptive innovation.
Middle Kingdoms
• Global geopolitical stabilityfosters
international cooperation, understanding and openness.
• A worldwide cultureand sense of
global community grows.
•Industry embraces user creation and competes for it, albeit under rules. • Community activities remain largely
social. There are limited but growing opportunities for economic value creation.
• Value network is organized around a few large and powerful intermediariesand a huge variety of specialized niche businesses. • Low switching costs and low barriers
to entry.
• Open standards and interoperable systems lead to a globally unified Digital Ecosystem.
• Governments actively support open and interoperable systems, and intervene to guarantee market competition.
• Exercise of IPR is facilitated: – interoperability of digital rights
management technologies – advances in identity and content
management systems – global collective management
organizations
– effective international cooperation. • Industry players self-regulate to maintain
brand equity.
•Government-industry co-regulation improves cross-border enforcement. •Third-party identity banksgive users
increased control of their digital identity. •Innovation is industry-ledand
focuses on harnessing community power, personalization, and the development of niche services.
Youniverse
• Global geopolitical stabilityfosters
international cooperation, understanding and openness.
• There is global connectedness and collaborationaround common interests.
• Users take the driver’s seat: they determine the rules of their participation and collaboration, and personalize their experience.
• Organic communities are economically significant.
• Value network is fragmented, volatile, highly innovative, entrepreneurial and dynamic, harnessing the power of communities.
• Specialized offeringstargeting niche markets dominate.
• The Digital Ecosystem is diverse and bottom-up, based on open standards and modularity. • Responding to the lobbying
power of users, governments foster the self-governance of digital communities, take a minimum interventionist approach to licensing, and support incremental innovation. • IPR are diversified. Open source
and “Creative Commons” licensing become mainstream.
• Businesses adopt interoperable digital rights management technologies and refrain from heavy IPR enforcement.
• Successful public-private initiatives reduce fraud and increase digital security. • Self-governing communities
become commonly accepted. • Users ownand manage their digital
identity.
• Innovation is community-driven, distributed, and highly incremental. • Businesses experiment with
organizational structuresto exploit user and grassroots innovation.
Global environment User empowerment Market structure Market regulation Intellectual Property Rights (IPR)
Security and privacy
Innovation
Executive
Summar
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