Digital Ecosystem

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Digital EcosystemConvergence between IT, Telecoms,Media and Entertainment:Scenarios to 2015

Executive Summary

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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

Perc

enta

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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

Milli

on p

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Blogs Social Networking Services

March 2005 March 2006

545%

159%

0

1.112

4

6

8.68

7.168

10

3.35

DigitalEcosystem:Scenarios

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Introduction

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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

INFORMATIONTECHNOLOGY

USERS

COMMUNICATIONS

GOVERNMENTS

DIGITAL LEXICON


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Introduction

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Some 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

ContentGeneration

Delivery platformsAggregation

Connectivity /Transport

Consumer devicesInterface

Source: Based on McKinsey analysis

Content creatorsmove into delivery

Network operatorsenter into content creation and delivery

Cable & satellite providersenter the telephony services

Attackersdeliver content via new networks

Portalsdevelop content, expand into networks/WiFi/telephony

expand into platforms and services

Users GeneratedContent Platform Providers

Devicemanufacturers


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Introduction

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Figure 3

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 OECD3 countries 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”.

1 Internet Protocol Television2 Voice over Internet Protocol3 Organisation for EconomicCooperation and Development


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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 WIPO4 Internet 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?

4 World Intellectual PropertyOrganization


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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

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A CLOSED SYSTEM

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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.


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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 2015Figure 2.1

Middle Kingdoms Youniverse

Safe Havens

SOCIAL AND ECONOMIC VALUE CREATION ORGANIC &COMMUNITY-LED

CONTROLLED & INDUSTRY-LED

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Digital Ecosystem: Scenarios to 2015


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Figure 4

Safe Havens describes a digital world in which online

security concerns create a clamour from consumers,

businesses and governments for virtual safe havens. Industry

responds by vertically integrating to create secure walled

environments that provide all digital services. Because they

operate on closed standards, growing numbers of users start

to feel constrained by the walls of their safe havens.

The scenario is written as a special, feature-length editorial by

an outspoken business correspondent of an online magazine

belonging to one of the vertically-integrated digital service

providers. The author reflects upon the forces that shaped the

Digital Ecosystem between 2007 and 2015.

Middle Kingdoms describes 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.

Youniverse describes 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.

Safe Havens

Middle Kingdoms

Youniverse DigitalEcosystem

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2007-2008: In a context of geopolitical stability andgovernment support for open markets, fundamental changeis underway in the Digital Ecosystem. There is an unstoppablepush from a small but highly active and influential segmentof digital users and communities to take control of theirdigital experience. Consumers become dissatisfied withtraditional industry offerings. Grassroots communities growin power and pose fast-developing threats to businesses thatdo not ride the wave of user and community participation.

2009-2012: Established businesses face a stark choice: findways to attract a community or face obsolescence. Novelorganizational structures and price differentiation modelsemerge. Distributed innovation models, leveragingcommunity strength, become mainstream in software, mediaand entertainment. Traditional aggregators are supersededby Personal Digital Agents that collate the opinions andexperiences of friends and specialist communities.

2013-2015: A new paradigm emerges based oninteroperability, open systems and common standards.The line between users and producers is further blurredas open-source supporting software and collaborativecommunity structures become more sophisticated andback-office support services increase efficiency and reducecosts. The internet becomes extremely decentralized.Community connectedness creates focal points for commoninterests, and spurs distributed innovation across the world.

2007-2008: An unstable geopolitical environment and aseries of highly publicized breaches of data security leads toa sense of concern engulfing the digitized world. The publicdemands virtual gated environments. Governments react byde-emphasising antitrust concerns and developing closeworking relationships with dominant players. Consolidation,mergers, acquisitions and exclusive deals gather pace.

2009–2012: Amid apparent stability, digital serviceconglomerates offer a broadly similar range of bundled,customized services based on proprietary platforms thatlock users in. Governments gain much-needed controlthrough cooperating with a few powerful providers innational-level regulatory forums and licensing new convergedservices. Less tech-savvy users appreciate advances inconvenience, privacy and stability. However, disruptiveinnovation outside the walls quietly gathers momentum.

2013-2015: Sophisticated young tech-savvy users,frustrated by limits on their creative freedom, step up theirdisruptive activities. Conglomerates retaliate through thecourts, but “Independent Online Communities” (IOCs)become more numerous and influential as mainstreamconsumers increasingly believe that industry control is toopowerful. Governments remain supportive of digitalconglomerates, but are no longer so public about it.

2007-2008: Consumers demand open and interoperableproducts and services; governments actively support opensystems and competition. This joint pressure moves theDigital Ecosystem inexorably towards more openness. Thisis a time of great dynamism, competition andexperimentation as businesses prioritize harnessing user-generated content and community involvement to improvethe development of services.

2009-2012: Amid a stable geopolitical environment,industry-government co-regulation establishes commonstandards on privacy and security. Intermediaries becomethe de facto leaders of the digital world as a virtuous circleemerges that mutually strengthens the need forintermediaries and the viability of niche products andservices.

2013-2015: Stability and choice become establishedfeatures of the digital world. The value network is organizedaround a few large and powerful intermediaries – whosesuccess is determined by their expertise, quality of serviceand brand identity – and a fragmented market of specializedproviders. It becomes easier to exercise intellectual propertyrights and more consumers start to earn revenues fromindustry platforms.


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Middle Kingdoms Youniverse

Safe Havens

Comparing the three scenariosThis table compares some of the most import aspects of the scenarios.

Safe Havens

• Unstable global geopoliticalenvironment spurs protectionism.

• Societies unite around their localdistinctiveness.

• Industry accepts user andcommunity involvement as part ofcorporate strategy, but tightly controls it.

• Industry succeeds in capturing most ofits economic value.

• Grassroots communities play a fringe –but growing – role.

• Locally and regionally based large andvertically integrated consortiumsdominate, offering end-to-endcustomized bundles on proprietary,closed and incompatible platforms.

• New entrants face huge entry barriers.• Distinct Digital Ecosystems

emerge, both regionally and within andoutside industry control.

• Anti-trust concerns and non-discriminationby service and content providers arede-emphasized.

• Networks and convergence services aresubject to licensing.

• Industry players implement corporateproprietary IPR technologies.Infringement is energetically pursuedthrough legal channels.

• Close cooperation betweengovernments and industry playersleads to more control and security.

• Limited privacy as consortia track alla user’s digital activities.

• Innovation takes place inside theconsortia and focuses on distributioninfrastructure and packaging services.

• Limited grassroots disruptive innovation.

Middle Kingdoms

• Global geopolitical stability fostersinternational cooperation, understandingand openness.

• A worldwide culture and sense ofglobal community grows.

• Industry embraces user creationand competes for it, albeit under rules.

• Community activities remain largelysocial. There are limited but growingopportunities for economic value creation.

• Value network is organized arounda few large and powerfulintermediaries and a huge varietyof specialized niche businesses.

• Low switching costs and low barriersto entry.

• Open standards and interoperablesystems lead to a globally unifiedDigital Ecosystem.

• Governments actively support open andinteroperable systems, and interveneto 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 maintainbrand equity.

• Government-industry co-regulationimproves cross-border enforcement.

• Third-party identity banks give usersincreased control of their digital identity.

• Innovation is industry-led andfocuses on harnessing communitypower, personalization, and thedevelopment of niche services.

Youniverse

• Global geopolitical stability fostersinternational cooperation, understandingand openness.

• There is global connectednessand collaboration around commoninterests.

• Users take the driver’s seat: theydetermine the rules of their participationand collaboration, and personalizetheir experience.

• Organic communities areeconomically significant.

• Value network is fragmented,volatile, highly innovative, entrepreneurialand dynamic, harnessing the powerof communities.

• Specialized offerings targetingniche markets dominate.

• The Digital Ecosystem is diverseand bottom-up, based on openstandards and modularity.

• Responding to the lobbyingpower of users, governmentsfoster the self-governance of digitalcommunities, take a minimuminterventionist approach to licensing,and support incremental innovation.

• IPR are diversified. Open sourceand “Creative Commons” licensingbecome mainstream.

• Businesses adopt interoperable digitalrights management technologies andrefrain from heavy IPR enforcement.

• Successful public-private initiativesreduce fraud and increase digital security.

• Self-governing communitiesbecome commonly accepted.

• Users own and manage their digitalidentity.

• Innovation is community-driven,distributed, and highly incremental.

• Businesses experiment withorganizational structures to exploituser and grassroots innovation.

Global environment

User empowerment

Market structure

Market regulation

Intellectual PropertyRights (IPR)

Security and privacy

Innovation


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