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

Executive Summary
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Digital Ecosystem: Scenarios to 2015


To understand how the Digital Ecosystem could music. These creations can be original or remixed
plausibly evolve in the coming 10 years, we need to from existing content. South Korea and Japan, both
look at the critical uncertainties and those factors considered more mature digital markets, show very
shaping the ecosystem’s evolution. high levels of involvement and growth in user-
Broadband adoption, technological advances generated content and community participation
and decreased operating costs have pushed the IT, (figures 1 and 2). In time, the young and highly
Telecommunications and Media and Entertainment active contributors to online content will grow older and
industries into a period of great flux. As they their behaviour patterns will become the standard.
converge, they are forming a space we could call Increasingly we note the fertilization of the
the Digital Ecosystem. traditional media by the online world. For example,
This emerging Digital Ecosystem is generating user-generated content is increasingly seen on
many risks and challenges for government policies, traditional media channels, such as television
as well as presenting new opportunities for creating programmes and newspapers. Services are arising
social and economic value. Just as any healthy eco- to facilitate this – Scoopt, for example, brokers blog
system enables its stakeholders to interact to the content to news editors and takes a commission.
benefit of all, a healthy Digital Ecosystem will simulta-
Figure 1 South Korean young internet users actively
neously enable its commercial participants to create contribute to online content
economic value and deliver well-being to society.
Purpose of using the Internet – South Korea, 2006
The critical uncertainties we focus on are user Home page/Blog Community
empowerment, market structure, market regulation,

Intellectual Property Rights, security and privacy. 70
50 48 46
User empowerment
40 37
Digital users are taking control of when, where and 30 25
20 22
how they consume digital content. They are no 20 13
12 11
longer mere consumers: they increasingly participate 10 3
in the Digital Ecosystem in other ways – as contributors Internet 6-19 20s 30s 40s 50s 60s +
Users Age group
to online communities and as creators and distributors Source: 2006 Informatization White Paper, National Computerization Agency, Republic of Korea
of digital content and services. Communities are also
being created around infrastructure development, Figure 2 Japan experiences a rapid rise in users adopting user-
generated content and social networking services
such as when members of a community agree to
share their wireless internet access. Number of registered users of blogs and social networking services, Japan
March 2005 March 2006
Through communities, users interact and share
Million persons

digital content with like-minded people and get access 8.68

to specialist knowledge and advice. Communities 8 7.16

also present opportunities for opinions to crystallize. 6
Most are not industry-led, but rather evolve organically.
4 3.35
Their power is growing as pressure from communities
increasingly often influences business decisions. 1.11

Increasing numbers of digital users are creating 0

Blogs Social Networking Services
2 digital content in forms such as blogs, web pages,
Source: U-Japan Policy, Ministry of Internal Affairs and Communications, Japan, October 2006
photos, videos, characters in games, animations or
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Digital Ecosystem: Scenarios to 2015


“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. GOVERNMENTS
An “ecosystem” is an interdependent and dynamic
network of living organisms and their physical
environment. The “Digital Ecosystem” is the space ENTERTAINMENT
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.

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Digital Ecosystem: Scenarios to 2015


Some artists and bloggers have successfully parlayed Life can make money as they keep the intellectual
their digital creativity into an income producing activity property rights over content they create. Contributors
or a professional career. Also we find increasing to YouTube and MTV Flux, on the other hand, give
coverage in the traditional media on events and up the right to commercialize their content. A middle
celebrities born and bred online, such as the FIFA way, revenue sharing, is exemplified by Revver, which
Interactive World Cup 2006 and Kamini, a French distributes user-generated videos along with advertising
rapper who became famous on YouTube, was and pays the creator half of the advertising revenue.
signed up by a major label and received in about It is still early days for user contribution and
every television show. collaboration through communities. As communities
Collaboration enabled by communities, for mature, who will take the leading role in defining
example wikis, remains largely a leisure activity. But their operating processes and systems: industry
there is a nascent trend towards commercial online players or, through an organic process, users
user collaboration, as in open source software themselves? Will industry capture more of the
community projects. Platforms for user-generated economic value arising from user creativity or will
content are increasingly supported by venture grassroots communities increasingly incubate
capital. In the last year, many leading platforms of commercial innovation as users pool their skills
user-generated content have been acquired by and resources?
media giants and internet portals: Google acquired
YouTube and Jotspot; Viacom acquired iFilm, Atom Market structure
Films, iVillage and Quizilla.com; Yahoo acquired Players in the Digital Ecosystem are moving beyond
Jumpcut, and Newscorp acquired MySpace. their traditional boundaries. Aggregation and distribution
There are various models for capturing economic of content are especially hotly contested, as shown
value generated by user creativity. Users of Second in figure 3.

Figure 3 Players move into adjacent activities and new players emerge

Content Delivery platforms Connectivity / Consumer devices

Generation Aggregation Transport Interface
Content creators
move into delivery
expand into platforms Device
and services manufacturers
Network operators
enter into content creation and delivery

Cable & satellite providers

enter the telephony services
develop content, expand into networks/WiFi/telephony
deliver content via new networks
Users Generated
4 Content Platform Providers
Source: Based on McKinsey analysis
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Digital Ecosystem: Scenarios to 2015

For example, content creators are implementing the US; in India under the recent government
delivery platforms, and device manufacturers aggre- clampdown, companies will not be allowed to use
gating digital content. Convergence services blur the unlicensed foreign VoIP providers such as Skype,
lines between traditionally separate functions such Yahoo and Net2Phone. South Korea recently gave
as in the case of Internet Protocol Television (IPTV) trial licenses for new IPTV network services to two
bringing together network and broadcasting activities. consortia formed by key players from the telecom
Convergence is also driven by new and and broadcasting industries.
independent players with innovative ideas about There is also uncertainty about the strength of
bringing together existing technologies to create governments’ commitment to fostering competitive-
something new. This raises the question of whether ness in the Digital Ecosystem with the aim of growing
established companies will be able to adapt the “knowledge economy”. Many governments
proactively and quickly to changing market promote interoperability and open systems by
conditions. Or, could they fail and die as innovative enforcing anti-trust regulations and adopting open
businesses take over the market? source software and open standards in their own
Some providers operate on open standards digital activities.
and make their products and services available European public authorities are particularly active
through open systems. Others use proprietary in promoting interoperability. French legislation, for
systems and closed platforms. Increased business example, mandates that when digital content is
cooperation could lead to more interoperability and protected by proprietary digital rights management
common standards, increasing the interconnectedness technologies, providers must give other software
of networks, IT platforms and devices. But it is also and hardware developers access to the necessary
plausible that vertical integration will lead to partnerships technical documentation to make their systems
and consortia delivering exclusive content over closed interoperable with it. Apple’s iTunes is under scrutiny
systems, with proprietary networks, IT platforms and both in France and elsewhere in the EU.
devices featuring interoperability only within silos. Will policy-makers and regulators be able to
keep pace with emerging technological developments
Market regulation and business models, and foster an open and
Regulation and licensing are creating headaches for competitive digital environment?
governments and uncertainty for industry. In most
developed countries, broadcasting and telecoms Intellectual Property Rights (IPR)
have traditionally been regulated separately, meaning Digital content is easier than analogue content
that new services such as IPTV and VoIP are
1 2
to share and adapt. Owners of IPR face 1
Internet Protocol Television
Voice over Internet Protocol
competing in the same space without being overseen difficulties in tracking and controlling how their 3
Organisation for Economic
by the same regulators. Nine OECD 3 countries have digital content is used, while creative users do Cooperation and Development
already established single regulatory frameworks and not always find it easy to identify and trace rights
institutions, and others are planning to follow suit. holders. CreativeCommons.org seeks to tackle
Licensing requirements for new services and these dilemmas by enabling creators to define
networks can also help to determine market structure. “some rights reserved” licenses that are more
For example, a VoIP provider requires ministry flexible than the two traditional extremes of “all
approval in South Korea but does not currently in rights reserved” and “public domain”.
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Digital Ecosystem: Scenarios to 2015


Digital Rights Management (DRM) technologies digital content and services. Data about the behaviour
are widely used to protect IPR. Many industry of a user’s online identity are used to provide them
players are developing competing corporate DRM with customized services, but there are privacy
platforms. Others promote global open standards dangers when the organizations who collect or
such as the Digital Media Project, often with the have access to this data do not behave ethically.
support of public institutions. Parental control and other filtering systems are
Countries throughout the world have adhered increasingly used to protect children from harmful
World Intellectual Property to the WIPO 4 Internet Treaties, the international digital content, amid concern about information they
framework for copyright in the digital environment. can access and are providing about themselves.
However, IPR are determined by national laws in A majority of teens admit to doing things online that
individual countries that differ both in details and their parents do not know about.
in levels of enforcement. This creates uncertainty. Cross-border enforcement of laws on privacy,
For example, computer software code is protected security and protection from harmful digital content
by copyright, but opinion differs widely among are costly and difficult. Standards differ among
national jurisdictions on whether business models jurisdictions, and to enforce national regulations
enabled by software’s functionality should be requires international cooperation and human
patentable. investigative resources. Furthermore, what is
The Digital Ecosystem’s stakeholders need to considered to be harmful is strongly influenced by
balance the interests of rights owners and the public. local values and political regimes.
Will intellectual property laws be able to ensure that Are the industry and public institutions able to
creators can commercialize their work and protect cooperate and build the required trust of users in
it from plagiarism, while also providing a framework the Digital Ecosystem? Or, will it descend into an
that encourages creativity? anarchic and uncontrolled state?

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

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Digital Ecosystem: Scenarios to 2015

Executive Summary
Executive Summary

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:

1. Will social and economic value creation be industry controlled and led,
or organic and community-led?



• Processes and systems by which users • User and community contribution occurs
contribute and communities operate are OR through independent, open platforms.
defined by industry players. Members of the communities set the rules
• Aggregation of products and services is for the underlying processes and systems.
performed by industry players. • Aggregation of products and services
• Users contribute to value creation but is performed by users and/or their
most valuable digital assets are communities.
commercialized by industry players. • Users and communities contribute signifi-
• Innovation is mostly industry-led. 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.

2. Will the digital business environment evolve toward a more open

or closed system?

• Interconnectedness of networks, IT platforms and devices enabled by more interoperability
and common standards.
• A constellation of players.
• Regulatory environment that supports openness.


• Closed systems with proprietary networks, platforms and devices; interoperability
within silos.
• Vertical integration between content, services and conduits.
• Regulatory environment that limits openness.

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Digital Ecosystem: Scenarios to 2015

Executive Summary
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.

Figure 4 Digital
Digital Ecosystem:
Ecosystem: Scenarios
Scenarios to 2015to 2015

Middle Kingdoms Youniverse




Safe Havens

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Safe Havens 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
Digital Ecosystem: Scenarios to 2015

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
Executive Summary

Digital Ecosystem between 2007 and 2015.

Middle Kingdoms 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 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.

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2007-2008: An unstable geopolitical environment and a 2013-2015: Sophisticated young tech-savvy users,
series of highly publicized breaches of data security leads to frustrated by limits on their creative freedom, step up their
a sense of concern engulfing the digitized world. The public disruptive activities. Conglomerates retaliate through the
demands virtual gated environments. Governments react by courts, but “Independent Online Communities” (IOCs)
de-emphasising antitrust concerns and developing close become more numerous and influential as mainstream

Digital Ecosystem: Scenarios to 2015

working relationships with dominant players. Consolidation, consumers increasingly believe that industry control is too
mergers, acquisitions and exclusive deals gather pace. powerful. Governments remain supportive of digital
conglomerates, but are no longer so public about it.
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

Executive Summary
innovation outside the walls quietly gathers momentum.

2007-2008: Consumers demand open and interoperable 2013-2015: Stability and choice become established
products and services; governments actively support open features of the digital world. The value network is organized
systems and competition. This joint pressure moves the around a few large and powerful intermediaries – whose
Digital Ecosystem inexorably towards more openness. This success is determined by their expertise, quality of service
is a time of great dynamism, competition and and brand identity – and a fragmented market of specialized
experimentation as businesses prioritize harnessing user- providers. It becomes easier to exercise intellectual property
generated content and community involvement to improve rights and more consumers start to earn revenues from
the development of services. industry platforms.

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

2007-2008: In a context of geopolitical stability and 2013-2015: A new paradigm emerges based on
government support for open markets, fundamental change interoperability, open systems and common standards.
is underway in the Digital Ecosystem. There is an unstoppable The line between users and producers is further blurred
push from a small but highly active and influential segment as open-source supporting software and collaborative
of digital users and communities to take control of their community structures become more sophisticated and
digital experience. Consumers become dissatisfied with back-office support services increase efficiency and reduce
traditional industry offerings. Grassroots communities grow costs. The internet becomes extremely decentralized.
in power and pose fast-developing threats to businesses that Community connectedness creates focal points for common
do not ride the wave of user and community participation. interests, and spurs distributed innovation across the world.

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.

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Digital Ecosystem: Scenarios to 2015 Middle Kingdoms Youniverse

Safe Havens

Comparing the three scenarios

This table compares some of the most import aspects of the scenarios.
Executive Summary

Safe Havens Middle Kingdoms Youniverse

Global environment • Unstable global geopolitical • Global geopolitical stability fosters • Global geopolitical stability fosters
environment spurs protectionism. international cooperation, understanding international cooperation, understanding
• Societies unite around their local and openness. and openness.
distinctiveness. • A worldwide culture and sense of • There is global connectedness
global community grows. and collaboration around common

User empowerment • Industry accepts user and • Industry embraces user creation • Users take the driver’s seat: they
community involvement as part of and competes for it, albeit under rules. determine the rules of their participation
corporate strategy, but tightly controls it. • Community activities remain largely and collaboration, and personalize
• Industry succeeds in capturing most of social. There are limited but growing their experience.
its economic value. opportunities for economic value creation. • Organic communities are
• Grassroots communities play a fringe – economically significant.
but growing – role.

Market structure • Locally and regionally based large and • Value network is organized around • Value network is fragmented,
vertically integrated consortiums a few large and powerful volatile, highly innovative, entrepreneurial
dominate, offering end-to-end intermediaries and a huge variety and dynamic, harnessing the power
customized bundles on proprietary, of specialized niche businesses. of communities.
closed and incompatible platforms. • Low switching costs and low barriers • Specialized offerings targeting
• New entrants face huge entry barriers. to entry. niche markets dominate.
• Distinct Digital Ecosystems • Open standards and interoperable • The Digital Ecosystem is diverse
emerge, both regionally and within and systems lead to a globally unified and bottom-up, based on open
outside industry control. Digital Ecosystem. standards and modularity.

Market regulation • Anti-trust concerns and non-discrimination • Governments actively support open and • Responding to the lobbying
by service and content providers are interoperable systems, and intervene power of users, governments
de-emphasized. to guarantee market competition. foster the self-governance of digital
• Networks and convergence services are communities, take a minimum
subject to licensing. interventionist approach to licensing,
and support incremental innovation.

Intellectual Property • Industry players implement corporate • Exercise of IPR is facilitated: • IPR are diversified. Open source
Rights (IPR) proprietary IPR technologies. – interoperability of digital rights and “Creative Commons” licensing
Infringement is energetically pursued management technologies become mainstream.
through legal channels. • Businesses adopt interoperable digital
– advances in identity and content
management systems rights management technologies and
refrain from heavy IPR enforcement.
– global collective management
– effective international cooperation.

Security and privacy • Close cooperation between • Industry players self-regulate to maintain • Successful public-private initiatives
governments and industry players brand equity. reduce fraud and increase digital security.
leads to more control and security. • Government-industry co-regulation • Self-governing communities
• Limited privacy as consortia track all improves cross-border enforcement. become commonly accepted.
a user’s digital activities. • Third-party identity banks give users • Users own and manage their digital
increased control of their digital identity. identity.

Innovation • Innovation takes place inside the • Innovation is industry-led and • Innovation is community-driven,
consortia and focuses on distribution focuses on harnessing community distributed, and highly incremental.
infrastructure and packaging services. power, personalization, and the • Businesses experiment with
• Limited grassroots disruptive innovation. development of niche services. organizational structures to exploit
user and grassroots innovation.
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