Ready for the Convergence on non-adjacent industries?
#theBlur is first and foremost a convergence phenomenon
As we have previously explored, one of the major effects of the convergence that The Blur is imposing is the need to create new partnerships and new open innovation ecosystems where traditional manufacturers will have to start collaborating with brands and manufacturers from non-adjacent industries.
We have observed, for example, with the smartification of devices, the emergence of wearable technologies and even wearable fashion items. These are a combination of two industries which, until now, had very little to do with one another: fashion and consumer electronics. However, as these industries converge, they come together in a way which impacts not only their own business cycle, but also non-adjacent industries, such as fitness, wellbeing and healthcare in general.
For example, a wearable t-shirt is collecting data on the person’s sport performance, on their health vitals, and therefore sits at the crossroads of fashion, consumer electronics, IoT, wellbeing, health monitoring and fitness. To this extent, a wearable t-shirt is a good example of the type of convergence of many industries will be facing – industries which previously had very little to do with each other.
What are the challenges implied by this new kind of industry convergence?
There are four major challenges for companies starting to collaborate in this convergence phenomenon.
The first one is protection. While certain industries try to protect their businesses via copyright and trademarks, others rely mostly on patents, provisions, and safeguard.
The second challenge relates to the difference in business cycles and the different time-frames required for those business cycles.
The third issue deals with the ability of partners to co-create a business model which simultaneously supersedes the traditional method of each player, while finding an equally appealing approach to revenue and profit generation for all parties involved.
Finally, the traditional focus on the category or technology has always limited our consumer understanding to the insights of the category. When we start thinking in multidimensional terms by partnering on convergence sectors, the new partnership needs to take a huge step forward by transforming the consumer insight understanding and going beyond their own traditionally defined boundaries and categories.
One extreme case of copyright and trademark protection is the case of Coca-Cola, where the company relies heavily on brand-related safeguards and hasn’t even patented the Coca-Cola recipe, so that the recipe itself – as a trade secret – is not available, and never will be therefore nobody is able to copy it.
On the other hand of the spectrum, pharmaceutical companies strongly rely on patent based protection. They try to generate and maximise their revenues until the patents expire and generics emerge offering exactly the same active principles (APIs) and a fraction of the cost of the patents holder. Likewise, software and consumer electronics companies tend to be very oriented in patenting or copyrighting their own intellectual properties and discoveries by generating as much revenue as possible from those IPs. All of those have a limited shelf life, so by the time a patent expires, the technology is probably not even relevant anymore meaning these companies don’t have the same concerns as a pharmaceutical company might have in terms of medium and short-term revenue maximisation.
This aspect is very important because when we are talking about an open innovation environment occurring at a crossroads of multiple industries, the first step the innovators need to determine is how they are going to protect the companies and the joint ventures with regards to intellectual property and trademarks.
In our specific case of fashion and wearables, we know that fashion companies tend to rely heavily on copyright and trademark protection. For example, the famous Louboutin red sole shoes which won a landmark intellectual property case in Europe recently.
On the other hand, textile manufacturers are accustomed to building intellectual protection through patents and even branding/trademarking them, such as Gore-Tex technologies which are patented and trademarked to differentiate from potential copycats.
The issue of protection is an important one because it is not only impacting the protection side, but also the traditional revenue-generating side of the industry. This issue is further intertwined with the business side of the discussion – which occurs later in this post – so identifying common ground for protection is crucial as it simultaneously defines a common boundary approach to revenue generation – this is in regards to whom is going to manufacture, who is going to licence, and who is going to own the making and thinking behind the certain partnerships.
2) Business Cycles
Business cycles become even more important when we look at them in the light of the second issue – the issue of different business cycles. In the fashion world, a new collection is sold to the distributors and wholesalers nearly seven or eight months before it actually hits the store, sometimes up to a year. To be ready for the new collection a year before, it has been in the works from material sourcing probably a year before that therefore developing a new fashion item takes anything from between 12 and 24 months before it actually hits the store.
This also demonstrates the risk entailed in predicting future fashion trends and ensuring that these new products are a feasible launch in the future. In the world of consumer electronics, those cycles are much shorter unlike the healthcare industry, particularly on the pharmaceutical side, where approval for a new drug can take anywhere between 24 months and up to 6 years, considering the process behind it.
In these new types of convergences implied by The Blur, where category boundaries are dissolving, we are going to be facing more and more challenges due to traditional business cycles impacting the progression of our partnerships. While it is important to understand that this is happening, there is no one magic solution to the problem.
3) Business Model
Partnership will also have to create a different business cycle for themselves which makes sense and relates to the business model. In particular, when we are talking about the convergence industry, it is ideal to identify a new business model which suits all possible parties. When we talk about healthcare, wellbeing and wearable technologies, even if the dominant business model becomes more fashion-like, that is still a completely different business model for partners coming from consumer electronics, health care and wellbeing. Therefore, developing the business model is key to ensuring that everybody feels comfortable in the short term and is satisfied in the long term.
In our experience so far, we have noticed that these types of partnership fail to fly if protection and differences in business cycles are not addressed as soon as possible in the context of a new business model.
In our work as consultants, one aspect we can’t help noticing is that even the most sophisticated consumer-understanding organisations limit their insights solely to the industries they deal with. While that is certainly more cost-efficient for them when we talk about the convergence of multiple industries, the problem becomes multi-dimensional. This is because for example you will have a fashion declination, a consumer electronics declination, and a healthcare/wellbeing declination in the specific example of a wearable product, and all of these need to be put in perspective of what the traditional view of the category is and how it can be redefined.
One important aspect is to find common ground for building and setting consumer insights where traditional knowledge gets shared and new knowledge is created in a way that everybody among the partners can not only understand, but also contribute to it.
In a nutshell, because of the convergence, more and more industries will start collaborating with other industries having a different approach to intellectual property protection, trademark protection, business cycles/models, and boundaries regarding consumer insight. All of these aspects need to be taken into consideration when entering a partnership with companies from different industries in order to maximise the likelihood of establishing an interesting partnership which builds common ground for future revenue and profit sharing.