Macenstein

Posted by Helper Monkey

In a recent survey of technology executives conducted by Pricewaterhouse Coopers, the overwhelming majority see a new “tech boom� on the horizon, spurred by a new “Digital Convergence�. This convergence is described as “the effort to bring together computer, phone, recording and broadcast technologies within an all-digital environment enabling new, flexible uses of products and services.�

Apple’s iPod was originally designed to serve as just such a unifying device, and has thus far succeeded in fending off attacks from would-be rivals. However, right now the biggest threat to the iPod’s dominance comes not from other MP3 players, but from cell phone companies. Most cellular carriers are cramming most of the iPod’s functionality into their handsets, thus making the prospect of carrying around one single portable lifestyle device more of a reality. When forced to select 1 indispensable “must haveâ€? device, most people would choose their cell phone over their iPod.

So, what’s a company like Apple to do? In order to truly be the “must have� portable device for the next 30 years or so, the iPod needs to gain both voice and wireless messaging functionality. Rumors of an iPhone have been rampant for so long that there is likely a great deal of truth to them. The question now is not whether Apple will design such a device, the question is how will Apple go about deploying/marketing it.

The idea of digital convergence applies not only to a blending of technologies, but a blending of companies through mergers and acquisitions to obtain that technology.

“The success of this second tech boom is dependent upon strategic partnerships that fulfill emerging consumer needs,� said Bill Cobourn, Partner and Global Technology Industry Leader, PricewaterhouseCoopers. “Companies are under pressure to gain footholds in digitally-related industries and markets. Executives see M&A as a means of capturing entire beachheads. To be a player in today’s integrated technology landscape, they must quickly take advantage of others’ core competencies.�

In order to succeed with rolling out an iPhone, Apple needs to partner with or acquire other companies. The idea of Apple starting its OWN cellular company are slim, but most large cellular companies rent out space on their networks to smaller carriers, so it is theoretically possible. More likely though, is the idea Apple will partner with a Cingular or a Sprint/Nextel and agree to share revenue from music/video downloads. While many of these cellular companies are attempting to offer their own music download services, the idea of partnering with Apple (with its well-established iTunes music store and its huge existing customer base) is an appealing prospect.

Still, those Apple fans chomping at the bit for an Apple branded iPhone should realize just what a huge financial risk Apple would be undertaking. Forty-one percent of respondents to the PWC survey say they anticipate major corporate failures, perhaps stemming from companies that reach too far beyond their strongest skills.

“CEOs, while excited about the possibilities of digital convergence, are carefully looking out for the long-term financial viability of their companies,� said Cobourn. “Respondents to our survey are looking to deliver enhanced products, gain new customers and increase market share without taking on unnecessary risk and devaluation.�

To the rumor community, the iPhone is a foregone conclusion. Apple needs to protect its portable media dominance, and from a business perspective, it’s the obvious next step. However, despite the choice seeming to be a simple one, Apple needs to be cautious in how it proceeds. Choosing the wrong partner (or partners?) will doom the iPhone as surely as a clunky design and 100 song limit would (no offense, Motorola).