'Convergence' Redux

During CES I heard Gateway CEO Ted Waitt speak at the CEA's annual Leaders In Technology dinner. In Waitt's remarks he mentioned a word I had not heard in quite a while, convergence. (See TWICE, Jan. 27, p. 1.)

We all remember the term "convergence" don't we? This buzzword emerged in the late 1990s when everyone saw the meshing of consumer electronics, most notably color TV, with the personal computer.

Popular opinion during that time, mostly from Silicon Valley backers, was that the forward-looking digital computer industry was first going to drag along the stodgy, analog CE industry into the new digital millennium with these products, eventually wresting the business away from long-established CE manufacturers. The PC was destined to become the entertainment hub of everyone's home.

TWICE reported on the phenomenon during that time, in fact devoting a paper-wide feature to the trend in a 1996 issue. Well Y2K has come and gone. PC home penetration peaked about the same time as the stock market tanked. The PC business found it didn't have all the answers as personal computers became commodities. Experts found out that the CE industry was nimble and knew a thing or two about digital technology. The word convergence is hardly used anymore. Why? It's all around us, due to the efforts of forward-thinking computer and CE manufacturers.

All of this gets back to Waitt's CES remarks, who admitted that he is "a PC guy" and that computers and consumer electronics are "converging … into one, large digital industry, a digital media, communications and entertainment business."

Waitt remarked that "PCs must have the same quality as CE product, they must provide the same ease of use." And he continued, "Today consumers are so smart … due to research they do on the Internet. Loss leader marketing really can't be done anymore … because consumers only buy at the lowest price."

So Waitt seemed to say all the right things to his audience of top CE manufacturers, retailers and government honchos. Which made a comment by Waitt to stock analysts in reporting his company's fourth quarter and 12-month losses very surprising to this observer. "Our digital products will continue to disrupt the market [the emphasis is mine] and create excitement for our customers." (See story on p. 6.)

If by the word "disrupt" Waitt means to introduce more CE products, like Gateway's $2,999 42-inch plasma TV that dramatically undercuts industry pricing, I'm sure many in the industry would tell him to please go back to the computer business. Don't "disrupt" the plasma, LCD and other advanced video display categories that are popular, high-ticket and highly profitable products despite a stagnant economy.

Our humble advice to Mr. Waitt, whose company gave us the Destination, a PC/TV that was supposed to take over the family room and disappeared from the scene quickly after its 1996 introduction, is to follow his own advice. Again, during his CES remarks Waitt said, "What we have to do is show that all categories are not created equal and offer products with added features and value."

The CE industry, with the help of digital technology, has been weaning itself off of the oft-mentioned "profitless prosperity" business model of selling high-volume, but comparatively low-priced goods. It doesn't need merchandising help from an industry that took its core category and made it a commodity.

The term "convergence" was used during the mid-1990s to describe how computer and CE technologies and products were coming together, not how both industries can turn high-margin products into profitless items.