Industry Convergence

What is Industry Convergence?

Industry convergence is the process where distinct industries, technologies, or markets merge over time, leading to the creation of new products, services, and business models. For instance, the integration of telecommunications, computing, and broadcasting into a single digital platform exemplifies industry convergence.

Technological advancements and evolving consumer demands often drive this phenomenon. A notable example is the smartphone, which combines the functionalities of phones, cameras, and computers (among other things). While the smartphone is an industry of its own, it still integrates features from different industries.

Synonyms

• Business model diversification
• Digital transformation
• Industry and technology convergence

The Rise of Industry and Technology Convergence

Traditionally, industries operated within well-defined boundaries, each with its own set of standards, technologies, and customer bases. This siloed approach limited cross-industry interactions and collaborations. For instance, the telecommunications, information technology, media, and entertainment (TIME) sectors functioned independently, each focusing on its core competencies.

While industry convergence is not a new phenomenon (PwC analysis covers 25+ years), several factors are propelling the shift further in that direction:

Technological advancements

Rapid progress in digital technologies, such as artificial intelligence (AI), cloud computing, and the Internet of Things (IoT), has facilitated the integration of services and products across different industries. These technologies enable companies to offer multifaceted solutions that cater to diverse customer needs.

Evolving customer expectations

80% of today’s buyers are more likely to make a purchase when they get a seamless, personalized experience. This prompts companies to collaborate across industry lines to meet these expectations. For example, the integration of ecommerce into social media platforms like Instagram and TikTok reflects a response to the desire for integrated digital experiences.

Regulatory changes

Shifts in regulatory frameworks can either encourage or necessitate convergence. For instance, deregulation in certain sectors has allowed companies to expand their services beyond traditional boundaries, fostering cross-industry collaborations.

For instance, the Telecommunications Act of 1996 overhauled U.S. telecommunications policy, aiming to “let anyone enter any communications business — to let any communications business compete in any market against any other.”

By reducing regulatory constraints, it facilitated the merging of telecom, broadcasting, and information services, leading to the emergence of integrated service providers like Comcast, Verizon, and AT&T.

Digital transformation

Technology serves as both a catalyst and an enabler of industry convergence. The digitization of products and services allows for interoperability between different systems. For instance, cloud computing provides a platform for apps from different industries to interact seamlessly, leading to innovation that transcends traditional industry boundaries.

Although data shows that around three-quarters (77%) of businesses have started their digital transformation journey, the reality is just about every business has adopted SaaS products.

According to data from BetterCloud’s State of SaaSOps Report, small companies (<50 employees) use an average of 16 SaaS apps. This jumps to 24 for companies with 50–99 employees, 47 for those with 100–499, and 177 for organizations with 1,000+ employees.

In addition to reducing costs, driving efficiency, and improving the customer experience, digital transformation also brings about business model innovation.

Cross-industry collaboration

Strategic partnerships and mergers between companies from different industries have become more prevalent as businesses seek to combine their strengths to offer unique value propositions. For instance, collaborations between healthcare providers and technology firms have resulted in telemedicine services, combining medical expertise with digital platforms.

Examples of Industry Convergence

Because of the fact that cloud software and modern technology permeate practically every business at every level, there aren’t too many industries that haven’t converged with an adjacent industry one way or another.

Below are a few notable examples of industry convergence in action:

Finance and technology (FinTech)

FinTech is a prime example of the convergence between finance and technology, with financial institutions adopting digital tools to improve their services and processes.

Digital finance has permeated the entire financial services industry:

• Online and mobile banking
• Mobile wallets and payments
• Robo-advisors
• Digital lending platforms
• Cryptocurrency and blockchain technology

Traditional banks are now competing with FinTech startups that offer innovative solutions (e.g., investment options, alternative lending platforms, and even financial modeling) to customers.

Automotive

In the auto industry, autonomous vehicles are a clear example of the convergence between traditional automotive companies and technology firms. Car manufacturers are now incorporating advanced hardware and software into their vehicles, such as artificial intelligence (AI), sensors, and machine learning algorithms.

Tesla is a great example of this. It’s not just a car company — it’s a data company. Tesla’s software collects data from every interaction a person has with the vehicle (e.g., turning the wheel, braking). This data is analyzed and integrated back into the vehicle’s systems to continuously enhance its performance and safety.

Ride-sharing and car-hailing services like Uber and Lyft have led to even more convergence between transportation and technology companies. And with new market entrants like Waymo, they’re actively converging with the autonomous vehicle industry, making them even more intertwined.

Healthcare

Telemedicine — the use of technology to provide remote healthcare services — skyrocketed in popularity during the COVID-19 pandemic. From 2019 to 2021, telemedicine use increased from 15.4% to 86.5%. Thanks to the convergence between healthcare and technology, patients can consult with doctors and specialists without the need for travel or in-person appointments.

Several companies have successfully formed strategic partnerships and mergers across different industries to offer innovative telemedicine services:

• Amwell partnered with Cleveland Clinic to create a joint venture that connects patients and local providers with Cleveland Clinic specialists.
• Teladoc Health collaborated with Microsoft to integrate its telemedicine delivery platform with Microsoft Teams, facilitating seamless virtual healthcare services for hospitals and health systems.
• Pfizer launched PfizerForAll, an online platform that allows patients to connect with doctors via telehealth, get medications delivered, access copay cards, order diagnostic tests, and schedule vaccine appointments.
• Walmart acquired MeMD, a telehealth provider, to offer virtual healthcare services under the brand Walmart Health Virtual Care, demonstrating a retail giant’s entry into the healthcare sector.

Retail and ecommerce

The retail and ecommerce industries are the best examples of tech being both a catalyst and an enabler of industry convergence. Customers want omnichannel experiences, so businesses want to deliver them. And, thanks to modern technology, they can.

Examples include:

• Integrating ecom platforms with shipping couriers, inventory management systems, and multi-channel sales platforms via APIs.
• Online-offline retail convergence — online marketplaces like Amazon have started opening brick-and-mortar stores, while traditional retailers like Walmart have started doubling down on ecommerce.
• Most major retailers have options for buying online and picking up your items in-store, rather than waiting for shipping.
• Retailers using AR/VR to create virtual showrooms or enable customers to try on clothes virtually before purchasing.
• Social media platforms adding shopping functionalities and integrating with external platforms like Amazon.
• In B2B industries selling highly configurable products like industrial machinery or medical devices, B2B ecommerce is now possible through the use of product configurators.

Not to mention, ecommerce platforms are converging various elements to create a holistic view of consumers. By integrating programmatic in-store media, incentives, loyalty programs, and payment solutions, retailers can deliver personalized experiences across all interactions.

Benefits of Industry Convergence

Merging technology industries with traditional ones carries several benefits for businesses, customers, and society as a whole.

Benefits for customers include:

• Integrated services and offerings.
• More options for purchasing products and services.
• More tailored and relevant content and product suggestions.
• Seamless, personalized shopping experiences that save time and money.
• Opportunities to try out products or experience services virtually before making a purchase decision.

Benefits for businesses include:

• Better customer experiences.
• New revenue streams and business models.
• Increased scalability and operational efficiency.
• Improved targeting and personalization capabilities.
• More granular insights into sales, customers, and trends.

Benefits for society as a whole include:

• Faster, easier, lower-cost access to essential services like healthcare and financial services.
• Unprecedented levels of convenience, safety, and security through technological innovations.
• Sustainability and environmental benefits through more efficient processes and reduced resource consumption.
• Increased global connectivity and access to information, goods, and services.
• Economic growth through competition and product innovation.

How Businesses Adapt to Industry and Technology Convergence

As industries increasingly converge through technological advancements, the only option businesses have is to adapt and evolve.

Cross-disciplinary talent is the starting point.

To navigate the complexities of convergence, you have to align your different departments, and hire those with cross-functional expertise. That’s how you encourage innovative problem-solving and the development of multifaceted solutions. For instance, your product team can collaborate with data analytics to spot trends and develop products that meet consumer needs.

Leveraging partnerships across industries is step two.

Collaborations across industries enable businesses to tap into new technologies and markets without building out more infrastructure. By forming strategic alliances, companies can combine strengths to drive innovation.

Accenture highlights that industry convergence often leads to mergers, acquisitions, and partnerships as companies seek competitive advantages. To facilitate its IT/OT convergence, the company collaborated with a copper mining company to integrate IT and Operational Technology (OT), enhancing operational visibility and data utilization.

Autodesk is another example. The company adapted to convergence by shifting from linear processes to more integrated approaches, enabling the company to stay competitive in a rapidly evolving market. This strategic shift underscores the importance of flexibility in business operations.

Flexible business models will prevail.

Adapting to a converging landscape requires business models that can evolve with changing industry dynamics. Companies are adopting agile structures to remain resilient and responsive. Emphasizing the importance of viewing technology as a flexible toolset, businesses can combine capabilities in innovative ways to solve diverse problems.

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