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Industry Dynamics and Types of Convergence:

the Evolution of the Personal Digital Assistant Market in the 1990s and Beyond

by Nils Stieglitz, Philipps-University Marburg (Germany)

One recurrent theme in the discussion about the impact of ICT technologies on ‘old
economy’ markets is the claim that some of the traditional industries are converging. For
example, it has been predicted for years that the PC computer industry, the telecommunication
industry, and the media industry will one day merge into a huge multimedia market.
What has been lacking from the theoretical and managerial discussion is the precise
definition of what is meant by ‘industry convergence’ in the first place, and how different
types of convergence influence innovations and competition. Often, authors only consider one
case of industry convergence, or define convergence indiscriminately as a ‘blurring of
industry boundaries”. Building on the evolutionary theory of the firm and modern demand
theory, it is argued that four generic types of industry convergence have to be distinguished
which differ in their impact on industry evolution and corporate behaviour. Specifically, these
four types vary in their effect on a) types and sources of innovations, b) learning regimes, c)
corporate strategy, d) market positioning, and e) the strategic paths of established firms. To
illustrate the developed taxonomy and its underlining theory, it is shown in depth how
different types of industry convergence shaped the evolution of the PDA industry from the
beginning in the early 1990s up to the present at one point or another.
While regulatory changes sometimes trigger convergence, technological innovations
from new or incumbent firms are usually the driving forces of industry convergence. Existing
industries become technologically convergent if their different products or processes start to
rely on the same sets of technological assets. Two types of technological convergence are
possible. A technological convergence in upstream markets indicates the case in which the
production of dissimilar products increasingly depends on the same set of technological
assets. A recent example is the semiconductor industry, and the related discussion about
general purpose technologies. A technological convergence in downstream markets indicates
the case in which the technological assets of existing industries are jointly used to develop
new products or services. An example is the formative stage of the PDA industry, in which
firms from telecommunications, computers, entertainment, and the calculator industry
competed to develop the first PDAs.
The remaining two types of market convergence change the functional characteristics
of existing products and services. While technological convergence has an impact on the
technological assets of firms, market convergence changes the demand patterns in different
industries. A product convergence of substitutes is the classical case of one industry offering
product functions which rapidly evolve into a close substitute to another existing market.
Examples include the convergence of financial services like banking, brokering, and mutual
funds, and which is facilitated through the deregulation of financial markets. A more
technology-intensive example is the present PDA and mobile phone industries. With the
advent of the 3G standard, there will be considerable product convergence between PDAs and
mobile phones since they increasingly offer the same functions (e.g. e-mail, Internet access,
word processing, etc.). A product convergence of complementarities occurs if existing
products or services become complementary to each other. For instance, Internet standards
and technologies made computers (“data processing”) and telecommunication services (“data
communication”) mutually complementary for private users.
While these four types are generic, they nonetheless allow to identify and explain
empirical patterns of industry convergence. To illustrate this, the dynamics of the PDA

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industry are mapped and analysed. Three stages of industry evolution are identified. In the
formative stages in the early 1990s, industry evolution was driven by technological
convergence in downstream markets. Following this convergence, the industry entered a
growth stage (mid-1990s to the end of the 1990s), which was characterised by incremental
innovative activities and stable growth. Since the early 2000s, changes in the competitive
landscape of the industry are increasingly shaped by product convergence of
complementarities and substitutes, and technological convergence in upstream markets.
Consequently, to fully appreciate the evolution of this particular industry, it is necessary to
take account of these different kinds of convergence.

Author:
Nils Stieglitz
Department of Economics & Business Administration
Universitaetsstr. 24
35032 Marburg (Germany)
Phone: +49 (0)6421 282-6592
Fax: + 49 (0)6421 282-6595
stieglitz@wiwi.uni-marburg.de