Stefano Zanini
It's always hard to be creative and original when you come at the end of two days of intense discussion where many of the topics that were on the agenda have been covered and quite honestly I still believe that convergence and divergence are still rather obscure to me as a theme but I shall try to take it from ..... and see the many engagements had in Europe over the past two years and today if we ............... that go along with convergence and divergence are actually through and to also lead to some discussion with my fellow panellists who follow me.

The first thought that crosses my mind when I think of convergence, my mind drifts back to the early 90s and you may remember we were discussing about convergence in the context of the coming together of information technology, telecommunications and media all going to digital with apparently the only purpose being to create a new market for entertainment. Who remembers interactive TV and video anymore? Those were the key issues on the table that captured and obsessed the minds of strategists, business companies. Who remembers the many experiments that were carried through mostly in the US but also on this side of the ocean in trying to enable consumers at home with a new breed of fancy applications all apparently with the aim of creating a new market for entertainment.

Well, in fact what happened since is we changed the agenda quite radically. In fact the issues and the agenda that we have been debating in these two days are completely different. First of all the glue that we believed had to help put the pieces together and create this new emerging markets that will pull the economy forward has come from something that had already existed long before and was the internet and was very much a set of simple standards. Secondly, the attention and the agenda became much broader around convergence and in fact what we are discussing today is more how these technologies and simple standards have enabled business processes to be transformed. How can we right now address consumer ...... such as consumer convenience and simplicity of faster services and buy products and goods at any time anywhere in the world taking their promise in their hand. How can these redefined supply chains - that was very much one of the key discussions - and reverting to the old 19th Century supply chain model that any company has the ability to purchase and supply goods from across the entire chain but in a virtual way and to even more profound discussions like how can the internet and web enable countries - small and undeveloped, rich and wealthy - to share the insurmountable of information being built and not made available. So the challenges to IT companies like IBM are of a radically different nature. A few years ago all the attention was captured by making sexy and fancy ways to entertain consumers whereas most our discussion yesterday and today was how to make systems scaleable enough for those new customer relationship, management orientated and supply chain scaled to the point that they can allow companies to progress and prosper and not suffer the backlash inevitable when you become the victim of your own success. Or how to make those systems secure and reliable. How to make certain you have a seamless flow through the ordering process all the way through to supplying, shipping the goods, invoicing, credit collecting and so on.

In essence, convergence is creating a new breed of business models. They are being made possible by all these coming together off information technology as it was before and a new set of standards. Now this convergence is bringing about a new set of paradigms and I want to offer some of them to you as an element of discussion because we may challenge and falsify some of those paradigms and see if they are real and to what extent.

One paradigm that I have seen consistently and Europe is just following the United States. The Internet was very much a North American centred phenomenon and it is taking hold in Europe with an 18-24 months lag in precisely the same manner. European companies will follow the same path.

The second is the Internet and the web levelled the playing field thus making it possible for small companies from wherever in the world to compete against multi-national conglomerates on and equally footing.

And the third in disintermediation. That was very much one of the paradigms at the old days of convergence run multi media.

Let me start with the first one - Europe and the US. We have observed at IBM over more than 4000 engagements that we had last year and also running extensive market researches to try and stay abreast of the changes in these very diverse market areas, whether it is true that European companies on average appear to be following the very same progression that starts with what we call web presence and goes all the way through to enabling business processes to be opened up and extended by the internet and then all the way through to the full exploitation of commerce and payment. They appear to be right in the middle of these progressions right now where the US is slightly more advanced - 12-16 months at least. They are not following progression in the very same manner in fact that some distinguishing factor that I want to draw to your attention is according to our understanding, European businesses are taking more of the business to business view on how web technologies can enable their processes to be transformed and less of the business to consumer view. This is rather obvious as we have lower penetration. It is less obvious though that even Nordic and Scandinavian countries where they have comparable consumer internet penetration are putting their focus more and more on business to business type applications rather than business to consumer.

The second thing is again rather obvious. Europe is not a homogeneous landscape. In fact on average we are ..... but there are some exceptions, like retail marketing UK for instance is far more advanced in the US in really taking advantage of these technologies and standards. I think they are even taking that to a further step to use better devices and computing to redesign the way they address their customers and they build cement loyalty over their customer base as the Safeway example showed us yesterday. One other important factor is I have seen not surprisingly in yesterday's technology overview from Stuart there was less emphasis than I thought there should be on why less communication, and I believe this should be the differentiatior in Europe vis a vis the United States. What I tend to believe is the coming together of web technologies and wireless communications is so popular and well established in Europe will trigger off a new breed of solutions that will probably allow European companies to leapfrog US based companies in really taking the further steps to extend from beyond the PC desktop to web model that was characteristic of the first wave of computing any business to so called pervasive computing. What we see right now the c bit. Most of the attention of the c bit is the blending together of these technologies. I think this will be a very important factor is the way new solutions are going to come to fruition in Europe.

Second topic is levelling the playing field. I will just mention one thing, I fundamentally believe what internet technologies does is to allow companies to compete on a global scale. It doesn't necessarily imply that they will compete against large companies on an equal footing. What we have in fact observed is that whether this ubiquity and affordability of this internet media makes it possible for the small brewer in Scotland or the south of England to make inroads into Japan managing across the entire supply chain, shipping, invoicing, building and managing customer retention over the entire life cycle presupposes a broader and set of capabilities that smaller companies don't necessarily have, and these places send demand on the role of Government and institutions that help that company acquire the economy of scale to really compete against the giants.

The third one is disintermediation and then I'll run down my speech. I think disintermediation is occurring of course as a result of this revolution, but there is a great deal of reintermediation here. In fact if you look at the US North American marketplace, we seem to many mutant intermediaries coming to light and becoming powerhouses as today, like portals, ISBNs, content aggregators, virtual value chains, virtual procurement. The new breed of intermediaries are really establishing themselves as new players in redefining and creating a new business model round the network. So there is disintermediation and reintermediation as well happening at the same time.

Now on the divergence. I think from yesterday's discussion and mostly today as well, what I believe as the rock elements in divergence, like taxation, privacy and security issue that we have very high on the agenda has global economic community and governments, I tend to be rather optimistic. I don't believe those will hamper the process, will stop halt the process. I believe the process will progress. Not in a linear way of course there will be more jerky, spasmodic type of progression to establishing the so-called electronic marketplace, but those impediments won't really halt the process. What I believe will be a major impediment in the way of creating the electronic global marketplace is the imposition to the business community as well as the IT community in open standards because if you think it back in retrospect it may be possible to create these possibilities for companies to redefine their business models was the ubiquity, the affordability and openness of the standards that characterise the web here. I believe we have all to strive and do as to make sure the playing field remains open for everybody to continue to progress around open standards. Those applications and solutions will become critical to ensure success and prosperity will become more and more dependent on openness and affordability in the future.

Jim Porter
Good morning. I'd like to talk to you this morning about globalisation and its impact on a national economy, its people and its industries, and I'll give an example of one response we have adapted to that. But firstly I would like to go back to a comment that John Potter made that I totally agree with which is that sophisticated and advanced IT infrastructure do not necessarily mean sophisticated and advanced communications. So two examples I'd like to quote to you taking from the tourist industry in Europe and a Copenhagen airline ticket office - we take your bags and send them in all directions. This is very true. And in a Rome laundry - ladies, leave your clothes here and spend the afternoon having a good time.

So globalisation and a national economy and the importance of environment and infrastructure which supports that globalisation. We may well have ambitions for our company but unless we have a supporting infrastructure it's going to be very difficult to compete in this new global environment. So Scotland's economy is undergoing radical change within global, European and UK context. At a global level we have the advent of the knowledge economy, the increasingly importance of competitiveness, not only for companies but also for regions, and electronic commerce. At the European level we have the advent of European enlargement and the implications for countries currently inside the EU, the introduction of EMU and the UK's position on EMU. At the UK level we have for the second time in our history in Scotland a new parliament which will take effect next month which will lead to a new Government model. We hope a leading edge Government model, a stakeholder economy which involves academia, industry, Government and the industries of Scotland. The linkages between Scottish government and Westminster will also be tested and the new MPs will have a variety of agendas and we will have proportionate representation. Consequently a new agenda for economic development, social inclusion, the inclusion of the disadvantaged and needs opportunities, the haves versus the have-nots, the minority groups.

We will also address innovation, new products, new companies, life long learning, the aspects of personal development and the need to differentiate yourself in the lifelong working environment, and national competitiveness through infrastructure and in national extended enterprise I would position.

So Scottish enterprise is Scottish Governments Economic Development Agency and we have a responsibility for business development and training. Scotland has a history in innovation from John Logie Baird and the television to Dolly the Sheep and this week to the first balloon to circumnavigate the globe designed by a Scot. So we have a history but have failed singularly in exploiting that ability and innovation, which I shall return to. So within Scottish Enterprise my responsibilities include support in development of indigenous companies - small to medium sized companies - and our approach is simply around an innovation system which you will all be familiar with because it reflects a company's innovation system, the ability to fund and finance new ideas and concepts, the aspects of field trials, prototype testing, support through venture capital industry or equity support, and so on. So Scottish business seeks to produce and provide that development finance, to increase the number of entrepreneurs and the access they have to set up new businesses, the commercialism of academic research, increased product development, software for product and process competitiveness, electronic commerce providing access to the market and the opportunity for lock in to company and corporate intranets.

The importance of networking is, of course, not just IT but it is essentially around people and our ability to bring those respective stakeholders together in support of the enterprise system in support of a region. This provides exciting opportunities for Scottish companies. We have a budgening games sector, software games and computers where the new entrepreneur demands straight access to Hollywood - no intermediaries - he has the ambition, he has the capability, he will go and do this.

The greatest challenge for us however is turning intellectual property into products. So the example I would like to quote to you, is a recent innovation in Scotland called Project Alba, which was essentially the convergence of three sets of visions in this new global community. First one was around Scotland's electronic industry and the analysis that Scottish Enterprise and the private sector made. We have a $16 billion electronics industry in Scotland which comprises forty plus blue chip organisations and their suppliers. Through assessment and analysis of that we exposed that we needed increased value add, we don't want to just assemble components, or have a little bit of research and development, we need to get really up the value add curve through design and our particular target has been semi-conductors. We have identified designs on system level integration and system on chip as being fundamental to sustain electronics growth in Scotland. System level integration is where we take several chips who all do different things and bring them all together under a common and standard format to interface with one another in the production of new products. System on chip is to take all of those chips and put them on a single chip. One of the constraints to enable us to do this is the adoption of a worldwide standard on methodology on design. Enter Kadence Design Systems, the world's no 1 design company, who were searching the world to find somewhere that was non litigious that would be a sustainable and legal environment, an advanced and sophisticated IT infrastructure but perhaps most importantly, access to skills and Scotland is a net exporter of AA and Computing Skills graduates.

This ramp up on system on chip design is being driven by consumer demand and the long development cycles to get new products into the market. Kadence were looking to dramatically reduce that and are looking for a critical mass in design capability. There is also the world's embedded silicone capacity which will be exploited over the next few years in support of these new products. Eighteen months ago when we started this project the third visionary in this was IBM, who were promoting electronic business but perhaps more discreetly in support of what we could achieve in Scotland they provided the capability in search engine technology and security to enable trading of intellectual property or the transfer of intellectual property safely.

So these three visions combined to provide us with Project Alba. I am pleased to tell you that this is the world's first campus of system on chip and system level integration design capability. It has been no mean feat to bring together four universities to collaborate and provide the world's first MSc in System Level Integration, and the first graduates will come out of these universities this year. In the campus we also have an institute for research. Kadence have already started to employ the first hundred or so employees on what will become a 2,000 design centre for Kadence alone. We would look to take that up to at least 6,000 with related activity. Key to this will be creation of a virtual component exchange where IBM system will provide an open platform for 'plug and play' where Toshiba may interchange with Motorola and IBM and a whole host of other players. The VCX, as we are calling it, the Virtual Component Exchange, already has 15 world class companies signed up for it to embark on this new trading.....

(new cassette)

...will host small IP providers, corporate RND based on access to intellectual property and new graduate skills, design factories with a capability and reuse and the adoption of the methodology standards, silicone waiver fabrication, product development prototypes and perhaps significantly legal and consultancy services including access to venture capital for these graduates who will inevitably set up their own businesses and create a new sophisticated, innovative infrastructure in terms of Scotland's ability for SMEs to play on the global stage.

This is an ambitious project within what we are describing as our innovation system which will be globally connected to position Scotland as a major player in the global economy. I hope this serves as an example of the opportunities that lie out there in terms of globalisation whether it be convergence or divergence. Thank you.

Ola Ahlvarsson
It's a pleasure to be here. I am from Boxman. Boxman for those of you who don't know is a CD and music retailer on the internet. I am showing our Swedish web site. We have localised web site in every territory we are. Our site is often criticised for being boring by the specialists, for not having community feeling and other buzzwords but in fact customers like it. It works like a store - you want video, you click video; you want children's video, you click children's video. This is something that is fundamental to Boxman. My co-founders had been successfully running chains of retail shops. Boxman is not an IT company, we are a trade company. We don't care if it's called internet or if it's called EDI, or whatever it's called. We would like to bring more people more music anywhere all the time and more conveniently at a better price. Or to quote our customer value proposition 'Boxman offers speed, value and convenience'. That's what our customers want. They don't want all the buzzwords.

In the ever changing world of the internet we also think it is very important to have supply value proposition (microphone breaks down at this point - very difficult to hear) in our business it is especially important because the music industry is on the verge of becoming more and more attacked by ......... digitally downloading and so forth. We have about 10,000 competitors in the world right now, we have .................... selling directly, we have the producers selling directly and so forth so we think it is very ..............................................................(inaudible)

...supply value proposition for our technical partner IBM and we think we can be monumental in getting the e commerce snowball rolling. Some facts and figures - we entered in Sweden in December 1997, Norway, Denmark and Finland in September 1998, we entered France about a week ago, we are going to enter all relevant European markets during 1999. On the first day of operations in Sweden we had about 50,000 visitors, we now have 5% of all CDs sold in then territory - that is one in every twenty CDs sold anywhere in the country. We had 32 competitors when we started, not all Swedes shop on the internet - that's a myth - that's something that is created by strategy and execution which is something I would like to contend. The reason why e commerce is not working isn't because of market maturity, it isn't because of inferior technology, it's because lack of e commerce execution. Furthermore, I can say we have 30% brand recognition in the overall market in Sweden and we are getting there in every market we are launched.

How do we attain this? Well, if the little circle represents the internet users of today, and the large circle represents the internet users of the future, a question that has not arisen much in these two days, is why is only 1% of the total population only using this that we think is so fantastic. One reason is that all knowledge - everything we know about the internet we have learned by people who are either McKinsey turned internet gurus or programmers turned management gurus and to our understanding, don't trust them. Trust the retailers, trust the mail orders - I have a very good example, when we started we asked internet specialists, a number of them. We targeted 40 e commerce specialist companies with international scope in Sweden ........(further loss of mike) in order to succeed on the internet you have to have a sophisticated payment system, you can be set pilot working the discs or you can do various ways of executing payment. What we did was ask our mail order experts and they said well I'll check in this list. Your credit risk when using this customer profile that pays the telephone bills, uses the computers, that pay their ISP and so on is about 2%. That's cheaper that using the credit company so we launched open invoice and our customers were very happy with it. The security risk is taken away and of course the mail order experts were right, we have about 2% credit loss.

What's important and what's one of the main understandings that I should like to share with you is that you must focus on the consumer - not on the internet, not on the technology. Do not trust what's introduced as cutting edge knowledge because it will change tomorrow - it was something different two weeks ago. And do not focus on the internet users of today, but rather the mass market of tomorrow. My mother uses the internet, she would never use a bargain finder, nor a search engine, nor search for a UK portal to search for something that might be cheaper than Boxman. Boxman is a consumer brand - she can relate to it, she types Boxman and she can buy a product. So if one of the key aspects of e commerce success is the customer proposition which should be easy and interesting for the consumer. Many times some brilliant site is being described, but only by the people making it, very seldom by the customer.

The other thing I would like to emphasise is that you have to have a communication strategy. It has been raised today as a question and I thought it was a very relevant question. What you usually do on the internet is you find your customer, CD buyers and whose got the internet and you put all your marketing money in that very plausible field but it is as I said before like using telemarketing because people have telephones. It might not be an efficient way of communicating and it might not be the people you actually want to communicate with. We would like to communicate with music buyers, ie the people that would buy music if it wasn't such a hassle to go to the store, park your car or if live in Lapland and you like jazz and there are no jazz shops in Lapland, and we would like to communicate with them because we anticipate the rapid growth in internet usage. We are a consumer brand already established when internet grows - we get customers by default. 83% of our customers recommend Boxman. Between 50-60% come from recommendation. 70% of our customers come back. You will see this is a very interesting model, it spirals. Our customer acquisition costs us a fraction of that of Amazon or other CD sites using mainly on line communication.

So if the first one was focus on customer proposition, the second success perimeter is establish a communication strategy that works for the mass market because niche communications create niche markets and mass communication creates mass markets. Might sound very obvious and simple but that's not the way most internet business is conducted right now.

So how are we doing this? It's easy to say you are communicating with everybody and while you are doing it you are having lower customer acquisition costs than everybody else. Well if we look at the CD market in Europe, what our competitors tend to do is act globally - that means sit in the US, sell tax free, ship into territories where other people own the rights to the music, use their cover art, use their sound samples, because it's internet, it's not likely that we get caught. This will only work so long. They build very weak brand names in every market where they are. As an example, we are stronger now that Amazon CD and Intergay put together in terms of sales and brand recognition in every market where we are present. Why? Why is MTD smaller that Viva in Germany, MTD is smaller than Sed TV in Sweden, MTD3 in Finland and so on? There is something very interesting about the locale. We establish local Boxman sites, Boxman France is in French headed by the former Managing Director of American line in France ............... We have a good relationship with the music industry, media and to the local internet industry.

We have formalised that in a model which we like to call the stairway to heaven. I don't know if you can see but the first building block when we move into new territory is that we bring the Boxman success story and it is in fact a success story in terms of figures. By selling one product in one country Sweden, we have five times the turnover of for example the largest multiple or callstop sites in the region, or any other region in Europe for that sale. We also have less factual success premise like the fact Bill Gates came over and did a case study on Boxman. We used that to get the right investor structure locally. Investors in Sweden include ex-partners of Goldman Sachs, ex-partners of Lehman Brothers from the banking industry, from the music industry Ace of Bass and Roxette, the former chairman of SIS one of Sweden's most well renowned management personalities of all time, Mr Jan Carllson has been the Chairman of Boxman, from the media industry we have Bonnuar family which is the Murdoch family of Scandinavia, and in the same way we find local stakeholders. So when we launch in Germany, Frank Otter the Munich Bauer banking family are in the capital, Elvere Marsh and Bernard Anour are investing in France and so forth. By doing this we get not only a very interesting network, but we get a credibility to speak with the local music industry and we offer them access to our database, we offer to shut the borders for American unlawful competition and we offer to abide by their rules because we think they will be the most interesting partners in the future when downloading is a fact.

We also work closely with the local IT industry and some might get offended, but it is nevertheless true, there are more people making money making speeches about the internet in Europe rather than selling banners or whatever business models they use. And we know that and in every market we have launched become a wave of consultancies, venture capital companies more inclined to work with us, it's good for the telecoms, it supports companies like IBM or Microsoft or whatever companies that understand and can deliver the functionality of this business.

The last step is specialised press communication strategy where we try to get every journalist in the country on line at the same time making it very easy for them to cut and paste, to drag and draw to make a very good article with very little effort. We also offer them interesting topics in IT, in music, the investors write Mr Carlsson and Ace of Bass challenges Amazon. The music industry they write more music for more people, shell space not an option, Boxman is a bearer of culture, and they get support from the music industry when they are interviewed. The same is true for internet industry. What then happens, and this is the crucial point of our model is that the journalists themselves become information stakeholders. They are the ones communicating Boxman. So we have had 50,000 visitors on the first day on zero marketing spend. We sold 10% of the total CDs in Finland in the first week of operations on zero marketing spend, because journalists are tired of writing about American success stories and local failures. This is a local success story. It is a Finnish success story, it is a Norwegian success story, it's Swedish, it's Danish and as it looks right now it's about to become a French success story too.

I would like to finish with following up on Dr Bangemann's twelve commandments that we discussed yesterday. The eleventh one is of course 'Thou shall not get caught', with that one you don't have to worry much about the ten previous ones and you can focus on the twelfth one which, in my book, is the most important one - 'Thou shall not own or develop technology unless you are a technology company' because if you do that you will get into a situation where when success catastrophe hits you, you will pay more to system supply consultants, software suppliers, and so on and so on. But rather hook up with a partner that can assume technological risk, that can follow you or lead you through the globality or locality that your business model might need if it's more one-to-one capabilities or if it's global expansion and that's what we have been trying to do.

Thank you very much.