Emerging Business Models Digital Tribes

Emerging Business Models
to Help Serve Tomorrow’s
Digital Tribes
I N FOR MAT I O N , C O MMU N I C AT I O N S & E NT E RTA I N ME NT

Contents
Foreword

Introduction: The Second Digital Decade 1

Understand Your Value Proposition 4

Understand Your Target Audience 7

Determine an Appropriate Revenue Model 13

Conclusion 17

Appendix 19

Foreword: The digital revenue challenge
Over the last 10 years, advances in information technology have funda-
mentally changed the way we work and live. But for all the hype around
today’s digital technologies, few companies have figured out how to
profit from their initial forays into the arena. Whether running a social

© 2009 KPMG International. KPMG International is a Swiss cooperative. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm
has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. 081020
media website, publishing a traditional print newspaper, or operating a
community hospital, every company eventually needs to turn the corner
from investing in digital businesses to profiting from them.

Why do so many companies at every stage of the digital technology
adoption curve struggle to find revenue models that work? Perhaps
it’s because the rules of the game have changed. As presented in this
paper, the Digital Convergence Equalizer, which KPMG has devel-
oped, and the concept of Digital Tribes shed light on the challenges
associated with choosing an appropriate digital revenue model.
Together, they present a more structured way of making these key
decisions.

In the second digital decade, which will humanize technology and
connect consumers in new, immediate, and personal ways, compa-
nies need strategies that will transform their early pilots into lasting
Digital Enterprises—businesses that target specific market segments
with appropriate revenue models that generate real profits.

The time to re-evaluate your digital strategy is now. The stakes are
high, and the clock is ticking. Read on for our tips on how to
maximize success in this exciting and challenging new era.

Emerging Business Models 1

W
hen a group of the world’s
leading healthcare company
executives met to discuss the
Economics of Health in 2008, the event was
abuzz with talk of portals, search engines,
ad networks, and social media—Web 2.0
topics that would have formed an inconceiv-
able agenda for a meeting of “old economy”

companies just five years ago.

Introduction: The Second Digital Decade
From General Motors to Coca Cola, traditional
corporations are experimenting with posting
to blogs, sharing photos on Flickr, producing
Internet TV content, and uploading videos on
YouTube. Developing a strategy for enriched
online connectivity has become essential to
their future success.

Yet for all the enthusiasm and investment
in digital strategies, no one knows which
business models will succeed in the new
era. It’s one thing to come up with a creative
pilot program; quite another to execute and
turn a profit on it.

To understand the opportunities and, more
importantly, how to generate revenue from
them, this paper proposes that companies
need to view their target customers in a
new way, as members of Digital Tribes
that expect focused and personalized ser-
vices. These companies also need to look
beyond the traditional value propositions of
‘content’ and ‘distribution’ to consider the
full range of benefits they might provide to
end-consumers. The Digital Convergence
Equalizer provides a new framework for
identifying and evaluating digital value prop-
ositions. Together, the concept of Digital
Tribes and the framework that provides
insight for choosing an appropriate revenue
model to reach them offer a structured
approach for refining an organization’s
digital strategy.

2

From Functional Innovation
to Humanization
The first digital decade was characterized by innovation in the form of new technology
that provided increased functionality to consumers and businesses. It was an age
when PCs and laptops replaced mainframes; processing power and storage capacity
grew exponentially; mobile telephony took off; photography became digital; software

became a powerhouse industry sector; and most importantly, the Internet exploded
across the globe.

While technological innovation and improved functionality will always be a key aspect of
the digital space, the second digital decade will humanize all of this technology, connect-
ing consumers in new, immediate, and personal ways—and creating opportunities for
both emerging and established companies along the way.

Fig 1: A shift in focus for the second digital decade

1994 First Digital Decade 2004 Second Digital Decade

Focus on technological innovation Focus on connectivity
and improved functionality and personalization

Avatar

Source: KPMG International, 2009

Fig. 1


The shift from innovation to humanization has led to new Web 2.0 business models
that feature both attractive and disruptive characteristics, namely:
• Low cost of entry
• Massive reach
• Ability to target customers
• Ability to have meaningful interaction between participants
• Attractive demographics (i.e., young, high disposable income groups)

• Threat of replacing existing physical goods and services (e.g., CDs, newspapers)

• Economics of the Long Tail

To date, most organizations have entered the digital arena with a try-it-and-see-
what-happens approach. But as the market evolves and opportunities take shape,
companies need a more structured approach to developing their digital strategies.
KPMG believes that the following three steps, among others, are key to devising
the right business model:

1. Understand your digital value proposition.
2. Understand your target audience.
3. Determine an appropriate revenue model.

Fig 2: Framework for a Digital Business Model


4

Step 1:
Understand Your Value Proposition
In the first digital decade, we were told over and over that “content is king”–perceived
wisdom that was a carryover from pre-digital times and perhaps, a reflection of the
preponderance of traditional media companies in digital initiatives. Whether you sold
music, TV, movies, newspapers, or software, the ultimate key to success was said to

be the quality of the underlying content.

This premise started to unravel when ISPs, telecommunications and cable companies
moved aggressively into the digital value chain. The debate shifted to whether con-
trolling distribution channels mattered more than owning content.

Today, we know that the digital arena is more complex than simply content or distri-
bution. Both are important components of the digital business model. Yet companies
can provide value in many others ways, for example, by providing context, coverage,
or convenience to a target audience.

The Digital Convergence Equalizer
The digital marketplace consists of vast and diverse audiences. Accordingly, the fea-
tures that consumers look for when choosing digital products or services are equally
diverse. Companies that appreciate the full spectrum of value they can contribute will
be better able to determine the right combination of products and services to offer.

To help guide the way, KPMG has created a checklist of 20 ways—“the 20 C’s”—
in which a company might provide value through a digital model. (See Figure 3.)

Borrowing the format of a graphic equalizer, the Digital Convergence Equalizer can
help a company achieve a balanced approach to emerging opportunities and identify-
ing their key value propositions. By considering each of the 20 different angles on
a digital strategy, management may gain clarity and focus, as well as competitive
insight. Identifying their key digital value propositions will also enable management
to better understand the revenue model bias associated with their digital offerings.

The appendix to this document provides an explanation of each of the Digital Value
Propositions.


Fig 3: KPMG’s Digital Convergence Equalizer

Digital Value Proposition Strength of Value Proposition Revenue Model Bias
“The 20 c’s”
COMPELLING CONTENT PAY
CONTEXT FREE
COVERAGE PAY

CONVENIENCE FREE

CONTROL PAY
CHOICE PAY
CONNECTIVITY FREE
COMMUNITY FREE
COMMENT FREE
CONSOLIDATION (AGGREGATOR) FREE
CUSTOMIZATION (PERSONALIZATION) FREE
CONTRAPTIONS (APPLICATIONS) MIX
COMBINATIONS (BUNDLING) PAY
CONTRIBUTION (UGC) FREE
CONVERSATIONS (INTERACTIVITY) FREE
COLLABORATION FREE
CITIZENSHIP FREE
COMPLIANCE MIX
CUSTOMER EXPERIENCE FREE
CONSUMER REVIEWS AND COMPENSATION MIX

-3 -2 -1 0 +1 +2 +3
OR
NOT APPLICABLE

Fig 3: KPMG’s Digital Convergence Equalizer
Digital Convergence Equalizer in Action
As an example, assume that ClassicComments. For example, the company may believe that it • Community: Rating +3

com, a hypothetical startup company, wants has four primary digital value propositions: Its web portal community is a strong attrac-
to create a web portal that provides reviews • Compelling content: Rating +1
tion for people who want to share views and
and recommendations on classical music. Classical music is readily available from other opinions.
ClassicComments.com also intends to offer sources, and as such is not compelling in itself, • hoice: Rating -3
C
an interactive web-based forum and music but ClassicComments.com believes that its in- Although it has a reasonable selection of
download capability that consumers can access house reviewers and rating system will distin- music downloads, its collection does not com-
either online or by mobile phone. To better guish its offering from similar sites. pare to some of the other music sites, such as
understand its value proposition, the company iTunes or Amazon.com.
• Context: Rating +2

would run down the list of choices in the Digital
The company’s web portal has an excellent By walking through this framework,
Convergence Equalizer and evaluate whether
search capability and arranges music reviews ClassicComments.com is able to better under-
each was applicable and if so, how strong its
by a variety of user-friendly categories, such stand its digital value propositions, as well as
offering could be in relation to competitors.
as date of review, composer, ratings, reviewer its relative strengths and weaknesses in the
name, and geography. marketplace. This will also provide them insight
as to the revenue models that best apply to their
digital offerings.

6

Interview with Ien Cheng,
Google

As Director for Advertising Product Management, Europe measurable forms of advertising and of a change in consum-
at Google, Ien Cheng has responsibility for deploying er behaviour to go online and do things that may be cheaper

Google’s advertising products in Europe and oversee- or more convenient than in the bricks and mortar world.
ing its product engineering function. He was formerly There are signs already of that consumer shift. In the enter-
Managing Editor of FT.Com where he introduced its prise context, if you have an inefficient legacy IT system and
innovative hybrid pricing structure. are looking to cut costs, you may consider cloud computing
solutions that have a fraction of the maintenance costs with
Cheng dubs an interesting recent development in the digital
potentially more flexibility and functionality.
”
landscape the “revenge of subscription. “The talk among
”
publishers is how they need to rethink their strategy on Are organizations ready to take advantage of this accelera-
advertising. Subscription has come back into the discus- tion to a digital world given that a large number of companies
sion. Should they do micropayments or have a subscription appear to have adopted a trial and error approach without the
model? For the first time in years, subscription has become usual investment disciplines? Cheng responds, “The lack of
a viable model to talk about. Sometimes crises force out rigor has been due to complacency, a kind of head in the sand
things that otherwise would not happen. ” feeling that the digital revolution is upon us, but it is someone
else’s revolution. It is like the five stages of grief—denial,
While Cheng sees subscrip-
anger, negotiation, depres-
tions making a comeback in
revenue model discussions, “ T
he choice is not between disrupting sion, and acceptance. Years
of denial and then anger,
he is still bullish about adver- your business now versus later, but negotiation with new players,
tising. “There has been a
between disrupting it yourself or and now finally acceptance
growing up of targeting in
advertising. Banner advertising having it disrupted for you! ” that we have to do something
serious about this and the old
that is sold and thought about Ien Cheng
days aren’t coming back. The
in traditional ways is going to
choice is not between disrupting your business now versus
be squeezed. Measurable, targeted advertising is a winner,
disrupting it later, but between disrupting it yourself or having
and will be a big winner. To call it advertising in some ways is
it disrupted for you by somebody else. People get that now.
almost anachronistic. It is targeted measurable marketing that
They have woken up to it and are being more urgent, more
will help track how advertising leads to sales, and ultimately
rigorous and more serious about the choices they face. ”
should and will become a measurable cost of sale. ”

On how the current economic crisis will impact the digital
economy, Cheng comments that although “there are com-
peting forces out there, overall the net result will be a sig-
nificant acceleration towards a digital future—towards more


Step 2:
Understand Your Target Audience
The Emergence of Digital Tribes
People often lament that the advance of technology has had a dehumanizing effect.
But the reality is quite the opposite. The second digital decade is all about personal-
ization and connectivity in ways that previously were not possible or imaginable. Far

from inhibiting expression, technology has enhanced and enabled our individuality.
For example, websites such as the BBC allow us to tailor the home page so that it
contains only those categories that are of personal interest, while social network sites
such as Facebook and MySpace provide a canvas for self expression and a harbor for
community. People are no longer constrained and isolated by physical boundaries.
Instead, they can connect in a very personal and tailored way with hundreds of people
with similar interests across the world, forming “Digital Tribes” that hold common
interests and beliefs.

8

For the enterprise, the implication of these new online affiliations is profound: to
succeed in the digital environment, businesses should view their target customers
in a new way, that is, as members of Digital Tribes. Yesterday’s way of segmenting
customers by demographics, geography and income levels becomes a blunt instru-
ment in the digital economy. It’s no longer about a global versus local focus; it’s now
about Digital Tribes, and these tribes are more likely to form around areas of interest
than according to physical characteristics such as geography. Digital Enterprises
need to recognize that the opportunity is no longer just about targeting customers on

a one-to-one basis, and that the existing marketing mantra and Holy Grail of a deep
one-to-one brand connection with consumers may be outdated. Instead, the winning
businesses in this era will identify specific Digital Tribes that exist or may form in
order to gain an understanding of their interests and how best to meet their needs.
In essence, it is about moving from a “one-to-one” relationship to a “one-to-many and
many-to-many” model as illustrated by Figure 4.

Fig 4: The emergence of Digital Tribes

Physical Economy Digital Economy
One-to-One Relationships Tribal Relationships

Digital
Enterprise Enterprise


When you begin to look at consumers as members of Digital Tribes, you find new
ways of supporting their passions. Here are a few of the ways a business can get
involved:
Fig 6: The emergence of Digital Tribes
• Create digital propositions that will attract existing or new Digital Tribes.
• Aim to have a much deeper connection and conversation with the targeted
Digital Tribes.
• Facilitate dialogue and interaction between members of the digital ecosystem.
• Identify niche tribes that may be underserved.
• Leverage the Long Tail of content.
• Provide tailored products and services for each tribe.


In order to evaluate the attractiveness of potential Digital Tribes, you need to evaluate
the key characteristics of each one. KPMG’s Digital Tribe Framework (Figure 5) identi-
fies four elements that management should always evaluate:

Fig 5: PMG’s Digital Tribe Framework:
K
Characteristics of Digital Tribes and their revenue bias

FREE,
PAY PAY FREE
Volume-based

FREE PAY, FREE PAY
Long Tail/Niche

1 T
ribal Loyalty
This attribute considers the strength of the tribe in terms of the loyalty of its
members to each other or to an area of interest, as well as its longevity. For
example, Digital Tribes formed around a sports team are likely to have a stron-
ger and more sustainable bond than perhaps a tribe focused on restaurant
guides. The stronger the tribe, the more likely that a digital model will be sus-
tainable and capable of supporting a “pay” revenue model.

2 Tribal Size

While the economies of distribution and the Long Tail may sustain an initiative
to target small tribes, understanding the overall size of the tribe is important
to evaluating revenue opportunities. Large tribes may suggest that a revenue
model based on free content supported by advertising and based on volume
may be appropriate. Conversely, a small tribe should recognize that it will have
to pay to gain access to its niche areas of interest.

3 Tribal Wealth

An understanding of the collective wealth of the tribe is essential for an evalu-
ation of the digital opportunity. The wealthier the tribe, the greater its ability to
support a pay revenue model.

4 T
ribal Competitive Landscape
This element considers the extent and quality of competitive services that
serve a particular tribe. The greater the competition, the greater the propensity
towards a free/advertising revenue model, as it will be difficult to provide a
unique value proposition.

10

Examples of the diverse nature of digital tribes are as follows:

• etwork television: Lost – The website for the television series Lost, produced
N
by the U.S. network ABC, is a good example of a Digital Tribe. Users of the show’s
website are passionate about the show and want the ability not only to access pro-
gramming content, but also to converse with other members of the tribe regard-
less of location. Their principal loyalty is also likely to be to the show itself, rather
than the network, writers, or actors.

• acebook/MySpace – These social media services are the most obvious examples
F
where tribes are formed around personal connections and content. The tribes are
not formed around the websites per se but rather, are centred on the tribes of
friends and families.

• ikipedia – Wikipedia attracts members of several different tribes: there is a
W
primary tribe of content contributors who will have similar characteristics includ-
ing demands around authority, ease of use and technical functionality. This tribe
can be broken down into sub-tribes of people who, given their efforts to actually
contribute, are likely to feel passionate about the particular topic that they com-
ment on, whether it be coffee beans or Ford Mustangs. There are then another
set of tribes made up of people who access this content. In this way, Wikipedia
can serve thousands of tribes based on contributors and users who care about
particular topics.

• olitical campaigns – The 2008 U.S. presidential election is a strong example
P
of the power of Web 2.0 and its ability to facilitate tribal connections. Barack
Obama’s use of technology allowed his supporters to form a Digital Tribe and was
a key factor in his Presidential victory.


In the same way that marketing companies often categorize consumers as Type A, B, or C, it
may be helpful to identify different types of Digital Tribes and their characteristics:

Characteristics Loyalty Size Wealth

Digital Masons • Similar traits to Freemasons
• Strong loyalty to their Lodge
• Will be around for a long time H H H
• Generally large numbers
• High levels of wealth and resources

Digital Clubbers • imilar in traits to people who frequent
S

night clubs
• nlikely to stay loyal and will move on
U
to the latest hot venue/site L H H

• Willing to pay high entrance fee

Digital Marines • trong loyalty to each other and their
S
area of interest
• Relatively small size
H L H
• unds available for the right
F
service offering

Digital Nations • Strong loyalty to their tribe
• Large size
• unds available for essential service
F H H M/L
offering otherwise will be
discretionary spend

Digital Moms • Similar in concept to Soccer Moms
• tribe is formed around a club or issue
A
that is of personal relevance
M M M
• Loyalty is strong but not fanatical
• ay be willing to pay a modest
M
monthly fee

Digital Nomads • Tribe is quickly formed but also quickly lost
• Medium tribal loyalty
• mall groups, wandering from watering
S M L L
hole to watering hole.
• Low disposable income/wealth

Digital Itinerants • Individual drifters who wander around sites
• Low loyalty
• Small numbers L L L
• Low/no income

12

Interview with Rio Caraeff,
Universal Music Group

As Executive Vice President, eLabs for Universal Music sell a la carte subscriptions to music, one customer
Group (UMG), Rio Caraeff is leading the world’s largest at a time. ”

recorded music company toward a new and prosperous
Caraeff also notes the need for ad-supported revenue
digital future. eLabs is UMG’s market-leading division
models: “A certain portion of our strategy is around ad
responsible for digital business strategy, business devel-
supported, free-to-consumer audio and video models but
opment and new technology opportunities.
they are not a panacea. There is a segment of the market
According to Caraeff, three major factors are driving the with which they are relevant. In particular, it’s relevant to
digital opportunity for UMG today: Devices and connectivity, our video business. Caraeff summarizes: “Models that
”
which are fast becoming commodities; social networking, derive income from every person on the network, and from
which is still in its early days; and mobility, which is the least every person who consumes music, whether they pay for it
developed in terms of software and the user experience directly or indirectly, are key to our strategy.
”
around music.
Social networking technology offers one way in which UMG
How will UMG generate revenue from its digital busi- might deepen its customer relationships. “MySpace Music
nesses? Caraeff answers, “Many people love music, but was our first venture in this area, Caraeff says. “We know
”
only a small number of them choose to pay for it. Any that music is a powerful connective tissue that helps people
revenue model we try has to form relationships within
acknowledge that reality. Our
choices are to try to get more
“ W
e are finding new ways to social networks. But I don’t
think we’ve figured out how
derive revenue directly or
consumers to buy music; to unlock the power of music
figure out how to make more indirectly from every instance inside a social network. That
money from the small num-
ber of people who already
of music consumption. ” won’t happen until we see
some innovations in micro-
Rio Caraeff
buy it; or find a way to derive transactions. Going forward,
revenue directly or indirectly from every instance of music we will take more responsibility and accountability for our
consumption, whether people choose to buy it or not. The future. We will invest in building direct relationships with
latter is the only scalable and transformative model for our fans and consumers. And along the way, we will learn a lot
company. ” about our customers. ”

“We need to monetize the nodes of the network (whether Caraeff adds: “To realize the full potential of our digital
they are people or devices) based on revenue per user future, UMG is taking more of a partnership perspective with
models and not revenue per unit models. These nodes all of the third-party participants in our ecosystem—be they
could consume music through services in which the cost retailers, service providers, network operators, device manu-
of the music is bundled into existing network access ser- facturers, or other businesses. We’re prepared to go hand-in-
vices that the consumer already pays for, like broadband hand with them into the digital future.
service or wireless service. Or the costs can be built into
“Our digital business continues to grow, but we don’t have
the cost of goods of the consumer’s mobile phone, PC or
another decade to figure this out. There are more ways to
set top box. They can even be built into things like auto-
derive revenue now than ever before. I’m optimistic about
motive lease payments. We can add many more people
our chances of success and confident that we’ll find a path
in these models and generate more revenue than we can
to growth again.”


Step 3:
Determine an Appropriate Revenue Model
After identifying your strongest value propositions and which Digital Tribes to target, it’s
time to think about the revenue model. As previously explained, the thinking around
this question has been dominated by the old proposition that “content is king. As a
”
result, premium pricing or pay models are applied in cases where there is a unique con-

tent or service offering and an advertising model is applied in cases where the offering
is ubiquitous.

14

This pattern is illustrated by Figure 6.

Fig 6: Historical revenue models

Premium Pay Per Subscription Advertising
g
Pricing View/Use/ Based Pricing Supported//
Download Sponsorshipp


Revenue Model
Figure 6 also shows that to date, advertising models have generally prevailed over
pay models. A pay model is only possible if the digital offering is truly unique or
compelling. If this is not the case, then revenue will be dependent on the ability of
users to attract sponsorship or advertising. But how do you know whether your offer-
ing is unique? Digital consumers ultimately decide, and they set a high bar because
they believe that online services and content should be free as a matter of principle;
and in most cases, there is a plethora of content/services available, so it’s hard for
any one business to stand out from the crowd. Digital Enterprises therefore need to
apply an impartial and rigorous assessment to their digital value propositions.

In the new digital decade, the notion that content should drive revenue model deci-
sions is outdated. It’s a one-dimensional approach that does not take into account
the complexities of a digital business. Instead, the Digital Enterprise should look to
well established economic principles of demand and supply to establish the correct
revenue model.


Fig 7: Suggested digital revenue models

Premium
Pricing

Pay Per
View/Use/

Download

Subscription
Based Pricing

Advertising
Supported

Hybrid Pricing Model


The value propositions you choose and the Digital Tribe you serve will narrow the
Fig. 7
list of applicable revenue models (see Figure 7). The Digital Convergence Equalizer
(see Figure 3) helps you identify the relevant value propositions and associated revenue
model. For example, it suggests that a service in which you facilitate a community
via chat should be provided to consumers free of charge to increase usage in an
advertising-funded or sponsorship revenue model. Similarly, the Digital Tribe Framework
(see Figure 5) points to a pay model if you are serving a tribe with the characteristics
of “Digital Masons. ”

These revenue models are not mutually exclusive, and hybrid pricing models can be
applied. For example, the Financial Times allows free access to its digital content for
the first 30 views in a month, at which point a subscription is required. Similarly, a
new music website, Spotify, provides a free ad-based music service or a premium
paid, ad-free option.

Clearly, revenue models for Digital Enterprises continue to evolve. The jury is still out
as to which will be the most sustainable models over the long term. What matters
however is the need to take a rounded approach to determining the revenue model
for your digital offering.

16

Interview with Pippa Leary,
Fairfax Digital

As Managing Director of Media for Fairfax Digital, up to six hours a day in some instances—and they are
Pippa Leary is responsible for growing revenues and becoming more adept at simultaneous media consump-

audiences at the group’s 30 interactive websites. tion. There’s a lot more multitasking and media grazing.

“At Fairfax, we’re concentrating on next-generation brand “Broadband changes everything. It takes the computer
solutions such as video, custom builds and behavioural out of the study and into the living room. Once it enters
models to drive revenues. That’s where all the margins the living room and the kitchen, it’s always on and people
are, and that’s where all the growth is. If we were to rely are using it constantly. For example, it’s replacing Yellow
on banner ads alone, we’d be out of business within three Pages as an informational and buying guide. “
years. Because of the challenges of generating unique
Leary cites bandwidth and audience measurement as two
content, we see a business model based on a combina-
problematic issues associated with the development of
tion of advertising and transaction revenues. ”
digital media:
Overall, Leary remains optimistic about the digital land-
“Bandwidth is a primary concern for Fairfax—so much of
scape, despite the global financial crisis and the subse-
our digital strategy relies on video. Bandwidth is limited in
quent economic downturn. She thinks it’s making digital
Australia and it’s become a serious constraint for everyone.
players more discriminating.
On measurement, the chal-
“We believe the global finan-
cial crisis is driving efficien-
“ D
igital media consumption lenge is to come up with a
unique audience measure-
cies in the digital space and
habits are continually changing ment system that allows
reducing market clutter. It and business models must keep us to measure audiences
makes you take a good, hard
”
pace or die. across newspapers, televi-
look at your business mod-
els. You need to think a lot Pippa Leary
sion, online platforms, and
magazines everywhere.
harder about content management systems, staffing lev- Right now, the measurement systems aren’t good. There’s
els and the bare bones of everything you do. What can we a lot of duplication. We know that traditional media buyers
stop doing? What doesn’t have a long-term future? don’t have much faith in them. Until we give them an easier
way of buying our media and measuring our audiences,
“Media consumption habits are changing fundamentally.
we won’t move that AUD3.5 billion of ad revenues across
They are not only fragmenting, but also becoming more
from television, which is our ultimate aim.
digitally focused. People are spending more time online—


Conclusion
The second digital decade is underway, creating new opportunities for Digital Enterprises
to personalize and humanize technologies that were invented in the first digital decade.
In order to generate profits from their digital endeavours, companies need a more
structured approach to identifying target audiences and choosing the appropriate
revenue models to serve them. Content and distribution are no longer the only value

propositions to consider.

The Digital Convergence Equalizer helps companies identify their strongest value
propositions. Using this in conjunction with the Digital Tribes framework will help
determine the best revenue model. Companies that continue to think in terms of
content and distribution risk are missing fundamental changes in the digital landscape.
Those that embrace the new thinking and find ways to own and serve various Digital
Tribes will ultimately succeed in making the transition from experimental pilot projects
to revenue-generating digital businesses.

Contacts
For more information on how the Digital Convergence Equalizer can help you
determine your Digital Tribes and revenue models, contact:

Tudor Aw
Partner
KPMG Europe LLP
+44 20 7694 1265
tudor.aw@kpmg.co.uk

Malcolm Alder
Partner
KPMG in Australia
+61 2 9335 8041
malcolmalder@kpmg.com.au

Sanjaya Krishna
Partner
KPMG in the US
+1 212 954 6451
skrishna@kpmg.com

18
18 DIGITAL TRIBES

Digital Value
Proposition Strength of Value Proposition Revenue
Model Bias
“The 20 c’s”

1 COMPELLING
CONTENT PAY
2 CONTEXT FREE
3 COVERAGE PAY

4 CONVENIENCE FREE
5 CONTROL PAY
6 CHOICE PAY
7 CONNECTIVITY FREE
8 COMMUNITY FREE
9 COMMENT FREE
10 CONSOLIDATION
(AGGREGATOR) FREE
11 (PERSONALIZATION)
CUSTOMIZATION
FREE
12 (APPLICATIONS)
CONTRAPTIONS
MIX
13
COMBINATIONS
(BUNDLING) PAY
14 CONTRIBUTION
(UGC) FREE
15 (INTERACTIVITY)
CONVERSATIONS
FREE
16 COLLABORATION FREE
17 CITIZENSHIP FREE
18 COMPLIANCE MIX
19
CUSTOMER
EXPERIENCE FREE
20 AND COMPENSATION
CONSUMER REVIEWS
MIX

-3 -2 -1 0 +1 +2 +3
OR
NOT APPLICABLE


APPENDIX:
KPMG’s Convergence Equalizer
Checklist (“The 20 C’s”)
Value Proposition Explanation/Comment

1
Compelling Content
T
raditionally seen as the key value proposition for media and content providers.

The value proposition lies in the content itself – e.g. movies, music, news articles,
and software applications.

2
Context
N
o matter how compelling the content, it is of no value if it is difficult to find or
identify. Being able to provide context or search capability has inherent value in
the digital world. This is the premise for not only search business models such as
Google and Yahoo!, but also applications such as Electronic Program Guides (EPG)
as seen on applications such as TiVo, and rating of content on YouTube and Digg.
com. More recently, location-based services have introduced the ability to provide
content or services that are contextually driven by your location.

3
Coverage
In an increasingly digital world, providing connectivity, either fixed-line or wire-
less, is a base necessity that still attracts a pay model. This value proposition is
currently the key attribute that cable and telecommunication operators provide.

4
Convenience
“Cash-rich, time-poor” is an oft-heard statement about today’s affluent soci-
ety. The internet addresses this scarcity by providing convenience to users.
Examples of such services include online supermarkets, online banking, dating
agencies, insurance comparison sites and even online reservation services
such as OpenTable, all of which provide users with a convenience that is not
readily available in the physical world.

5
Control (distribution)
A key battleground at the moment is control, either of the distribution channel
(e.g., broadband network) or the customer (e.g., Amazon.com). Sometimes,
control of the distribution channel may also give you dominant control of
the customer (e.g., mobile networks). Organizations are furiously looking for
ways to gain control of users’ online time and become their default channel to
access content or services.

6
Choice
T
he internet allows access to almost unlimited choice, and companies can profit
by mining the “long tail” of interest among a few in less-popular content.

7
Connectivity
C
onnectivity is a key element of the next digital age. Providing users with ways
to connect to each other, either by way of common interests or technical conve-
nience will be a strong value proposition. Services such as LinkedIn allow people
to stay in touch or connect to new people through their networks.

20

8
Community
The phenomenon of social networking sites such as MySpace and Facebook
and the value they are generating is well established, but this value proposition
extends beyond just social networking. The internet provides a powerful tool
for any community—whether social, political, or business-oriented—to form a
community that facilitates the exchange of views and information. Examples
include community portals for local neighborhoods or fans of the television
series Jericho, who staged an effective campaign to reinstate the show for

another season after it was initially cancelled by the television network.

9
Comment
The rise of websites that promote points of view and post associated com-
ments is just as significant as the rise of social media sites. Blogs such as
Engadget, Boing Boing, PaidContent.org, and the Huffington Post have strong
followings. Similarly, look at any newspaper website and the real area of
interest is often in comments posted by readers below the original article.

10
Consolidation (aggregator)
With the advent of the Long Tail and plethora of content and services avail-
able, aggregators that consolidate content and services into one site play an
important role. Examples include Amazon.com’s one-stop-shop service, RSS
feeds, and online search engines such as Google and Yahoo.

11
Customization (personalization)
The ability to personalize an individual’s online experience is increasingly
becoming a key value proposition. Users won’t engage with a service that
provides a generic experience. They are looking for offerings that are tailored
to their specific interests and tastes. Home pages for sites such as the BBC
now allow users to tailor its format and content.

12
Contraptions (applications and hardware)
Innovative applications and tools continue to represent strong value proposi-
tions in the connected online world. These can be the primary application
itself, such as MySpace, or secondary applications such as Widgets or
games like Sudoku and My TravelMap on Facebook. Hardware that facilitates
innovative online use can also provide a strong digital value proposition.
Examples include the iPod and TiVo.

13
Combinations (bundling)
Bundling together services or content can help improve the overall value
proposition. We have already seen cable and traditional telecom operators
in the US and UK, such as Comcast, ATT, and Virgin Media offer bun-
dling options around mobile, fixed line telephony, broadband, and cable TV.
Extending such models into online services will help create value through
the concept of one-stop shops. A good example of this is the UK’s Daily
Telegraph website, which provides not only the expected news content but
also services such as a dating service, travel guides, and booking services;
and now, Telegraph Television.


14
Contribution (UGC)
U
ser-generated content has now entered our lexicon and is the prime example
of how convergence in the digital world involves consumers moving into the
role of content creator. YouTube is the poster child of such a value proposition,
but Dorito’s innovative competition for consumers to contribute online content
that would be shown at the Super Bowl is also a good example.

15
Conversation (interactivity)

A
sk any Generation Yer why they prefer an online experience to the passive

experience of other media such as television, and the answer will be that it
allows them to have a conversation. They are able to interact and participate
in the experience. This is particularly true of online games, such as World of
Warcraft and other similar digital properties such as Second Life. The more a
digital property enables interaction or conversations among participants, the
more value is ascribed.

16
Collaboration
O
nline technology provides for a cheap and efficient way in which people can
collaborate on a topic or issue. The prime example of collaboration is Wikipedia,
where thousands of people contribute to its content. Another example is in the
field of Astronomy, in which thousands of amateur stargazers work alongside
professionals to monitor the sky and carry out research projects.

17
Citizenship
The accessibility of the web has democratized the ability of people to have
their voices heard and to make a contribution. In recent years, we have seen
this take a variety of forms, everything from citizen journalism, to being a
point of focus for political movements and social/charitable causes.

18
Compliance
T
he internet enables people to comply with regulations and requirements by
conducting online transactions. This includes everything from filing tax returns;
submitting Company Financial accounts; paying fines; and registering vehicles.

19
Customer Experience
U
ltimately, the success or failure of a digital property can turn on the customer
experience, which encompasses a wide variety of factors such as ease of use,
look and feel, functionality, and processing speed. Examples of sites that have
succeeded due to a large part to the customer experience afforded include
iTunes, Facebook, and Flickr.

20

Consumer reviews and compensation
The rise of user-generated content includes the increasing value attached
to consumer reviews, which are often seen as providing more trustworthy
and frank feedback. A plethora of such sites incorporate consumer reviews,
including TripAdvisor, Amazon.com, eBay, and epinions. More interestingly,
there have been some moves to attract such reviews by rewarding consum-
ers for providing recommendations or referrals. For example, Foodio54 offers
rewards and prizes for restaurant reviews.

22

Global and Regional Contacts
For more information on KPMG’s Information, Communications, and Entertainment
practice and its services, please contact:

Gary Matuszak Carl Geppert
Global and Americas Chair Americas Chair, Communications Media
Information, Communications Entertainment Partner, KPMG in the U.S.

Partner, KPMG in the US +1 303 295 8827
+1 650 404 4858 cgeppert@kpmg.com
gmatuszak@kpmg.com
Kieran Lane
Sean Collins ASPAC Chair
Global Chair, Communications Media Information, Communications Entertainment
Partner, KPMG Asia Pacific Ltd. Partner, KPMG in Australia
+65 6372 3300 +61 2 9335 7514
seanacollins@kpmg.com kieranlane@kpmg.com.au

Maureen Migliazzo Edwin Fung
Global Executive ASPAC Chair, Communications Media
Information, Communications Entertainment Partner, KPMG in China
+1 650 404 4425 +86 (10) 8508 7032
mmigliazzo@kpmg.com edwin.fung@kpmg.com.cn

Graeme Ross
EMA Chair
Information, Communications Entertainment
Partner, KPMG Europe LLP
+44 20 7311 3372
graeme.ross@kpmg.co.uk

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continue to be accurate in the future. No one should act on such information without appropriate profes-
sional advice after a thorough examination of the particular situation.

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