Online Extra: Q&A with Philips' Gottfried Dutiné

Why is convergence finally happening? Says the consumer-electronics chief: Digitalization is the root cause

The merging of the tech and consumer-electronics industries is often billed as a battle between America and Asia. But Royal Philips Electronics (PHG ), based in the Netherlands, is a major European player with operations around the globe. Gottfried Dutiné, executive vice-president of Royal Philips Electronics and the CEO of its Consumer Electronics division, recently discussed industry trends with BusinessWeek European Technology Correspondent Andy Reinhardt, in Germany. Following are edited excerpts of their conversation:

Q: People have been talking about convergence for a long time. What's different now?


The big difference this year is that convergence is finally really happening. Digitalization is creating products that can't be categorized into CE or IT -- it blurs the boundaries. The walls are coming down.

Q: Does it change the way you do business?


In the past, all these industries lived separate lives. Now they have to fight each other. Productization happens so much faster now -- in six months. This lets people create whole new products, like mobile phones with photo messaging that you can connect to your TV to scroll through the pictures. Digitalization is the root cause of all of this. It lets you create applications you could never have imagined 10 years ago. The PC, TV, and mobile phone are all converging.

This creates another impact: The distribution channels for the PC, telephone, and consumer-electronics world are all of a sudden competing with each other. You see CE products being sold through PC channels, like Dell (DELL ). This is a big, big change.

Q: Who's going to control the flow of information and services?


There's a war going on, a fight for the future between all the different service providers. The telephone companies are rolling out 3G, and then all of a sudden Deutsche Telekom (DT ) declares that all of Germany will become one big Wi-Fi hot spot. When telecom operators offer video-on-demand over DSL and cable operators offer voice over Internet over coaxial, what does that do to the communications business?"

Q: How about Hollywood?


People are afraid of change. Back in the 1920s, when the first AM radio stations were appearing, people were worried about the livelihood of musicians. Hollywood is only now waking up. They have ignored the impact of digitalization for years. One thing that's waking them up now is the role is Microsoft (MSFT ): They're saying, 'If they control [digital-rights management], we're in deep s--t!'"

The challenge is to create solutions that benefit the entire value chain, from creators to consumers. Digital-rights management is absolutely key. We have lots of patents, including on DRM and watermarks. [Philips is a co-owner, with Sony (SNE ), of InterTrust, which just settled a lawsuit with Microsoft.] We're practically in the driver's seat on this, and that's why we're negotiating with everybody.

Q: How can technology make things simpler, instead of more complicated?


If we want to make this world available to consumers in a very user-friendly way, we have to improve the technology. Things like RFID [radio-powered ID chips] will help.

Say you're setting up [broadband] and Wi-Fi in your house. Today it's complex and assumes the presence of a PC. But your [broadband] supplier could mail you an RFID chip, you wave it over your modem and past all the other devices you want to put onto the network, and they all set themselves up automatically. This is an easier, more intuitive, more customer-friendly way to set up a network.

Or, say you're having a CAT scan, which is a very threatening experience for many people. You could wave your medical card over a reader, and it would create an ambient environment in the room that would put you more at ease -- Mickey Mouse for kids, classical music, or something else for adults.

Q: How can Philips profit from technology that is standardized?


You need standards to create mass volume for hardware. Otherwise, the development cost can never be recovered. But then, using standards, you create products yourself or with partners that are more compelling than anybody else's. That drives profits. It's a never-ending competition.

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