John Tate assesses the horses to back in a fast-moving technological world.
What a year we are having in the technology space. Facebook floated in May, valuing the company at over $100bn. Common sense appeared to go out of the window. How can you price a company at this level without corresponding financial success and with a product that could quite quickly lose popularity?
The mobile-device market has been in turmoil. BlackBerry’s market position has nosedived, along with Nokia, while Apple and Samsung phones have gained a huge increase in sales. Apple is also roaring ahead with iPad sales; shipping around 12 million units in the first quarter of 2012 alone – an increase of over 50 per cent compared with the same quarter last year.
The rest of the year looks likely to be equally lively. Microsoft, which has suffered a steady decline in its market position over the last decade, is desperately trying to regain lost ground with the launch of Windows 8 (a new mobile-phone operating system), and upgrades to Internet Explorer and Office.
Charities continue to invest in technology and are wondering which horses to back. So here are some criteria to consider when predicting future winners in the coming decade:
IT has a track-record of delivering unreliable products. In the long-term one would hope that companies that can deliver really reliable technology will win.
Return on investment
In the current, harsh economic climate there is an even stronger incentive to ensure all expenditure is clearly justified by a strong return on investment. Many organisations do not even try, typically being carried along on the wave of a new ‘musthave’ product.
Consumers – but also many businesses and charities – cannot resist the latest and greatest ‘gizmo’. Over the last 20 years the majority of successful IT companies have been those with the best marketing engines – rather than the best technology. Despite the hassle caused by unreliability and the constant upgrading to the latest offering, marketing currently wins over the technology in terms of which companies are gaining ground in the computer industry.
Most buyers prefer to buy brands. There is no better example than Pepsi and Coca-Cola, where the two vendors successfully sell sugary water with flavour at higher prices than the less wellknown competitors. In the future I’m afraid people will continue to buy inferior products at higher prices – if the brand is strong.
According to research from BrandZ in May this year, the top three most-valuable global brands were Apple, IBM and Google. Ten years ago BrandZ research listed the top three as Coca-Cola, Microsoft and IBM. At that time Apple was rated 50th, and Google was not even in the top-100 list.
So new entrants to the brand list in the coming years are very possible.
Finally, future purchasing will be heavily influenced by the ease with which a product can be changed. With mobile technology, for example, it is relatively easy to switch from one manufacturer to another. By contrast, changing your desktop from Microsoft to Apple is likely to involve a huge amount of work.
In the middle-ground lies much of the emerging social media, web-based technology. For example, changing from one web browser to another is not hard, and we have seen a lot of switching with ‘social products’, such as Friends Reunited and MySpace, to the current favourite of Facebook. I suggest there will be a lot of change with the ‘less-sticky’ products; Facebook, Google and LinkedIn being three examples.
Odd buying habits
Looked at objectively, these buying habits are most odd for IT functions which are often led by an FD with an accountancy background.
The winning companies will be those with the best marketing. Those who miss a trick, without having a ‘sticky’ offering, could be here-today-and-gone-tomorrow.
So prepare for a lot of technological change, and don’t give up on trying to inject common sense into investment decisions.