March 4, 2013 – TMT: In the Year 2020 – 8 Things We Think

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TMT: In the Year 2020 – 8 Things We Think

Innovations in device design, platform software, wireless, cloud data processing and cloud applications have catalyzed radical TMT paradigm shifts. While much has changed, development trajectories imply even more dramatic developments ahead. Consumer devices differentiation will veer from the display to something else, bringing new leaders and new form factors, while software platforms aggressively integrate cloud-based app functionality, driving to a seamless experience across all venues. This experience will include on-line video, which will siphon viewers and ad money from channelized TV. It will roll over new categories of brick-and-mortar retail and begin to disintermediate industries from health care to transportation. At the same time, future wireless networks will be more than fast and cheap enough to compete successfully with fixed broadband, giving consumers far more usage for far less money. Enterprises will gradually adopt thin devices for both portable and desktop deployment, relying on network delivered applications, which will be increasingly hosted by public cloud operators with profound scale, cost and performance advantages, killing incremental demand for traditional data center systems and software. In the process, IT organizations will begin moving to SaaS solutions, with many legacy applications vendors struggling to make the transition.

Unpredictable changes in consumer device preferences portend a shake up. Mobile phone leadership has often changed hands: MOT’s analog flip phones, ERIC’s GSM candybars, NOK’s software driven 7 years, MOT again with RAZR, RIMM making QWERTY cool, AAPL’s iconic iPhone and now, Samsung’s big screens. With displays hitting absurd pixel densities and quad-core processors the norm, the basis of competition is due for a big shift, direction unclear. Battery life? Gesture controls? Wearable form factors? Innovation could come from many directions, and the firm that anticipates best will likely take market leadership.

Platforms will compete on lucrative integrated cloud apps. User experience will be mostly defined by functions served from the web coordinated seamlessly across many different devices. Where possible, the platform owners will integrate proprietary solutions directly, squeezing 3rd party developers for the most attractive opportunities, capturing user data across apps and devices, delivering bespoke use experiences and monetizing via ads, in-app purchases, and fees. In this way, the platform owners could dominate the web economy for years to come.

The cloud will seriously disrupt traditional businesses – TV, retail, services, etc. On-line video has already begun an accelerating cycle of growing viewership, new ad revenues, and improving content that will erode the audience and advertising for channelized TV, and increase the rancor in fee negotiations between networks and distributors. By 2020, unbundling and cord cutting will have begun in earnest. Meanwhile, e-tail will lay waste to whole categories of brick-and-mortar stores, forcing a radical reconception of the physical retail experience. Finally, cloud businesses will extend footholds in new areas – e.g. payments, health care, transportation, energy, government services, etc.

Residential broadband will be cheaper, faster and wireless. New spectrum and evolving wireless standards will bring vigorous competition to both mobile and fixed broadband, bringing much lower prices, higher capacities, and faster speeds. Challengers to the oligopolistic status quo, including possible new entrants, will exploit favorable FCC rules to grab swaths of 700MHz spectrum at auction. By 2020, LTE Advanced networks will offer 100+ Mbps, with substantial discounts and faster peak speeds for static residential service available over most of the US. The current market leaders will have to increase speeds, raise data limits and cut prices to keep pace.

Enterprises will adopt portable device architecture – even for fixed applications. Portable device architecture, with thin operating systems depending on cloud processing and storage, will prove cheaper, more flexible and easier to maintain for enterprises. In contrast to the consumer market, the transition will take many years, as enterprises cope with compatibility/support issues and bureaucratic inertia. All of this will greatly favor Microsoft.

Enterprise transition to public cloud will be more substantial than most estimates. Led by Google, a new distributed data center paradigm offers almost limitless scalability, flexibility, and speed, at dramatically lower costs vs. traditional private data centers. While there are real transition costs and lingering security concerns, these will wane with time and the best operators will extend their advantages, making public cloud the predominant enterprise IT architecture for the next era. By 2020, we expect cloud hosting to be a better than $100B market in the US alone.

The shift to the cloud will stifle demand for traditional data center technology. The biggest and best cloud data center operators are designing their own server, storage and network hardware from commodity parts, and writing their own infrastructure software. As enterprises begin moving computation and storage intensive applications to the cloud, demand for value added systems and data center software will hit an inevitable and irreversible decline.

The superiority of purpose-built SaaS apps will eventually induce enterprises to switch. Most legacy applications are built on software foundations that make them very difficult to adapt to the distributed data center paradigm, and thus, cannot tap the cost and performance advantages inherent in the cloud. While traditional application vendors will work to stretch their architecture as far as possible, it won’t be enough to stop a slow migration to SaaS alternatives.

New paradigm companies will prosper. Old paradigm companies must adapt or die. The ‘80’s shift, when PCs, cell phones, cable TV, and competitive telecom all came of age, created behemoths like MSFT, INTC, DELL, CSCO, ORCL, and CMCSA, saw IBM and HPQ adapt to the new rules, but saw stalwarts like DEC, Wang and Xerox fail to keep pace. The same process is happening now – GOOG, AMZN, AAPL and FB have been the agents of change, proactive old era leaders like MSFT and QCOM are adapting, and companies like HPQ, INTC, ORCL, CMCSA and many others will struggle to hold on to what they’ve got.

For our full research notes, please visit our published research site.

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