By Chris Hill, The Motley Fool
The following video is part of a nationally syndicated Motley Fool Money radio show, with host Chris Hill talking with Bill Mann, Tim Hanson, and Joe Magyer about what investors should expect in 2012.
In this segment they guys discuss why the mobile-payment industry will be one to watch in the new year and why companies such as Visa and eBayare poised to be among the winners.
See full article from DailyFinance:http://srph.it/urq1Md
The Next Trillion-Dollar Revolution
The next revolution in computers is coming. How big is the opportunity for investors ready to profit from it?
Don't think in terms of billions -- try trillions.
It's the largest technological transition investors have ever witnessed. The impact of this revolution will dwarf even the rise of the PC, an event that made a laundry list of companies like Microsoft, Intel, and Oracle all worth more than $100 billion! Best of all, while most of these companies benefited from demand in developed areas like America, Europe, and Japan, this next revolution is seeing the strongest demand in countries bursting at the seams with growth, like China, Brazil, and India.
That might sound like sensationalism. Chances are you're reading these very words on a PC. The PC has been the dominant force in computing since the early 1980s. Since then, the death of the PC has been forecast many times, but its rise only continued. In 2010 alone, nearly 350 million PCs were sold around the world.
However, its fade into irrelevance is coming with new companies stepping in as winners of the next revolution, all seeking the opportunity to dominate the next tidal wave sweeping over technology.
The seeds of this transition are laid in the history of how the PC came to power. Best of all, today, I'm going to give one company set to not only dominate the new directions PCs are headed in but that's also set to dominate the next revolution in computers.
But first, to understand why another computing revolution is upon us and why the stakes are so high for the winners of this sea change, we need to travel back in time.
We need to go back to the 1960s.
The First Revolution
The backwater technology of the 1960s might feel like an odd time to begin our journey of the next computing revolution. However, as you'll see, these revolutions are swift, leaving the dinosaurs that don't make the jump to perish. Understanding each technology revolution is critical to understanding just how important today's shift is and why it can make forward-looking investors rich.
At the time, systems called mainframes ruled the computing world. Mainframes were massive computers that would fill an entire room and specialized in very specific tasks. For the period, they were stunningly powerful and capable machines, but they were also prohibitively expensive. At the peak of their popularity in 1973, only 14,000 mainframes were sold.
Still, despite the limitations of mainframes, investors bid up shares of companies leading the field. IBM, the top seller of mainframes, commanded a market value of $42 billion in 1969; an astounding value for the time.
Despite investor enthusiasm, the decline of mainframes would come in the 1970s. On the horizon sat an even more powerful technology: minicomputers.
While minicomputers weren't as powerful as mainframes, they still packed enough power to meet the needs of most businesses. The more powerful technology was being usurped by a cheaper technology that was "good enough" and more versatile.
As minicomputers gained popularity, the giants of American industry that ruled mainframes dropped out of making computers. Honeywell bowed out, RCA sold its mainframe division, and even mighty General Electric threw in the towel. All were seemingly unstoppable American business icons but proved unable to catch up to rapidly evolving technology needs.
In their place was a group of aggressive smaller companies like Wang Labs, Data General, and Digital Equipment.
Digital Equipment on its own would go on to challenge IBM, reaching a stunning peak value of $21 billion in 1987. However, its fall would come just as quickly as its rise. Because like mainframes before them, minicomputers would be disrupted by a powerful new type of computers that would forever change the technology landscape:
The PC.
Inferior in most every way to more powerful devices like the minicomputer, reigning technology titans like Digital Equipment ignored the PC. However, while underpowered by traditional definitions of what a computer should be, the PC proved good enough to handle most tasks. And best of all: It was cheap.
Because of its cheapness and flexibility, the PC overcame its shortcomings to become the dominate way people interacted with computers. Businesses rapidly adopted the PC, destroying the dinosaurs of the last technology revolution that ignored this computing revolution. Giants like Wang Labs, Data General, and Digital Equipment all fell by the wayside as PC-focused companies like Dell, Microsoft, and Intel saw exploding sales.
The late 1990s saw the emergence of the Internet, which only further entrenched the PC. Sales continued their upward march, and it was assumed that the PC's place was secured.
However, history shows us this is not the case. Every generation of computers has been disrupted by cheaper devices that better matched what users were clamoring for.
Best of all for investors -- or most frightening for those not prepared -- is that the winners of the last generation can rarely adapt to the next revolution and dominate it as well. So, what's disrupting the PC world of today?
Mobile.
The Next Revolution
The next technology revolution is upon us. Today's consumer wants devices that are always connected to the Internet and give them capabilities that closely match what a PC can offer. That's precisely what smartphones and tablets offer. Like previous technology revolutions, they're a "good enough" solution that's cheaper but better suited to today's needs.
Best of all, they're getting better -- fast. Devices that can fit in your pocket have the power of PCs seen less than a half-decade ago. That's an important point to understand: Powerful mobile devices are still in their infancy. The defining product of the smartphone generation, the iPhone, was released less than five years ago!
Compare this growth to that of PCs. IBM released its first PC in 1981. Despite being a revolutionary product, PC sales didn't pass 100 million units in a year until 1999, a period of nearly 20 years.
Despite not being popular until the middle of the last decade, smartphones passed 100 million units in the last quarter of 2010 alone.
The world of mobile devices is exploding before our eyes, and it's making every technology revolution before it look like child's play.
That's because every revolution gets much cheaper, but with a far larger market. The PC, while cheaper than the minicomputer before it, was first primarily sold to businesses. Smartphones, tablets, and other mobile devices have no limits on who can buy them.
In emerging markets -- like China, India, and Indonesia -- an entire generation will grow up primarily using their phones to access the Internet. For this unheard-of opportunity of hundreds of millions of consumers moving toward the middle class, the smartphone is the computer.
But this opportunity must seem so obvious. The technology giants who dominated PCs must have learned from history; they saw how companies who didn't transition in previous technology revolutions rapidly faded into obsolescence.
Surely they're prepared for this coming sea change of spending, right?
Wrong. Wake up, it's happening again!
- Microsoft, which dominated the last generation with its ubiquitous Windows operating system, didn't release a competitive smartphone product until the iPhone had been out for more than two years! It still has next to zero market share in both smartphones and tablets.
- Intel, which dominated the processors powering PCs, has yet to emerge with a competitive mobile processor. As it slept, smaller peer ARM Holdings has built up nearly 100% share in the mobile market.
- Dell, one of the defining computer sellers of the last generation, is flailing in its attempts to build a smartphone or tablet with any meaningful sales. The company is frantically trying to rebuild itself in the image of IBM in an attempt to move away from PCs.
- Even mighty Nokia, which dominated cell phones for most of the last decade, has been blindsided. Despite being the largest mobile phone maker, Nokia has seen its value fall more than 80% over the past four years. Technology revolutions move fast, and Nokia wasn't ready for the direction that the iPhone took the rapidly evolving smartphone market in.
So, if we know that:
- The mobile opportunity will dwarf any technology revolution before it, and that...
- The leaders of the last generation are floundering...
How can investors profit from the mobile explosion happening right before them?
A Leader of the Mobile Revolution
I've already outlined some of the key opportunities of the mobile market.
- It's going to be huge -- bigger than any technology market we've ever seen.
- It's global -- markets like China and India will be just as important in the coming revolution.
- It's coming on faster than you think -- the pace of change is greater than any technology revolution before.
Next, I'm going to describe a company that benefits from these key opportunities, but I'm also going to mention one last point you must understand. Pay careful attention, for this is a subtle, yet extremely powerful point to understand.
It might shock you because this last opportunity will seemingly go against everything I've outlined above.Most of the dinosaurs from the last generation of technology will perish, toiling away trying to make the PC work while consumers shift away from it. However, a very select few companies will evolve with the PC and conquer its more limited future.
Those PC companies will continue to prosper.
Remember our first revolution, when mainframes were surpassed? Well, it might shock you to know that IBMstill has a mainframe division, and it's one of the company's most profitable units!
Think about that for a second... IBM, one of the largest technology companies in the world, relies on mainframes -- a technology 40 years past its prime -- for a large part of its profits! The market is small and limited, but as all its competitors withered away, IBM captured the slim remains of the mainframe market. Mainframes are no longer anywhere near the size of other markets like PCs, but when captured by a single opportunistic company like IBM, mainframes are very profitable.
That's because technologies don't simply disappear. The PC will be around in 10 years. Instead, technologies like PCs lose their overall significance while still being extremely valuable to a smaller percent of technology users.
The company I'm going to introduce to you today not only harnesses the mobile future, but is also a leader in what the PC will become. It's a misunderstood double threat riding several trends into the future.
So, what company will lead this trillion dollar revolution?
