Most market participants have spent the past year worrying whether or not the financial world would end and where we are in the recession. As investor thinking has been consumed by the macro events, little thought has been spent on disruptive shifts in technology, the primary reason is that concept themes rarely pay off during bear markets.As markets improve, investors will begin to shift focus to other areas: one is the next phase of the digital media revolution, which is currently under way. This revolution is based on the simple fact that technology is disposable and the next phase will be about consumers managing and protecting their content, both personal and purchased, as a part of everyday life. Today, the winners vs. losers from the first generation of the Internet age are clearly delineated by those who are still in existence and those who are not. In a world so driven by technology, we must remember that one of the best and worst aspects of technology is obsolescence. Companies that continue to innovate always have the next product cycle; those that do not fall by the wayside. Simply, think about how many computers and handhelds you and your family have gone through over the past decade, both in the office and at home. Broadband Internet access is mainstream, and the wide majority of laptops sold at conventional retailers like Best Buy ( BBY) are less than $1,000, with many less than $500. Essentially, computers are becoming as commoditized as TVs and may already be there. The significant difference is that the TV is a delivery platform for content someone else owns. Computers are a delivery and storage platform for content that others own as well as content you own.
The first area is remote backup storage, a trend that is going mainstream. A couple of years ago, I signed up for such a storage service. It simply appeared to be an easy way to back up my computer files. There are many companies that offer such services; the winners will be vendors consumers trust that employ a user-friendly interface. In retrospect, the uses of this commodity service are far more valuable than I expected them to be. It permits the user to access their stored files from any computer they want. Transferring files from desktop to laptop and vice versa is as easy as opening the networked drive folder. It eliminates the need to email content or use a usb flash drive to move from computer to computer. The true benefit of the service is realized once you upgrade computers. How often have you found yourself forgetting files on your old computer never to be seen again? Now that most people take digital pictures, you no longer need to worry that family photos will be inaccessible on the old computer. Anyone who uses photo services like Shutterfly, Snapfish (owned by Hewlett-Packard ( HPQ) or Ofoto understands that it is a specialized version of this storage. Digital photos went mainstream first, hence those services have touched the mainstream consumer first. In the future, all files consumers have in digital format will need to be stored remotely and accessible remotely. It will be part of everyday life, and once you find a vendor you like, odds are you will be hooked for a very long time. If a firm garners a first mover advantage and generates a critical mass it should result in an entrenched customer base.
Just over a year ago, Netflix ( NFLX) announced its video streaming service. The concept was not new. Over the past decade, Video on Demand offered by cable companies had obliterated video stores. It is fairly simple, you sign up, buy a Roku player that can connect to your wired or wireless router, plug in a code and you are set for streaming video. Netflix is simply a monthly subscription. The drawback is the limited number of new releases available in a timely fashion, but that trend has been improving of late. One day, out of nowhere, the menu on my Roku player had an Amazon ( AMZN) menu along with the Netflix menu. It turns out that Amazon launched its own streaming video service. Amazon's service is one where you can purchase moves or rent them individually as you would from Video on Demand for 24 hours. Then it clicked, the technology is disposable, at least the hardware is. When one thinks about the progression from VCRs to DVD players to Blu-Ray Disc players, it makes you question whether you should buy anything in a format that will be obsolete in the next decade. Why have these media formats, which you will simply throw away in a couple of years, clutter up your home? That makes the rental option, especially on a subscription service, appear very attractive. It does not end there. As Amazon demonstrated retailers are also starting to provide the consumer with the opportunity to purchase the media content in its digital form. It will be key for the retailer to maintain and manage the consumers digital rights to product just as ITunes does. Then that digital content manager will allow the consumer to connect with whatever the latest delivery platform may be as the previous platform moves toward obsolescence.
A consumer purchase will have that content beyond the life I would have had in a disposable technology format like a DVD or CD. The key for content retailers is to be that first mover with a successful, easy-to-use platform. Again, odds are that once you have a consumer hooked, he or she will want to keep his digital library in a single location and you become the de facto choice for purchasing that digital medium. The Kindle is simply another extension of this transition to the digital format. While books generally do not require a delivery mechanism and hence are not constrained by disposable technology, there is an attraction to the ability to fit your entire library, and all of your newspapers and magazines, into one's jacket pocket or a purse. Again, just like the videos, when the disposable technology of the delivery system becomes obsolete, your library will be transmitted to your next platform. Right now many firms offer versions of this for different segmented products. The real winners with be the firms that consolidate the services to provide one-stop shopping. They can sell, manage and maintain the different digital rights for different forms of media: video, audio, video games, etc., while connecting to the latest delivery platforms.