Heed the Schumpeterian power of the mobile phone
By Robert Cyran and Rob Cox
What will the mobile phone devour next? It permanently crushed the gadget that defined the beginning of the last decade – the personal digital assistant – and is eating through the landline telephone, digital camera, iPod and even the watch. The creative destruction has just begun.
Investors should heed the mobile phone’s Schumpeterian powers. When the century began, bankers ‘beamed’ each other information via the now-quaint infrared technology of the Palm Pilot, whose maker boasted a $92 billion market value. Palm shifted into mobile phones but lost 97 percent of its value along the way. This should provide a cautionary tale to other industries standing in the cell phone’s path.
The most obvious target is the traditional telephone. Almost a quarter of all American households, and counting, no longer have a fixed-line phone. That’s a drag for operators like AT&T and Verizon who must continue to run their expensive copper-based infrastructure despite running the biggest wireless networks, but terrifying for providers without wireless operations, like Qwest and Frontier.
Even the iPod faces obsolescence. Unit sales are in decline. Although that’s not a problem for Apple as long as its customers listen to music on their pricier iPhones instead.
And pity the poor watchmaker. Most teenagers now use their cell phones to tell time. Watchmakers, from Seiko to Tag Heuer, must pitch themselves as fashion designers to succeed. That’s not a trick that the manufacturers of GPS devices, cameras and radar detectors can easily turn. They must compete with smart-phone applications that do their job. To wit, Google’s introduction of a free navigation application not long ago wiped 16 percent and 23 percent off the valuations of Garmin and TomTom.
There will certainly be winners from the cell phone’s creative destructive properties. New companies will spring up to innovate. Each wave of technological innovation creates more market cap than the one it replaces, Morgan Stanley notes.
Where the mobile herd stampedes next is harder to predict. A good way to guess would be to rummage through pockets and handbags. Credit cards, cash, keys, ID cards, books, newspapers and tickets all look replaceable with something electronic. That will mean opportunity for some enterprising inventors – destruction for others.