Megatrends: Technology and the connected consumer

Charles Stodart

Charles Stodart

We live in an increasingly connected world. We’re more informed and more connected to the world around us than ever before. Faster internet, cheaper smartphones, smart wearable devices and the ‘Internet of Things’ have built what’s now a new and exciting generation of ‘digital natives’. In fact, digital innovation is pioneering new ways we do business and, in doing so, is changing the way we interact with each other.

As a global community, we’ve eagerly embraced the ever-accelerating pace of technology. You need only count the number of labour-saving appliances or sources of digital entertainment you own to understand the extent of its influence in our lives. Having evolved into a generation of digital natives, our comfort and fluency using the web continues to reach new heights.

The rise of mobile internet

It’s no surprise that most of our online activity is now performed on mobile browsers and apps. The smartphone as we know it today is rapidly becoming a delivery system for further and faster innovation. Key to this has been the massive improvements in smartphone functionality, with consumers now getting much more capability ‘bang’ for their buck, as well as huge advances towards near ‘always-on’ connectivity.

The conditions have been ripe for an explosion in user-generated content, embodied for example by Facebook and YouTube. The next stage will see both our network of devices and our digital footprint expand further.

The investable opportunities in connected technology

Each of these trends presents significant investable opportunities, with overseas equities offering a broader universe of candidates. Several growth areas to call out include wearable smart devices, the Internet of Things and the On-Demand economy.

Introducing ‘smart wearables’

You don’t have to look very far to find someone who owns a fitness tracker. Miniaturisation enables more powerful technology to be incorporated into smaller spaces, resulting in increased convenience, data collection and connectivity. Fitness trackers and smartwatches are pioneering examples.

Fitbit – Currently a clear market leader. Its devices can track the distance you’ve travelled, calories burned, and even captures sleep patterns, which is then wirelessly synced to your smartphone or laptop for easy monitoring. With a 68% market share, the success of its US stock performance reflects in part, the strong expectations for continuing company growth.

Apple – Another competitive player with the recent launch of its iWatch. Features include phone calls, text messages, emails and activity-related monitoring (watch out Fitbit). While only a small part of the business portfolio currently, the strength of the Apple brand and its track record for making products consumers want makes it a powerful competitor to monitor.

Other companies to watch are those in the health monitoring and wellbeing sector that are incorporating wearable technology into their products. It’s even being extended to clothing in which we’re seeing the early stages of development of intelligent fibres that can keep track of vital signs.

Despite being in its early stages, the growth prospects of this market are appealing. When considering the investment opportunities in this space, investors should consider factors such as the sustainability of market position, patent protection, and the opportunity to enhance the offering.

The ‘Internet of Things’

Past generations predicted that machines would one day rule the world. And while it’s not exactly an accurate reflection of our world today, there’s an element of truth in it. The ‘Internet of Things’ (IoT) as it’s called, is about ‘machines talking to machines’. With the embedding of uniquely identifiable computing devices into everyday items like household appliances that allows for connectivity and the input of data, the Internet no longer needs humans to supply information. Smart fridges that can monitor food life or furniture items that monitor health – these are the developing opportunities. Progress towards common technical standards which govern how all devices communicate with each other, will further aid growth in this area.

Some companies which are pioneering this landscape include:

Nest – Bought by Google last year, its current suite of products include a thermostat that can be controlled from anywhere; a smoke alarm that can “think, speak and alert your phone”, and a remotely-viewable, camera that can connect to your smartphone when you’re away.

Harman International – A market leader in high-end infotainment systems, delivering navigation, information, driver assistance, entertainment and connectivity into the car – to clients such as Audi, BMW and Mercedes-Benz. Another investment opportunity lies in the companies that help facilitate this connectivity, with data itself set to grow strongly – E.g. Cisco.

The birth of the ‘On-Demand’ economy and ‘peer-to-peer’ services

As consumers in the digital marketplace, we’re now demanding immediate and convenient access to goods and services. On-demand companies typically combine their own specialised software with applications provided by other tech companies that allow previously complicated logistical challenges to be overcome. Companies that have flourished in this arena include:

Uber – Uber’s technology has effectively cut out the middle man to allow a consumer to connect directly with a driver with more immediacy, transparency and ease than was possible before. While not yet a listed company, Uber already has an estimated market value of over US$40 billion.

Amazon – offers a cloud computing platform that ‘on-demand’ service providers can use. It offers large computing capacity, more quickly and cheaply than could be built physically.

There’s no denying that companies who support the growth of the on-demand economy, such as Amazon, are already investable candidates. We’ll definitely see a lot more technology being incorporated over the next few years as business models mature and companies become publicly listed.

The ever-accelerating pace of technology has delivered faster internet, cheaper smartphones, smart wearable devices and the ‘Internet of Things’. Companies that can effectively tap into these opportunities will be able to accelerate their earnings growth – linked to both revenue expansion and margin opportunity as economies of scale come into play.

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By Charles Stodart, Investments Specialist, Zurich Investments


Important information: The content of this publication are the opinions of the writer and is intended as general information only which does not take into account the personal investment objectives, financial situation or needs of any person. It is dated September 2015, is given in good faith and is derived from sources believed to be accurate as at this date, which may be subject to change. It should not be considered to be a comprehensive statement on any matter and should not be relied on as such. Neither Zurich Australia Limited ABN 92 000 010 195 AFSL 232510, nor Zurich Investment Management Limited ABN 56 063 278 400 AFSL 232511 of 5 Blue Street North Sydney NSW 2060, nor any of its related entities, employees or directors (Zurich) give any warranty of reliability or accuracy nor accept any responsibility arising in any way including by reason of negligence for errors and omissions. Zurich recommends investors seek advice from appropriately qualified financial advisers. Zurich and its related entities receive remuneration such as fees, charges and premiums for the financial products which they issue. Details of these payments can be found in the relevant fund Product Disclosure Statement. No part of this document may be reproduced without prior written permission from Zurich. Past performance is not reliable indicator of future performance.

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