Mobile phones: What will the mobile phone devour next? The once-humble communications device permanently crushed the gadget that defined the beginning of the last decade - the personal digital assistant - and is eating its way 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 were beaming 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 per cent of its value along the way. This should provide a cautionary tale to other industries standing in the cellphone'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 which must continue to run their expensive copper-based infrastructure despite running the biggest wireless networks. For providers without wireless operations, like Qwest and Frontier , it’s downright terrifying.
Even the iPod faces a sort of obsolescence. Unit sales are in decline. Although that's not a problem for Apple , as customers are now listening to music on its pricier iPhones instead. But it raises the stakes considerably for Apple in maintaining its lead in the smart-phone market.
And pity the poor watchmaker. Most teenagers now use their cellphones to tell the time. Even producers of high-tech exercise and odometer gadgets now face cellphone applications that do the job. Watchmakers, from Seiko to Tag Heuer, must increasingly pitch themselves as fashion designers to succeed. As hard as that may be for watchmakers, it's not a trick that the manufacturers of GPS devices, cameras and radar detectors can easily turn. All three must compete with applications that do their j0ob on a smart-phone. To wit, Google’s introduction of a free navigation application not long ago wiped 16 per cent and 23 per cent off the stock market valuations of Garmin and TomTom .
Like Palm trying to recover from the wipeout of the PDA market, Garmin is hoping to save itself by launching a mobile phone of its own. But even with all the risk inherent in that endeavour, the stock trades at 12.5 times estimated earnings. If it fails to crack the phone market, that valuation will prove too high for its shareholders.
More From This Section
There will certainly be a collection of winners from the cellphone's creative destructive properties. Apple, Google, and Facebook want to feed data, software and advertising to handsets. And loads of new companies will spring up to innovate. Each wave of technological innovation usually creates more market cap than the one it replaces, Morgan Stanley notes.
Where the mobile herd stampedes next is harder to predict. A good place to start guessing, however, would be to rummage through your pockets and handbags. Credit cards, cash, keys, ID cards, books, newspapers, tickets and airline boarding passes all look replaceable with something electronic. That will mean opportunity for some enterprising inventors - and destruction for others.
