The Digital Revolution- Industry Winners and Is it Laying Waste to Some Long Standing Companies?

I was watching CNBC's Fast Money on Thursday when the question was posed, 'What companies won't be around at this time next year because of the digital revolution? The panelists named their contenders, or in this case pretenders, which included the likes of Best Buy, Barnes & Noble, and Live Nation. Instead of commenting on the merit of these picks, I think a more important consideration is to look at the digital issue from a different slant. Moreover, what trends could persist for a long time and why? Clearly, in the information technology sector, the shift from personal computers to wireless devices, specifically tablets and smart phones, is a secular move where the latter unit sales have had a definitive impact on the slowing of the growth rate of unit sales of pc's.

Consistent with this theme will be the continued growth and usage of applications and software written and provided through wireless devices, especially on HTML5. Another massive secular change in the information technology space is the cloud computing movement, affecting both small businesses and large enterprises, as the cost structure is so advantageous it takes the traditional upfront licensing software licensing model and made all businesses rethink those large license fees. Renting applications and services and having them hosted in multiple locations will continue to take market share from the traditional licensing model.

Moving into a different industry, there will be a massive change in health care technology as the long awaited movement to electronic health records and data storage accelerates. E-perscriptions, diagnostic testing and recording through applications, and improved customer wait times through wireless notification apps all will see continued growth in adoption and may well explode in the next few years. A huge shift continues to take place in in media, where unique digital content is now being added to traditional distribution platforms as a way to bundle digital programs and not lose existing revenues from the existing media delivery methods. The recent ESPN-Comcast deal provides the model which will probably continue to be adopted by the large media players. I also think that pre-paid services will prove to be a big winner, especially in combination with money transfers on phones, gift cards, and debit cards. The movement into wireless payments by phone with services like Google Wallet and NFC based technologies will happen slowly at first, and gradually take hold as the convenience factor is a huge selling point because people do not want to carry five thousand credit and debit cards.

As for commentary on the CNBC question, I think speculating on what companies go out of business is a bit non professional and does a disservice to the employees and management of those companies. Certainly, we know that some businesses face larger secular headwinds than others, but the companies mentioned have strong market positions and I don't believe will be gone in a year, unless they get bought out and compensated for their existing enterprise values. The idea they will be gone in a year is nonsense. Please comment on the article or if you think there are any companies that might be winners in the existing digital space, or that may face large problems in the next year!!!!

 As always, on any company mentioned here, past performance is not a guarantee of future returns. Investing involves risk of losses on invested capital. One should research any investment and make sure it is suitable with your objectives, risk tolerance, risk profile liquidity considerations, tax situation, and anything else pertinent to your financial situation. Also, the CFA credential in no way implies investment returns will be superior for any charterholder.

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