Tech in 2006: growth and innovation returns

What's in store for the technology and media sectors in 2006? Rainier PR makes its predictions in its annual preview of the coming year.

JP Morgan Securities analysts have already gone on record saying that the processor market could experience excess capacity over the coming 12-months so don’t expect great returns from Intel or AMD, security will continue to be a major area for spend, especially mobile security as handheld peripherals increase, but the big things for 2006? Voice over IP (VoIP) and compliance technologies are top of the list.

Yankee Group analysts say that 95 per cent of multinationals that they’ve interviewed have already or are making contingencies to migrate towards IP telephony. Interestingly, the key driver wasn’t cost cutting, it was making the most of new applications. This proves that after years of hype, VoIP quality of service appears to have arrived.

More than 80 per cent of UK CIOs questioned recently by Silicon.com said that IT governance would see the most investment in the coming 12 months. This underlines the need for IT managers to justify and measure IT investments more closely going forward.

Drivers for enterprise sales
Caution was still the name of the game in 2005. Purchasers of enterprise systems looked hard at the financial stability and long term viability of the vendor before committing budgets. The logic was hard to fault – little point buying great technology if the vendor is not around long enough to support it.

However, there are already some signs that the financial services sector is again ready – as it has historically been during growth phases – to take risks with new technology from smaller suppliers. The logic is that in the mega-dollar environment of financial services, even small performance advantages can result in big gains. Expect this trend to take stronger hold in 2006 and that there will be a lot more interest in smaller, more innovative technology vendors.

Drivers for consumer sales
The mobile industry, like the car industry before it, now seems to have solved the issue of growth in a saturated market although average revenue per user continues to fall as networks discount to retain customer. The big consumer issues in 2006 will be music and games platforms.

First the music industry: in 2006 the consumer will wake up to the fact that Apple has pulled the same proprietary stunt with its music players that it did some decades ago with its computers. Now, as then, you have to buy Apple hardware to play their software format.

Can Apple push through and become the de facto standard this time? Our bet is that Apple’s platform arrogance will bite them for a second time and here is a massive opportunity for a new player to develop a non-proprietary music library application.

For Microsoft, this is the year when we find out whether it’s going to support the Xbox long-term. There is going to be a titanic struggle with Sony when the PS3 is released and if, as early reports from the world of vapourware suggest, Sony has a clear edge, then the long-term funding for Microsoft’s under-performing division will come under intense scrutiny back in Redmond.

Business landscape
The M&A activity that characterised 2005 will continue with a prime candidate in the tech sector being the IT services market – the last 12 months saw LogicaCMG moving for French second-tier player Unilog, and Atos Origin in reported merger talks with Deutsche Telekom's T-Systems operation and this trend looks set to continue.

Rainier PR expects the services market to start moving in the direction of a core number of global players, as services companies have to be international and have cash in the bank to fund large outsourcing contracts. Such scales of operation mean that small players just won’t be able to compete.

The software industry will see more consolidation following on from 2005’s spending frenzy when Oracle went on a massive spending spree snapping up the likes of PeopleSoft and Siebel. Much of this is to do with firms being bought by their peers to gain market share and plug gaps in technology portfolios. Based on this trend analysts are predicting that there will only be five or six large players in the software market by 2010, with medium-sized vendors hugely reduced.

Enterprise software
2005 saw Oracle buying up just about all its rivals with IBM and SAP snaffling the rest. In 2006 it’ll be time for them to deliver on the promises of better functionality and integrated solutions before customers vote with their wallets and look for alternatives.

Expect the competition to come increasingly from three areas – the twin threats of Microsoft and open source, and from hosted providers operating on the ASP model.

New entrants such as Daffodil and Sugar in the CRM market will build on Linux’s inroads on the desktop to extend it enterprise-wide, while more and more vendors will follow the salesforce.com model by offering enterprise apps over the Internet. This in turn will drive more consolidation amongst the second tier players and increased vertical market specialisation if they are to survive.

The good news is that 2006 will see increasing spending – but the jury is out on where it will be invested.

Enterprise infrastructure
The enterprise IT market’s watchword for 2006 is almost all-too-obvious: simplicity. First came the drive towards ROI and cost reduction, then came the need to meet compliance requirements and ensure that cheaper, short-term IT projects were more effective.

Now CIOs are under pressure to make the IT environment a leaner, meaner business machine. Decades of technology evolution have left many larger organisations with a mish-mash of applications, operating environments, hardware platforms and management strata. Support costs have therefore been chaotic in cases.

In 2006, we will hear more and more about things like reducing application complexity, streamlining hardware inventories and enterprise platform consolidation. Simplicity is the new cost reduction exercise.

Security
One thing for sure in the security market is that criminals will continue to wreak havoc in cyberspace in search of new profits. Phishing attacks, identity theft, fraud, spam, and spyware will continue to cause a headache for IT managers. But identifying where the latest botnet is, controlling the influx of spam and dealing with zero-day threats are likely to get the most attention in the New Year.

From a management perspective, whilst beating off the latest security threat will prove hazardous, managing policy-related tools that ensure security technologies get deployed, and in the right way, will be a key focus for managers struggling with the compliance burden.

Electronics
The semiconductor industry got its house in order during 2005. According to industry analyst Future Horizons, growth in the next 12 months will be tied to demand and thus the strength of the world economy.

Future Horizons reports that three key variables for the worldwide semiconductor industry are now unusually aligned: excess inventory levels have been purged, capacity utilisation is starting to rise, and new capacity investment is moderate.

It also predicts that if the world economy remains strong in 2006, currently forecast at 4.3 per cent GDP growth by the International Monetary Fund (IMF), the chip market could see growth as strong as 20 per cent.

Personal computers
Laptop usage will increase as improved technology application further extends remote working technology beyond normal office boundaries. More companies will be willing to allow employees to work remotely due to improvements in wireless access and increasing costs in commuting .

As software and technology supporting remote access improves and competition in the market continues to drive down costs, Rainier PR predicts that this option will increase employee loyalty. Remote working can also help lower company overheads when incorporated with “allowance” schemes that encourage employees to purchase their own laptop computers, enabling employers to save money on hardware purchases.

Private and public sector organisations that have limited IT budgets will increasingly turn to open-source software, with the increase in uptake leading to more interest in open-source programmes among home PC users. Innovation in security and privacy software will be increasingly driven by concerns over wireless working from consumers and business.

Personal electronics
2006 will be the year of convergence as portable media players, such as Apple’s iPod, continue to dominate the personal electronics market, offering consumers music, photos and videos on one device. As of 1 January 2006, when HP’s contract with Apple ends, we may also see HP launch its own device to compete with the iPod.

Convergence will also occur in the mobile phone space as camera phones will continue to offer picture quality and video recording capabilities that rival the best digital cameras.

GPS systems will develop into all-in-one route navigators and digital entertainment systems, enabling the storage of pictures and music. Such units will become increasingly compatible with traffic reporting services, enabling users to avoid traffic hotspots by calculating an alternative route.

2006 will also see more emphasis on the digital home as developments in IPTV devices will transform the TV into a multi-purpose device, offering interactive user experience.

Digital media
Anything and everything in digital media in 2006 will revolve around individual choice and personalisation.

Online blogs and interest mailing groups will spread news, even the most obscure news, like wild fire. It will come from citizen-reporters who found themselves in the right place at the tight time. Traditional news services will feed off amateur images and video clips taken with mobile phones (like the early images of the Hemel Hempstead oil refinery explosion).

Podcasting and services such as Pandora will shape our music tastes and

habits. CD singles will die. Following the launch of combined physical and digital music sales chart in 2005, the weekly number one will be decided by iPod users.

With broadband speeds reaching 24Mps, video and TV-on-demand will finally take off. Shorter films and music videos will arrive straight onto your handset.

Telecommunications
The global telecommunications industry will maintain its hold as one of the world’s wealthiest sectors. Strong growth continues, particularly in wireless communications, which will account for almost half of all telco service revenue by the close of 2006.

Fixed-line vendors continue to broaden their portfolios in wireless, and more acquisitions will be announced, a la NTL-Virgin style. Fashionable new services offered to consumers will include better VoIP, WiFi and the emergence of new powerful tech such as WiMAX.

IP has changed everything and the sector won’t spend 2006 looking back. The future of the telecommunications industry will continue to be shaped by the Internet and the new business models it continues to offer. The transition to IP-based communications and media services spells opportunity for some, and peril for others.

Watch out for the major UK players (BT, Thus, Telewest/NTL, C&W/Energis) to continue making broad corporate plays to stay afloat in stauncher competition than has been seen since the baby bells.

Mobile
Convergence of mobile operators will remain strong in 2006, as they combine resources for increasingly powerful and ubiquitous networks. Convergence of services will become reality with new infrastructures, including IMS, finally bridging the fixed-mobile divide.

The lucky few in 2006 will begin a phone call on their fixed home phones from their converged handsets, and after walking out of the house the same call will switch seamlessly onto their mobile network.

On the voice side 2006 will be dominated by VoIP, not just in the home, but also increasingly accepted by businesses as the quickest route to flexible communications and lower phone bills.

On the data side, the mobile handset will continue to trail-blaze as our media and entertainment centre, with more advanced games, better infotainment and ingenious mobile advertising and marketing that will convince us to start making new types of calls – those rooted in data, not voice.

The mobile handset continues to win the device race as users become picky about the number of gizmos they’ll carry and phones that do everything but make a cup of tea.

Blogging
According to a recent survey, the end of 2005 will see 34 million weblogs encompassing the ignorable to the vastly consumed and influential. Since its dawning in the mid-90’s corporations have cottoned on to weblogs’ word of mouth virtue and have begun adopting the concept in vast numbers.

Blogging can boost a PR campaign, increase website traffic and establishes a company’s thought leadership as well as building invaluable trust with customers. The corporate blogosphere will continue to crowd in 2006, particularly among SMEs so they can reap the publicity benefits.

Analysts
As each year goes by, the technology market gets ever more competitive. This is sure to continue in 2006, and one way that vendors can gain competitive advantage is by implementing a successful analyst relations programme. Rainier PR believes that 2006 will be the year when vendors and agencies alike finally stop paying lip service to analyst relations and do the job properly.

According to Rainier PR research in 2005, 77 per cent of European analysts believe that the presentations they see are full of 'sales waffle', and other criticisms included over-long presentations, questions not being answered and lack of access to senior spokespeople.

Given the huge importance that analysts have, both in the media and in terms of influencing purchasing decisions, why do many firms treat it almost as an afterthought? 2006 will be the year analyst relations comes of age in Europe.

Broadcast
Although the digital switchover's not due to start for another couple of years, it's becoming increasingly likely the dates could be brought forward and not backwards as some commentators predict. Two thirds of homes already have digital TV and the chances are the 'official' ball could be well and truly rolling by the close of 2006.

By the end of 2006 the BBC will find it increasingly hard to maintain its position as the only license funded broadcaster. With the choice that digital brings, people could well chose not to watch and if they chose not to watch then why should they pay? After its first raft of staff cutbacks, the likelihood is the BBC will be forced to make further staff cutbacks across its local networks during the next twelve months, so a fall in licence revenue could be disastrous.

There will be further consolidation of the radio industry with the smaller independent groups being either swallowed up, or forced financially to merge with the bigger players.

In 2006 the largest 'active' brand in the commercial radio sector will undoubtedly be Gcap Media, although there's a real chance the company will be acquired. Other movers and shakers include EMAP, who will no doubt consolidate their radio, newspaper and magazine interests and GMG which looks likely to expand its Real Radio brand.

The surprise may come from The Local Radio Group which seems to be in the middle of re-shaping itself. When it went back to the City in 2005 it was widely written off as being doomed to failure but has since proved the critics wrong and looks likely to go from strength to strength over the next 12 months.

National and tech media
Since the dotcom bubble burst in the late 90’s, the media industry has had a rough ride. The market’s picked up over the past few years and Rainier PR sees this trend continuing, but coverage won’t be easy to secure. Companies must remember to ‘think smart’. The editors of yesteryear may still be partial to a swanky lunch at Claridges, but the new breed of young hacks are not. They are results focused, wanting fully fleshed out stories that focus on business issues. Don’t be surprised if tech hype is ignored even more next year as business stories become the norm. 2006 will see the onlines (national and tech press) become more and more important. Readers don’t have time to pick up hard-copy publications anymore, so companies will on online editorial opportunities as these journals become as influential as their print cousins.