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The 7 next big things in tech
The biggest winners in technologies are the ones that change the game completely, sending rivals to the scrap heap.
By Jim Jubak
Want to find the next big thing in technology? Follow the destruction.
No truly big change takes place without overturning traditions, sending competitive rules to the dustbin of history, and destroying formerly flourishing companies. Avoid the victims and own the agents of change and you'll retire richer, buy that house in Tuscany, and still send the kids to the college of their choice even if they don't win that lacrosse or flute scholarship.
Today I'm going to help you along to those goals by giving you my list of seven disruptive technologies that are cutting a wide path of destruction. It should get you started in putting together your own list of destructive opportunities.
Change is a good thing. A faster and more powerful graphics chip sends me to the store to buy a new PC to buy new games that take advantage of the chip to upgrade my display so I can see the full glory of those new graphics.
And that's all good news for Nvidia (NVDA, news, msgs), which made the graphics chips, for Electronic Arts (ERTS, news, msgs), which distributed the games, and for Dell (DELL, news, msgs), which sold the display. A steady stream of new products -- what we often call progress -- is the lifeblood of technology companies.
And, as I wrote in my last column, "What's the matter with tech stocks?," when this kind of change-as-usual dominates the technology sector, the sector tends to do well, driving the stock market as a whole higher.
But too much change is a bad thing. It can make obsolete a company's entire product line. I'd tell you to go ask minicomputer maker Digital Equipment, except that, well, it's out of business. It can force a wrenching shift in direction that crushes a company's momentum for years. Just think of how long it has taken IBM (IBM, news, msgs) to come up with a strategy to replace the tiny mistake it made when it let Microsoft (MSFT, news, msgs) grab control of the new operating system for PCs. (Microsoft owns MSN Money.)
Obviously, disruptive change creates huge problems for investors. But disruptive change also presents huge opportunities for investors. EBay (EBAY, news, msgs) and Google (GOOG, news, msgs), for example, have done pretty well by investors by rearranging the landscape for online retailing and advertising.
Related news and commentary on MSN Money
3 rules to profit from destruction
Once you've identified a promising patch of destruction, how do you find the profitable opportunities? I'd offer three general rules:- Look for companies that actually have a plan for profiting from the disruptive shift in technology. Innovation is neat, but for investors it's not nearly as important as a profitable business plan.
- Don't pay too much. Yes, it's notoriously hard to value the stock of a truly disruptive technology company. More than 20% of the readers who responded to my pre-IPO survey on Google thought the stock was worthless. But since the odds are that at least 30% of the stocks that you pick as disruptive opportunities will head south, the key is not to pay so much for them that the successful picks can't put your portfolio comfortably in the black.
- Don't ignore established companies that are willing to cannibalize their existing business in order to reap the potential profits of disruption. Since these companies aren't betting the store on the disruptive technology, the returns to you, the investor, won't be as high as with a home-run-or-bust bet. But the losses won't be as large either.
Now, on to my disruptive opportunities.
The "Cell" microprocessor. A product of a joint venture between IBM, Sony (SNE, news, msgs) and Toshiba (TOSBF, news, msgs), this chip will power Sony's PlayStation 3 and high-definition TVs from Sony and Toshiba. The chip combines nine cores, a big leap from the two-core chips just being introduced by Intel (INTC, news, msgs) and Advanced Micro Devices (AMD, news, msgs), to provide extremely fast rendering of computation-intensive graphics for uses that range from military displays to consumer electronics. I see this chip putting more pressure on Intel and AMD, which are both struggling to expand beyond their role as makers of chips for PCs. Who's the winner? Too soon to tell.
The home-entertainment gateway. Who is going to control how entertainment media, from music to movies, gets into the home? This is a big deal for the cable companies and for the phone companies. Cisco Systems (CSCO, news, msgs), a name that most investors don't associate with home entertainment, has made the most interesting moves in the sector recently. The company's acquisition of cable-box maker Scientific-Atlanta (SFA, news, msgs) puts Cisco right in the middle of efforts by the cable and phone companies to roll out video on demand and video over the Internet.
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