The Connected Consumer opportunity
Consumers today are more informed and more connected to the world around them than ever before. Massive improvements in smartphone functionality combined with huge advances towards near ‘always-on’ connectivity has pioneered new ways we do business and even influenced the way we interact with each other. The next stage of growth will see both our digital network of devices and our digital footprint expand.
The accelerating pace and pervasiveness of technological advances has been a continuing force that we as consumers have eagerly embraced globally. The latest (and arguably the most powerful) development has been the rapid adoption of the smartphone - it’s no surprise that most of our online activity is now performed on mobile browsers and apps. In fact, the smartphone as we know it today is quickly becoming the delivery system for further and faster innovation, helped by our increasing comfort and fluency in using the internet.
Going forward, consumers are likely to add more connected devices to their own digital ecosystem. This may be in the form of a personal item, like a ‘smartwatch’ or another ‘wearable’, such as a fitness tracker. It may include connected devices that can monitor our health and wellbeing, which could even extend to clothing. It also extends to smart appliances in our connected home and new features in our connected cars, as technology allows increased convenience, data collection and connectivity.
The other aspect will be around the expansion of our digital footprint as we embrace more apps and use more online services as the ‘On-Demand’ economy expands. A longer term extension of this will be a shift from ‘user-generated content’ towards an environment where our connected devices start ‘talking to each other’ (for instance, smart fridges that can monitor food life).
Each of these trends presents significant opportunities for the longer term investor and while there will be individual companies in Australia that will benefit, there’s a far broader universe of investable candidates in global equities.
Within our digital ecosystem, there is a need for devices to work seamlessly together. Those tech giants that already ‘own’ a platform or network have an advantage. For ‘wearables’ and other connected devices, key factors for investors to consider include the sustainability of market position, patent protection and the opportunity to enhance the offering.
Under digital services, a number of ‘on-demand’ companies are not listed. However, many companies that support their growth and products are. For instance, 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. Connectivity enablers are also interesting.
Companies that can get this trend right will likely see acceleration in earnings, as revenues expand and as economies of scale come into play. Traditional growth strategies identify companies that already have a high level of growth, but those companies may already be expensive. An alternative strategy is to focus on an inflection in company fundamentals which can identify companies that are showing an acceleration in earnings, which can translate into significant potential for stock price appreciation.
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