Davos stalked by tech disruptionComment on this story
Davos, Switzerland - As the Internet took off, newspaper publishers, record labels and travel agencies were all walloped by the emergence of free online alternatives.
Today, the range of threats to businesses is widening as companies from Wal-Mart Stores Inc. to Intel Corp. and Siemens AG grapple with similar dilemmas.
At this week’s World Economic Forum in Davos, Switzerland, technological disruption -- and what companies are doing to prepare for it -- is on executives’ minds, and was the subject of a Bloomberg Television panel today on the slopes of the Alpine resort town.
When meeting with chief executive officers, “what you hear is, technology is moving three to five times faster than management,” said Dominic Barton, the global managing director of consultancy McKinsey & Co., who is in Davos.
“I don’t know whether to be excited or paranoid. It means you can do new things, but it also means competitors can come out of nowhere.”
Today’s panel included Qualcomm Inc. chief executive Paul Jacobs and incoming Wal-Mart chief executive Doug McMillon, discussing how innovation will affect the global marketplace this year.
The last year saw a run of bad news for blue-chip corporate names even as a recovery in the US and European economies took hold. Wal-Mart in November cut its annual profit forecast for the second time since mid-2013 as Amazon.com Inc. expands its online retail offerings.
Intel, the world’s largest chipmaker, predicted 2014 sales will be little changed from a year earlier as chips designed by smaller competitors like ARM Holdings Plc dominate the market for semiconductors in tablets and smartphones. And Siemens abandoned a profitability goal and began an overhaul of its structure as performance slumped in its infrastructure and industry units.
“Digitalization and software has an increasing role in what were traditional hardware markets,” said Siemens CEO Josef Kaeser, who is also in Davos. “That means there are opportunities in lots of sectors for others coming into our area.”
For Siemens, those challenges include staying ahead of software-focused firms that are pushing into industries like energy equipment. Google Inc. this month announced a $3.2 billion acquisition of energy-management startup Nest Labs, one of a welter of companies offering tools for “smart grid” electrical systems. Siemens is also competing with companies like Samsung Electronics Co. in the market for medical devices.
Among other measures, Siemens has tried to pre-empt the possibility of seeing its business model disrupted by creating a joint venture with Accenture Plc for energy software and services. It also appointed Jim Hagemann Snabe, who is stepping down as co-CEO of enterprise-software maker SAP AG, to its board in October. Siemens Chairman Gerhard Cromme said Snabe was brought in to improve understanding of new technologies.
Like Google, many companies are turning to takeovers to avoid being disrupted, especially in the telecommunications, media, and technology, or TMT, sectors. They were a rare bright spot for dealmaking last year, with about $561 billion in announced takeovers, up 29 percent from 2012, while overall transactions rose four percent.
The largest deal in those areas, Verizon Communications Inc.’s $130 billion buyout of Vodafone Group Plc’s stake in its wireless unit, reflected the potential of so-called 4G mobile technology. Verizon, the largest US mobile carrier, has said it will use full control to increase investment in 4G service, which can be sold at a premium to users.
Another major deal, the $30 billion merger of Publicis SA and Omnicom Group Inc. that will create the world’s largest advertising agency, was hatched in part, the companies said, to prevent Silicon Valley firms like Google and Facebook Inc. from displacing the traditional ad industry.
“Tech business models are starting to disrupt a greater portion of the Fortune 500,” said Neil Rimer, a partner at venture capital firm Index Ventures.
Emerging technologies may expand the array of threats to successful companies. 3D printers, which produce complex items using extruded plastic or metal, may reduce demand for some manufactured goods and for deliveries.
Sales in the 3D printing industry will approach $6 billion by 2017, compared with $2.2 billion in 2012, according to consultancy Wohlers Associates, growth that’s prompting United Parcel Service Inc. to offer the service in some of its shops -- before customers start buying the printers themselves.
The machines could also threaten suppliers of parts to the automotive and aerospace industries if manufacturers opt to produce the items in-house instead, according to venture capitalists.
The financial industry, too, faces disruption, thanks to new models for payments and lending that cut out traditional providers. For example, China’s Alibaba Group Holding Ltd., the country’s largest e-commerce firm, has begun lending to small and medium-sized businesses, posing a potential future threat to banks. Startups like Britain’s Wonga.com Ltd. are doing the same.
“Innovation is all happening outside of banks,” said Bruce Golden, a partner at Accel Partners. Risk-averse and slow to adopt new technologies, most large financial institutions “don’t have the architectural skills to innovate,” he said.
Regulation will protect banks’ existing businesses to some extent. China and Denmark have already tightened rules on the Bitcoin virtual currency amid concern over money laundering. In the US, politicians including Senators Tom Carper and Tom Coburn have asked regulators to lay out their plans for virtual currencies.
Yet on the whole, vigorous technological competition is making it harder for big firms to innovate, said Reinhard Ploss, CEO of German semiconductor producer Infineon Technologies AG. “When our market was young, it was easy to have an impact with new technologies,” Ploss said. “That’s becoming increasingly difficult.”
The market leader in semiconductors, Intel, is making particular efforts to find a new business model as demand for personal computers shrinks for a third year in a row.
To stay ahead, Intel assigned a former Apple Inc. executive to head its New Devices division, which is seeking to develop wearable gadgets and peripherals for smartphones and tablets.
Intel spokesman Chuck Mulloy declined to comment.
The risks even to nimble firms will only grow as the so- called Millennial generation, raised on Facebook and YouTube, enters the workplace and demands better, faster technology, said Marcus Weldon, chief technology officer at Alcatel-Lucent SA.
“We’re at five minutes to midnight because of the evolution of the teenage population into the adult population,” Weldon said. “You’ve got a generation that just thinks how we do things is stupid.” - Bloomberg News