Deloitte & Touche's Technology Predictions for 2007

By Allen Bernard

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Over the past year or so, the partners, researchers and senior managers in Deloitte & Touche's Technology, Media & Telecommunications (TMT) practice have been brainstorming about 2007 and beyond.

They've come up with an exhaustive list of the trends they see either emerging, expanding, declining or continuing unabated from 2006 and before. Many of their predictions do not effect IT directly but most businesses will be impacted by a few.

Eric Openshaw, principal and leader of Deloitte's America's TMT practice, shared his top three most sweeping trends to be aware of with CIO Update just before the New Year's break. His top three are listed in order of import with the remaining Deloitte predictions referenced in no particular order.

Openshaw's Top 3 Technology Predictions

Digital Storage Expansion: Heeding the hidden costs of storage

The steadily falling price of digital storage is one of the key drivers of change and growth in the TMT sectors. However in 2007, consumers and businesses may start to worry about some of the direct and indirect costs of digital storage, rather than just celebrating its seemingly endless price deflation.

As reliance on digital storage grows, price competition may be usurped by competition based on quality, robustness and longevity. Technology companies may well find that a buoyant market for long-term and guaranteed digital storage starts to emerge during the year.

"One of the most important things coming is the whole issue of the decreasing cost of storage because the implications for business is enormous," said Openshaw. "Because the cost of the devices is becoming minuscule, but the cost to maintain the security, the access, the control points, replication, upgrades—labor costs associated with that is growing and growing."

Also the new Federal Rules of Civil Procedure, which dictate for how long and what types of electronic media need to be stored for litigation purposes, will complicate record keeping and potentially make it much more costly to not have access to data.

"It's not necessarily about the absolute mandate but this stuff just keeps piling on, and piling on and piling on," he said.

Internet Capacity Woes: Reaching the limits of cyberspace

The unrelenting growth in Internet traffic in 2007 may overwhelm the Internet's backbone; the terabit-cable pipes connecting continents will reach capacity and ISPs will not be prepared to pay for extra bandwidth because consumers will be unwilling to pay increased costs.

The threat to available capacity will be driven by the number of Internet users continuing to grow, and the exponential increase in the transmission of video files. This threat could raise questions about the long-term commercial viability of broadband provision, unless a satisfactory solution can be found to the issues of monetizing the growing usage to fund future growth, without disenfranchising customers.

While this is probably not going to come to a head in 2007, these issues loom on the horizon because the investment in core infrastructure is not keeping pace with the usage and demand, said Openshaw. The growth in demand for video delivered over the Internet in particular, one of Deloitte's other predictions, as well as IPTV, will be a major contributor to excess capacity being absorbed.

"At the rate of growth of consumption at some point in time in the not too distant future, maybe it's not this year, but it's not in the too distant future, the excess capacity is gone," said Openshaw. "So somebody's got to step up and decide who is going to make the investments and who is going to pay for them."

Technology Goes Green. Social costs could be large

As consumers, businesses and governments around the world become increasingly aware of and concerned about the state of the environment, there may well be an escalation in the search for both genuine causes and scapegoats for climate change.

While the energy, transport and industrial sectors have borne the brunt of criticism to date, the finger of blame may increasingly be pointed at the technology sector.

"It's a huge underlying social cost now," said Openshaw. "Something like the majority of every battery consumed ends up in a land fill and the average life expectancy of a cell phone is six months … so we would argue from a social point of view as consumers become more aware and public in general becomes more aware of the environmental implications, it won't just be economic pressure that comes to bear (on technology manufacturers) … there will also be a social pressure associated with (the way technology companies operate)."

Technology companies will likely need to respond, both by building the case for technology’s positive contribution to the global environment (which is likely to be considerable) and by designing products and services that are environmentally friendly. Is this happening now?

For example, portable power needs will explode with solutions including power-scavenging technologies that draw energy from around them, from body heat, ambient light, vibrations or movement to provide supplementary battery charge.

"The rub is technology is also best capable of solving these issues as well both for itself and for other industries and services," said Openshaw.

All The Rest

Social Networking Evolves: Technology’s social network dividend

Social networking is clever reinvention of the Internet bulletin board, a previously unfashionable form of Web-based communication much loved by the technology and scientific communities. Now, everybody seems to love it.

Complexity Minimizes: Reinventing the user interface

More than half of all consumer electronic devices returned to retailers are not broken they have just confounded their owners with their complexity. Consumers’ tolerance is limited to 20 minutes, after which they tend to give up, assume the product is faulty and return it to the store. Devices will need to get simpler.

Biometrics on the Cusp: The business case for biometrics

Historically, a combination of passwords, PINs, signatures and keys have been the principal means of providing digital security. In 2007, biometric-based security, whereby a physical characteristic of the individual is used as the key, may well be used to provide additional layers of security.

The Last Days of Free: The rising cost of free technology

During the course of 2007, technology companies will likely continue to promote free offers as a central marketing tool, but this approach may become increasingly costly for consumers and suppliers alike.

Evolution of Evolution: Arise the bionic human

Today, technology remains at the forefront of the evolution of human existence. In 2007, combinations of humans and technology are likely to be taken to new levels, addressing a widening range of applications, tasks and challenges. One of the most interesting applications of technology in 2007 may be the increasing enhancement of the human body using technology.

For example, artificial red blood cells, up to 200 times more efficient, could allow humans to hold their breath underwater for hours. The evolution of evolution may have begun.

Telecommunications Predictions 2007

Cells as Primary Phones: It’s mobile, but not as we know it

During 2007, mobile is likely to consolidate its position as the primary network for voice calls. As a result, many of the fixed voice services used in homes and offices are expected to undergo sharp decline.

Free Telecom: The rising cost of free

In 2007, telecommunications operators will need to take a more discriminatory approach to offering consumers and businesses ‘free’ products and services, with this technique becoming a liability. Instead, there will be a focus on value and quality, which consumers will be willing to pay for, and by definition will represent the best target revenue growth for all telecommunications companies.

Plug in Without a PC: The broadband appliance unlocks the Internet

Internet penetration via PCs has reached saturation point. Future penetration is likely to be driven by innovation in the technology industry that does not center on the PC, but instead on a range of small, specialist, simple and relatively inexpensive devices focused on driving demand for services and applications, e.g. email portable devices, portable media players. Hasn't this been tried?

The Next Killer App: Long Live Mobile Video (just forget the television)

With over 2 billion customers, the mobile industry has been looking for the new killer application. One of the latest great hopes is mobile television; however so far its commercial impact has been muted, and this is unlikely to change in 2007.

Reinvention of TV: The case for innovation, not imitation, in IPTV

When it comes to profiting from convergence, many telecommunications operators often miss out. Broadband-based IPTV is one of the major opportunities for operators to position themselves in the value chain where they can command a better share of revenues. For IPTV to be commercially viable, fixed-network operators need to improve both the reach and richness of IPTV services.

Small Apps Deliver Revenues: The killer kilobyte

In the telecommunications sector, the biggest revenues and best margins often come from services based on the smallest files and narrowest bandwidth (text messaging, mobile ringbones, voice). However, the telecommunications industry focus is still likely to remain on high-bandwidth applications based around large files (e.g. IPTV, mobile music downloads).

Net Neutrality Issues Persist

The debate around net neutrality is likely to become increasingly vocal and global in 2007. At issue is whether additional government regulation is necessary to protect the vibrancy and potential of the Internet.

Triple Play Options: The double-edged sword of triple play

In 2007, extending the service portfolio will be one of the best opportunities to generate growth while reducing customer churn. As a consequence, 2007 will see a raft of new triple- and quadruple-play offerings taken to market.

Connectivity Chasm

There is a growing chasm between those that have access to broadband connectivity (5% of the world’s population) and those without this privilege. 2007 will see the emergence of a connectivity elite with access to e-commerce's lower prices and greater information; VoIP's lower tariffs; government planning; video-based security etc. Media & Entertainment Predictions 2007

Consumer as Media Mogul: Making digital user-generated content useful

Digital user-generated content has been cast as the eventual conqueror of the established media world. However, in 2007 the majority of user-generated content is likely to remain mediocre.

Viewer Participation Explodes: Profiting from participation in television

Audience participation has contributed to the enduring popularity of television since its first days as a mass medium in the early 1950s. Since then, viewer participation has come a long way, and now millions of viewers participate in programs, directly influencing the outcomes of some of the most popular shows in television. This trend is likely to continue through 2007.

Destination: China. Cracking China’s media sector

China’s sheer size and growing importance in the world economy give it an almost irresistible allure and there should be steady growth in the value of China’s media sector in 2007.

Not Paperless Yet. Paper, pixels and profits

The pixel has often been portrayed as paper’s long-term replacement; however in the long run, online may just be another channel to market for quality content. A key reason, in 2007 and beyond, for the enduring consumer appeal and commercial success of print is its practicality and its universality.

Taking Stock: The digital tail comes in many shapes and forms

The Internet has given rise to the online store, which in turn has revealed the long tail: the potential to yield value from media companies’ back catalogs. In 2007, while the potential of the long tail may grow longer still, it may be the thick, short start of the tail that is most productive, the Blockbuster.

It’s a New Media World After All: Analog apples and digital oranges

Media companies, advertisers and even telecommunications operators have been keen to tap into new media’s potential. In 2007, they should continue to do so, but ideally when informed by using only directly comparable statistics. Any company considering new media applications should always consider the total addressable market.

Media Business Models Evolve

The public’s readiness to pay for content varies between geographies, changes over time and is influenced by a growing range of factors, from technology to disposable income. The challenge for media companies in 2007 is to second guess how the public’s perception of value may change, on a market-by-market and even segment-by-segment basis and develop new business models.

Social Networking: 15 megabytes of fame; 1 gigabyte of privacy

In 2007, social networking companies should move rapidly to expand both the appeal and the revenue generating capacity of their services.

DVD vs. VOD: No clear winner in sight

2007 should see substantial growth in the number of movies that are made available for download via video on demand (VOD) over the Internet to PCs. However video downloads will encounter some challenges in 2007. The key issue is most likely to relate to the meaning of on-demand. For example, on a typical two Mbit/s DSL network, it can take one minute to download each minute of a movie. Thus in 2007, it may be the case that wanting instant access to blockbusters, a swift walk to the local store may be the most immediate route to satisfaction.

War of the Virtual Worlds: Virtuanomics

Real economies are emerging within digital online fantasy worlds. The real world value of transactions taking place in virtual worlds is rising steadily, and is likely to continue growing through 2007. The value of this trade may, based on recent growth, become large enough to also attract the attention of tax authorities.