Welcome to the 2007 edition of the DTT TMT Industry Group’s Technology Predictions.
The technology sector in 2006 was characterized by diversity and growth. As forecast last year, search continued to dominate the Internet, as well as the headlines. The Internet continued its evolution into a fully commercial infrastructure, with disparities between its rules and those of traditional companies, steadily lessening. Technology’s role in the education process also matured, with digital classrooms and distance learning becoming more widespread. Open Source software became a greater force to be reckoned with, as several global software houses opened up their code to the community. Cost control was a constant theme, with technology companies making increasing use of collaborative R&D and offshoring. Consumers were offered an increasing list of connected devices, designed for a variety of applications. Technologies to facilitate man-machine interaction gained further traction, with speech recognition becoming ever more common. As ever, the highest impact technologies were those that transformed consumer behavior and became part of the common lexicon. This select group was dominated by social networking companies in 2006.
The outlook for 2007 looks as though it has the equivalent potential for diversity. 2007’s Predictions analyze: the environment’s growing influence on the technology sector; the reinvention of the userinterface; digital storage’s hidden costs; the emergence of biometric security; the varied costs of free technology; the potentially global impact of carousel fraud; new combinations of existing technologies; the technology industry’s dividend from social networking; the emergence of parasitic power systems and the technologically enhanced human.
I am often asked how the DTT TMT Industry Group’s Predictions differ from the many similarly titled reports produced by other organizations. I believe Predictions has a unique combination of objectives and methodology.
The Predictions series has been designed to provide a diverse selection of views and thoughts that challenge, inform and engage industry leaders and executives. It neither aims, nor claims to be, a comprehensive forecast of every anticipated event.
The methodology used to generate the Predictions series is revisited every year. The 2007 series of Predictions has included inputs from conversations with member firm clients, contributions from DTT member firms’ 5,000 partners and managers, specializing in TMT, and discussions with industry analysts.
This series of Predictions has incorporated two additional sources. The first is a series of 36 interviews with leading executives from around the world, on the key industry theme of convergence. This global primary research exercise, spanning the TMT sectors, produced a wealth of insight, much of which is reflected in many of this year’s Predictions. The interviews, collectively published by DTT as a book, Convergence Conversations, are available from www.deloitte.com/tmt.
The second source is a column, Drowning by Numbers, that the Financial Times invited Deloitte & Touche LLP in the United Kingdom to write on a fortnightly basis. Some of the ideas for Predictions have been tested in this column. I hope that the result of our endeavors provides you with plenty of food for thought for the year ahead. On behalf of DTT’s TMT Industry Group, may I take this opportunity to wish you all the best for an enjoyable 2007.
Global Managing Partner
Technology, Media & Telecommunications
The environment’s impact on technology and how it influences the conception, marketing and distribution of various technologies are likely to be among the most important developments of 2007. Environmental decline is likely to continue to cause mainstream concern, as much as to the business world as to citizens. Technology companies may respond, by designing more efficient devices, by highlighting how technology-based services can provide less damaging alternatives for activities such as business travel, or by differentiating themselves on the basis of responsible power consumption. Technology companies should also be able to grow revenues by developing products and solutions that address problems in other sectors, perhaps in the use of computer-aided design to create buildings that are more heat efficient, or through the creation of lighter materials that lower the weight, and hence fuel consumption, of vehicles.
Technology’s impact on the consumer, in the form of the user interface, may also come to the fore this year. As in years past, a large proportion of all consumer electronic devices may be returned to retailers in 2007. These devices are likely to be brought back not because of technical failure, but rather due to flawed design. An unusable product may have as little value as a broken one, regardless of its underlying technical brilliance, and in 2007, technology companies should make concerted efforts to remove complexity and over-specification at the design stage. Part of the solution may lie in better overall design, but part may also derive from more active use of new technologies that remove the need for pop-up menus and keystrokes, from artificial intelligence to the use of accelerometers. Companies that focus on minimizing product complexity may achieve greater success than competitors boasting superior, but less accessible, technology.
A key characteristic of technology in recent years has been the steadily falling price of digital storage. Though that rule may still apply during 2007, consumers and businesses may become increasingly aware and concerned about some of the additional direct and indirect costs of digital storage. The hidden costs of storage may range from legal obligations for enterprises to keeping many years’, equivalent to several petabytes’ worth of data. For consumers the cost may become manifest through the loss of irretrievable digital photographs or music collections, due to corrupted files. The imperative for all users of digital storage is to back-up data regularly and, possibly insure against its loss. The opportunity for the industry is to address the growing need for such services.
Security is one of society’s other perennial concerns. The growing volume of digitized data in 2007 may raise demand for new ways for keeping all forms of data safe. Traditional approaches to security, from PINs to passwords, all have weaknesses. People forget passwords. The typical remedy of writing down passwords in prominent places often undermines the protection they provide. Biometric data on the other hand, such as the iris, fingerprint and palm geometry, are all unique to the individual, cannot be forgotten and may be harder to falsify. Thus the demand for biometric-based security, using a physical characteristic of the individual as the key, may jump in 2007. The critical challenges for the industry may be to agree global biometric standards, to implement back-up systems and to ensure the public is made aware of biometrics’ benefits.
While business and residential consumers will remain willing to pay for many products and services, many technology companies may offer selected products and services for free. During the course of 2007, such free offers may become increasingly costly as can be seen with the rise of free email, which has catalyzed Spam. Spam has been, and is likely to remain, both a nuisance and a platform for the distribution of viruses, worms and other malicious code. Free IM services have had similar consequences. Free VoIP has become host to its own curse, Spam-over-Internet-telephony, otherwise known as Spit. As a result, some companies may increasingly start charging for services that were formerly free. Consumers are likely to become increasingly aware of the hidden costs of free technology and may therefore seek higher quality, paid-for alternatives.
Tax authorities may be delighted to see free products and services, in any sector, becoming chargeable and hence taxable. The same authorities would also be pleased to suppress the avoidance of tax for technology-based goods being used in a fraud costing governments tens of billions of dollars. While carousel fraud is principally a European problem, its ramifications are likely to become global in 2007. The fraud exists in the European Union as exporters are able to claim VAT refunds while importers are responsible for collecting VAT from their customers and passing this on to the tax authorities. Fraudsters collect refunds while holding onto VAT owed to the treasury. Every technology company operating within or selling into the European community may have to alter its supply chain, and adjust transportation and delivery logistics in response to new legislation introduced by state governments within the European Union to suppress carousel fraud.
Technology companies may also need to alter their approach to R&D. In 2007, many companies plan to invest considerable time and money seeking out the next hot technology. However, the technologies most likely to grab tomorrow’s headlines may well already exist today. But what will likely make them a success is the technology industry’s ability to create innovative combinations of existing technologies. Consumers should provide a good guide to the optimal combinations of technologies. Products and services that address consumers’ needs rather than engineers’ whims are likely to be more successful. Involving sales and marketing teams in the design and development process may help generate a better ratio of hits to misses: these departments may have a closer relationship with end users.
A good example of a consumer-driven, technology-based service is social networking, which was one of the major successes of 2006. It has generated hundreds of millions of dollars in both realized and perceived value. Social networking has enjoyed rapid growth, which may well continue into 2007. But the focus on expansion has caused some social networks to overlook the need for efficiency, robustness and compliance. In 2007 social networks are likely to turn to technology companies to solve an array of problems, from identifying and removing copyright material to making the posting and downloading of content as instant as possible. Resolving these issues may be key to social networks’ ability to realize their revenuegenerating potential, much of which is likely to be in the form of advertising. Technology companies may well enjoy a generous dividend from the success of social networks.
2007 may also see the technology industry start to deal with one of its most critical, yet most widespread problems – portable power. The current solution, the battery, has various drawbacks, from tens of billions of dollars in annual expenditure on new batteries to the cost of safely disposing of billions of discarded batteries. In 2007 the technology sector may increasingly adopt a new approach to portable power. Rather than trying to improve the battery, it may turn to power-scavenging solutions that draw energy from the environment around them. Body heat, ambient light, vibrations and movement may all be harvested to supply supplementary charge to tiring batteries.
Finally, in 2007 technology may manage not just to reinvigorate tiring people but also to create enhanced versions of the human being. Artificial exoskeletons could be used to provide superhuman walking and running ability. Advances in prosthetics may allow athletes with artificial limbs to take on and beat the world’s best able-bodied athletes. Artificial red blood cells, up to 200 times more efficient at storing and releasing oxygen, could allow humans to hold their breath underwater for hours, rather than minutes. 2007 may be the year in which the evolution of evolution begins.
Technology goes green
The days of the environment being the sole domain of green fringe movements are long over1. Concern about climate change has grown steadily throughout 2006, with the Stern report, issued by the UK government, attracting global attention and prompting increasingly serious and urgent calls from government and industry for action2.
2007 may well see 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 also be pointed at the technology sector. In some respects this mirrors some of the responses to the Californian energy crisis at the turn of the decade when unfounded accusations of causing energy blackouts were leveled at the technology sector3.
The reality is that technology is on both sides of the same coin. Not only has it been one of the causes of greenhouse emissions, but it is likely to provide a cure as well. Every electronic device consumes power and leaves at least a trace of a carbon footprint. National telephone networks, in providing 48 volts of power to every phone, may collectively use one percent of a country’s entire energy consumption4. The one billion mobile phones shipped every year, some of which may be used for just a few months before being discarded, collectively represent 86,000 tons of materials, some of which may be toxic5. Electronic waste in the United States equaled 290,000 tons in 2003, of which only about 10 percent was recovered6. Even something as seemingly innocuous as an Internet search may be based on the power of up to a million servers, concentrated into acres of warehouses, dependent on air-conditioning to prevent the installation from melting7. For every unit of energy required to power a server, a further unit is needed to cool it8.
Yet in other ways technology has a benign impact on the environment. The latest high-definition, video-conferencing units9, while consuming copious power relative to a phone call, generate fewer greenhouse gases than would result from flying to a meeting. Telecommuting is itself enabled and enhanced through technology, via advances such as better quality audio and video. While telecommuting may not provide a practical solution for everyone, it can certainly reduce the overall number of work-related journeys. Improving the functionality and power requirements of certain devices, such as IP-based phones, may remove the need for more power-hungry PCs in some environments10. Standardization, for example around USB, has removed the need for separate trickle chargers for tens of millions of peripherals, from webcams to VoIP phones, which are instead powered via their host device, typically a PC.
In response to growing concern about the environment in general, technology providers are likely to start differentiating on the basis of their energy consumption, as has happened in a range of other sectors, from white goods to motor vehicles. Technology companies are also likely to market, internally and externally, any major initiatives designed to save energy, such as Google’s usage of solar energy to provide 1.6 megawatts of electricity for its headquarters11.
The environment provides both opportunities and pitfalls for the technology company leader who is willing to invest in this area. On one hand, given the escalating worry over climate change, the technology sector should ensure it gets its case across. It should acknowledge where its consumption of energy is excessive and unwarranted. On the other hand, the sector should also be able to point to where its impact is more positive overall. The technology sector should be wary of being made a scapegoat.
Device manufacturers should design products and their packaging with energy efficiency in mind. The consumer should be made more aware of energy usage at any point in time, for example by placing a simple indicator at the front of each device, showing power consumption12. Manufacturers should always be looking at ways to chip away at power consumption, such as by turning off screens, backlights, processors, hard drives when not in use and also by standardizing peripherals such as chargers across all devices.
However, marketing around power consumption should not focus solely on environmental impact. Business users and private consumers alike are more likely to put saving money before saving the planet13.
The technology sector should take a long, hard look over whether digital alternatives are always the better ones, particularly if the analog incumbent does the job well enough. Proponents of electronic books should calculate whether using paper has less impact on the environment, particularly for lengthy tomes, such as Tolstoy’s War and Peace, given the number of recharges that may be required to finish reading them. Major transport hubs should also consider whether passenger information displays based on plasma or LCD technology do a better job of communicating travel information relative to mechanical, rotating display-boards that use much less power.
Industry-led initiatives may well be the better approach as the alternative may be government regulation. The latter may even come in the form of taxation based on the power consumption of each device, relative to its peers.
Finally, and perhaps most significantly, saving the world may boost some technology companies’ bottom lines. The application of technology may answer some key environmental issues faced today. Technological progress underlies the development of renewable energy, from solar to parasitic power. Technological advances have driven significant increases in fuel efficiency in all forms of transport, both through the creation of better engines as well as the use of lighter materials14. Technology has facilitated the design of more energy efficient buildings, such as the Swiss Re Tower in London, which incorporates features such as passive solar heating15. Combinations of technologies, such as PDAs, GPS and fleet management software can lessen unnecessary journeys and enable paperless operation16. These are just a few examples of how technology can decrease reliance on energy while providing opportunities for companies to profit.
Reinventing the user interface
Over half of all consumer electronic devices returned to retailers are not broken – they have just confounded their owners with their complexity17. A survey found that the tolerance-level of most consumers who struggle to make a new device work is limited to 20 minutes of effort only. After this they tend to give up, conclude that the product is faulty and return it to the store18. An unusable product may have as little value as a broken one, regardless of its underlying technical brilliance.
The falling cost of processors may be a key culprit, encouraging manufacturers to include increasing functionality in their products. The logic is that if the marginal cost of an extra feature is minimal or even zero, then it should be included, regardless of whether it is desirable or practical for consumers. Yet there appears to be an implicit cost in terms of the ultimate usability of the device. Even the humble mouse mat, which is typically inert, is now available as a version that incorporates a radio, headset connection, alarm clock and calculator; as a result of which, this particular mat has required a user manual19 to accompany each shipment.
In 2007, companies that manage to minimize product complexity may achieve greater success than competitors with superior, but relatively inaccessible, technology20.
A growing number of innovations may increasingly be used to make any technology-based device, from a watch to a car, simpler to operate. An emerging technology that could be significant includes haptics, which uses touch for both feedback and control. In a car for example, haptics could be used to warn, via a vibrating alert, drivers that their vehicle is straying out of lane21.
Another emerging technology is the accelerometer, a form of motion sensor, which is likely to be popularized initially within controllers for video games22. This technology may also be useful for e-books, allowing the turn of a page with just a light flick of the wrist. It could also be appropriate for field-force applications, allowing engineers to scroll left, up, right and down in a digital map, with just a tilt of the device required. Accelerometers in cellphones could play a major part in making devices almost pushbutton free, particularly when coupled with speech-recognition technology23.
Indeed, speech recognition may also become more widespread, as a natural means of controlling products and services24. While the automobile is likely to be the most common environment for speech recognition25, personal computers, mobile phones and even television sets26 may also make increasing use of it. Additionally, touchless devices that respond to gestures rather than contact may also become a reality27.
Simplicity, particularly in the user interface, is uniquely capable of democratizing and popularizing all forms of technology.
When the steering wheel replaced the tiller on the automobile it helped open up driving to the masses. The development of both the GUI and the mouse transformed the PC from business tool into a global, mass-market consumer product28. The push-button’s replacement of the dial on the telephone transformed the process of making a call. In much the same way, innovative user interfaces should continue to expand markets.
Any manufacturer developing new devices, or any retailer requesting new products, should always be looking out for radical breakthroughs in design that may help to open up a product to a new, often wider, set of customers.
Simplifying the user interface can grow revenue. Mobile operators’ success in dominating the voice market has been driven at least in part by the call and contact management user-interfaces common to mobile phones, which are generally far superior to those for fixed phones.29. Conversely, mobile consumers’ reluctance to use data services has often been blamed on the complexity of the data user-interface30. Thus targeted innovation in this area could have a considerable positive impact on operator income.
Technology companies should design with simplicity from the ground up, rather than trying to simplify complex products. In doing so, companies should consider challenging widespread assumptions and existing design norms. Certain products, from video cameras to certain implementations of ERP software, have become unnecessarily complex and unusable, due to the incomprehensibility of their user interface.
A fresh start may be more productive than an attempt at simplifying the existing products. Engineers, who live and breathe technology, can too often become disconnected from the realworld ability of consumers. Increasing the role of sales, marketing and customer research teams in signing off new product design could help to overcome such issues. Some have even suggested reducing product development timeframes, to lessen the opportunity for creeping complexity.31
Artificial intelligence, which can anticipate instructions, may also help to reduce underlying complexity and improve the overall user experience. For example, predictive text messaging, which simplifies and accelerates the writing of text messages by anticipating the word being typed has boosted usage. One study showed a 60 percent growth in messages sent from predictive text technology32.
Finally, there may always be consumers for whom no user interface is sufficiently simple. This market segment customarily relies on children or friends to provide technical support on demand. Some members of this ad hoc support group may value the outsourced provision of such advice, which could be provided, via phone or the Internet, to their parents or friends. Thus with every digital camera, navigation system, webcam, PVR, home hub or other device sold could be the offer of a competitively-priced subscription to outsourced technical support.
As the number of technology-based devices grows, and the digital home nears reality, the after-sales support market could well become increasingly important. Already in the United States, one company providing ad hoc support for the technically challenged has become a billion dollar, stand-alone business33.
Heeding the hidden costs of storage
The steadily falling price of digital storage is one of the key drivers of change in the TMT sectors34. It has enabled the dominance of the digital camera. It has catalyzed the rise of the MP3 player, able to hold up to several days’ worth of music, as opposed to the 75 minutes typically contained on a compact disc. It has made the digitization of thousands of hours of television and radio output commercially feasible.
In short, digital storage has had a profound effect on both consumer and business behavior. Paper, prints, negatives and tapes have been marginalized or made redundant by digital storage solutions and media whose lifespan is perceived as limitless.
However in 2007, consumers and businesses may start to worry about some of the various indirect costs of digital storage, rather than just celebrating its seemingly endless price deflation.
Consumers may become more aware of the fragility of digital data, both physical and online. A quarter of all computer users have already lost important data including files, photos, movies and music, most commonly to hard-drive crashes, even though over half of them claim to back-up their files regularly35. Budding amateur photographers may find themselves unable to retrieve photos stored on physical media whose infinite lifespan falls short of expectations36. Many more consumers may start to realize CDs and DVDs have a highly variable, sometimes unpredictable lifespan, varying from six months to 100 years37.
New legislation, driven in part by the increase in digitization, may force companies to store increasing quantities of digital data, going back many years. Since December 2006, US federal courts have had a new law concerning electronic discovery, the practice of producing the right electronic documents in response to litigation. This affects all data stores, whether on servers or on employees’ MP3 players. For one multinational, this could mean storing vast amounts of data, equivalent to 25 times that held in the US Library of Congress38. Already, the average installed capacity in the Fortune 1000 organizations has jumped from 198 terabytes in early 2005 to 680 terabytes in October 200639, driven partly by overall business expansion, and partly by the need for compliance.
There is a growing volume of data stored. Because of its perceived and real value, and the widespread realization that few forms of physical digital storage are entirely permanent, a growing range of services is likely to become available to consumers and businesses to protect their data. Back ups, insurance, deduplication and anti-virus software may all become increasingly popular to maintain the integrity and efficiency of digitally stored data.
Technology companies should seek to exploit this opportunity in 2007, not least because public awareness about storage is likely to rise rapidly as a number of big-name brands start to promote online storage services40.
Both consumers and businesses should also start understanding that the full cost of digital storage, may be more than just the face value of a hard drive, memory stick or disk.
While the unit price of memory continues to plummet, the full cost needs to be better understood, by consumers and business users as well as by potential solutions providers.
Businesses should factor in the ancillary costs of storage when building the case for digitizing data that was previously held on paper. The cost of hardware may be as little as 10 percent of the total cost of ownership of any given digital storage solution41. In addition to hardware costs businesses should also factor in: labor costs, for formatting and partitioning disks; anti-virus software to protect data; search software to make the data accessible; the physical costs of housing and cooling servers42. As over 90 percent of the world’s digital data is thought to be stored magnetically43, on tapes and disks, the costs associated with securely storing files that are already in digital format are also likely to rise.
The technology industry should be alert to the many opportunities that growing insecurity about storage represents and respond with an array of back ups, recovery services and insurance that can calm increasingly nervous minds. While technology is likely to provide appropriate solutions for the majority of consumers and business customers, storage solution providers should not shy away from employing old-school approaches. A mixture of both high and low-tech storage solutions is likely to be necessary to satisfy customers’ needs fully, and to provide genuinely permanent storage solutions.
Consumers should also be encouraged to change their storage habits and patterns of behavior. Backing up and recopying files to newer, higher quality disks, should become far more widespread if the longevity and integrity of the data is to be maintained. Consumers may also have to start considering multiple levels of storage, on the device, on physical media and online. Though this implies greater cost, it also likely implies peace of mind and a more effective storage solution.
The business case for biometrics
Security is one of society’s perennial concerns. Governments need to protect their borders; companies need to safeguard their increasingly digital assets; individuals want to feel safe in their homes; everyone wants to hold on to their money; everyone wants their identity to remain unique. Around the world, a laptop computer is stolen every 53 seconds44; a mobile phone is stolen every 12 seconds in the United Kingdom45 and identity theft is rising46.
Historically a combination of passwords, PINs, signatures and keys have been the principal means of providing security. Each has its flaws. All can be lost, copied, or otherwise compromised.
Biometric-based security, whereby a physical characteristic of the individual is used as the key, is well known, albeit mostly from science fiction movies. The iris, the fingerprint, palm veins, voice and hand geometry are all individual to a person and can be used to verify identity. In the past, biometrics has largely failed to make the transition from the silver screen to everyday life. But 2007 could see a major uptake in the adoption of biometrics for a large range of applications, driven by falling prices, the rising performance of key technologies such as processors and digital storage, and a growing public willingness to pay more for biometric security47.
Biometric deployments are likely to be small scale initially, securing a building or a home, for example. Wholesale replacement of, say, an ATM network may be too costly to undertake in one go. This would require not just a new network of thousands of machines, but also the lengthy process of obtaining biometric information for every customer. Offering a biometric ATM to customers alongside conventional machines is a more likely approach to be taken48.
Teething problems with biometrics are likely. While such technologies are constantly improving, many are still flawed. Though iris-recognition technology is reliable enough to distinguish between monozygotic twins sharing the same DNA49, fingerprint scanning can be disrupted by dirt and dust.
Biometric recognition is also likely to be driven by government mandate, for example that all passports or identity cards must include biometric data50. Brazil has had biometric identity cards since the turn of the decade. In May 2005, Germany approved the implementation of the ePass, a passport which may eventually hold biometric data about faces, fingerprints and irises51. While some citizens may be unsettled by such moves, this could be a boon for the biometric industry, lowering unit prices for all, and making a wider range of applications feasible.
The appeal of biometrics to the public is likely to be boosted by a range of factors. Initial suspicion is likely to give way to favor, once individuals feel more secure and are able to speed through previously tedious processes, from clearing passport control to withdrawing cash from a hole-in-the-wall.
By the end of 2007 the deployment of biometric technologies may allow a small but growing minority to enjoy the benefits of science fiction in the present.
The growing value of property, both physical and digital, is likely to make the case for biometrics increasingly strong.
The general public’s lack of familiarity with biometric security is, however, likely to cause some initial resistance. An imperative for the industry should therefore be to publicize the general benefits of biometrics, which are likely to be most visible in terms of time and money savings. Indeed one day, biometrics could mean that forgetting one’s passport on the way to the airport no longer matters.
As the use of biometric technologies grows, there is likely to be a corresponding increase in attempts to subvert them52. Any company deploying or supplying biometric solutions will need to keep a close eye on anti-biometric techniques being developed, and suppress vulnerabilities as they become apparent53.
Biometric approaches should also be standardized as far as possible, to make global schemes more feasible. A key enabler of global chip and pin security is the use of a standard password – a four digit code. If biometric security is going to be used globally to validate financial transactions, there needs to be agreement about which biometric data is used and how it is presented54.
Finally, the industry should also establish back-up solutions in the event of biometric systems failing. It would be unfortunate if consumers were to be locked out of their own homes or business executives were unable to access their own files should the database of permitted fingerprints controlling access get corrupted. This may increase the cost of biometric solutions, but is likely to be necessary to ensure user confidence.
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