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There have been many noteworthy developments in the technology space recently. Some of these will likely have a material impact on the companies in the sector and the markets they serve.

A Shopping Spree for Google

Google (GOOG) has remained active on the acquisition front in recent times, and we expect this trend to continue. With over $30 billion in cash assets, Google will likely continue to pursue strategic acquisitions going forward. The company is looking to drive performance by moving into new areas with strong growth potential, such as display advertising and mobile marketing messages. Moreover, strategic acquisitions may serve to head off rivals from encroaching on Google’s search dominance.

Most recently, it sought to acquire daily-coupon company Groupon for around $6 billion. Chicago-based Groupon sends daily messages to users in 300 markets, offering discounts on products and services. However, Groupon has apparently rebuffed the offer. Nevertheless, Google remains focused on increasing its presence in the rapidly growing local advertising market.

Internet Privacy Concerns

In a recent report, The Federal Trade Commission advocated that companies should build privacy features into their Internet offerings. This includes a “do not track” mechanism that could be built into a browser and alert Web sites that a user did not want to be monitored. Several technology companies have already answered the call. Google Chrome users can now download a browser plug-in that blocks advertisers, though only from networks that already allow people to opt out of personalized ads. Microsoft (MSFT - Free Microsoft Stock Report) has announced a feature for its newest version of Internet Explorer that will permit users to stop certain Web sites from tracking them. A blog post issued by Microsoft indicated that the company was applying the principles outlined in the F.T.C. report. The new feature, called Tracking Protection, would rely on lists that users create that indicate which sites they do not want to share information with. Elsewhere, Mozilla’s proposed Do Not Track feature will let users opt out of online behavioral advertising. Upon availability, this feature will be installed in the browser’s header, and will instruct the web pages a user visits not to track browsing information or display personalized advertisements. Mozilla contends that its header-based approach is a clearer and more universal opt-out mechanism than cookies or blacklists, though it requires co-operation from web sites and advertisers.

The fact that the FTC has issued a set of guidelines demonstrates regulators are serious about giving users greater control over online privacy. However, such a “do not track” plan will not necessarily be backed by legislation. Companies like Google and Facebook earn profits providing targeted advertising to users based on their browsing behavior. This makes it possible for many web sites (such as Gmail and Facebook) to be free. A “do not track” plan would thus change the way people use the Internet, and hurt e-commerce, too. Rather, the Commerce Department will likely release a framework that maps out standards and best practices for the use and collection of personal data online.

iPad vs. The Laptop?

The Apple iPad and other tablet devices may present a challenge to laptops. This is particularly true with consumers who are shopping for a laptop that they can carry with them, and are mostly interested in viewing, rather than creating, content. When compared to a laptop, an iPad (or similar tablet) is lighter, easier to carry, and consumes less power. These are all important attributes that may lead some consumers to prefer a tablet computer to a laptop. These differences underscore a rivalry in the semiconductor space. ARM Holdings’ (ARMH) low-power semiconductor architecture has established a strong presence in mobile devices. Apple utilizes ARM-based architecture for its mobile devices, iPhones, and iPads. ARM-based architecture has lower power consumption and offers the ability to easily integrate audio and video on one chip. This contrasts with Intel’s (INTC - Free Intel Stock Report) architecture, which appears better for computing and Microsoft Office applications, but requires a lot of power. This may well be superior for office desktop computers or stationary laptops, which are used more as content creators (spreadsheet or document writing). However, mobile devices are usually used as content consumers (viewing), rather than creating, and battery life is of much greater importance for them, rather than for a desktop computer connected to a power outlet. Thus, ARM-based technology remains popular for mobile devices. Even so, we expect Intel to continue to look to increase its presence here.

A Potential Shortage of Bandwidth

Netflix (NFLX) is coming off a tremendous 2010. The stock price has recently come off an all-time high, after more than tripling in 2010. This was the result of impressive operating performance for the company during that year, driven by healthy growth in its subscriber base. Much of this success has been a result of the increasing popularity of its online movie streaming offering. All this downloading of movies is consuming valuable bandwidth, however. Netflix now accounts for 20% of Internet traffic during peak times, according to a study by Sandvine. A high-definition movie consumes significantly more bandwidth than an email or a web page. The continued proliferation of smartphones will likely also be a factor here. Overall, Internet traffic is expected to triple by 2014. The vast majority of this traffic is expected to be video. Internet carriers will likely continue to invest in new capacity, which ought to alleviate the problem somewhat. However, as Internet traffic increases significantly, the revenue per megabit for the carriers should decline substantially. Thus, carriers will find it difficult to justify greater investment in capacity that offers lower and lower returns. The most probable result is that people will have to pay more for bandwidth that will likely become increasingly scarce. In particular, tiered pricing plans (which are already popular in Asia and Europe) will ensure that the heaviest data consumers pay the most. In sum, the demands of video delivery and mobile devices are changing the economics of delivering data over the Internet.

 

At the time of this article’s writing, the author had a position in: INTC.