Technology in 2015, Part 1: An Eventful Year

Multiple stacks of coins on top of a graph Credit: Shutterstock photo

As the year draws to a close we take a look at the technology sector, where key players are emerging, merging, expanding, metamorphosing, splitting or even getting wiped out. There has been much innovation across the board and the collaboration trend we noticed last year gathered momentum in this one.

Technology is forever a work in progress as companies continue to discover new and better ways of doing things. But while they continue to patent new technologies, legal battles over infringement saw a notable downtrend this year. In its place was a renewed spirit of thrift and collaboration for greater focus on the consumer experience as a way to generate sales.

Nowhere was this spirit of collaboration as strong as in yet-uncharted areas like cloud computing and artificial intelligence.

Emerging markets was a mixed bag this year as fears of a China slowdown kept shares under pressure for a few months. U.S. companies started partnering with Chinese government bodies toward the end of the year in the hopes of generating something from the densely populated country. Fresh opportunities in India continued to unfold given its huge population and business-focused government.

But some concerns remained. The PC market, for one, remained in the doldrums while expectations for tablet growth also came down.

IPOs were also few and far between as the poor performance of earlier IPOs dampened investor appetite for unproven and unprofitable business models.

Here are some of the key debates, many of which will likely remain debates in years to come --

Privacy Versus Thrift: Some technology companies like Google GOOGL and Facebook FB offer free services to consumers if they are willing to see ads. This seems like a win-win deal until you realize that advertisers are always looking to maximize the return on their investment (just like everybody else).

So they are willing to pay a higher price if the conversions from their ads are higher. The only way that technology companies can increase the probability of conversions is if they collect data on customers that would indicate their habits and preferences. This again increases privacy concerns and the danger that the information will get into the hands of people or governments it was not intended for.

On the other hand, smaller businesses and content providers with lesser-known brands are dependent on ads to reach customers since they may not be well-known enough to generate subscription fees. This year saw increased concern over government spying actions/demanding technology companies to turn over user data, a greater focus on encryption and Google trying out new subscription-based services alongside its ad-supported ones.

Net Neutrality: This is widely known as the principle that Internet service providers should enable access to all content and applications regardless of the source, and without favoring or blocking particular products or websites. But ISPs are squeezed in this scenario, since they have to bear the increasing cost of laying out and maintaining the network that content providers use to offer services.

So they want to transfer some of this cost and generate more profit by charging differential rates. This creates other problems since without net neutrality ISPs would be gate keepers of the Internet where smaller or dissenting content providers would not be able to keep up with the price increases that this would result in and would therefore get wiped out.

The FCC adopted new net neutrality rules this year, which were followed by lawsuits (as expected). Facebook's also saw a lot of opposition in India because it initially provided preferential free access to some websites (including its own). Facebook did make some adjustments but the initiative didn't really gain momentum.

Multi-Vendor Versus Single-Vendor in the Cloud: The leading providers of cloud infrastructure and services are trying to acquire or develop technologies as fast as possible so they can lock companies into their systems. This is advantageous for companies to the extent that it reduces management time and overhead costs while keeping the IT system simple.

However, there is always the fear of outages (which also exists with on-premise equipment) and the concern that over-reliance on a single vendor to grow the business can limit the enterprise to that vendor's vision and capabilities and also lead to rate escalation in the future. In the multi-vendor approach, management can be a bit of a problem and entail higher costs, but the company gets access to the best available software and that too at competitive prices.

While most enterprises recognize the eventuality of moving to the cloud, they are still dragging their feet because they want the best of both worlds. That is why cloud vendors like Microsoft, Google, Salesforce, Amazon, Red Hat and others are increasingly enabling inter-operability in spite of their competitive relationships.

Mobile Security Should Be Network-Centric or On-Device: IDC forecasts that the U.S. mobile worker population will increase from an estimated 96.2 million this year to 105.4 million (72.3% of the total U.S. workforce) by 2020. BYOD adoption, particularly in the manufacturing, construction, retail and healthcare industries will drive the growth.

Given the gradually increasing mobile workforce, security has become a growing concern because next generation workers are likely to use a wider variety of devices and be tech-savvy enough to attempt circumvention of enterprise controls.

Additionally, most mobile apps ask for access to contact lists, personal information and location and people also tend to use some file-sharing apps. Gartner says that while these are rarely malicious, they don't come with enterprise-grade security, which can be a concern when the device is being used for work. All the main mobile operating systems come with basic security features like integrity protection, encryption, app isolation and kernel protection but timely security updates are a sore point, which along with mobile device management are top concerns for companies.

Companies therefore prefer a layered approach rather than choosing network over device security or vice versa. Innovation in network security continues with providers like Check Point, Palo Alto and Fortinet seeing strength even as Cisco ceded share this year. Network security however is likely to grow in importance because of IoT where the number and make of devices is expected to escalate phenomenally making device security far more difficult than it has in the past.

In-house Development Versus Open-Source: The debate has assumed great importance this year and not just because Google has been accused of taking Android in-house. The main reason for the growing importance of open sourcing is its role in the development of the cloud and artificial intelligence (AI).

Enterprises are increasingly transferring their workloads to the cloud, whether private, shared or hybrid. But once workloads are migrated to a cloud there are financial hurdles to moving them to a competing platform thus creating a first-mover advantage for providers. This is pushing infrastructure vendors to build out as fast as possible. Since open sourcing can get thousands of developers to work on a platform, this speeds up the development process.

Apple's open sourcing its programming language Swift is intended to speed up the development of applications that will work with Apple devices and applications, further its relationship with IBM and speed up its adoption at enterprise customers.

Facebook's decision to turn over its network switch designs to the Open Compute Project is intended to increase networking efficiency and lower costs for big users like Facebook and Microsoft.

Google's open sourcing its internally-used machine learning system TensorFlow is intended to get more engineers working with it and standardizing on it. The system is currently focused on developing neural networks that can increase perception and language skills of machines and is used in its image recognition (Photos), email answer generation (Gmail) and speech recognition (Translate) products. Apple AAPL , Facebook, Microsoft MSFT and Google are all big spenders on AI as all of them deal with devices and/or large customer bases that can be served more useful data.

More recently, it was reported that a nonprofit called OpenAI had entered the scene with backing from a group of people/companies including Tesla's Elon Musk and Amazon's AWS.

Delivery Drones --Helpful or Dangerous?: Companies have been touting the usefulness of drones for speedy delivery of healthcare and other essential items, while regulators have held out because of security and privacy concerns. There wasn't that much progress on this front in 2015, except that some drone makers like Amazon were allowed to test their systems while continuing to lobby to allow broad usage.

Amazon AMZN recently showcased a ready model built in accordance with regulatory guidelines. The FAA is expected to release guidelines next year with Amazon drones very likely to be the first to take off. Google's Project Wing isn't far behind, having tested its drones in Australia and the company is likely to use them for deliveries some time in 2017. Facebook drones called Aquila, to be used to beam Internet signals to rural areas were launched this year.

Final Words

It has been a progressive year on all counts and technology companies have advanced. But the important thing is that with global warming continuing unabated, these power guzzlers have also focused on more environment-friendly ways of doing it.

This year saw Apple committing to forest management in China while working towards powering its entire Singapore operations with renewable energy. Google committed to tripling its purchase of renewable energy by 2025 and reaffirmed its longer-term goal of using renewable energy to power its entire operations (it is estimated that 37% of its current operations run on renewable energy).

Facebook committed to having 50% of its operations running on renewable energy by year-end. Microsoft committed to go carbon neutral a couple of years back and while it didn't make any additional promises this year, the company continues to invest in renewable energy projects.

Want to find the best stocks for 2016? Find out more information about the market-crushing Zacks Top 10 list here >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

AMAZON.COM INC (AMZN): Free Stock Analysis Report

APPLE INC (AAPL): Free Stock Analysis Report

MICROSOFT CORP (MSFT): Free Stock Analysis Report

FACEBOOK INC-A (FB): Free Stock Analysis Report

ALPHABET INC-A (GOOGL): Free Stock Analysis Report

To read this article on click here.

Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

More Related Articles

Sign up for Smart Investing to get the latest news, strategies and tips to help you invest smarter.