I’m sure every company would like to be a technology company given the sector is up 15 per cent this year, almost double that of the US share market. In particular, the five largest technology stocks, comprising Facebook, Apple, Amazon, Microsoft and Google (commonly referred to as the ‘FAAMG’ stocks) are up 25 per cent, accounting for a quarter of the index returns this year (despite only making up 10 per cent of the index)1.

The FAAMG stocks, along with a few notable others (Netflix, Uber) have entrenched their technology into our everyday lives, solving problems we didn’t even realise we had. The image below shows how the humble desk space has evolved since 1983:

Image source: Bestproduct

And yet consumers today continue to demand more from products and services, as a result of being increasingly more informed and more connected:

Image source: Global Digital Snapshot as at January 2017 (We Are Social).

Additionally, the rate of uptake of new technology has been increasing over time:

Keep up or get left behind

There are many well-known examples of companies and industries that have been left behind in the wake of new technology. Amazon was the beginning of the end for many bookstores (although interestingly, it has recently opened its first bookstore in New York). Smartphones destroyed the trusty point-and-shoot digital camera. Netflix crushed Blockbuster and is increasingly hurting traditional television. And taxi companies are struggling against the power of Uber.

Technological advancement is a key reason why the average tenure of companies on the S&P 500 index fell from 33 years in 1965 to 20 years in 1990, and is forecast to drop to 14 years by 2026. If this forecast is correct, 50 per cent of the S&P 500 will be replaced with new companies over the next 10 years2.

Embracing technology

To ensure technology doesn’t render their business models irrelevant, companies must reinvent themselves and embrace technology to attend to the shifting needs of customers. Increasing use of buzzwords such as ‘artificial intelligence’, ‘data analytics’ and ‘machine learning’ in quarterly earnings commentary provide a clear indication that technology is front and centre of corporate strategy for companies both inside and outside of the sector.

Machine learning is a type of artificial intelligence that uses data to train computers to learn without being specifically programmed.

  • The New York Times, a traditional newspaper, recently announced it will use a machine learning algorithm to expand the availability of online comments from 10 per cent to 80 per cent of articles, providing reporters with more feedback and improving user engagement. The algorithm will be able to automatically approve some comments while flagging potentially toxic comments that may cause readers to disengage.

The ‘Internet of Things’ or ‘IoT’ is tech jargon for connected devices that transmit data via the internet. It is predicted that the number of connected objects will double to 30 billion by 20213. Companies can use this wealth of data to predict and solve future customer needs.

  • CVS Health, a US pharmacy chain, recently announced a new program, Transform Diabetes Care. This program includes a connected glucometer to share blood glucose levels with a pharmacist-led team via a health cloud, enabling earlier intervention of potential issues.
  • Homes are not only becoming smarter but more ‘thoughtful’ in delivering what we want before we want it. Examples include smart locks to text you when your kids get home from school so you know they’re safe, timed activation of your lounge heat pump, or asking your virtual assistant to read out the latest news headlines as you prepare dinner. All of these help to improve safety, reduce costs, conserve energy and save time.

At the current pace of change, it seems nearly every company will effectively be a technology company in the not-so-distant future. We wholeheartedly believe in this and have incorporated it into our investment process, asking every company we meet with how they use technology to add value for their customers. I know what degree I’ll be steering my future children towards.