The Winners and Losers of the Next Trend in Tech

Tech companies are trying to become self-sufficient. No longer will they rely on others. They'll build their own hardware, write their own software, and sell their own products. The question is, who can be successful at it? And who will lose out?

Welcome to the new world of tech, where control over entire operations is valued above all else.

Living on their own
Apple (Nasdaq: AAPL  ) notoriously owns a wide swath of its value chain. From designing its processors, building its hardware, writing its operating system, and selling in its own stores, Apple has control over a majority of its operations. It went even further for iOS 6 and jettisoned Google Maps to make its own Apple Maps. Apple appears to have grabbed even more control from retailers and gave some Best Buy (NYSE: BBY  ) stores "as few as 10 new phones for launch day" of the iPhone 5, according to The Wall Street Journal.

As for Google, the company recently came out with its own tablet, the Nexus 7, to complement its Samsung-made Galaxy Nexus smartphone. In addition, the company has its own Chrome operating system, Google Docs word-processing software, and Chromebook laptops.

Microsoft (Nasdaq: MSFT  ) is releasing its own tablet, the Surface, in October, which has scared its usual hardware vendors. For example, the CEO of Acer told Microsoft: "Think twice. It will create a huge negative impact for the ecosystem, and other brands may take a negative reaction." But the ecosystem is becoming less open as tech companies hope to emulate Apple's success in its relatively closed environment.

There are also constant rumors of new phones from Facebook and Amazon.com. And for Facebook, depending less on revenue from Zynga (Nasdaq: ZNGA  ) should be a priority, as the game company loses top executives left and right. Likewise, Zynga wants to depend less on Facebook, as it earns upwards of 90% of its revenue from its Facebook platform.

Protective trade policy
Like a closed-border trade policy between nations, as every tech company begins to enter each other's markets with everyone offering a tablet, smartphone, OS, Web browser, word processor, app store, photo-sharing platform, streaming media service, branded coffee pod, energy drink, and digital shoe organizer, they become more competitive -- and less likely to collaborate. It's difficult to shake hands when each company has a dagger at another's throat.

And rightfully so. Why would Apple want to count on Google to keep providing its map service in a reasonable agreement? Why would Microsoft want to depend on hardware manufacturers that failed to keep up with Apple's stranglehold on consumer taste?

What does this mean for the future of tech-related companies?

The biggest, smallest, and nimblest win
If you have the resources to go ahead with big projects, like new mapping software alone, then you're in a good position for a future with fewer licensing agreements. And if you're small or struggling enough that you don't present a large threat to others, as with Nokia (NYSE: NOK  ) , then you remain a viable partner for larger companies, such as Microsoft.

However, if you can't spend the resources or don't have the talent to become self-sufficient, you could be trounced if other companies can highly integrate their operations as well as Apple does. For example, Hewlett-Packard's attempt at its own mobile OS and tablet failed spectacularly.And if you offer no special expertise that can't be easily emulated, you're looking at a rough road ahead.

There is hope for companies such as Dell and HP, however, if they remain nimble. Moving to services over hardware is the right move when they can't keep up with design, and their expertise is in operations over innovation. And if you believe in Dell's ability to transform, it especially seems fairly priced today.

Fully streamlined companies
The tech industry is entering a new phase where dependence on others is becoming more dangerous. In the earlier tech days, extreme growth allowed companies to work together and grab slices of a growing pie. Now, growth is slowing as tech markets mature. To grow, companies must take competitors' market share, which places everyone at odds.

Ask yourself if your tech investments could be self-sustainable if all of their partners left.

To find out more on the future prospects of these specific companies, check out our new premium reports that cover reasons to buy and sell Apple, Microsoft, Facebook, Amazon, and Zynga. Each premium report comes with a year of free updates. Get started now!

Fool contributor Dan Newman welcomes your thoughts. He does not hold shares of any of the above companies. Follow him on Twitter,@TMFHelloNewman.

The Motley Fool owns shares of Facebook, Apple, Amazon.com, Google, Microsoft, and Best Buy.
Motley Fool newsletter services have recommended buying shares of Google, Amazon.com, Facebook, Microsoft, and Apple, as well as creating a bull call spread position in Apple and a synthetic covered call position in Microsoft. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.


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  • Report this Comment On September 25, 2012, at 6:55 PM, techy46 wrote:

    Interestingly, software use to be less expensive in terms of IP to design, maintain and release than self-conatined computer hardware. However, with new SoC chips, touch displays and low wattage components of-the-shelf just the opposite is true. Microsoft's Surafce tablets will reveal just how much hardware vs software pricing ahs changed. Will it be $200 hardware plus a $100 software?

  • Report this Comment On September 26, 2012, at 12:57 AM, llIlllIlllIlllIl wrote:

    For some reason the article completely missed the fact that Microsoft is releasing for the first time a version of Windows that will run on ARM chipsets (Windows RT), and be fully touch optimised. This is a huge step in the evolution of Windows as it allows the operating system to be deployed in mobile hardware and can replace embedded systems. Not only will there be a plethora of Windows 8 and Windows RT tablets on the market, the potential of Windows RT is huge as it makes its way into POS, kiosks, automotive in-dash, aircraft entertainment, etc.

    After the end of the disgraceful antitrust limitations last year, Microsoft got its mojo back and is well on the way to redefining the way we do computing over the next few years.

    And they will pull Nokia along with them, so NOK is certainly a stock to watch.

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