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In the year the internet came back with a vengeance – relabelled Web 2.0 and re-energised by broadband, new business models and new champions – Google threatened nothing less than world domination with a deceptively simple-looking search plus advertising offering.
Last month its stock market value soared beyond that of Cisco – the king of Web 1.0 – and although 2006 should prove more competitive, with Microsoft ready to make a more concerted drive into search, at present, the force remains with Google and with its move into news, e-mail, mapping, shopping and other areas, it is not sitting on its laurels.
We wrote: “Google is riding the perfect wave. Mass adoption of search as a measurable advertising medium is sucking dollars from traditional media. Even the biggest companies are increasingly experimenting with search-based advertising. Google is riding the same basic trend internationally, with very limited investment required.
“Consumers are searching more as they spend more time online. Despite its dominance, Google is increasing its share of those searches and is better than its rivals at making money from each one.” Lex, October 21
If your business is going to have a problem, it might as well be caused by the popularity of your products. Such is life at Apple, where demand outstripped supply of the pencil-thin iPod Nano at its launch in September, frustrating the attempts of true believers to get hold of the latest wonder model.
Try as they might, Apple’s rivals are making almost no impression on the iPod’s dominance in personal music players and, as the company adds video to its armoury, there are no signs of the slowdown its critics keep predicting.
We said: “Lodged in the DNA of Silicon Valley, there is a rebel gene known as Apple Computer. Most of the other ingredients are the generally uniform, inoffensive elements you would expect to find in the soul of an engineer. The Apple gene comes from an altogether different place. Its essence is one part design flair, two parts marketing hype. It carries elements of risk-taking and inventiveness. It is closely intertwined with the technical drive that pervades Silicon Valley and is the source of occasional startling originality, yet the technology is always subservient to something else.” FT Weekend magazine, June 11
For just a moment in September it felt like the bubble was reborn, as eBay agreed to pay $2.6bn for a company whose commercial value remains unproven.
But whatever Skype lacked in a business model, it made up for in potential and early traction in the nascent VoIP market, and the eBay deal made its founders, Nicholas Zennström and Janus Friis, the first big winners in internet telephony.
They said: “Communications is at the heart of e-commerce and community. By combining the two leading e-commerce franchises, eBay and PayPal, with the leader in internet voice communications, we will create an extraordinarily powerful environment for business on the Net.” Meg Whitman, chief executive, eBay
We said: “In 2000, the obsession was eyeballs. Now it is ears. Skype has drawn interest from potential suitors for its network of 53m people making largely free internet phone calls.
“Search and communication have proved two of the internet’s ‘killer applications’. The latter has also generated huge usage. Voice takes it a step further. Skype’s user growth has been explosive.
“It will steal call minutes – and revenues – from traditional telecoms companies.” Lex, September 13
2005 was also good for:
Lenovo, the Chinese PC maker, which has emerged from the shadow of IBM, whose laptop business it bought late in 2005 and has increased both market share and global shipments.
Another Chinese company to make its mark outside its home market was Huawei, which found its way on to the preferred supplier list for BT’s 21st Century Network, a major breakthrough.
In the software sector, Salesforce.com, the CRM-on-demand specialist, enjoyed a year of tremendous growth and saw Siebel, its biggest rival swallowed whole by Oracle. Motorola played the role of comeback kid, as its Razr VR phones stormed the market.
The world’s largest mobile phone operator illustrated just how tough the wireless market is becoming last month, when a warning of a slowdown in revenue growth and weakening margins prompted the largest one-day fall in its shares in seven years.
Vodafone, in common with rivals, faces intense competition in Europe, while its Japanese arm remains a cause for concern at a time when all carriers are beginning to experiment with business models for the new 3G data and entertainment models they hope will contribute to the next wave of growth.
They said: “The easy growth is obviously behind us because we are 100 per cent saturated [in core European markets] now. We can still find growth but it is harder now.” Arun Sarin, chief executive, November 15
We said: “Arun Sarin, Vodafone’s chief executive, felt ‘slightly congested’ while presenting interim results yesterday. The 11 per cent, or £9bn, drop in the company’s market capitalisation should clear the head better than a lifetime of lozenges. Results were good, the outlook less so. Japan faces further ‘significant’ margin pressure next year and could make an operating loss. A rapid recovery is unlikely.” Lex, November 16
Following two successive quarters of disappointing financial returns, critics have begun to question whether the low cost, direct-to-market approach that made Dell the world’s favourite PC supplier can sustain it through the next phase of its development.
Growth in its core markets is slowing, competition from Asian manufacturers is growing with each passing month, and its model is being aped by rivals.
Dell said the company was “disappointed” with its recent performance, but remained committed to its goal of increasing revenues by almost 40 per cent to $80bn over the next few years. “We have not backed off the $80bn goal. We think we can achieve it.” Kevin Rollins, chief executive.
We said: “Has Dell finally hit the glass ceiling? It has long been seen as a truism in tech circles that, once annual revenues reach $30bn, the industry’s giants face an inevitable slowdown. The law of large numbers and the arrival of new technologies – usually bringing with them a new generation of corporate champions – leaves the older guard struggling to maintain their earlier, dizzying ascent.” FT, November 11
Once the gold standard for consumer electronics, Sony is now fighting to stay afloat on a sea of troubles assailed by enemies on all sides.
Facing its first operating loss in a decade, the group announced a rationalisation plan that failed to convince investors and analysts that it was prepared to take the brutal action required to change its fortunes.
They said: “We must be like the Russians defending Moscow against Napoleon, ready to scorch the earth to stay ahead of the invaders. We must be Sony United and fight like the Sony warriors we are.” Sir Howard Stringer, chief executive, September 22
We said: “Sony missed its cue. The once-mighty Japanese consumer electronics giant acknowledges it makes products that people no longer want, has lost its technological edge and operates in a commoditised marketplace.
“Its solution, however, is tame – a 7 per cent cut in the workforce, an organisational overhaul and the disposal of $1bn worth of stocks and real estate.” Lex, September 21
And 2006 will be big for:
The new five-yearly product cycle at Microsoft is kicking in, and by the end of this we’ll have a clear view of its future in software on demand and whether or not it has made up ground on Sony in the console wars.
Lucent and Sun both showed signs of life in 2005, but still have much to prove to investors next year. eBay finally proved it was fallible by missing a quarter, and is now scrabbling around in search of its next business model. How it uses Skype could be critical.
Compiled by Ben Hunt, Maija Palmer, Kate Mackenzie, Mark Odell, Mure Dickie, Chris Nuttall and Richard Waters