Disruptive Technologies

Transforming the Business Landscape

Disruptive technologies have changed the way companies create products and services, interact with customers and in general, run their business. As a result, Noah Wintroub, Global Head of Internet & Digital Media Investment Banking at J.P. Morgan, believes all companies across sectors are Internet companies in today’s environment.

X

Noah Wintroub, Global Head of Internet & Digital Media Investment

Disruptive technologies have tremendous impact on transforming business from the infrastructure to customer experience. For instance, the declining cost in information processing already has displaced established products and services. “Low-cost IT has fundamentally changed the way that we consume, the platforms and the places where we consume, and the business models based on that consumption,” says Wintroub.

As a result, the wall separating so-called traditional and Internet companies is an artificial barrier and one that fell long ago. The real divide instead lies between companies whose technologies and business models are disruptive and those whose business models are likely to be disrupted. Disruptive companies are attuned to the changing world surrounding them, fluent in technology and capable of evolving in real time. Disrupted companies are often those older, established organizations that do not reinvent their business models nor adapt to changes in the competitive landscape. 

Secular and Cyclical Developments Amplify the Impacts

Underlying secular and cyclical trends have added impetus to the disruptive technologies. From a secular perspective, less capital is needed to start a company nowadays, given the broad range of computing infrastructure and services available on the cloud. And from a cyclical standpoint, the cost of capital is near a historic low, which allows disruptors to build fortress balance sheets by financing themselves at low costs now for the long term.

Consequently, the competitive dynamic has changed. “Being the incumbent company is not as advantageous as it used to be,” says Wintroub. The landscape now includes ever more players as new competitors emerge. The pace of technological change is moving so rapidly that the period of competitive advantage has shrunk dramatically.

To thrive, companies must be more proactive, consumer-focused and nimble. “Figure out the business you’re in and who your customers are. There’s a lot of magic in incumbency, but it doesn’t give you the right to be the market leader for very long. That right is earned every day by reimagining what you do and making sure you’re doing it the right way,” he advises.

Valuations Are Always Relative

The impact of disruptive technologies on the capital markets goes deeper still. “Three of the five largest companies in terms of market capitalization currently are technology and Internet companies,” Wintroub says.

However, he emphasizes, equity valuation is never absolute: the stock of a company is never perfectly priced. “Your stock will always be either to high or too low, since it’s a function of several things,” says Wintroub.

Instead of using stock prices to measure success, he recommends that companies prioritize long-term growth and plan ahead for periods of high risk and volatility. “What we say to companies is focus more on the outcome you want,” he adds, “and then figure out what financial tools and products are available for you to solve your problems.”

Five Core Trends in Disruptive Technologies

Mobile: The ability to stay digitally connected while on the move means no longer being tethered to a stationary location

Social: Group platforms enable data sharing across individuals and their networks, changing the way information is consumed

Big Data: The ability to leverage vast stores of unstructured data produces real, actionable items

Real Time: Real-time delivery of information creates new expectations

Cloud: The migration of local data to remote servers on the Internet increases the amount of data storage, while cutting costs

RESTRICTED DISTRIBUTION: Distribution of these materials is permitted to investment banking clients of J.P. Morgan, only, subject to approval by J.P. Morgan. These materials are for your personal use only. Any distribution, copy, reprints and/or forward to others is strictly prohibited. Information has been obtained from sources believed to be reliable but JPMorgan Chase & Co. or its affiliates and/or subsidiaries (collectively JPMorgan Chase & Co.) do not warrant its completeness or accuracy. Information herein constitutes our judgment as of the date of this material and is subject to change without notice. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument or security. The information contained in these materials is provided for information purposes only and does not constitute investment or financial advice. In no event shall J.P. Morgan be liable for any use by any party of, for any decision made or action taken by any party in reliance upon, or for any inaccuracies or errors in, or omissions from, the information contained herein and such information may not be relied upon by you in evaluating the merits of participating in any transaction.

JPMorgan Chase and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

J.P. Morgan is the marketing name for the investment banking activities of JPMorgan Chase Bank, N.A., J.P. Morgan Securities LLC (member, NYSE), the appropriately licensed subsidiaries of JPMorgan Chase & Co. in Asia-Pacific (lending, derivatives and other commercial banking activities are performed by JPMorgan Chase Bank, N.A.), and their investment banking affiliates. In the United Kingdom, J.P. Morgan Securities Plc is authorized by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. J.P. Morgan Limited is authorized and regulated by the Financial Conduct Authority.

 

Copyright © 2015 JPMorgan Chase & Co. All rights reserved.