If there’s one thing to take away from Mary Meeker’s annual “Internet Trends” report, it’s that things change quickly in the tech industry. While the competitive advantages for older industries, such as industrials, allow market leaders to continuously outshine smaller competitors, the moats of Internet companies are easily crossed by upstarts with user bases that flock quickly from one service to another.
In this high tech, photo-sharing, mobile-advertising, social-gaming, and disruptive high-tech world, what are the best investment strategies for companies that can lose their appeal overnight?
First, if you haven’t yet scanned Meeker’s report, take a look. Here are just a few examples of how things have changed in a few short years:
In 2005, Nokia Corporation (ADR) (NYSE:NOK)‘s Symbian smartphone operating system had more than 60% of the global market share. In the first quarter of 2013, Symbian, which is now discontinued as Nokia has moved to Windows Phone, took 0.6% of market share.
Facebook Inc (NASDAQ:FB) has dominated competitors in terms of number of photos uploaded and shared, with more than 300 million so far this year. The company made the defensive acquisition of Instagram to maintain its photo-sharing dominance. However, Snapchat, an application that allows users to send self-destructing photos and videos, is growing exponentially, with more than100 million photos shared this year. While Snapchat shared 20 million photos per day last October, about 150 million photos were shared in April.
Twitter’s Vine application, which allows users to record and share short six-second looping videos, has grown its user base from less than 2% of U.S. iPhones in January to nearly 8% in April.
Now 45% of Groupon Inc (NASDAQ:GRPN)‘s North American transactions are done through a mobile device, compared withjust 14% at the beginning of 2011.
What to look for when investing
A dynamic industry calls for several characteristics if a company is to survive and prosper.
First, a company should have visionary management that proves it has a pulse on coming trends. While a one-hit wonder company can make venture capitalists a tidy profit, when the company is publicly traded, the future opportunities need to be greater than the market believes for a regular investor to bank some gains. For example, ex-CEO of Groupon Inc (NASDAQ:GRPN) Andrew Mason created the entire industry of daily deals. However, as competition increased, Mason failed to innovate any new business that enticed investors while also failing to properly maintain Groupon Inc (NASDAQ:GRPN)’s accounting books.