Tech Market

High-Technology Industries and Market

High-technology industries are subject to the same market forces as every other industry. However, there are some forces that are particularly strong in high-tech, and these will be the primary concern of this survey. These forces are not “new.” Indeed, the forces at work in network industries in 1990s are very similar to those that confronted the telephone and wireless industries in the 1890s.

The effects we discuss involve pricing, switching costs, scale economies, transactions costs, and system coordination, and contracting. Each of these topics has been extensively studied in the economics literature. I do not pretend to offer a complete survey of the relevant literature, but will try to refer to particularly significant contributions and other more comprehensive surveys. The intent is to provide an overview of the issues for an economically literate, but non-specialist audience.

Cloud Computing Forecasts And Market Estimates

 

A Goldman Sachs study published this month projects that spending on cloud computing infrastructure and platforms will grow at a 30% CAGR from 2013 through 2018 compared with 5% growth for the overall enterprise IT. By 2018, 59% of the total cloud workloads will be Software-as-a-Service (SaaS) workloads, up from 41% in 2013.  Cisco is predicting that by 2018, 28% of the total cloud workloads will be Infrastructure-as-a-Service (IaaS) workloads down from 44% in 2013. 13% of the total cloud workloads will be Platform-as-a-Service (PaaS) workloads in 2018, down from 15% in 2013.  The following graphic provides a comparative analysis of IaaS, PaaS and SaaS forecasts from 2013 to 2018. Source:  Cisco Global Cloud Index: Forecast and Methodology, 2013–2018.

Differentiation of products and prices

Information technology allows for fine-grained observation and analysis of consumer behavior. This allows for various kinds of marketing strategies that were previously extremely difficult to carry out, at least on a large scale. For example, a seller can offer prices and goods that are differentiated by individual behavior and/or characteristics. This section will review some of the economic effects that arise from the ability to use more effective price discrimination.

Quantum Computing Market Forecast 2015-2020

Despite technology advances the quantum computing market is still fledgling. The quantum computing processor, a physical device enabling the principle of quantum computing, is still rather a theoretical concept than a ready-to-implement engineering solution. At the same time this rapidly evolving market is one of the most active R&D fields, attracting substantial government funding that supports research groups at internationally leading academic institutions, national laboratories, and major industrial-research centers. The governments are the major driving force behind investments in quantum computing R&D, fiercely competing for what is perceived as the most promising technology of the 21st century. The world’s largest government IT/Defense contractors follow the government suit.

So, what is the rationale for quantum computing market?

1. National Security Considerations:

• Quantum cryptography is the key to secure communications;
• Quantum computing opens new realms in developing new weapons and breaking into adversary communications;
• Quantum computing is a geopolitical game changer.

2. National Economy Considerations:

• Quantum computing opens new horizons almost in every aspect of human life, whether it’s new medicine or renewable energy;
• Quantum computing is an economy game changer, with a potential of disrupting entire industries and creating new ones.

The report covers the quantum computing R&D, products, technologies and services as well as government, corporate and venture capital investments in quantum computing.

Switching costs and lock-in

When you switch from Ford to GM, the change is relatively painless. If you switch from Windows to Linux, it can be very costly. You may have to change document formats, applications software, and, most importantly, you will have to invest substantial time and effort in learning a new operating environment. Changing software environments at the organizational level is also very costly. One study found that the total cost of installing an Enterprise Resource Planning (ERP) system such as SAP was eleven times greater than the purchase price of the software due to the cost of infrastructure upgrades, consultants, retraining programs, and the like. These switching costs are endemic in high-technology industries and can be so large that switching suppliers is virtually unthinkable, a situation known as “lock-in.”

When switching costs are substantial, competition can be intense to attract new customers, since, once they are locked in, they can be a substantial source of profit. Everyone has had the experience of buying a nice ink jet printer for $150 only to discover a few months later that the replacement cartridges cost $50. The notable fact is not that the cartridges are expensive, but rather than the printer is so cheap. And, of course, the printer is so cheap because the cartridges are so expensive. The printer manufacturers are following the time-test strategy of effectively giving away the razor to sell the blade.

Business Week reports that HP’s printer supply division made an estimated $500 million in operating profit on sales of $2.4 billion. The rest of HP’s businesses lost $100 million on revenues of $9.2 billion. The ink jet cartridges reportedly have over 50% profit margins.

Technology as a key driver of innovation and change in financial markets

The relentless development and deployment of new technologies will continue to have profound effects on markets at many levels. They will directly affect developments in HFT/AT and continue to fuel innovation in the development of new market services. And they will also help to drive changes in market structure. New technologies are creating new capabilities that no human trader could ever offer, such as assimilating and integrating vast quantities of data and making multiple accurate trading decisions on split-second time-scales. Ever more sophisticated techniques for analyzing news are also being developed and modern automated trading systems can increasingly learn from monitoring sequences of events in the market. HFT/AT is likely to become more deeply reliant on such technologies.

Future developments with important implications:

• There will be increasing availability of substantially cheaper computing power, particularly through cloud computing: those who embrace this technology will benefit from faster and more intelligent trading systems in particular.
• Special purpose silicon chips will gain ground from conventional computers: the increased speed will provide an important competitive edge through better and faster simulation and analysis, and within transaction systems.
• Computer-designed and computer-optimized robot traders could become more prevalent: in time, they could replace algorithms designed and refined by people, posing new challenges for understanding their effects on financial markets and for their regulation.
• Opportunities will continue to open up for small and medium-sized firms offering ‘middle ware’ technology components, driving further changes in market structure: such components can be purchased and plugged together to form trading systems which were previously the preserve of much larger institutions.
• The extent to which different markets embrace new technology will critically affect their competitiveness and therefore their position globally: The new technologies mean that major trading systems can exist almost anywhere. Emerging economies may come to challenge the long-established historical dominance of major European and US cities as global hubs for financial markets if the former capitalize faster on the technologies and the opportunities presented.

Computers and complexity

Over coming decades, the increasing use of computers and information technology in financial systems is likely to make them more, rather than less complex. Such complexity will reinforce information asymmetries and cause principal/agent problems, which in turn will damage trust and make the financial systems sub-optimal. Constraining and reducing such complexity will be a key challenge for policy makers. Options include requirements for trading platforms to publish information using an accurate, high resolution, synchronized time stamp. Improved standardization of connectivity to trading platforms could also be considered.