UK: TMT Trends: Predictions, 2005 - A focus on the technology sector

Foreword

Welcome to the 2005 edition of Deloitte Touche Tohmatsu’s Technology, Media and Telecommunications (TMT) predictions for the global technology sector.

2005 is set to be an incredibly diverse year in the world of technology, with several entirely new, global markets emerging. The single largest opportunity will derive from the smallest ever technology. Nanotechnology – the set of technologies that enables manipulation of structures and processes at the atomic level – is likely to become a large-scale commercial reality. At the other end of the scale, the vastness of space will become increasingly important to the private sector. As government agencies are encouraged to take advantage of the efficiencies of competitive markets, space should become big business.

These predictions are the result of comprehensive research throughout 2004, the principal elements of which include:

• input from Deloitte Touche Tohmatsu’s member firms’ 5,000 Technology, Media and Telecommunications partners, directors and senior managers around the world;

• conversations with Deloitte Touche Tohmatsu’s member firms’ clients;

• dialogue with leading industry and financial analysts.

Accompanying each of these ten predictions is Deloitte’s bottom line: the suggestions to the sector for exploiting each key development that the coming year holds. We trust that this guidance makes this report a valuable reference for your company. On behalf of Deloitte Touche Tohmatsu and the TMT practices of its member firms, may I take this opportunity to wish you all the best for 2005.

Igal Brightman
Global Managing Partner
Technology, Media and Telecommunications

2005 will see a number of important advances in technology, along with some major challenges, opportunities and threats. Internet use will continue to proliferate, and the web browser will become an increasingly important part of our lives – providing a standard interface for a whole host of business and consumer applications.

Wireless mesh networks will appear in several of the world’s major urban centers, helping local authorities track equipment and assets, and allowing transportation companies to streamline services, check traffic flows and update schedules in real time. Nanotechnology – the set of technologies that enables manipulation of structures and processes at the atomic level – will become increasingly mainstream, leading to a wide range of new and dramatically improved products.

Consumers will spend billions of dollars on flat panel screens, fueling spectacular market growth – particularly for large format devices such as televisions and computer monitors. Meanwhile, ethanol-based fuel cells will launch commercially, potentially transforming the way people use portable devices by providing flexible power that lasts for days, weeks or even months.

Electronic forms of personal identification will proliferate, mainly for security reasons, yet identify theft and other digital crimes will continue to wreak havoc. Growth in connected devices will lead to corresponding growth in computer viruses, worms and other malware. This will frustrate users and cost companies billions in downtime and lost data.

Robots will start to become an accepted part of our daily lives, particularly for household chores and other highly specific, practical tasks. Technology development for space exploration will probably continue its shift to the private sector, providing the foundation for a new era of advancement and discovery.

Quantum computers, which are expected to be many orders of magnitude faster than today’s fastest supercomputers, will take a few important steps closer to commercial reality. Quantum computing is still a long way off, but is almost certain to happen. And when it does, it will change everything.

2005 will see much activity around the web browser. There will be more competition, more choice and more functionality. Broadband proliferation will drive up internet use, with the browser serving as one of the principal interfaces.

Increasingly powerful PCs will enable browsers to do more work – particularly searches – and do it faster and more accurately. At the same time, people will rely on web browsers for a growing range of everyday applications, from entertainment, corporate e-mail and advertising to online shopping and arranging doctor visits. Web browsers will also be increasingly used as the underpinning for the standard communication interface between suppliers and customers.

A widening range of browsers will drive the pace of development and innovation. New browsers are likely to be increasingly based on open source software and open standards, catalyzing development and making it easier to transfer innovations across products. This should provide substantial benefits to users, and would encourage adoption of new products by individuals, companies and governments.

Standard browser functionality will likely expand to include page magnification, tabbed browsing (for easy switching between pages), improved multimedia search functionality (in many cases unique to the browser), enhanced security, and improved integration with other applications such as e-mail, online auctions, and calendars. The browser’s rising functionality will make it more useful and even more pervasive – turning it into one of the most critical pieces of real estate on the PC.

Browser improvements – along with society’s growing reliance on browser functionality – will have a number of significant implications.

• Beefing up security. The more pervasive the browser, the more it will be a target of hackers. Browser-based online commerce is a particularly vulnerable area, prompting significant investments in security.

• Delivering a superior customer experience. Companies planning to use a browser as their self-service interface must ensure it provides a customer experience that is equal to or better than the current system – not just cheaper.

• Ensuring reliability and ease-of-use. Browser-based solutions should be at least as functional, easy-to-use and reliable as the systems they are replacing. Network connections in particular need to be rock-solid; otherwise, users will be clamoring for a return to standalone, offline applications.

Browser developers should focus their efforts on a variety of devices – not just PCs. Mobile phones, PDAs (Personal Digital Assistants), and even in-car computers will all increasingly need browser technology. Delivering a common experience across multiple platforms will make web browsers even more useful and pervasive.

Fuel cells debut

2005 will see the first commercial launch of ethanol-based fuel cells, both as standalone products and as the integrated power source for leading-edge consumer products. This is big news, particularly for the consumer electronics world, which has been struggling for years to find a power technology that can outperform lithium ion. Fuel cells will provide enough power for several days of continuous use and many weeks of stand-by time, transforming the way we use mobile phones, laptop computers, portable music players and PDAs – and enabling other portable devices and applications that have yet to be invented. Small, low-power devices such as Bluetooth headsets could incorporate months of built-in power, eliminating the need for consumers to travel with multiple chargers and adapters.

Unlike lithium ion batteries, fuels cells can be made in a variety of shapes and forms, thus removing one of today’s biggest design constraints and opening up a whole new world of design possibilities. And because fuel cells are refilled, not recharged, they should also create a global business opportunity for fuel sales. There are still some significant challenges to fuel cell adoption, including restrictions on fuel cell use in airplanes. But these barriers are steadily being overcome. The market in 2005 will be small, probably measured in tens of millions of dollars, but is likely to grow vigorously once consumer electronics manufacturers get on board.

Fuel cells are about to leave the lab and enter the commercial market. Starting in 2005, there will be strong growth in the OEM and replacement markets for fuel cells – particularly in Asia – and manufacturers may initially have trouble meeting demand.

Laying the groundwork. Refueling will be the industry’s biggest challenge. For consumers to adopt fuel cells en masse, fuel must be as readily available as batteries, thereby making the decision to adopt fuel cell technology positive, not problematic. This massive logistical challenge will require unprecedented cooperation between competing manufacturers, distributors and retailers.

For fuel cells to reach their maximum potential, all members of the value chain must quickly focus on creating a distribution network that is manageable, practical and ultimately profitable. Manufacturers should also re-examine their development pipeline, accelerating development of devices that could benefit from fuel cell technology.

Nanotechnology – one of the most talked about but leastunderstood technologies of the 21st century – will become increasingly mainstream in 2005. Nanotechnology is the set of technologies that enables the viewing, manipulation and exploitation of both structures and processes that exist at the atomic level. Currently the province of a few small, highly specialized firms, nanotechnology will increasingly be driven by the world’s largest companies. In fact, it is already quietly revolutionizing a wide range of products, from computer hard drives and sunblock cream to car tires – and will soon become a cornerstone of every manufacturing industry. In the long run, nanotechnology will probably allow the creation of entirely new products that are currently infeasible or impractical.

Nanotechnology has the potential to affect every aspect of human life – visibly and invisibly – dramatically improving existing products, and enabling entirely new products that were previously impossible. The capacity to manufacture economically products, components and materials on an atom-by-atom basis will lift many industries to the next level – with nanotechnology quickly becoming synonymous with superior products.

In the medium term, pharmaceuticals companies are expected to increasingly use nano-scale structures for drug delivery; for example, using nano-spheres to deliver a drug directly to its intended target. Consumer electronics companies are likely to employ nano-scale manufacturing processes to make smaller and faster processors and storage devices, as well as more efficient monitors. Clothing manufacturers will likely exploit nano-scale properties to make stain resistant, crease-free fabrics, and garments that resist bacteria. Glass-makers are expected to use nano-scale structures to create self-cleaning windows. Nothing, it seems, will escape the influence of nanotechnology.

2005 will be the year that nanotechnology becomes mainstream, with nanotech companies generating substantial revenue for the very first time.

Putting the public at ease. The single greatest obstacle to widespread adoption is lack of public understanding. Ignorance and fear – fanned by sloppy journalism and misguided public commentary – have already given nanotechnology a negative image. For nanotechnology to achieve its full potential, all companies involved in the technology must act together to educate and inform the public.

Companies must also stay focused on the practical and commercial applications for nanotechnology, rather than becoming overly fascinated with the technical and intellectual challenges of manipulating matter at an atomic level.

Massive growth in the number of connected devices – from PCs and mobile phones to digital music players and gaming consoles – will cause a corresponding leap in electronic viruses and other malicious attacks.

Nuisances such as unsolicited e-mail (SPAM) and intrusive instant messages (SPIM) will continue to proliferate, along with new threats such as blue-jacking (attacks on Bluetooth devices) and Voice over IP (VoIP) SPAM.

More harmful intrusions will also increase dramatically. Viruses, worms and malware (malicious software) will become increasingly common, costing companies around the world billions of dollars in lost data and downtime. These same types of malicious threats will also find their way into mobile devices – adding to the damage and frustration.

Our society’s growing dependence on electronic devices makes us increasingly vulnerable to attack. In fact, one often overlooked downside to the proliferation of mobile devices is that it provides a huge number of new entry points for hackers to gain access to private, corporate and even government networks. Many people don’t even realize how much they rely on electronic devices until those devices stop working, or worse, are hijacked.

Continued growth of remote working, mobile phone usage and WiFi deployment will expand the number of potential entry points. There are already more mobile phones than PCs in the world, meaning that a widespread attack on mobile devices could have major consequences. Factor in the rapid spread of WiFi – which hackers consider an open network – and the risks become all too evident.

Managing the risk. Corporations face the greatest risk of attack, collectively losing billions of dollars a year to hacking, viruses and other malicious intrusions. Companies of all sizes should pre-empt, as well as react, continually assessing the growing risks and actively working to protect themselves – and their customers. It is no longer a question of if, but when. Of course, all these threats create a vast market opportunity for companies that sell IT security. The security business will be booming in 2005, with entirely new lines of business springing up from mobile operators, handset makers, service providers, and systems integrators.

After decades in science fiction, in 2005 robots will increasingly become an accepted part of our daily lives. In late 2004, there was huge market demand for the first truly useful robot – an autonomous, intelligent vacuum cleaner. It sold in the hundreds of thousands, signalling the start of a commercial market for practical robots. This product is certain to be followed by similar robots that mow lawns, clean windows, eliminate household pests and provide home security.

Market growth will be boosted by major advances in artificial intelligence – as well as increased miniaturization – leading to robots that are smarter, smaller and cheaper. Growth will also be spurred by increasing demands on peoples’ time, making them more receptive to devices that can relieve them of mundane chores. Finally, there’s the ‘wow’ factor. Many buyers – especially early adopters – will buy a robot simply because they think it’s ‘cool.’

Getting practical. Robots are no longer science fiction. Rather they are hard science and sound business. Manufacturers, police, and the military are just a few of the organizations already making extensive use of robots for tasks that are not economical, safe or desirable for humans. Over time, the practical uses for robots will grow – along with their capabilities – driving up demand in the marketplace.

Electronic butlers may be a long way off, but we are certainly not far from the large-scale adoption of highly practical, single-task robots. In these early stages, manufacturers should target simple, mundane tasks that robots naturally do better than humans (e.g. cleaning, monitoring and controlling). The more mundane, the better. Companies must also offer robots at a reasonable and affordable price. Robots will only be viable where they can do the job better than people, at a price that is substantially lower than the value consumers place on their own time.

By the end of 2005, wireless mesh networks will have appeared in several major urban centers throughout Northern Europe, the United States and Asia. Mesh networks are typically used for tracking and monitoring status, movement, and process flow in transportation systems, production lines and even supermarkets.

Mesh networks are ad-hoc networks – essentially peer-to-peer in structure. In a true mesh, every node has a connection to every other node in the network, either directly or by hopping though intermediate nodes. This allows operators to generate a very precise picture of what is happening within the network. Mesh networks are already being used on a trial basis in several major cities, helping public transportation systems operate more efficiently, and providing passengers with up-to-date information on arrival and departure times, delays and cancellations.

The widespread commercialization of RFID and other short range networking technologies will help spur the creation of large-scale mesh networks. Major telecom manufacturers are already building expertise on mesh networking – through research and acquisition – capabilities that should attain commercial success in 2005.

The initial market for mesh networks will be small, but the growth potential is enormous – particularly in the public sector. Local and national governments will be interested in mesh technology as a means to improve the safety and efficiency of their transportation infrastructure, while military organizations will use mesh networks to monitor troops, track assets and manage logistics.

Making mesh networks affordable. In 2005, a number of mesh networks will be implemented successfully – the first signs of the market’s vast potential. With so many companies investing heavily in mesh network technology, there are bound to be some outstanding developments – particularly in miniaturization and software development. Yet most mesh networks will not be designed as direct sources of revenue, making cost a matter of critical importance. To promote largescale adoption and use, mesh networking equipment will need to be as inexpensive as possible.

In 2005, consumers will spend billions of dollars on liquid crystal displays (LCDs) and plasma flat panel screens, fueling strong market growth – particularly for large format devices such as televisions and computer monitors. Flat panel televisions have already outpaced manufacturers’ global sales forecasts, and will capture an increasingly large percentage of the $45 billion television market as prices for mid-range LCD and plasma units fall below $1,000. Flat panel computer monitors will outsell cathode ray tube (CRTs) by a wide margin in developed countries. Meanwhile, competition in both the television and monitor markets will be extremely intense, driving prices down even further.

2005 is likely to be a critical year for OLEDs (organic light emitting diodes). This screen technology has long been touted as the ‘next big thing’, but to date, little has actually come of it. Based on technology initially developed in the 1980s – OLED screens hold huge potential for the consumer goods market. They are brighter, thinner, faster and lighter than traditional LCDs. They also offer higher contrast, a wider viewing angle, vastly improved readability in direct sunlight, and reduced power consumption – making them ideal for a wide range of portable devices, including mobile phones, digital cameras, portable media players, and even laptop computers. The primary issue for OLEDs is cost. If screens can be mass produced at a commercially viable price, their impact will be enormous.

The clear superiority of OLED technology would accelerate the replacement cycle for the 1.5 billion mobile phones currently in use, as well as for camcorders, digital cameras and other devices featuring a display. It will also enable a whole host of new applications that take place in direct sunlight, including use of portable computers in the field, and enhanced outdoor advertising.

Keeping an eye on OLED. 2005 may be make-or-break year for OLED. Consumer electronics companies and screen manufacturers might have to decide whether to promote OLED technology on a widespread basis, or focus on incremental improvements to traditional LCD and plasma technologies. OLED could be a major driver of new revenue – allowing manufacturers to increase the functionality and performance of their products, and encouraging a new wave of device upgrades – but only if OLED screens can be made commercially viable.

2005 will see a rapid increase in electronic forms of identification, as governments around the world move to replace paper-based IDs with digital products. Electronic identification will be used in passports, ID cards, bank cards and credit cards – and will include a wide range of information such as the individual’s name, address, nationality, digital photo and even biometric data. These new forms of identification will be principally designed to curb fraud and identity theft, but will also speed up the process of identification and authentication.

In spite of these measures, identity theft will continue to rise dramatically – particularly for people and organizations that do business online. What was once a relatively small problem may develop into a global epidemic that threatens individuals and businesses everywhere.

Businesses will try to protect their customers, but too many of their efforts will be reactive, not pro-active. Many corporations and police are likely to be confounded by the problem, due both to a lack of familiarity and expertise, and also to sheer volume of cases. Huge sums of money will be spent developing more secure transaction systems with multiple checks and fail-safes, but this will not always be sufficient to thwart the most determined identity thieves.

Protecting yourself. The digital age has given rise to a new menace: digital crime. It leaves no fingerprints, no DNA traces, and no bloody crime scene – and thus has a tendency to go unnoticed. In 2005, digital crime will grow at a disturbing rate, making it imperative for all companies doing business on-line – no matter how small or infrequent the transactions – to create more secure methodologies to protect themselves and their customers.

Consumers can protect themselves by using common sense, particularly when on-line. Yet they must be educated about identify theft and its consequences – and shown the best ways to avoid it. Meanwhile, businesses will need to work pro-actively with police to improve their mutual understanding of the threat in both its current and future forms.

The market for space technologies – particularly transportation – will grow along two dimensions in 2005. First, there is likely to be an acceleration of the shift from the public to private sector, with public space agencies under increasing pressure to open up the market for launch vehicles and services. NASA, for example, has invited commercial companies to submit designs, cost estimates and working prototypes for the next-generation space shuttle, destined for the moon and even for Mars. This move alone will introduce much-needed competition to the space business.

At the same time, a whole host of new countries are expected to enter the space race in earnest. China and India in particular will likely invest heavily in the development of launch vehicles, support systems and other technologies. Both will initially develop the technology for earth-orbit missions, but with a long-term view toward moon landings. And since the space agencies for both countries are relatively new and small, they will rely heavily on the private sector to achieve their goals.

These two developments, taken together, mark the first steps toward the private sector's eventual domination of space – launching a new and exciting era of advancement and discovery. The innate efficiency of competitive markets will help turn taxpayers’ money into rapid, sustained and practical innovations that will not only create a more buoyant space market, but will also lead to the development of new technologies that can improve life back on Earth.

Moving into the final frontier. Even if only a small fraction of the $20 billion spent annually on space exploration finds its way to the private sector, this will still represent a very substantial opportunity for commercial firms. Combined with burgeoning developments in Asia and continued growth in European space exploration, the space business may soon yield considerable returns for the private sector.

Nevertheless, companies thinking about entering the space market must be cautious. The aerospace business is dominated by a handful of large, powerful, and well connected players. These companies will defend their turf enthusiastically. The safest way to enter the market may be through an alliance – either with a large existing player, or with a group of smaller firms capable of collaborating to deliver a complete solution. Either way, if handled carefully, the opportunity for private sector companies in space is enormous.

Quantum systems represent the next major revolution in computing, enabling computers that are exponentially faster than today’s fastest supercomputers.

Modern computers all operate on the same basic principle, performing calculations by manipulating individual transistors that represent a single bit of information (either a ‘0’ or a ‘1’). Quantum computing takes an entirely different approach, using qubits that through the magic of quantum physics can be ‘0’ and ‘1’ at the same time.

A single qubit stores and processes twice as much information as a regular bit. Combining qubits delivers exponential improvement: two qubits are four times more powerful than two bits. A 64-qubit computer would theoretically be 18 billion trillion times more powerful than the latest 64-bit computers. The impact of that much computing power is beyond imagination.

In 2005, quantum computers will move a few important steps closer to reality. Although the end goal is still a long way off, commercial organizations and universities will continue to invest substantial effort and funds into harnessing quantum effects, and development is progressing rapidly. By the end of the year, researchers expect to produce the first usable quantum processors. Those initial prototypes will be small and of little commercial use, but the achievement will be significant – representing a major milestone on the road to virtually limitless computing power.

Preparing to meet the future. Quantum computing is not science fiction. Although fully functional quantum computers are still a long way off, they are almost certain to happen. And given the enormous potential impact, researchers will have no trouble attracting the substantial investments needed to ensure a successful outcome.

Companies must start giving serious thought to the implications of quantum computing technology. For example, one possible consequence of the technology is that all data encryption will become valueless: quantum computing’s power will be able to crack any code, of any length.

Even during the development phase, the by-products of quantum computing research will have a significant impact on every aspect of computer technology, from hard disks and memory to the latest processors. And when someone, somewhere produces the first commercially viable quantum computer – which is only a matter of time – it will change everything.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.