Rapid, disruptive change has long been the norm in the technology, media, and telecom (TMT) world. But the fast pace of the past was merely prelude to the head-snapping acceleration over the past few years.
The digital economy—powered by TMT players—is changing the way in which businesses and consumers behave globally. The Internet economy accounted for 4.1 percent of the GDP of G-20 economies in 2010, with leading countries achieving double that share. There are now more than 2 billion Internet users, with a billion more expected to be online by 2016. There are over 5 billion mobile phones—and remarkably, already more smartphones than fixed connections—and social networks reach about 80 percent of Internet users throughout the world. Together, these developments are shaping commerce, culture, and communications and will permanently redefine sectors as disparate as health, education, banking, and government. The “new” Internet is different in many ways from the old Internet. (See Exhibit 1.)
As machines such as cars and medical-imaging devices go online, an explosion of data is occurring. Cisco estimates that annual global Internet traffic will exceed one zettabyte—that is a billion terabytes—by 2015, a 35-fold increase over the volume in 2005. Video traffic is the primary driver: the online video traffic generated by the London Olympics, for example, was 20 times what it was for the Beijing Olympics.
While TMT players are central to the digital economy they are also buffeted by its turbulence. Over the five-year period from 2007 through 2011, TMT players, as a group, only achieved average total shareholder return (TSR) of roughly 3 percent annually. For every high-performing company there are laggards, late starters, or fallen heroes.
TSR is the product of a company’s strategic direction, execution, and overall market conditions. In past years, we have conducted our analysis of TMT companies primarily through a TSR lens. (For an explanation of our methodology, see the sidebar “The Basics of Value Creators and Value Creation.”) In this report, we continue that tradition but also look at some of the broader trends shaping the success of TMT companies.