Market index reflects current and future technology trend impact
At time of market uncertainty many people pay more attention to the stock market. The stock market is a reflection of the impact of technology cycles on people and businesses. In some areas changes are slow to come.
One symbolic change that happened on March 2015 is the replacement of AT&T by Apple in the Dow Jones Industrial Average leaving Verizon as the only operator represented in the Dow Jones index. This is a symbolic change that reflects the long-term change we see in communications.
In the past, the term Service Provider was rather clear. We knew who they are and what type of services they provide.
Today this term is fuzzier because services are more diverse and companies who were traditionally SW (and sometimes also HW) vendors are becoming service providers.
Apple in that sense is one of those that pioneered this trend by serving apps and music to consumers directly from the App Store cutting the middleman. Additionally, through Face Time and iMessage Apple flipped the vertical regional/geographical silos of service providers to a horizontal silo of a vendor.
The market cap of Apple is significantly larger than the one of AT&T for some time. It is approximately X3 today. Still the addition of Apple to the Dow was done only this year in March.
If we look at the stocks of Apple and AT&T over the last 5 years, a picture is worth more than a thousand words. I didn’t get into amount of dividends paid by each and split of stock Apple has done in 2014 (split is normalized in this Yahoo Finance chart) because this is all noise to this compelling gap.
This trend of vendors becoming service providers is not going to stop. The incumbent operators have taken a toll mainly on the consumer side due to OTT service providers. On the side of business communications, the worst for operators is still ahead of us as companies such as Microsoft and leading UC/Collaboration and contact center vendors will significantly grow their service provider side of the business.
The lowering of technology barriers through WebRTC and the embedding of complex media technology in the browser makes it easier to add communication features in existing services cutting off the incumbent operators.
A glimpse at the Dow Jones
The Dow Jones or the Dow Jones Industrial Average was first introduced in 1896. It includes today 30 large companies traded on the American stock market. Since at that time, industrial manufacturing was the name of the game, the index carried the term “Industrial”. Other indexs were created for Transportation and Utilities.
Today it doesn’t include only Industrial type of companies but also services, retail and SW vendors.
Funny that in 2015 an “Industrial” company Apple replaced a services company AT&T but that is of course a new type of manufacturing company where the value is mainly in SW and product design, HW manufacturing is outsourced.
The inclusion of companies in the Dow Jones 30 companies list is not done through some automatic daily quantitative calculation based on market cap. The selection of companies to be included in the index is based on a qualitative analysis.
“A stock typically is added only if the company has an excellent reputation, demonstrates sustained growth and is of interest to a large number of investors. Maintaining adequate sector representation within the index is also a consideration in the selection process for the Dow Jones Industrial Average™…”
You are welcome to read more about the Dow Jones Indices Index Methodology.
Why is this important?
The shiny happy days of the operators are history. Even the stock market understands change has come.