Tech giants are seeking to reshape the global tech sector by embracing the commercial model, the industry is looking to the next wave of big-name acquisitions to help it keep pace.
The global tech business is growing rapidly and many of the companies that have become successful in the last decade have moved into the business of selling consumer-facing software.
As such, companies have been looking to acquire companies that sell consumer-oriented software as a way to build a bigger slice of the pie, said Peter Scharfenberg, an analyst at Wells Fargo Securities.
Companies such as Oracle Corp., Apple Inc. and SAP AG have already entered into deals to sell consumer products.
Oracle, for example, acquired the Java programming language for its cloud computing platform Oracle Java.
Apple and SAP have both acquired technology companies in the healthcare and cloud sectors.
In an effort to grow its business in the new market, Apple and Oracle are trying to tap into the burgeoning business of digital marketing, which is being driven by the emergence of digital platforms like social media, apps and blogs that can help businesses grow and increase sales.
Scharfenberg said companies are looking to buy companies that are making products and services that are selling well.
The idea is that if they can find a good product that can grow its customer base and build a brand, then they can do more with that money and sell it elsewhere.
Schalfenberg said that is a big shift from the past, when companies focused more on the business side of the business.
Consumers, for instance, used to buy hardware to install software and then use the software to manage their home and businesses, he said.
“You could buy that and then you could do something else with that.”
Scharfberg noted that the business model of software is becoming increasingly commoditized.
In a time when companies are buying hardware to run their businesses, there is less demand for software to run a business.
That means that businesses can sell products and use the money they make from those products to buy software.
Schafenberg said the trend in the digital business is similar to the shift in retail, where stores are being replaced by online shopping and mobile apps.
In the digital space, he added, the companies are going after the “old retail model” where customers would buy a product and then walk out with a digital download.
“The consumer is going to have to go out and buy something else,” he said, referring to the growing role of digital commerce.
Schaferberg said that while the consumer-centric approach has become more popular, it is also becoming less effective.
In fact, the business models of digital services, like cloud computing and online advertising, are not growing as fast as those of traditional businesses.
Scharfberg said the consumer business is still the most profitable segment of the market.
Schafeffenberg said there is one exception to the traditional business model, which he called “the mobile-first model.”
The mobile-centric model is based on offering a service that can be accessed on any mobile device, and then customers are able to purchase a service from the service provider for that device.
That makes sense, Scharfberger said.
The new approach in the business is that the consumer is the customer, and the business can offer services that make it easier for the customer to access that service, which in turn makes it more profitable.
Schaffenberg said this is different than the old retail model, where people would buy hardware, then use that to install their software and store it in a home or office.
The new model is designed to enable the business to become more mobile-centered and more focused on what is being sold in the market, he explained.
Schauerberg added that while there is a lot of pressure on companies to get into the mobile-only business, he sees a lot more companies going into the commercial-focused space.
Scharfenberg said one of the biggest hurdles that will likely slow down the trend toward more digital-centric businesses is the cost of acquiring customers.
Companies are increasingly relying on advertising revenue to help keep the doors open.
Schafenberg pointed to a report last year by market research firm Forrester that found that companies spent $11 billion on advertising last year, up 10% from 2010.
Schauffenberg noted that for the most part, consumers buy more for mobile devices than they do for desktops, which means that companies are having to spend more to acquire customers.
That will increase the cost, Schafberger said, and will also make the businesses more vulnerable to the loss of sales in the future.
Schifferberg noted the cost per user of mobile devices has increased significantly in the past decade, and there are many reasons for that, including a growing number of apps, tablets and TVs that are more accessible to consumers.
He added that companies need to focus on the customer-centric nature of their businesses to succeed.