Gotta catch them all

Nelson Charsegun L. Aquino Assurance Partner, PwC Philippines 02 Sep 2016

Pokemon Go was indeed a home run for Niantic Labs’ CEO David Hanke. Contrary to popular belief that Pokemon Go was an overnight success, the App was actually a convergence of various software developments as early as year 2000 from location-based technology that powered Google Earth and Google Maps to gaming apps which encouraged users to walk around in order to gather objects and participate in battles to unlock more clues. When Pokemon Go was launched in July 2016, the game quickly rose to the top of the charts for App downloads and is now reported to have at least 21 million daily active users and earn an estimated $222 million from in-app purchases alone as of 24 August 2016. This is nothing compared with the estimated $17 billion in advertising revenue flow that is about to start as retailers will now have to pay for the right to become sponsored locations (or Pokestops in the gaming world). Not bad for a $20 million investment to develop the App! It has transformed the previous model in gaming apps from one that generates revenue from in-app purchases to one that also generates significant ad revenues by controlling human traffic.

Pokemon Go is just one great example of how a software innovation was quickly transformed into a revenue generating business model that is now making waves worldwide.

Of course, everyone knows about the success of social media giant Facebook which has transformed how we
interact and stay connected with friends, ride-sharing platform Uber that promises greater mobility and security for the commuting public, and the lodging-lodger matching platform called AirBnB. We are living in an era of innovation where ideas abound and quickly flourish and where even the big players are being challenged by start-ups who have significantly better ideas. With low interest rates and volatile financial markets, maybe it is not such a bad idea to invest in start-up tech companies that may need the necessary funding to transform their innovative ideas into new products and services that promise significant rewards.

Technological advancements are not only affecting our personal lives but have also disrupted businesses across all industries. In the PwC Annual Global CEO Survey released in January 2016, 77 percent of CEOs were concerned about the speed of technological change in their industries. Business savvy CEOs and their top teams will have to make sense of all these technological breakthroughs and how it impacts their business strategy, customer management, operations, talent management and compliance. Only those who are willing to embrace and are agile to adapt to the ever-changing digital ecosystem will thrive and emerge as leaders in their industries.

Large multinational companies have traditionally relied on enterprise resource applications to support achievement of company objectives such as achieving desired operational efficiencies, improving sales distribution models or enhancing reliability and timeliness of financial reporting. However, investments in IT infrastructure don’t come cheap and will usually involve large upfront license fees for the software, costly hardware procurement and expensive IT specialists that will assist in deployment, upgrades and maintenance of the applications. Some of these costs are not instantly reflected in a company’s financial performance as accounting rules allow these costs to be deferred and charged as expense over several periods. However, the impact on cash flows can be felt immediately and would oftentimes require financing that entails additional interest costs to the company.

One of the technological advancements that is quickly gaining popularity are cloud computing platforms that allow companies to access software applications and IT infrastructure by paying subscription fees. Typically, the Company’s IT infrastructure spending may involve acquiring software licenses that are not fully utilized or procuring expensive servers and data storage facilities with the capacity to handle current and forecasted increase in volume of data processed. Cloud computing offerings allow companies to pay only for what they need and for as long as they need it. It means better value for money spent. It also means that small and medium-sized enterprises and start-ups can have access to technology that were once too expensive considering the scale of their operations. From a budgeting perspective, it becomes easier and less risky to budget for the operational expense of a subscription than the capital expense of an on-premises deployment.

Cost is not the only consideration attracting customers to cloud computing. Software as a Service (SAAS) offerings have reduced deployment time from an average of 18-36 months to weeks which allows companies greater agility to realize the benefits from the new technology. Since the arrangement is on a subscription basis, SAAS also provides companies with greater flexibility as it allows them to shift to new software offerings with improved functionalities and greater ease. This also means that software companies have to continuously upgrade their software offerings to retain customers unlike traditional models wherein customers’ hands are tied with the large investments they have made and where software maintenance and upgrades are offered as a separate service.

Consumerized IT applications have also become popular with the growing number of smartphone users. Companies deploying mobile apps do not necessarily have to invest in IT infrastructure that will allow them to handle ensuing web activity that may be round the clock or spike at a moment’s notice. Companies that open up customer facing applications through mobile phones (such as those in the banking, retail and airline industries) can turn to Infrastructure as a Service (IAAS) solutions that offers reliability and flexibility in handling data traffic.

CEOs are accustomed to disruptive shifts, but disruptions in technological advancements come at a faster pace and the impact of new technologies overlaps more than ever before. As such, it can become increasingly common for companies to be caught up in middle of these rapid developments and leave CEOs struggling to find the time and energy necessary to keep up with the technological advancements driving transformation across every industry and in every part of the world.

Software innovation is just one of the areas affecting industries. The impact of technological breakthroughs such as augmented reality, 3D printing, internet of things, artificial intelligence, drones, blockchain are also looming and will in the near future transform he way companies operate. Technological breakthroughs present risks to the business but also open a lot of opportunities. These opportunities are like rare Pokemons waiting to be captured and used to evolve your business. Business leaders who will not take things sitting around but hunt for opportunities from technological breakthroughs and advancements are those who will enjoy the spoils.
I leave you with this question—Can you catch them all?

Nelson s an assurance partner in the Technology, Information, Communication and Entertainment (TICE) and Methodology Leader. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.

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Nelson Charsegun L.  Aquino

Nelson Charsegun L. Aquino

Assurance Partner, PwC Philippines

Tel: +63 (2) 8845 2728

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