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Smartphones Set Off a New Wave of Corporate Self Reinvention

Smartphones Set Off a New Wave of Corporate Self-Reinvention

By Mark Scott, The New York Times | Updated: 9 March 2015 09:49 IST

When Francisco Gonzalez started working as a software engineer for IBM in the 1960s, the worlds of technology and consumer banking were miles apart.

But these days, Gonzalez - now chief executive of the big Spanish bank BBVA - is competing head-on with some of the biggest tech companies from Silicon Valley and beyond.

And the platform on which the battle is playing out is the smartphone - a device more powerful, and certainly more mobile, than the mainframe computers Gonzalez helped program at IBM.

Smartphones and mobile apps are drawing the attention of many traditional industries, whose executives know that staying in business might mean upending their current products and services to become more relevant to digitally demanding consumers. The Mobile World Congress trade show here last week attracted not only 90,000 attendees but also seemingly as many conventional companies - like BBVA, Ford Motor and the sports clothing maker Under Armour - as tech titans and digital startups.

In Gonzalez's case, his company is now up against the likes of Google and Apple, which have introduced payment services that enable people to pay for items using their smartphones. New digital banks offer no-fee online accounts. And startups in places like New York and London provide financial products like corporate lending and wealth management that were once the sole domains of traditional banks.

"In the next few years, there will be a new league of competitors," Gonzalez told an audience at the Mobile World Congress . "There is no sector that won't be touched by the digital world."

The challenge for old-line industries is to offer the mobile capabilities that people are now demanding before startups and larger tech companies like Google and Facebook can outmaneuver them.

The increasingly widespread ride-booking service Uber has already turned the taxi industry upside down. And Airbnb, the vacation rental service, lets property owners of all sorts compete with traditional hotels to entice travelers looking for affordable places to stay.

And as advances like cloud computing, which allows masses of data to be stored and retrieved over the Internet, make starting a business increasingly cheap, industry watchers say well-established companies must rethink how they operate - or risk becoming irrelevant to consumers who increasingly rely on their smartphones for everyday decisions.

"Whole industries are being transformed overnight," said Hans Vestberg, chief executive of the Swedish telecom equipment manufacturer Ericsson, whose products power wireless and Internet infrastructure worldwide. "These guys will have to reinvent themselves."

This is not the first time, of course, that new digital technologies have sent entire industries scrambling to adapt.

In the 1990s, the likes of Amazon sounded the final call for many Main Street bookstores, which could not compete with the e-commerce giant's low costs and broader selection. The Apple iTunes store - opened in 2003 - allowed people to download music directly to their devices, making record stores a relic. And the growth of Netflix hastened the demise of traditional movie rental rivals like Blockbuster.

Old-line companies might take solace in remembering that not every upstart of the Web era - Pets.com is the classic cautionary tale - was able to supplant established business models.

But the rapid rise of the smartphone and mobile apps has thrown the pace of change into warp speed.

In recent years, the price of the devices has fallen sharply, enabling people in developed countries as well as emerging markets to buy a smartphone for as little as $25. That has put the mobile Internet in the hands of billions of people who, until recently, had no online access.

Analysts say companies - whether traditional players or startups - that take advantage of the new mobile technologies could experience meteoric growth.

Uber, which relies on smartphones to connect drivers and passengers in more than 250 cities worldwide, for example, is currently valued by investors at over $40 billion, after being founded in 2009. That is approximately double Google's initial value (not adjusted for inflation) when it went public on the Nasdaq in 2004.

"The smartphone is what's driving things right now," Mitchell Baker, executive chairwoman of Mozilla, the maker of the popular Firefox Web browser and software for mobile devices, said in an interview at the Barcelona show. "It's allowing people to connect to anyone, anywhere."

Ford was one of at least four automakers at the Mobile World Congress with elaborate booths promoting the benefits of their so-called connected-car projects. The efforts, partly meant to counter expected plans by Google and Apple to enter the car industry, include providing dashboard Internet access and smartphone apps to let drivers manage climate control and other onboard features.

Under Armour announced a partnership with the Taiwanese smartphone maker HTC to build a smartwatch that would track wearers' workouts and connect to social networks. The move follows Under Armour's deals to buy two makers of fitness-tracking apps last month for a combined total of $560 million.

And in a sign that even consumer product companies are striving to show their smartphone prowess, the Procter & Gamble Oral-B brand used the Barcelona show to introduce a new version of its connected toothbrush, which sends data to an app to monitor how well and frequently users are brushing their teeth.

"It's all about what services these products could lead to," Andrew Parker, a project director in the connected-living program of the GSMA, a telecom industry group, said at the Barcelona show.

But some analysts question how many traditional companies can overhaul their operations in time to fend off competition from smaller rivals, which can quickly exploit new tech trends.

And others doubt whether long-established companies - faced with the costs and pressures of running their existing operations - will be willing to invest heavily in new technologies that may require significant revamping of their businesses.

In contrast, startups do not have to rely on outdated operations and can put their money into new, and often more efficient, business models.

"A 100 percent of our people think about digital," said James Meekings, a co-founder of Funding Circle, a London-based peer-to-peer lending network that connects people who want to invest directly in companies. The six-year-old company, whose business relies on its smartphone app, says that its network so far has lent about $800 million to U.S. and British companies. Funding Circle sees itself as an alternative to conventional banks when companies look for financing.

"For us, it's not just another business opportunity," Meekings said. "This is what we do."

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