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Viewpoint: Over-the-top technologies drive success

Victor Basta
Image caption Victor Basta says Microsoft's operating system was the first over-the-top technology

Legendary accounts of breakthroughs in technology tend to focus on operating systems, displays and new devices.

But one of the most significant yet under-reported trends is for technology companies to try to 'leapfrog' each other with 'over-the-top' technologies. It is this trend that often defines the battle for supremacy in the technology industry.

A technology goes 'over-the-top' when it is deployed on top of existing hardware and software, coming a key step closer to the end user. Because this new technology then controls the user experience, and grabs mind-share, it renders the technologies below it far less valuable, and in time, turns them into mere commodities.

First over-the-top

Modern technological development has largely been driven by this desire, and has made certain investors and entrepreneurs into billionaires in the process.

It all started with IBM and Microsoft.

When IBM shipped Microsoft's early operating system with each of its PCs, it effectively paid Microsoft to go over the top of IBM's huge investment in computers. Over a brief period of time, Microsoft gained so much control over users that it turned IBM's core technology into a near commodity.

We are still seeing the remnants of this today, with sub-$300 PCs and PC makers having near-zero profit margins.

After trying and failing to kill Windows with OS/2 (remember OS/2?) IBM realised its mistake, and tried to go over the top of Microsoft itself.

It spent over $4bn buying software firm Lotus because it wanted a small but crucial part of the business: Lotus Notes, with a revenue stream then of only $100-200m.

What was IBM's reasoning? Lotus Notes would become the main user interface, sitting on top of Microsoft's Windows operating system, and turning Windows into a commodity, just as Microsoft had done to IBM before.

It did not quite work out as planned, but for the potential of going over the top IBM was prepared to pay billions. It illustrated dramatically how valuable over-the-top technology can become.

Replacing Google

The same trend has played out in recent years. Even the prospect of successfully going over the top is enough to drive huge prices for nascent companies, and massive investment by tech majors.

Apple bought Siri - then a tiny development company - for a reported $200m, intending the mobile assistant app to rival search engines (meaning Google).

Users can find what they want on the Internet via Siri's speech recognition software - instead of using the Google search box. In Apple's ideal world, users access the web via Siri, not Google, which by definition sinks slowly in value.

Even partial success would mean billions in value to Apple, and billions lost by Google.

Web interface

Facebook, in recent years, has emerged as a surprising potential over-the-top technology. Because it consumes so much of web users' time, it is the main screen through which consumers interact with each other, companies, and in time buy products on the web.

Facebook did not start out as an over-the-top technology, but by emerging as one it is slowly rendering other web companies (Yahoo and AOL for example) far less valuable.

To justify a $100bn valuation at its imminent stockmarket flotation, Facebook will have to cement its position as an over-the-top technology, and claim tens of billions of dollars of revenue now going to other web companies.

Amongst European companies, Skype's move into Wifi is another case of going over the top, this time of mobile operators. When users click the Skype app to access wireless networks, they engage with Skype, not T-Mobile or BT. Skype's value rises, and the value of billions invested in wireless capacity slowly reduces.

Skype, incidentally, is now owned by Microsoft.

The next big thing?

The battle has by no means finished. In fact, Facebook shows how rapidly things can shift. One future potential over-the-top technology is eye tracking.

A Swedish company, Tobii Technology, is already commercialising sensors and software that enable users to control screens and applications by simply moving their eyes. If we can guide electronics through eye movement, maybe we won't need Siri as much.

Where does this lead? Another potential over-the-top technology - and already the subject of research and development - is the use of brain waves to directly control software.

Is this the ultimate over-the-top technology?

If history is any sort of guide to the future, almost certainly not.

Victor Basta is director of Magister Advisors, a firm advising technology firms on mergers and acquisitions.

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