The great technology story to replace the digital boom

Digital media was the great tech story of the last decade. But now there's a new tech story emerging, says Tom Bulford - and this one promises to be even more exciting.

Ten years ago the world of digital media was in a state of great flux. Established players, such as music and newspaper industries were waking up to the threat of new media. But there was a constant battle between competing technologies as thousands of business started up each year.

Ultimately though, the endgame was clear. It was possible to see where this great whirlwind of creative enterprise was leading.

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The industry's goal was to make it possible for each one of us to call up whatever type of information or entertainment we wanted, at any convenient time and on a device of our choosing. Whether you are sitting on the sofa, riding the bus or basking on the beach, it was going to become possible to listen to your favourite music, watch a film, or check the football results. This was where thedigital media and broadband communication revolution was taking us.

Today, we have the world at our fingertips. There are now over 1.2 billion mobile phone users able to connect to the internet using their phones, across the globe.

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This has been the great technology story of the last ten years. And it has proved a very happy hunting ground for penny share investors. But I think that over the next two years, penny share investors will be obsessing over a very different technology story.

I'll explain why today.

How the pace of innovation destroyed the big media players

Established players have fought desperately to defend their turf in the media battle. But one by one the obstacles have been overcome. The music and newspaper industries have simply not been able to cope with competition from online channels and from internet piracy.

Hollywood has staged a running battle with cinema chains, gradually reducing the latter's period of exclusivity over the screening of new films. Television stations, which have traditionally been used to pushing out programmes of their choice and at their chosen time, have been forced to offer flexible timetables to suit the viewer. Now the book trade must respond to the challenge of Kindle and other electronic book devices.

This great passage of creative destruction has been made possible by new technologies and by the relentless march of Moore's Law (which states that the number of transistors on a chip doubles every two years). But advancing technology alone does not create a multi-billion dollar global industry. You also need demand. The digital revolution may have been pushed by technology, but it has also been pulled by popular demand for new products and services.

More than a decade ago visionaries could see that by melding broadband communication with a free supply of information and entertainment each of us could receive what we want and when we want it. When you can describe a product in this simple phrase, you know that consumers will happily empty their pockets.

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Has the digital revolution reached its peak?

But is the digital revolution nearing its end? It might be. The feedback from this month's huge International Consumer Electronics Show in Las Vegas was downbeat. The most exciting new product was a super-slim lap-top a neat design improvement but hardly a breakthrough. The fact is that mobile devices are now highly sophisticated and digital content in the form of information, TV shows, films or music is widely available.

The stock market's dot-com boom happened little more than ten years ago. Despite all the arguments and failures since, a massive amount of progress has been achieved so that the end-game is now in sight. So now the question is this from where will emerge the next great leap forward?

The century of biotechnology

While the nineteenth and twentieth centuries have been called the centuries of chemistry and physics respectively, I think the start of the new century will be dominated by biotechnology. Just as with digital media ten years ago this industry today is riven with controversy. And vast amounts of money are being spent for uncertain returns.

Most biotech investors have struggled to make decent returns so far. Others have been put off by the complexity of the story - terms like epigenetics and proteomics haven't yet become dinner conversation. Investors need to learn about such futuristic concepts as genetic engineering and stem cell implants. It is difficult and confusing and challenging.

The endgame for biotechnology

But there is an endgame and it is personalised medicine'. This describes the notion that your own individual genome could be read and that medical treatment could be devised and tailored exactly for you. The aim is to achieve the right dosage of the right drug at the right time for each patient, and it promises a major advance on the one-size-fits-all' approach that has traditionally characterised drug development.

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Having initially been wary of a potentially disruptive threat to their traditional business model, pharmaceutical developers are now realising that molecular diagnostics offers a better way of treating people.

Who will profit from this breakthrough? Well I've been looking at a number of picks and shovels plays. Because I think it could be the diagnostics and DNA analysis companies that could prove the early winners in this great story. And I have my eye on a few. I'll keep you updated on developments in this hugely exciting space shortly. For the biggest and most significant breakthroughs in the coming years, I am backing biotechnology.

This article is taken from Tom Bulford's free twice-weekly small-cap investment email The Penny Sleuth. Sign up to The Penny Sleuth here.

Information in Penny Sleuth is for general information only and is not intended to be relied upon by individual readers in making (or not making) specific investment decisions. Penny Sleuth is an unregulated product published by MoneyWeek Ltd.

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