3 Reasons Why Traditional Businesses May Not Have To Be Replaced By New Technology Startups

New technology startups have been all the rage in recent years. Computers defeated a human champion at the complex ancient Chinese board game, Go, for the first time ever last year. Some companies are making strides in artificial intelligence and virtual reality. Traditional businesses in the taxi and hotel industries are being threatened by relatively new companies such as Uber and Airbnb.

These developments raise the important question for investors: Are traditional businesses doomed to fail? Not necessarily. Here are three reasons why traditional businesses are still here to stay.

An evolution, not a revolution

The development of new technologies is not a new phenomenon. Technological breakthroughs have been happening throughout the century. The automobile, the radio, the television, the Walkman, and the typewriter are just some of the innovations that have helped shape the world.

But, the actual process of these new technologies replacing the old did not happen overnight. It took years – and sometimes decades – before the old ways were fully replaced. Therefore, a traditional business in today’s environment can still potentially continue to prosper for many years before it is seriously impacted.

Profitability is key to sustainability

Just because a new technology seems to enable a better product or service to be delivered does not mean the business surrounding it would naturally be profitable.

Solar energy has many advantages over oil and gas as an energy source. And, solar power plants were first developed nearly forty years ago in the 1980s. But even today, solar energy remains a small part of overall global energy production – worse still, many solar energy companies struggle to generate a profit.

If a new technology cannot result in profitable operations, it can’t replace a traditional business in a sustainable manner.

A company can redefine its business

Although an entire industry can be replaced, a company can choose to adapt. Just because the current business of a company is facing structural changes does not mean the company cannot change its business model. In fact, there are many successful examples of companies changing strategies as new market trends and new technologies are developed.

One such company, in the television and film industry, was able to transform its business and create even stronger shareholder value. The company happens to be one of the recommendations of The Motley Fool Singapore’s Stock Advisor Gold premium investment newsletter service.

This company realised that the movie and television industry is facing a structural change due to shifts in consumers’ viewing habits. It managed to transition itself from being a traditional movie maker into a movie franchise owner. It has created multiple movie franchises and is able to monetize its intellectual property by creating spin-off projects, such as merchandising, theme parks, and much more.

This is just one example of how a traditional company can redefine its business instead of waiting for newcomers to disrupt its revenue stream.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.