There’s a New, Surprising Way to Make Money on the Web


Look past the internet’s highfliers and go with companies helping to move data.

Thanks to the proliferation of smartphones, social media, and streaming video and audio, global Internet traffic has taken flight. Online traffic is expected to triple by 2018, driven largely by the projected 11-fold increase in the data coursing through mobile devices.

Alas, the valuations for many of the stocks on the leading edge of this revolution—such as Facebook and Netflix—are soaring too (see the chart). At the same time, other high-profile players, like Twitter and Pandora Media, aren’t even profitable yet, which doesn’t exactly give you a margin of safety for investing in tech’s next leap forward.

While the new kids on the tech block may be too rich for value-minded investors, that’s not the case for many of the sector’s older, more established names—companies that were once viewed as cutting edge but have been overlooked for years now. In fact, many of these stocks trade well below their 2000 peaks and are only slightly above where they were before the financial crisis.

“We see opportunity in large legacy technology companies,” says Jamie Doyle, a manager at Causeway Capital, which manages more than $30 billion in value portfolios. “Sure, they’ve slowed down from their early days,” Doyle says, “but they are still growing at rates other sectors are envious of.”

But which parts of old tech should you be focusing on?

1) Start With the Toll Takers

The rise of social and streaming media doesn’t benefit just content providers like YouTube, owned by Google, and Facebook’s Instagram. “The unstoppable digitization of everything creates a demand for the companies that provide the physical infrastructure to transmit, store, and manage all that data,” notes Jun Zhu, a senior analyst at the Leuthold Group.

Zhu singles out Internet service providers and infrastructure com-­ panies as the most compelling old-school plays on new tech. They include telecoms like Verizon VERIZON COMMUNICATIONS INC. VZ 0.29% and AT&T AT&T INC. T -0.21% that are the “toll takers” on the Internet highway, running the systems that move and manage data.

ISPs don’t merely collect sub- scription fees from users; they also negotiate interconnect fees from content distributors like Netflix and Apple to ensure fast speeds. As demand grows, ISPs gain leverage to assess bigger tolls.

While telecoms are traditionally slow growers, profits are picking up. Verizon’s earnings, for instance, are expected to grow 8% annually over the next five years, vs. just 3% over the past five, according to

cheaper plays

2) Seek Other Equipment Makers

If the explosion of online traffic benefits Internet service providers, it stands to reason that equipment manufacturers that sell to those ISPs ought to profit too.

While Cisco Systems CISCO SYSTEMS INC. CSCO 0.15% is only one-fourth as big in stock market value as it was in the late 1990s, it remains the dominant manufacturer of routers and switches used by cable and telecom firms globally. The IT giant enjoys a 50% share of a business with profit margins of around 60%, according to Morningstar. Thanks in part to that business, Cisco’s earnings are expected to grow more than 10% annually for the next three to five years—20% faster than the broad market.

Meanwhile, every time you tweet, stream a high-definition movie, or update your Facebook page, there’s a good chance you’re doing so on a smartphone. Qual­comm QUALCOMM INC. QCOM -0.19% is well positioned to benefit from that trend.

In addition to making mobile chips, Qualcomm owns the patents on the technology behind most 3G and 4G networks that smartphones are on, notes Eric Ver­mulm, senior portfolio manager at Stack Financial Management. The royalties the company receives generate two-thirds of its profits. And Qualcomm’s earnings are expected to grow 15% annually.

3) Or Just Buy a Fund

An added benefit of old tech is that it pays you to wait for long-term trends to develop. Verizon and AT&T have long been among the market’s biggest yielders. And they’re among the top five holdings of Technology Select Sector SPDR ETF TECHNOLOGY SELECT SECTOR SPDR ETF XLK 0.07% . Morningstar estimates that the portfolio’s current dividend payouts equate to a nearly 3% annualized yield.

Another plus: The ETF holds tech’s biggest stocks. And as Ver­mulm notes, “at this late stage, large-cap blue chips with solid balance sheets are the sorts of companies we want to own.”

TIME video streaming

Apple TV Just Got an Upgrade That Makes It Way Better

Apple TV

Apple TV scored a big get today with the arrival of ABC News on the set-top box. The new app will function as a kind of online network, delivering ABC News content to Apple TV users 24 hours a day. The video coverage will be a mixture of live news updates, original programming and edited clips from TV properties such as Good Morning America. In nine major markets such as New York and Chicago, news reports from the local ABC affiliate will also be available. In total the new channel will have about eight hours of live programming each day, according to Mashable. Unlike many online apps from TV networks, this one won’t require users to prove that they have a cable subscription in order to use it.

In addition to the new ABC app, Apple TV also added AOL On today, a video network by the Internet company that features mostly short-form web video. PBS also added a kids’ network, PBS Kids, and cricket broadcaster Willow TV also added an app. Yahoo’s Flickr app also got a redesign to make it more appealing for the big screen.

Apple TV has sold more than 20 million units since it first launched in 2007, beating out competitors such as Roku and Amazon’s new Fire TV set-top box. Rumors persist that Apple will eventually launch a streaming or pay-TV service that competes more directly with cable.

TIME Gadgets

Aereo Arrives for Chromecast As Supreme Court Decision Looms

Google Chromecast
David Paul Morris—Bloomberg/Getty Images

Delayed by a week, Aereo's TV-streaming service is finally available for Google Chromecast players.

Aereo, the Internet television streaming upstart currently embroiled in a historic Supreme Court showdown with broadcast companies, is finally available for Google Chromecast. Its arrival on Google’s streaming media dongle Thursday comes one week after its intended debut.

Aereo wrote on Twitter last week that it was delaying Chromecast support until June 4 “to work out a few kinks.” Make that June 5 then: the Aereo app is live now on the Google Play store. The move adds another significant Aereo player to a lineup that includes browsers for Windows PCs, Linux PCs and Macs, iOS devices, Apple TV and Roku set-top boxes.

If you have a Chromecast dongle, you live in an Aereo coverage area and you’re willing to pay the company’s monthly subscription fee ($8 for 20 hours of DVR space, $12 for 60 hours and the option to record two shows at once), you can connect online to Aereo’s local antenna bank to receive and record live broadcast TV. There’s no additional subscription fee — Aereo handles all storage of recordings on its end and you don’t need to have an existing cable subscription to view the antennae-captured shows.

The catch — and this is why signing up today isn’t risk-free — is that Aereo is smack in the midst of a momentous Supreme Court battle, squaring off with indignant broadcast companies for its right to exist. Since Aereo streams over-the-air content it intercepts via antennas — each the size of a dime and leased to one user — it claims it’s doing nothing you couldn’t yourself, and thus it owes broadcast companies nothing.

The broadcast companies (naturally) disagree. They claim Aereo is in violation of federal copyright law. At issue is whether Aereo’s service qualifies as a public or private performance: if SCOTUS deems it public, Aereo’s in trouble, whereas if it’s deemed a series of private transmissions, the company may be able to continue unperturbed.

A ruling is expected any day now.

TIME video

Here’s How Netflix Is About to Change Radically

The Netflix company logo is seen at Netf
AFP/Getty Images

Using Netflix will not always involve scrolling through endless lists of movies served up by genre or because you watched one episode of Buffy the Vampire Slayer last summer. A Netflix executive says in the future, the streaming service may not throw hundreds of choices at people all at once.

During a keynote speech during an Internet Week event in New York, Chief Product Officer Neil Hunt said Netflix was going to focus on developing more personal recommendations to help alleviate the paradox of choice users feel when trying to sift through thousands of movies and TV shows. “You won’t see a grid and you won’t see a sea of titles,” Hunt said. The company could automatically serve users three or four viewing options based on their tastes. Still, Hunt said it was “somewhat unrealistic” to believe Netflix would ever deliver a completely linear, algorithm-driven experience, the way Pandora does with music.

Netflix has already been experimenting with more efficient recommendations. The company last year introduced Max, a recommendation assistant that serves users up a single movie after they answer a few questions about their mood. Netflix is also working to improve its recommendation algorithm to better tease out what emotional elements people like about certain shows instead of just offering suggestions based on genre or actor.

At TIME, we’re still hoping Netflix heeds our suggestion and allows for user-generated playlists of its content, so people can mix and match television episodes the same way they assemble mixtapes. Such a feature could yield lists that are actually useful.

TIME Technologizer

United’s In-Flight Video Streaming: More Evidence That Apple Won the App Wars

United Movie Streaming
United Airlines

Last month, I wrote that iOS was still the dominant mobile platform when it came to important apps. Actually, I did more than that: In my headline, I said that the smartphone app wars were over, and iOS had won. Some folks agreed with me, but plenty of others said I was being extreme.

Since I posted that piece, I’ve talked to lots of companies with apps, at home in San Francisco and at SXSW Interactive. Even more than usual, my brain has been attuned to obsess about their prioritization of iOS and Android. One of the companies I’ve chatted with lately — Cyberlink — has released Android versions of some of its multimedia apps, with the iOS editions following along a bit later. Another, PPLConnect, is Android-only for now, but it’s doing things with phone numbers and text messages that I don’t believe iOS permits.

In a few cases, iOS and Android apps shipped at the same time. But in every other instance, iOS came first.

This morning, United Airlines announced a cool-sounding system for streaming movies and TV shows for free on what it calls “your personal device.” But if that personal device happens to run Android, it’s a second-class citizen:

1. Download the latest United app from the iTunes® App Store if you’ll be using a mobile device. Laptops do not require the app. (Android™ and other mobile devices are not fully supported at this time.)

2. Charge your device fully.

Once you’re onboard, you’ll see two types of media. Some programs require a browser plug-in on your laptop or the latest United App on your Apple® iOS. This can be downloaded at any time during your flight without purchase of United Wi-Fi. Other programs can be watched through the United Portal on your browser with no plug-in or app required.

Again, I’m not claiming that the app situation on Android is terrible. It’s very solid overall, and (I really don’t need to mention this) radically better than that of any mobile operating system that isn’t iOS. Stuff such as United’s new offering generally arrives on Android sooner or later, and there are whole categories of apps — such as alternative keyboards — that are Android-only.

Much of the time, I’m an Android user myself, so I’m happy when something is available for Google’s operating system and sorry when it isn’t. But despite the fact that iOS’s market share is much smaller than that of Android, and has been for years, Apple devices are still nearly always first in line when a major company or hot startup has to decide where to allocate its development resources. That’s a dynamic that pundits keep telling us makes no sense — but it’s happening, and it’s an enormous competitive advantage for Apple. Sounds like a victory to me.

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