Forecasts for 2012 -- Apps, Tablets and Comeuppance

 | Dec 29, 2011 | 9:00 AM EST  | Comments
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I'm not one for making predictions -- but, come to think of it, last year I did predict that Lady Gaga would wear a meat dress. While that wasn't an entirely investable idea, it has encouraged me to make more forecasts -- so, here goes:

1. Red Lasering Goes Mainstream. With the explosive growth in smartphone adoption, Red Laser and apps like it will allow smartphone users to comparison-shop instantly from their cellular handsets without leaving the store. Users just have to scan the barcode, and the app searches the Internet for the best price.

Used mostly by early-adopter techie gear heads to find the cheapest gadget, Red Lasering goes mainstream when The Learning Channel (TLC) adds the technology to its hit television show "Extreme Couponing All-Stars." The All-Stars teach Americans how to combine extreme couponing, smartphones and the Internet to find the lowest possible price on everyday items. Supermarkets are besieged by armies of shoppers looking for the best deals on deodorant, toothpaste and liquid soap.

2. Facebook and Bing Become Partners. In preparation for its initial public offering, Facebook partners with Microsoft's (MSFT) Bing service to provide Internet search inside of Facebook. The deal adds a substantial amount of revenue to Facebook and is a serious blow to Google's (GOOG) traffic growth.

3. Tablets Take Off. About three months ago, Gartner revised its worldwide tablet sales forecast to 63.6 million units, a 261% increase from 2010 sales. It believes tablet sales will reach 326 million units by 2015, with Apple (AAPL) to account for the majority of those sold. So, a prediction: Tablet sales continue to accelerate throughout 2012, and this begins to seriously impact PC sales. Hedge funds realize sales of Windows have forever peaked and begin to unload Microsoft, one of their favorite "value" names.

4. The Rise of the App Economy. At its last product announcement, Apple told investors that app developers had earned more than $3 billion from apps sold on the iPhone and iPad platforms. As such, my own view: As tablet computing takes off, app sales follow. Later in the year, Apple announces developers have earned more than $6 billion from sales of their apps. The app economy further undermines Google's business model as tablet users simply bypass Google's Web-based search engine and use the apps they have installed to find restaurants, flights, hotels and jobs.

5. Amazon and Netflix Merge. Apple begins to use its gigantic balance sheet as a weapon against Amazon (AMZN) and Netflix (NFLX) by signing exclusive content deals with Hollywood studios. Verizon (VZ), trying to protect its $32 billion investment in FiOS, does the same. Between Verizon and Apple buying up exclusive streaming rights, Netflix and Amazon get crowded out. Netflix and Amazon find they cannot afford to pay for all the content that end users demand and begin to lose customers. In order to increase their bargaining power with Hollywood, Amazon and Netflix agree to merge.

6. Thieving Megabanks to Face the Music. Last month federal Judge Jed Rakoff rejected a fraud settlement between the Securities and Exchange Commission and Citigroup (C). Citigroup is accused of selling packages of mortgages that were designed to fail. The bank bet against the mortgages while telling investors the assets were put together independently, then made a $160 million "accidential" profit on the deal, while investors lost $700 million.

The SEC filed a complaint against Citi and later settled with the bank for $285 million and no admission of wrongdoing. Judge Rakoff rejected both the settlement and, more important, the whole logic of the way the SEC settles fraud cases. In his decision, Judge Rakoff called Citigroup a "recidivist" for its repeated violations. (This is the sixth settlement between Citi and the SEC.)

Some believe Judge Rakoff will approve a larger settlement. But I predict that, after an appeal, the SEC and Citi will be forced to go to trial, exposing to major legal liability not only Citi, but to the rest of the industry.

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