- log in
Posted by George Colony on October 26, 2008
Quickly: For tech, this recession will be different than 2001-2003
Content: I'm not an economist. But I've been present for a bunch of recessions and watched how technology markets survived. And I spend a lot of my time talking to management teams at large companies about economic conditions and their businesses. Here's my view of the effects of this recession on technology. If you want Forrester's formal view of the recession, check out Andy Bartels' report, What the Financial Crisis Means to the Tech Market.
Here's my take:
1) Tech will be down, but not out. 2001-2003 was a tech depression. Spending stopped, projects were canceled, excess inventory flooded the market destroying pricing. Cisco lost half a trillion dollars of market cap. Why? Tech had a long way to fall. Tech spending in 2000 in the U.S. was up 12% -- there was fluff and fat everywhere. When the bubble burst, the fall was precipitous. But tech spending was up only 6% from 2006 to 2007. Users of technology are far more disciplined and have cut out the nonsense. So yes, growth will slow, but it won't fall off a cliff.
2) Transformation and innovation will lead recovery. CIOs and CEOs are telling me that they plan to change their way out of this mess. Goldman Sachs is scoping best practices in commercial banking (its new world). JP Morgan has to integrate Bear Stearns. Bank of America will be converting and integrating its systems to fit with Merrill Lynch. Wal-Mart is going to use social computing to increase customer responsiveness. FedEx is replacing its data centers with high-efficiency, green designs. When we come out the other side of this crisis, companies will look quite different -- and technology will have been a catalyst in those changes.
3) Tech is everywhere. It's seven years since the last recession. Technology has become markedly more pervasive in that time -- it's the air we breathe and the water we swim in. Cell phone penetration in the U.S. has tripled in that time; eCommerce has increased by 85%. While it may have been "nice to have" (and therefore eminently cut-able) back in 2002, tech now sits at the center of companies' operations. IT has become Business Technology. If you don't believe me, start unplugging wires at your company and see how long you can develop, manufacture, deliver, sell, and service your products.
4) Customers live on tech. The consumer landscape is very different than it was in 2001. Forrester's consumer surveys show that each succeeding generation takes more tech into their day-to-day life. The delta between the Y generation (18-27) and the X generation (28-41) is extraordinary -- Y spends twice the amount of time on cell phones and half the amount of time reading newspapers. For more on this, check out our report, The Gen Y Design Guide. In a recession, the use of Facebook, Linked In, eCommerce, blogs will increase, not decrease, as people look for jobs, companies stay closer to their customers, and easier-to-ROI Internet advertising accelerates. Companies will have to stay focused on their web sites, social strategies, and eCommerce this time around -- or risk losing their next generation of customers.
5) Tech issues are burning. There were no big tech changes afoot back in 2001-2002. Not true now. Virtualization, social computing, mobile computing, Green IT, SOA, extended Internet (connecting the physical world to the digital world) are front and center on the agendas of large companies. Will many of these projects get cut back? Yes. But many are part of long-term company plans -- they will persist despite economic slowdowns.
Tech suffers when GDP growth stalls -- that is always the case. But the tech environment has transitioned since the 2001-2002 hurricane -- meaning that this time around will not be as severe.
Got another view? Let me know.