Forrester: This tech recession will be different
- 07 November, 2008 04:00
The technology sector is facing a recession, but it will be different to the dot com crash, according to Forrester founder George Colony.
In the midst of gloomy forecasts from his own research firm, Colony, who founded Forrester Research 25 years ago and has watched technology's response to every recession since, said the slump won't be as bad as the bust of 2001.
"I'm not an economist. But I've been present for a bunch of recessions and watched how technology markets survived," said Colony in a blog entry. Colony speaks regularly to management teams of large enterprises about economic conditions and their business. The dotcom bust, which spanned from 2000 through to 2003, was "a technology depression" according to Colony. But this time around, compared to the last downturn, "tech is down, but not out" he said.
The blog provides a glimmer of hope to the sector and comes only weeks after Forrester predicted a "long and deep recession" with several quarters of declines in IT purchases and a pronounced "slowdown."
But Colony's blog post outlined five reasons that the technology sector's fall won't be as dramatic as the bust of 2000, but will march through the current macroeconomic down cycle.
Firstly, users have learnt from the last slump. "Spending stopped, projects were cancelled, 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 US was up 12 percent — there was fluff and fat everywhere," he said. "When the bubble burst, the fall was precipitous."
Comparatively, technology spending was up only six percent 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," he said.
Secondly, Colony believes transformation and innovation will aid recovery, and many enterprises show no signs of scaling back immense projects. "CIOs and CEOs are telling me that they plan to change their way out of this mess."
Colony gave the example of large financial mergers, as Bank of America would integrate its systems to fit with Merrill Lynch and JP Morgan plans to Bear Stearns.
Environmental initiatives are also transforming technology. For example, FedEx has been replacing its datacentres 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," he wrote.
The increased pervasiveness of technology will also help the sector survive. Compared to seven years ago, "tech is everywhere," said Colony. Mobile phone penetration in the US has tripled and e-commerce has increased by 85 percent.
"While it may have been 'nice to have' (and therefore eminently cut-able) back in 2002, tech now sits at the centre 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."
Similarly, consumer technology has blossomed. "In a recession, the use of Facebook, Linked In, e-commerce, blogs will increase, not decrease, as people look for jobs, companies stay closer to their customers, and easier to return on investment (ROI) internet advertising accelerates. Companies will have to stay focused on their websites, social strategies, and e-commerce this time around — or risk losing their next generation of customers."
The fifth and final factor listed by Colony is the increase in investments in new technology, such as virtualisation, social networking and service oriented architecture. "There were no big tech changes afoot back in 2001 — 2002. Not true now. Virtualisation, social computing, mobile computing, green IT, SOA and extended internet (connecting the physical world to the digital world) are front and centre on the agendas of large companies," said Colony. "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 to 2002 hurricane — meaning that this time around will not be as severe," he said.