Greatly exaggerated - Industry Trend or Event

Communications News, May, 2001 by Ken Anderberg

Drawing editorial swords with the Wall Street Journal is probably not the best idea I've ever had, but a recent article from the respected financial journal screams for response. The premise of the article was that the tech boom was predestined to end because most companies had already purchased all the technology equipment they needed. Tech makeovers due to the Y2K scare and the frenzy to get on the Web accelerated the spending in recent years, the article states, hitting $532 billion in 2000, an increase of 23% over 1999.

Characteristically, the Journal uses the example of major public companies to validate its assumption. Carpet manufacturer Mohawk Industries was cited as a company that had undergone its technology makeover and planned to reduce its IT budget, regardless of the current economic downturn. Other Fortune 500-type companies also were mentioned as cutting back on IT spending because they have already installed the equipment they need.

Certainly, enterprise technology spending had accelerated. Just as clearly, that spending has declined from last year's extraordinary totals. To extrapolate what lhe Fortune 500 is doing now, however, as a barometer of overall technology needs does a disservice to the needs of the other 97% of U.S. companies. Clearly, by every statistical report we have seen, there is still a wide disparity between how technologically plugged in most companies truly are and how they are characterized in the Journal article.

Most major companies, public and private, quite possibly have installed most of the new technology they need. Just as surely, most midsize and small companies have not. In addition, technologies such as optical and wireless continue to rewrite the list of basic necessities for all companies, large and small. As outlined in this month's cover story on Yipes Communications, speed and bandwidth are driving new paradigms in the market. Just to stay even, companies are pushing to catch up.

In fact, InformationWeek reports that while companies have slowed their IT spending, the decrease is marginal and focused on nonessential areas, such as custom software development or large-scale PC deployments. Other initiatives directed at needed business practices, such as building intranets and extranets, or e-business initiatives, are still moving forward. Executives now are more prone to identify the return on investment before spending on IT projects, a solid business practice in any economic environment, but one that probably garners little attention when times are robust.

Small and midsize enterprises still have significant technology needs. For the most part, they have not ramped up their IT networks as most larger companies have in the past five years. They may already have updated their computer systems, courtesy of Y2K, but they are still reviewing their options in such areas as virtual private networks, fiber-optic cabling systems, e-business systems, data warehousing, optical service and wireless networks.

The Journal article was right in one respect: the cream has been skimmed off the top. Many technology vendors have enjoyed success the past few years by selling big projects to big companies. That market has now matured. Vendors that have been selling to the small and midsize market, however, are already positioned well and have a head start on those whose focus was on the bigger players.

In the next three years, the emphasis will be on the IT needs of the middle market, which amounts to far more in total potential sales than the Fortune 500 has spent to date on technology upgrades. The Journal's report of the death of the tech boom will prove to be as erroneous as that of Mark Twain, to which he said: "The reports of my death have been greatly exaggerated."