Times Are Never as Bad—or Good—as They Seem

 
 
By eweek  |  Posted 2001-06-11 Email Print this article Print
 
 
 
 
 
 
 

The good news keeps pouring in, but don't believe everything you read.

The good news keeps pouring in, but dont believe everything you read. The U.S. economy was never as bad as the naysayers said it was, and it was never as good as pundits of the New Economy insisted 12 months ago.

There are clear signs that inventories are coming back in line with demand in many markets, and it looks like demand actually will start growing in most sectors by next quarter. But one area where inventories are still high is technology, which may help explain why many Silicon Valley denizens are on extended vacations at the moment, while most other markets are getting back to work.

At the root of this discrepancy is some lingering New Economy fallout. Personally, I like to refer to it as the Dead Economy, and what were witnessing now is a whole series of estate sales from dead companies. That would all work out fine if there were the normal turnover in assets, but competition in this market has gotten really intense simply because of the volume of available IT equipment. If you thought one dot-com looked like another, so did its IT infrastructure.

Thats a direct whammy on equipment manufacturers like Sun and Cisco. When you can buy a slightly used Sun server for pennies on the dollar, and theyre willing to throw in some Cisco routers or switches to make the sale even more attractive, youre far less likely to buy new equipment until that supply is exhausted or until it has outlived its shelf life.

But theres an indirect whammy here, as well. When you can buy equipment so cheaply, youre far less likely to invest in an entirely new architecture or pay for expensive services. That phenomenon became painfully clear in the desktop services business when PC prices hit bottom five years ago, which is why corporate resellers like Inacom and Vanstar dont exist anymore.

No matter how valuable the services offering, theres still a psychological barrier to spending many multiples more on consulting and integration than on products.

The availability of cheap equipment plus the pricing ration would be challenging enough to deal with. But theres another factor thats starting to take effect, as well, making this whole mess look something like The Perfect Storm.

In most major corporations and in many midsize companies, the CIO is now making business decisions rather than technology decisions. That shift started a couple of years ago, but it took a while for many of these executives to get their bearings and change their thought processes.

These people generally are pretty cautious. In a redefined role, theyre being extra cautious. If youre making a pitch to them, it probably is going to take longer than ever before and require more up-front information about how theyre going to save money, and it probably will work better in a phased approach than all at once. This is why outsourcing is starting to pick up steam—theres no capital expenditure and setup takes a fraction of the time—and its why short-term fixes are being welcomed instead of long-term projects.

If all this sounds ugly, look on the bright side. The day after The Perfect Storm, the bad weather subsided. Time has a way of healing just about everything before it kills it off entirely, and markets tend to be as organic and prone to the forces of nature and change as anything else.

 
 
 
 
 
 
 
 
 
 
 

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