The Slowdown Shuffle

The uneasy song and dance is already familiar.

The uneasy song and dance is already familiar. Nearly all of the IT companies I meet with these days start their pitches with earnest explanations of how their products or services save customers money. The phrases "in this tough economy" or "as IT budgets get slashed" usually show up on the first or second PowerPoint slide.

Its no mystery why IT vendors have a newfound thirst to demonstrate solid returns on investment: Most of their prospective customers want to cut costs rather than invest in growth. And it is not clear that the situation is getting better. Merrill Lynch & Co.s quarterly survey of 110 chief information officers last month found that CIOs expect to spend less on IT in 2002 than they had initially planned. Previously, CIOs anticipated IT spending next year would increase 13 percent. Now they say its going to rise just 9 percent.

This is a full retreat from the "holy crap, weve gotta get an e-business strategy" attitude of days gone by. Blank checks have been replaced by blank stares. Belts have been tightened. But the "softening economy" hasnt been a total disaster. Granted, the examples are few and far between, but some IT companies have managed to grow their revenue this year.

Opnet Technologies, a network management software vendor, had revenue of $11.1 million for the quarter ended June 30, an increase of 11 percent over the previous quarter, and it reported net income of $1.2 million. In the same period, VeriSign saw its sales rise to $231.2 million, 8 percent over the previous quarter — although it did also report a whopping net loss of $11.2 billion, mostly from a $9.9 billion write-down related to acquisitions.

Then consider Websense, which sells a Web filtering system for blocking porn and other nonbusiness content. For the quarter ended June 30, Websense had $8.2 million in sales, a 20 percent increase over its previous quarter. The company signed up 900 new customers, bringing its installed base to 14,000. In the latest quarter, the company essentially broke even with a net loss of $13,000. I dont mean to point to Websense as a better or worse performer overall than any other company; its just that it has had some success making sales in "difficult economic times," in the words of Websense CEO John Carrington.

Carrington says that the slowdown in IT spending actually presents an opportunity for his company. That might make him sound cocky, or like a cockeyed optimist spinning for Wall Street, but heres his reasoning: Websenses system, he says, helps Internet managers monitor their connections with fewer staffers, and it holds down bandwidth costs by blocking nonbusiness-related traffic. "Because companies dont have the budget to add another T1 line, theyre putting us in," Carrington says.

Today, thats the kind of message that turns I-managers heads. When budgets shrivel, the top priority becomes optimizing existing IT assets — and vendors that can tap that vein will come away richer.