I've been talking to friends lately about what I think are the symptoms of a possible tech recession on the horizon. I've been asked to put my thoughts together, so to help me organize my thoughts I'm going to post a draft here. With any luck, I'll publish the final product here if/when it happens.
I think we're due for a recession in tech for a number of factors, but the driving factor is that I think we've been a bit weak on achievement-focused innovations this cycle. By achievement-focused, I mean innovations that allow people to accomplish things they couldn't do before. Email let people keep in touch in near real-time; desktop publishing let individuals and small businesses do their own printing; the Web lets people do business in places they couldn't before the Web; GUIs let novices adopt computers to do all of the above. All of these are achievement-focused innovations.
Contrast these with innovations that allow people to do things better or cheaper or easier than they can now. Examples of these technologies include faster chips, graphics cards, online faxing, and wireless Internet. This isn't to knock these innovations; we need faster/better/cheaper too.
The difference between these types of technological innovations is important in determining the health of the technology purchasing cycle, because it helps explain the motives behind purchases. Achievement-focused technologies get purchased seemingly out of proportion to their immediate environment, because there is no other way to get the job done. Cheaper/Better gets bought when the old way of doing things isn't good enough anymore. Obviously there is some overlap but this is the basic idea.
So where are we now? In the last 4-5 years, there has been a ton of innovation, but all of the major products seem to be in the cheaper/faster camp. Examples by big-name company: Cisco: VOIP & wireless Internet; Microsoft: refreshes of Office and (eventually) Windows; Intel & AMD: multicore (i.e. faster) chips; Yahoo!: tons of incremental improvements to its service; Google: a better spin on a decade-old industry; Salesforce.com: Siebel over the Web. (Contrast with Apple, the leader in the counterexample spaces of producing video content at home and managing digital media.) So this cycle has largely been about consolidating our gains from the last boom and improving on those technologies. But history tells us that this cycle will only last another 2-3 years, so we are at best most of the way through, and we have yet to see the go-go type of spending we'd expect from a tech boom. A lot of people are taking this to mean that tech is mature, but I think that's not quite correct. I think what we're seeing is the natural product of a weak macro expansion combined with a Better/Cheaper phase in technology innovation. (After all, how mature can an industry be when startups like Salesforce.com can still throw turmoil at established firms?)
If that's where we are now, what can we expect? My expectation is that this macro expansion will be shorter than the prior expansion, and then we will see a recession of some magnitude. But after that I'd expect that the next technology up cycle will include many more achievement-focused innovations, which will make it look like 1995 again ('99 will still be an outlier in growth from the prior year).
Stay tuned for Part 2, where I outline my reasons for thinking the recession in tech is closer than many believe.
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