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Positive trends that could
have a ripple effect
Innovation and
focus on customers are the key factors which are helping hi-tech companies make
profit and bring about normalcy in the industry, writes MOHAN BABU. He cites a
few success stories which have belied the downturn to emerge as trendsetters
After the lull of
a few months and with war clouds looming over Iraq, you would think there is not
much to cheer in the hi-tech industry. On the contrary, the technology sector
seems to be showing resilience in a few key (and surprising) sectors. Two years
after people had all but written off the dotcom industry, a few big players are
actually starting to make profits. In other areas of technology too, the big
players seem to be working strongly towards consolidation of their strengths.
They are continuing to invest on R&D and are revisiting their core strategies.
In this column, we will look at three unrelated trends and actions by some
players and see how they could be indicators of the global trends.
* Trend I:
Return of the dotcom! In a recent Business Week article surveying the dotcom
landscape (left with a few survivors), the reporters found that over 40 percent
of public Internet companies made a profit in the fourth quarter of 2002. Some
of the big companies that turned from loss-making to profitable entities
incl-ude:
LendingTree.com: Helped by a surge in demand for lower interest mortgages
and refinancing of home loans, the company boosted the percentage of visitors by
25 percent, managing to turn a profit.
Looksmart.com:
This search engine company revamped its revenue generation strategy by charging
advertisers for a higher search-engine ranking rather than relying purely on
banner-advertisement revenues.
Amazon.com:
The company has been constantly under scrutiny by financial analysts and is
motivated, more than ever, to turn the corner and show profitability. This is
especially true because it has been a player in the dotcom arena right from the
“early days” in the mid-nineties.
United Online:
Working under the shadows of ISPs (Internet Service Providers) like MSN and AOL,
United has been able to make a profit by providing low-end Internet access to
consumers at $9.95 (MSN and AOL charge upwards of $22 per month for Internet
access).
* Trend II:
Spending on core R&D. Big, cash-rich IT companies like Microsoft and IBM are
continuing to spend huge sums of money on research and development, hoping to
capitalise on it when the tide turns. Incidentally, IBM has also been on an
acquisition spree, acquiring PwC for its business consulting expertise and
bidding for Rational to acquire the front-end development methodologies.
Microsoft has been equally aggressive in pursuing its R&D and is expanding
globally by increasing its centres in India and China. Other tier-one and
tier-two companies too continue to plough on with their core strategies, hoping
to emerge stronger when others start spending on IT.
* Trend III:
Core technologies like Networking continue to receive focus. Even with a
downturn, companies want to be able to continue their technology spending, at
least in areas where the RoI (Return on Investment) is easily justified. Case in
point, Cisco, the networking giant, recently announced that it will be spending
150 to 200 million dollars on advertising during 2003. This is a huge jump from
2001 and 2002 when it spent only a few million. The area of focus for Cisco
seems to be nascent technologies like Voice-over-IP (VoIP) that promise huge
savings to small and mid-sized companies that spend hundreds of thousands of
dollars on telecommunication charges every year. One of the advertisements talks
of an olive importer who reckons that he can save about 100,000 dollars by
removing a single olive from each jar that he sells. He is focused on trying to
save money by trying to reduce his cost of olives when his assistant suggests
that they can save a million dollars on phone charges annually by switching to a
VoIP phone!
These trends in
the field of technology, although unrelated, have a strong positive ring about
them. They seem to be stemming from the fact that industry leaders are finally
realising where their bread and butter actually comes from: business users who
can justify an RoI of added technology expenditure. Interestingly, the Web and
dotcom industry seems to be maturing to a point where it starts to provide real
value to end-users. When end-users get some quantifiable value, they don’t mind
spending money, which in turn makes the dotcom service providers profitable.
It is a matter of
time before these positive trends in a few pockets of tech sector have a ripple
effect across the industry. Mind you, I am not predicting a return back to
euphoric nineties but a more measured return back to normality in the tech
sector where innovation and focus on the customers real needs help companies
become profitable.
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