08 Jan The Year Ahead in IT
Had it not been for the war in Iraq, 2003 might have passed into history as the little year that time forgot. Certainly, in the world of information technology, that may still be the case. Nothing much happened in 2003. Things happened slowly. Customers took their time. But for some activity in the 12th month, the markets barely moved.
This, then, must explain why the predictions I so carefully made 12 months ago are almost exactly the predictions I will make for the year ahead. Determined to take an accounting of just how accurate my world view was a year ago, I unearthed the five predictions I set out in this newsletter last January. It is not that these predictions were flat out wrong, but rather in the slow moving, not-much-happening year that was, they simply have not yet come to fruition.
Here’s what I said 12 months ago, and the updated outlook for the year ahead.
1. Picking over the bones.
LAST YEAR: The significant M&A activity is done for now; don’t expect any Merger of Titans in 2003. (We’d hedge this bet and suggest that Sun Microsystems and Apple Computer think about hooking up, except that we can’t imagine that deal surviving the Battle of CEgos that would naturally follow.) Most of the value has been picked from the bone yard of boom-era start-ups, but we see a few morsels that remain to be plucked, primarily from those firms that were more R&D exercises than product companies. Look particularly to companies that provided component technologies and incremental services in the mobile and wireless space. These won’t be particularly big deals, but it will be interesting to speculate on what will happen to the absorbed technologies. Oh, and those Boom Babies that have managed to survive this long on a reasonable product offering, faithful customers, and pure gumption? They, for the most part, are too stubborn to succumb to acquisition offers.
THIS YEAR: M&A activity picks up again, particularly by midyear. Despite stellar IPOs from Google and Salesforce.com, the public markets will remain closed for all-but-outstanding public offerings at least through the first half of the year. Investors, eager to show some return as their funds come to the end of term, will push for exits through other means. Moreover, larger companies that have been suppressing R&D activity for the past three years will need to buy their way to innovation. (As for Apple and Sun Microsystems . . . I still have a hunch that Apple will make a big play in the coming year. It won’t be for Sun, however. Instead, look to a major media company to join with Apple to create a digital media powerhouse. And Sun? It’s a critical year for the company, with odds betting on a sunset rather than a sunrise.)
2. The Venture Crash is yet to come.
LAST YEAR: The next 12 months will be dicey for the venture business, particularly those newer firms that raised their first big funds three or four years ago. Their predictably awful track record will make it nigh impossible for these firms to raise new funds, delivering to them the same fate as experienced by too many of their portfolio companies – they’ll be out of business by the end of 2003. Just how big a crash? About half the funds raised in the late ’90s were first-timers. The venture market is about to reduce dramatically.
More importantly, the role of institutional venture capital will continue to right itself in the next year. Institutional investment will come not at the seed, or even series A, round as it did during the Boom, but as start-ups move beyond development and first customers to growth. This, of course, means valuations will remain in earth’s orbit, and will be based on metrics that are measurable in real – not manufactured – terms (that is, no more price-per-eyeballs ratios). This trend also implies a bigger role for real Angel investors who can provide both financial capital and engaged business development expertise.
THIS YEAR: The next 12 months will be dicey for the venture business – really! We’re going to see a flurry of funding activity in the first quarter as firms try to put to work uninvested money before the end of the fund’s term. There’s just not enough time to pull a rabbit out of the hat, however, and venture capitalists in all but the top tier are in for a world of hurt.
3. Expect the re-emergence of the Consumer Market.
LAST YEAR: The consumer market will get a polished image in 2003, driven largely by initiatives in the convergent media space – and by a growing number of companies who are beginning to get the consumer market right. Major investments are or will be made in digital broadband media and entertainment by every major technology and media company on the planet. Some of this investment will actually make its way to market by way of advanced, IP-based digital video recorders, dual-screen television and entertainment systems, advanced entertainment-on-demand systems, and the like. Expect a lot of experimentation in digital media until these converging and (remarkably) cooperating industries hit upon the right formula. What may seem to be a mistake will, in the long run, prove to be a stepping stone on the path to a digital media future.
THIS YEAR: Patience, my friends. In the next 12 months, that which was predicted a year ago will come to pass. Okay, maybe not the part that suggests film and music moguls and technology innovators finally will get along. But the rest of it: Expect it in 2004.
4. Simple becomes the watchword of Enterprise IT environments.
LAST YEAR: The days of multimillion dollar, multi-month enterprise application implementations are over, and companies like Siebel should be concerned. Great, flexible, enterprise-class technologies are coming to market from next-generation application providers who will unseat stalwart applications that are just not nimble enough to be responsive in today’s downsized enterprise IT shops. In other words, ASPs are not just for small business anymore. You’ll also see a lot of activity in the enterprise IT management sector, with new players coming to market with an array of solutions to ease application performance monitoring and management. These solutions are all going after the same headache: helping IT managers tame the technology monsters they created when they had the power and budget to do so now that they have neither power nor budget. This may be the one sector that belies our first prediction – with this much activity, there is bound to be fallout that includes M&A activity of smart start-ups by service-focused IT providers like IBM and HP.
THIS YEAR: Enterprise spending slowed so much last year that this prediction simply needs another 12 months to come into its own. A tremendous amount of technical innovation is addressing the need for more manageable IT enterprises, and while budgets aren’t loosening that much, IT vendors have learned that they can capture existing budget allocations by promising a reduction in the cost of IT maintenance. With as much as 80 percent of IT budgets spent just keeping systems running, that’s a lot of available money for new players with great manageability solutions.
5. The economy is impossible to predict.
LAST YEAR: It seems like any list of predictions in a new year that followed the past two ought to take a SWAG at the economic forecast. We’re too smart to even try. While the markets have bottomed out in so many instances, too many variables – including threat of war, corporate governance, a new Congress – remain unknown to solve this economic equation. Then again, I graduated from the college that served as filming location for “Been Down So Long It Seems Like Up To Me.” Maybe the glass is half full.
THIS YEAR: This time around, we really ARE too smart to try.
That’s it. These old predictions made new again. It’s not that they were wrong a year ago, they just needed a little more time to cook.
There were lots of gifts this holiday for past DEMO and DEMOmobile companies. Heading up the list of recipients was Zone Labs, who got snapped up by Check Point for $205 million. Check Point says it will use Zone Labs’ technology to strengthen its perimeter, internal, and Web security portfolio. Zone Labs is best known for its Zone Labs Integrity endpoint tool and its personal firewall, ZoneAlarm . . . Also hearing good news just in time for the end-of-year festivities was Canesta. The innovative developer of electronic perception technology raised more than $16 million in series C round investing. Canesta made hay at DEMOmobile 2002 with its projected optical keyboard . . . Telesym, which has gathered up $18 million since its launch in 2000, announced some boardroom changes. Founders Raju Gulabani, chief executive officer, and Karl Denninghoff, chief technology officer, both left the firm. Paul Bialek has been named interim chief executive officer.
Chris Shipley is the executive producer of NetworkWorld’s DEMO Conferences, Editor of DEMOletter and a technology industry analyst for nearly 20 years. She can be reached at firstname.lastname@example.org. Shipley, has covered the personal technology business since 1984 and is regarded as one of the top analysts covering the technology industry today. Shipley has worked as a writer and editor for variety of technology consumer magazines, including PC Week, PC Magazine, PC/Computing, and InfoWorld, US Magazine and Working Woman. She has written two books on communications and Internet technology, has won numerous awards for journalistic excellence, and was named the #1 newsletter editor by Marketing Computers for two years in a row. To subscribe to DEMOletter please visit: http://www.idgexecforums.com/demoletter/index.html.
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