Why Tech Won't Deflate

http://www.forbes.com/technology/2008/11/03/tech-bubble-deflate-tech-enter-cx_ag_1103forrester.html?feed=rss_technology

The article is written by Andy Greenberg and is essentially an interview of Forrester Research's CEO George Colony. Colony argues that although IT cutbacks will begin immediately (Q4) and tech companies will feel the impact in 2009, it won't be as painful as it was in 2001 (for tech ). Technology is less about hype and more about day-to-day use and integration into the supply chain and socially. In addition IT spending increased only 5% compared to 12% in 2000 and much of which was complete nonsense Y2k spending. He has some other interesting thoughts about the valuation of Facebook (an investment by MSFT to stop its employees from going to FB) and how social networking sites will become more valuable in a recession. Interesting points by I do not particularly agree with his feeling on tech.

My thoughts

1) A lot of tech is built on ad spending and that is a major problem. The largest buyers of advertising are autos, financial services and retail, three sectors that are getting destroyed. Ad budgets are being cut and dramatically. Advertising companies here in Boston are closing up shop so who is going to put the orders in with the tech companies? Now that the election is over political dollars will be gone as well. There is an argument that online is cheaper than TV etc however ad spending will be down everywhere and the tech/media companies will feel the pain.

2) In 2001, we didn't have the job losses or a global recession, only a tech bubble. We are now in a prolonged recession and capital budgets are coming down and fast. IT spending is usually a large piece that can be easily be delayed. Companies are scared and cutting spending as fast as they can.

3) One of the largest buyers of IT are the Financial companies. Financials are disappearing or consolidating faster than anyone could imagine. They are cutting a massive amount of jobs, cutting spending, and that means IT will be slashed. PCs, handsets, servers...you name it, will be down and hard.

4) Microsoft Vista- How much is Vista gonna cost not only MSFT but also the industry? Vista has been a disaster and now with a recession, companies are sure to wait and what could be a while. Are we in the midst of a change? Will Microsoft no longer be the system of choice?

5) In addition with so much free on the web why would any company pay for socialtext? Either build it internal or use the free web services. Why pay?

I understand that this is much different from the tech bubble however in many ways it is much worse. This could be prolonged fundamental weakness which could do some damage to the tech industry.