One way of looking at the current technology industry’s growth slowdown is as a rite of passage. Those who like to reinforce negative behavior see the ‘crash’ of the industry as its arrival. The reasoning goes that once an industry slowdown is significant enough to cause economic pain and appears subject to recessionary pressures as its predecessors such as industrials, utilities, telecommunications and financial services, the industry can become officially accepted as part of the economy. According to this theory, the Great Depression would be the homecoming parade of the financial service industry – a necessary failure to get on the VIP list of the party that is the American economy.
There is a different spin on the current technology industry slowdown and it is slightly more positive. Can it be that the industry has reached a certain age that marks a transition to maturity like reaching 30? It is not a mid-life crisis, but rather a new defining period of growth. The industry has had cycles before. Even in the 90s, there were more peaks and troughs than some may realize. Technology subsectors rose and fell throughout those years. For example, semiconductor companies such as Atmel, Microchip, Xilinx and STMicroelectronics did well in the early 90s and had overcapacity problems in the mid-90s which took until the end of the decade to balance. Enterprise software companies such as Peoplesoft, SAP and i2 during this time period experienced the opposite cyclical pattern: the early 90s were seed years, the mid 90s there was growth, and in the late 90s client server became out of vogue until a new wave of Web-based enterprise companies emerged. Each sector developed and matured in its own time, though they tended to play reverse roles, i.e., one was strong when another was down to keep the overall industry moving in the right direction.
Maybe what happened at the new millennium is that each major sector of technology such as communications, semiconductors, software and hardware, maturing for greater than two decades, no longer overcompensated for each other. Like wine, there may be good vintage years for cabernets, merlots and chardonnays over a decade. If these wines eventually synchronize to the same cycle, the industry may need a new product to spur growth. If this new vintage, i.e., a Voigner, goes to market early, then the industry remains stalled until this new batch ripens. In other words, while we typically would have seen a new sector such as the internet fuel the growth for the overall industry over the past couple of years, the hype and mad rush of taking companies public prematurely left us out of balance. As Geoffrey Moore, consultant and author, aptly put it in 2000, the internet opportunity overall is undervalued while each company is overvalued. As internet companies ripen from the youthful euphoria of 1999-2000 and new companies emerge, the technology industry as a whole will experience more growth.
Historically, the second wave of growth in technology sectors is very compelling. For example, the semiconductor industry grew from a $2B industry (by using market capitalization as a rough indicator of growth) in the early 1980s to $800B industry in 2001. Similarly, enterprise software grew from a $10B market cap in the early 1990s to a $1.3T market cap in 2001. Both of these periods of wealth creation followed the first ten year debut of these technologies (note: for semiconductors, the first wave would be from the 1970s to 80s; and enterprise software, the 80s to 90s). The analogy can apply to any area of technology – data communications, hardware and even the internet. If history repeats, as it often does, Internet v.3.0, entering its second decade, will likely see as significant an amount of growth as any of its predecessors unless Washington deems otherwise…
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