Is This The "R" Train?

Posted on May 31, 2008 by Tony Uphoff

Are we in a recession? If so when did it start? How long will it last? What brought it on? Are all segments of the economy suffering? Why does technology seem to be uneffected? If we are in a recession when will it go away? Is this like the 30's? The 70's? The 90's? Like 2001? Are we experiencing inflation? How can you have a recession and inflation at the same time? These are just a few of the questions I've heard in the last few months as I travel around the US and England.

Over these last few months I've also had the great fortune to hear presentations and insights from renowned market and investment analysts from most of the major firms. I've heard extraordinarily detailed presentations from famous economists. We even had the leader of Mashup Camp and one of our content rock stars David Berlind post portions of Warren Buffets recent speech to share holders of Berkshire Hathaway on one of our internal wiki's. One thing I can tell you is not one of these people predicted a recession or even a slow down as recently as 6 months ago. None of these experts are in agreement with each other on the details of the slow down either,other than that the credit and housing markets are at the center of things.

At the risk of forcing my 6th grade math teacher Mrs Arnes to roll over in her grave and some of my economics professors into heart palpitations, let me offer a few thoughts on the "R" word topic from the technology media perspective. If like me, you watched friends and colleagues sign up for low cost jumbo mortgages and put less than 20% down on seven figure houses over the last 5 years you knew this was going to end badly. So is it really a surprise to anyone that the bottom fell out of the housing market? No its not. When you consider the EBITDA to Debt calculus of private equity is it really a surprise that this model as well was ripe for an adjustment? No.

So why does technology appear to be doing better than other market segments during this economic slow down? There are several reasons:

  • Technology is the central nervous system for most every business and industry. In previous economic cycles the majority of technology was still focused in large companies in financial services, manufacturing and government. Today technology is pervasive in businesses of every type and size. Technology in business is no longer a nice to have it's a have to have.
  • We are at the early stage of a new technology cycle. Web 2.0 applications, Mobile Computing, Virtualization, SaaS, Cloud Computing and other new technologies and applications are enabling business in ways only dreamed of just a few years ago. Gartner predicts that in the next 3 years over 70% of the Global 1,000 will totally revamp their data centers. IP based technology and the inexorable faster, smaller, cheaper technology paradigm is fueling a new cycle that is only just beginning.
  • Technology levels the playing field. Technology innovation is the ultimate game changer. Small companies competing with larger companies, low barriers to entry, speed to market and rapid analysis are all fueled by technology. Today technology innovation is your differentiation.
  • The Customer is On Your Network. In previous economic cycles you could afford to hold off or cut back investment in technology as it was primarily an internal productivity tool. Not any more. Today business technology is about connecting with and serving customers. The customer is now on your network, be it a simple web site or a sophisticated e commerce site, customer expectations on being able to communicate with you and do business with you online have risen exponentially.
So are we in a recession? Technically speaking no, or at least not yet. Are we experiencing an economic slow down. You bet. Why is technology not as effected as other market segments? Because today business and technology are inextricably intertwined. How about you any market predictions? Are we about to board the "R"train or just experiencing some pot holes along the road?,
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