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Recession Pessimism

I gave a talk on Marketing Technology in Troubled Times at the recent Software Business conference in San Francisco. Seems that the topic is popular as I have been invited to give the same presentation via webinars in December to the B2B Power Exchange and the Long Island & Manhattan Software CEO Roundtables. Nothing like a little economic panic to perk people up.

I gave a talk on Marketing Technology in Troubled Times at the recent Software Business conference in San Francisco. Seems that the topic is popular as I have been invited to give the same presentation via webinars in December to the B2B Power Exchange and the Long Island & Manhattan Software CEO Roundtables.

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Nothing like a little economic panic to perk people up.

Should we panic? Nobody knows for sure. The devil himself, Alan Greenspan — a man destined to take majority blame for the current crisis — called his economic quagmire “an event that occurs once in 100 years”. The last event of this scale was of course the Great Depression, which by all accounts wasn’t so great for the people who lived through it. Just ask the recently departed Mr. Terkel (click to buy the book Hard Times).

The worst case scenario is that this will be a long a nasty recession. Using the Great depression as a guide, we see a four year decline in GNP (called GDP in modern times) and another four years to get the GNP back to pre-crash levels. But this is the worst case America has ever encountered. So much is different today that such a simple comparison is inappropriate.

This is especially true for the technology industry which not only rebounds before the rest of the economy but may well be a tool for launching the rebound itself. Innovation occurs in times of crisis and nobody innovates more than the American tech sector.

One big change in the current mess is that governments around the globe massively intervened in the financial markets. This likely kept the world from plummeting off the financial cliff but at the cost of trillions of dollars, yen, rubles and shekels being printed. Inflation follows when countries expand their currencies so rapidly. The $700 billion dollar bailout of U.S. financial markets raised the national debt 10% overnight. Never before has such a spike occurred and the effects will not be felt for a few fiscal quarters.

Another difference between the great Depression and today is that we live in a global economy which spreads risk and pain across a larger number of people and economies. The Great Depression lasted a long time because there was no rapid movement of income and business around the planet. Some of the recent shock has been absorbed by investors from Dubai to Dublin to Dongguan. This spreading of risk and pain will shorten the recovery time.

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But still … the Big One lasted for eight years (four if you use the start of GDP growth as the official end of a recession). The average U.S. recession only lasts 17 months. That’s a three- to six-fold increase time to market recovery.

Signs of woe in the technology business have already appeared. Analyst groups — who are overly optimistic by nature and design — have scaled back all expectations. The chip market is now forecasted to rise a mere 1% in 2009. Given that analyst groups project higher than reality normally permits, and that we are in the earliest phases of this global market pullback, I expect chip market shrinkage. Polls of CIOs show that a full 50% have already frozen or reduced their budgets and those planning increases are expending their budgets a mere 1-3%, just enough to replace some old PCs. Consumer tech spending has to fall as people face foreclosures, layoffs, and choosing between an iPhone and a Big Mac.

My gloomy prognostications beg the question who will survive and grow in the tech business during this recession? Vendors who will thrive include:

  • Security and fraud prevention- theft rises during recessions
  • Optimization tools – helping businesses pinch pennies
  • New advantage vendors – people who provide stunning new ways of making/saving money
  • Corporate competitive shopping – extending competitive price/quote into enterprises
  • Companies with cash … and lots of it – continuing R&D and M&A

Most interesting to me is fraud prevention. Recent reports about Microsoft disabling PCs in China that were running illegal copies of Windows shows a coming correction in vendor attitudes. Estimates run as high 36% of all software being pirated and vendor losing more than $40 billion (the latter of which I think is a gross under estimate). The tech industry has long accepted this rate of loss as a cost of doing business, but in an economic environment where new purchases will slow, forcing thieves to pay for what they have stolen is a relatively cheap way to boost revenues. At Software Business I met representatives of New Momentum, a company specializing in fraud, theft and brand protection. They are seeing an up-tick in interest due to the worsening economic situation.

What should you do to weather the downturn and survive a likely period of strong inflation? You’ll have to attend one of the webinars I listed at the beginning of this post.