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Article by Mohan Babu


Positive trends that could have a ripple effect

Innovation and focus on customers are the key factors which are helping hi-tech companies make profit and bring about normalcy in the industry, writes MOHAN BABU. He cites a few success stories which have belied the downturn to emerge as trendsetters

After the lull of a few months and with war clouds looming over Iraq, you would think there is not much to cheer in the hi-tech industry. On the contrary, the technology sector seems to be showing resilience in a few key (and surprising) sectors. Two years after people had all but written off the dotcom industry, a few big players are actually starting to make profits. In other areas of technology too, the big players seem to be working strongly towards consolidation of their strengths. They are continuing to invest on R&D and are revisiting their core strategies. In this column, we will look at three unrelated trends and actions by some players and see how they could be indicators of the global trends.

* Trend I: Return of the dotcom! In a recent Business Week article surveying the dotcom landscape (left with a few survivors), the reporters found that over 40 percent of public Internet companies made a profit in the fourth quarter of 2002. Some of the big companies that turned from loss-making to profitable entities incl-ude: Helped by a surge in demand for lower interest mortgages and refinancing of home loans, the company boosted the percentage of visitors by 25 percent, managing to turn a profit. This search engine company revamped its revenue generation strategy by charging advertisers for a higher search-engine ranking rather than relying purely on banner-advertisement revenues. The company has been constantly under scrutiny by financial analysts and is motivated, more than ever, to turn the corner and show profitability. This is especially true because it has been a player in the dotcom arena right from the “early days” in the mid-nineties.

United Online: Working under the shadows of ISPs (Internet Service Providers) like MSN and AOL, United has been able to make a profit by providing low-end Internet access to consumers at $9.95 (MSN and AOL charge upwards of $22 per month for Internet access).

* Trend II: Spending on core R&D. Big, cash-rich IT companies like Microsoft and IBM are continuing to spend huge sums of money on research and development, hoping to capitalise on it when the tide turns. Incidentally, IBM has also been on an acquisition spree, acquiring PwC for its business consulting expertise and bidding for Rational to acquire the front-end development methodologies. Microsoft has been equally aggressive in pursuing its R&D and is expanding globally by increasing its centres in India and China. Other tier-one and tier-two companies too continue to plough on with their core strategies, hoping to emerge stronger when others start spending on IT.

* Trend III: Core technologies like Networking continue to receive focus. Even with a downturn, companies want to be able to continue their technology spending, at least in areas where the RoI (Return on Investment) is easily justified. Case in point, Cisco, the networking giant, recently announced that it will be spending 150 to 200 million dollars on advertising during 2003. This is a huge jump from 2001 and 2002 when it spent only a few million. The area of focus for Cisco seems to be nascent technologies like Voice-over-IP (VoIP) that promise huge savings to small and mid-sized companies that spend hundreds of thousands of dollars on telecommunication charges every year. One of the advertisements talks of an olive importer who reckons that he can save about 100,000 dollars by removing a single olive from each jar that he sells. He is focused on trying to save money by trying to reduce his cost of olives when his assistant suggests that they can save a million dollars on phone charges annually by switching to a VoIP phone!

These trends in the field of technology, although unrelated, have a strong positive ring about them. They seem to be stemming from the fact that industry leaders are finally realising where their bread and butter actually comes from: business users who can justify an RoI of added technology expenditure. Interestingly, the Web and dotcom industry seems to be maturing to a point where it starts to provide real value to end-users. When end-users get some quantifiable value, they don’t mind spending money, which in turn makes the dotcom service providers profitable.

It is a matter of time before these positive trends in a few pockets of tech sector have a ripple effect across the industry. Mind you, I am not predicting a return back to euphoric nineties but a more measured return back to normality in the tech sector where innovation and focus on the customers real needs help companies become profitable.





About the Author

  • A Bio and profile of the author, Mohan Babu, can be found at his homepage
  • Mohan has authored a book on Offshoring and Outsourcing (Publisher McGraw Hill, India), a link to which can be found here
  • Mohan has also authored an Online book on "Life in the US," available for free download.
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    ©Mohan Babu: All Rights Reserved 2005

    Mohan Babu is an international consultant trying to find the ‘sweet spot’ where IT meets business. E-mail: mohan He is also the author of a recent book on "Offshoring IT Services"

    All rights are reserved. Mohan Babu ("Author") hereby grants permission to use, copy and distribute this document for any NON-PROFIT purpose, provided that the article is used in its complete, UNMODIFIED form including both the above Copyright notice and this permission notice. Reproducing this article by any means, including (but not limited to) printing, copying existing prints, or publishing by electronic or other means, implies full agreement to the above non-profit-use clause. Exceptions to the above, such as including the article in a compendium to be sold for profit, are permitted only by EXPLICIT PRIOR WRITTEN CONSENT of Mohan Babu. 

    Disclaimer: This document represents the personal opinions of the Author, and does not necessarily represent the opinion of the Author's employer, nor anyone other than the Author. This Article was originally published in Express Computers


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