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Mon, Oct 20, 2008 17:56 EDT

Unlike Earlier Bubble Burst, This Recession Not Likely to Spur Tech Innovation

Topic: Applications

Blog: Web 2.0 Advisor

Current Rating: 5 Comments: 2

During a recession, will we get more ideas that foster the creation of innovative technologies? Or will incessant cost-cutting and increased unemployment stifle innovation for years to come? History, and surveys of the venture capital landscape, offer different takes.

On one hand, you can say the desire to find new business during a recession can spur innovation. When I interviewed Socialtext President and co-founder Ross Mayfield back in March, he aptly mentioned that a lot of successful Web 2.0 companies like his were launched, at least in part, as a result of the last recession.

"We saw there were these new kinds of tools emerging in the middle of the first recession for [Silicon] Valley,” he said. “A lot of blogging took off solely because of the high rates of unemployment. We saw an opportunity with these tools, which were first arising for consumers, to adapt them for enterprise use."

In other words, people had a lot of time in front of their computers and were engaging in social technologies, opening up a new market. As this happened, enterprise Web 2.0 companies cropped up to innovate around the technologies and make them palatable for businesses and less techie users. Now, a few years later, Forrester predicts the enterprise Web 2.0 market will reach $4.6 billion by 2013.

But in this current recession, things could be different, for the mere reason that inventors and innovators might find it more difficult to get funding for their technologies. So far, we've seen a modest dip in overall venture capital spending across all industries, according to this article in the Wall Street Journal. According to recent surveys in that report, "investors put $7.1 billion into companies in the third quarter, down from $7.8 billion a year earlier."

According to the same survey (by VentureSource) mentioned in the Journal, the IT industry will get hit very hard. In the third quarter, "270 financings totaling $2.7 billion took place, down from 342 deals totaling $3.4 billion a year earlier." 

So what does this all mean? Will we have technologists who are more worried about watering their current systems and applications rather than building new ones? Or will people be building and inventing, hoping to find their niche in the market if (and when) the next boom (and the money) comes?

This will be an issue I examine more in our coverage moving forward, so I’d like to hear from you or feel free to comment below.

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Average (2 votes)
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Tue, Oct 21, 2008 11:33 EDT
Posted by: bcrowell
Rating: 90

You've asked a great question specifically: During a recession, will we get more ideas that foster the creation of innovative technologies? Or will incessant cost-cutting and increased unemployment stifle innovation for years to come?

Let me refer you to one of my blog postings on this very issues, "Recession, What's Your Plan" (http://advice.cio.com/bcrowell/recession_whats_your_plan). In this article I argue that the answer to your question depends largely on the CIO and the role he or she plays on the executive team of the organization (public or private). Where the executive team views IT as a strategic partner and the CIO is part of the inner circle, this is an excellent time to generate and implement ideas that foster the use of innovative technologies. There are today amazing opportunities to modernize our organizations through the web, open source technologies, cloud computing, virtualization, etc...

Additionally, as is always the case, the prime contribution of IT is to lower the cost of doing business, which is clearly aligned with the needs that most organizations face today.

Moreover, even if the CIO is perceived as more of a tactical or operational player, there are ways that he or she can significantly lower the costs within the IT organization without staff reductions. Many of these same technologies can be applied such as open source, cloud computing and virtualization.

Hope this is helpful to you coverage of this issue moving forward.

Bill

William A. Crowell, Principal
Magellan Associates, LLC
www.magellan-associates.com

You can contact me by clicking on my name and then click the "contact" tab.

 
Tue, Oct 21, 2008 15:56 EDT
Posted by: Michael Hugos
Rating: 90

I think we already have a great portfolio of technology to select from as we design and build the new systems companies need. I'm always interested in new technology but even more interested in new ways to make money with technology.

Companies may have less money to spend on new systems but they still need new systems because the world keeps changing so fast that standing still is not an option. Because there is less money and more urgency, the innovation will come from closer business/IT coordination. We'll learn to embed small teams of systems architects, business analysts, and developers in business units. They'll use agile techniques and a mix of existing technology and Web 2.0/Cloud/SaaS to deliver a stream of new systems and on-going enhancements to support business units as they find new ways to make money.

The innovation is in this process of creating the responsive organization. The responsive organization is a people-driven, technology enabled network of business units that continually adjusts operations so as to find a hundred small ways to save money and a hundred small ways to increase revenue every day, every week, every month as the world unfolds and conditions change. In the real time economy, responsiveness trumps efficiency (because efficiency requires a level of predictability that no longer exists; the whole world is a stock market now). Profits generated from business process innovations that drive responsiveness will be the basis for the new middle-class standard of living in this century (okay, okay, I'm done...).

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C.G. Lynch chronicles what matters (and what doesn't) in the world of social networking, Web 2.0 and consumer applications.

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