Suppose the pandemic is transformational? That’s a question that more and more planners/strategists are asking, among service providers, vendors, and enterprises. There are several dimensions of transformation, obviously, but the one that I propose to look at is the technology dimension. Will the pandemic really change how technology is used, and therefore how it’s purchased? I’ve tried to get some broad input on this, and the first thing I learned is that most think it’s still too early to tell.
Almost from the first, planners saw the potential for pandemic impact on tech as something related mostly to the lockdown, which has the effect of suspending a lot of retail consumer behavior. They also saw it as dividing into three phases depending on how long the lockdown went on. The “hiccup” phase, meaning a lockdown of a couple weeks, was widely seen as exactly what the name suggested. This would have impacted retail sales and consumer services, but not much else. A few planner-eggheads would ponder the implications of a future event of that type, but otherwise it would be business as usual.
The next phase, the “it-hurts” phase, meant a lockdown up to about 2 months, perhaps tapering off with fewer restrictions to the 3-month point. The immediate impact is to create massive job losses in the retail and services sectors, kicking up unemployment. Now, there’s a growing population of cash-strapped households, and even those with income are limited in what they can buy because so much is closed.
This level of retail behavior change would put most companies in a position of having to lay off employees even outside the retail sector, as the impact rolled through the supply chain. Uncertainties about their own business future would make more businesses cautious about spending, spreading things further. This is the phase we’re in, and we’re about 4-6 weeks along.
In theory, a combination of stimulus and unemployment enhancements can reduce the impact of this phase, but again the issue is that even those who are made financially whole, or nearly so, can’t exercise their normal spending behaviors. The longer that’s the case, the bigger and broader the impact.
The final phase, the “this-really-sucks” phase, means a lockdown more than 2-3 months. At this point, there are problems likely with business stability and survivability for some companies, and there’s a fear that the protracted pandemic impact will create an impact on consumer behavior through the whole of the summer and into the fall. The risk of a second outbreak in the fall creates an additional level of concern, with the business risk then extending well into 2021.
The greater the impact of the current phase of the pandemic, the greater the fear of a follow-on will impact buyer behavior. Keep the lockdowns going into June and there’s enough fear to cause consumers to change behavior. Keep it going through the summer and we’re talking major problems, unless there’s convincing evidence that there’s a treatment that works and a vaccine that’s imminent. We need clarity, or everyone in the market will get very defensive, and that action alone will create something to be defensive about.
As I said, we’re in that it-hurts period, and in this period the planners say they’re confronting two basic questions. First, will tech budgets for the year be permanently impacted, or will buyers just push spending back toward Q4? Second, will the basic way that business is done change?
Most planners think that if the lockdowns don’t lift by the middle of June, we’ll likely be in the third and ugliest of the phases. Two and a half months of the quarter would then have been in lockdown, and that would surely have a major impact on retail sales. In that case, they think that tech spending will decline by at least 5-8% in 2020, and that if there is another outbreak of any significance in the fall, they’d expect 2021 budgets to be set at least 10% below the 2020 levels. In short, this would hurt a lot. However, the overwhelming majority of planners still think that things will open by the end of May. That would mean that at least some economic rebound in spending, that held off during the lockdown, could come in during Q2, which would reduce the need for companies to take financial measures to lessen the shareholder shock of a truly bad second quarter.
So, let’s assume they’re right. The immediate impact would mostly be on the supply chain for retail sales, so the finished-goods areas would tend to recover first. B2B and manufacturing supply chains would recover two to three months later, and it’s possible that some of these secondary players would not recover until well through Q3, which might mean that their 2020 tech spending would be hit; there’d be little time to recover and push projects along before end-of-year. Likely we’d see a decent consumer recovery by Q4, but businesses could still lag a bit.
That deals with our first question. For the second, a lot depends on the nature of the work done by each company, and in particular whether the company’s workforce could work from home in enough quantity that creating a better WFH model would be broadly helpful.
Tech journalism talks to tech people, and so our view of WFH is biased toward organizations that have a lot of office people. With most tech manufacturing offshore, the work done in offices relates to sales/marketing, administration, software development, management, and planning. All of these activities could be outsourced if the people could be made productive. For companies that actually have to build or handle goods, a big piece of their workforce may be ineligible for WFH, and if most of a company is shut down by a lockdown, it may be that there’s less value to trying to keep the rest open from home.
That doesn’t mean that tech changes couldn’t happen. Almost two-thirds of planners think that the pandemic, even ending at the end of May, will likely increase the share of their budgets they spend in the cloud. Most of that is in support of more web-based retail and customer service, and part to WFH, but a part is also because there’s more interest in shifting some classic data-center pieces of applications to the cloud to avoid having issues with facilities access and management. Nobody was ready to say they’d move critical apps to the cloud and close the data center, but part of the capital projects deferrals will likely involve moving instead to cloud deployment. If it does, the stuff won’t come back for a long time, if ever.
As far as remote work or WFH, planners are vague, which suggests that while it’s a topic of interest, there’s still not much backing for change. This is almost surely due to the fact that as long as the lockdowns remain in force, there’s little appetite for taking steps to optimize the future. How much optimization might be needed is as uncertain as the future is.
The current bias is to simply expand the use of the tools already in place, but to improve dynamic credibility. SD-WAN is the one certain winner in this picture. Not only does it promise to reduce costs at a time when cost reduction looks pretty good, it also can provide a lot of connectivity benefits related to WFH, and it can also improve cloud connectivity. You can see that’s true by following the trends in advertising in the space.
There are likely to be some disappointments when it comes to picking a service or product, though. As I’ve been saying for two years now, SD-WAN is really a subset of the broader virtual-network mission. That’s not how the overwhelming majority of vendors/service providers see it, though. If you consider both WFH and enhanced cloud connectivity, in fact, there’s only one vendor that measures up. If you’re interested in my view, see the report HERE.
The changes in the SD-WAN dynamic that the pandemic is driving are a symptom a broader vision to come, and eventually I think we’ll see that recognized. I also think that at least half the current vendors will never achieve it; there’s too much of a difference between the limited SD-WAN mission of the past and the virtual network mission of the future. It will be interesting to see how everyone adapts, but buyers in this space should be very careful of their selections.
A tech transformation in remote work remains a possibility, but only that. Enterprise planners tend to think in terms of adopting what they can buy, rather than postulating what might work best for them in hope someone will sell it. Vendor planners tend to focus on what people are asking for, especially now, at a time when VCs are guarding startup cash closely.
What gets us out of this? We need a convincing positive in the pandemic fight. Gradual reopening, even if successful, won’t erase the fear of another wave in the fall, winter, or next spring. What nearly all planners say is that were a vaccine available with good effectiveness, they’d presume an end to lockdowns and associated recurrence risks. That would almost certainly create the pent-up-demand boom that’s been discussed.
Another positive step with less radical impact is learning that there were a very large number (at least 20%) of people who’d already had the virus with little or no symptoms. As I write, the US statistics say that 1.1 million cases and 65 thousand deaths. That equates to a death rate of about 6%, which would make COVID-19 60 times as deadly as seasonal flu. If current estimates are correct and the actual infection rate is about 22 times higher, the infected count would be about 24 million, and the fatality rate would be about 0.27%, which is three times that of the flue. If we had 20% of the population infected instead of that 1.1 million confirmed positives, the death rate would be a third of the flu. Less deadly, less risk. Note, of course, that we don’t know what the death rate is because we’ve not been able to test enough of the broad population to establish how many have already had the disease, asymptomatically, and recovered.
Two important points to close with here. First, the planners I’ve heard from are generally not predicting what’s going to happen here, only indicating what they believe the reaction of their company would be to developments. Except where I label a view as a prediction, keep this in mind. Second, if the pandemic does go beyond the summer, or reoccurs strongly in the fall, then most of these views would be no longer relevant. The difference between this and 1929 is that in the latter case, the crash caused widespread financial failures. It wasn’t a lockdown, but a true crash. If this goes on long enough, it will be too.
Even where we now, optimistically, be heading, I think we will see transformation. Businesses that relied on storefront sales are clearly at a risk for recurrence, and at risk to future pandemics. I think we’re sure to see more companies providing for online sales, and preparing to move to delivery versus in-store as needed. I also think we’ll see some optimization of remote-compatible work practices, though less of this. The big network impact will be decentralization of connectivity, promoting SD-WAN and virtual networking. How far we go on these changes will depend on the balance between the drivers created by risk perception and the inhibitions created by financial stress. We’ll have to wait to see how these will play out.