One of the hardest lessons we all have to learn in life is that you can’t go back to the past. I suspect everyone has had a personal lesson on that topic, but the same principle applies on a broader scale, to populations and economies. We need to learn it now.
One of the things I get a lot are comments on the role of technology in moving the markets. Not surprisingly, most people on the vendor/operator side are “supply-side” thinkers, meaning that they believe that technology advances are adopted because they’re better, and that market movement is therefore created by technology shifts. End users are different; they see themselves as “shoppers” in a grocery-store sense. They go to the store with a shopping list, and while they are sensitive to other items that present themselves, that sensitivity is often created by recognition that the “other item” would serve a specific purpose. They recognize the value connection when they see the item. The tension between these perspectives is what makes traditional sales a complex process.
The tech market is also influenced by tech media. In the last 40 years or so, we’ve shifted from a publication model of paid subscription to an online ad-sponsored model. As that’s happened, it’s changed the nature of what’s published from one focused on the buyer to one focused on the product. The difference between an online article and a vendor press release is getting ever smaller, and the difference between either of these and a TV commercial is shrinking too.
I’ve spent a fair amount of time this year trying to see what’s going to happen in 2023, not a surprising fact given that I always try to look ahead at market conditions. This year has proved more complicated because it’s brought the seller/buyer personas into even more tension than usual.
Over the last 40 years, enterprises have largely abandoned the notion of “network planning”. Back in the ‘80s, they saw both network and compute technologies as projects, an infrastructure that was gradually evolving as it took on new business missions. That’s because we were in the early phases of empowering workers, customers, and partners with information. Now we’ve matured in both computing and networking, and enterprises treat both technologies more like office space; the underpinnings are just there, and you clean your facilities periodically with a fixed budget. Even the network operators who used to have a formal planning cycle as recently as a decade ago have been moving away from that model in favor of simply budgeting maintenance and addressing pain points.
Another force that’s entered the picture is the dot-com crash and regulations, specifically Sarbanes-Oxley or SOX. The crash at the end of the ‘90s was arguably brought on by Wall Street analysts who hyped stock valuations to the point where responsible financial metrics like earnings per share were meaningless. However, SOX had the effect of making companies focus on the next quarter, because instead of valuing a company on the long-term potential, you hopped from quarterly report to quarterly report. The future depends on the casual presumption that current-quarter forces will continue to drive progress. But will they?
All this has created a major challenge for tech, and the financial issues this year have exacerbated that challenge by introducing the unwanted notion of risk. The pandemic created a market problem, but it was one that had a specific cause and admitted to a set of familiar government remedies. As 2022 rolled around, everyone was expecting a return to normalcy, which meant a return to what had been true two years earlier, before COVID. That meant returning to that notion that the path to the future was defined by those successive quarterly reports.
People lived differently, and companies operated differently, during the pandemic. What was particularly important was the shift from “going to the store” and buying online. In fact, even “going out” was replaced by online relationships and entertainment. It was a profound shift, something that relied more on tech than ever before, and it kept tech strong through the period. But the pandemic is now over, people are going to the store, going out. Many saved up a lot of money, because they had little to spend it on, were afraid to spend, or both. People who had savings were now able to take some time to find the right new job, and we saw a major shift in the labor force. These forces hit production and distribution of goods, reducing supply as demand was increasing with the feeling that “the pandemic was over.” The fact is that we have undergone a major transformation here, perhaps more significant than the onset of the pandemic, and that major transformation is now facing tech.
The transformation of consumer behavior has exposed a weakness in consumer tech, which is the reliance on ad sponsorship. As I’ve pointed out, ad spending has tended to grow a bit slower than global GDP, and so far the online market, particularly social media, has succeeded by taking market share from traditional advertising. That shift has made television more challenging; many shows today have 25% ad content, and we’re seeing content production getting bought out as the market tries to accommodate shrinking revenue growth potential.
The concept of the metaverse is arguably one of the major advances in technology, but its realization is tied to social media, which is in turn tied to ad sponsorship. Meta itself, the obvious primary player in the metaverse, may have too many quarterly earnings challenges to jump wholeheartedly into metaverse fulfillment. The economic challenges this year, combined with Meta’s issues are likely the major reason why venture capital is holding back on funding startups.
In business technology, the problem is the “quarterization” impact I mentioned earlier. It’s difficult to get quarterly growth with product strategies that demand considerable long-term thinking and planning, and so we are actively avoiding even considering the major, systemic, impacts created by both the economic shifts I’ve noted above, and the technology shift that’s been generated by the evolution of the Internet and the cloud into what’s essentially a single marketing/sales ecosystem.
“Online” is redefining how we live and work, and that means it’s redefining how virtually every element of every country’s GDP is being created. This is a truly seismic shift, and while it’s been underway for thirty years or more, it’s reaching its peak now because the drive to enhance delivery of information to customers, partners, and workers has finally integrated computing and the web, with the cloud. Online experiences have been driven by ad sponsorship, but part of the cloud revolution is that we’re bringing them to the core of how we do business. That’s leaving the OTTs wondering how to continue to drive revenue growth, and it’s changing what we mean by both computing and network infrastructure. It’s uncomfortable, but there’s no question that we can’t go back to the comfortable time. We need to face the future and deal with it, and so I’m going to blog about some of the changes we need to make through this week.