2009 Predictions for the IT business

· by Steve · Read in about 11 min · (2311 Words)

So, 2008 is almost done and 2009 rapidly hoves into view. I thought I’d share a few of my predictions for the next 12 months, on the frankly dubious assumption that anyone on the Internet actually cares what I think. Specifically, I thought I’d talk about some IT business topics, since that’s what my mind is largely focused on when it comes to trying to figure out what’s going to happen next. We all know that the economy is well and truly wedged in the toilet, and is likely to slide further round the U-bend as the Christmas period recedes behind us and cold, harsh reality clamps its jaws around our unmentionables. Predicting that isn’t anything exciting - it’s obvious to everyone.

But what about the details? Here’s a few predictions I’ve been pondering about over the last few days.

  1. The ‘Web 2.0’ hype bubble will finally burst. Investors will cease to blindly invest in everything with ‘social networking’ in the title and start asking where the returns are. The multitude of sites that have assumed that so long as they’re trendy & popular, they can figure out a business model later, will find that just about everyone will lose patience with them in 2009, and the easy answer of ‘advertising’ won’t be enough as ad revenues continue to free-fall. I predict that an awful lot of these sites will fail to find an independent business model, and sometime in 2009 (or 2010 if they’re lucky) will be begging to be acquired by a larger company that can use them as a means to an end, or as crowd pleasing ‘fluff’ around something with a real business model. It will be a buyer’s market, and the stratospheric valuations in 2006/7 will be reduced to a fraction of that in the cold light of day. A few might discover a viable model independently, but probably not without offending some of their users, who have come to expect everything for free.  But then, since investors won’t be clamouring to fund new sites for these people to hop over to anymore, they probably won’t have anywhere obvious to go. The dream world of completely free everything on the Internet funded by advertising that doesn’t get in your face very much will slowly die, leading to more premium subscription models, micro-payment models and much more obvious ads.
  2. Open source use will receive a boost. Obviously when money’s tight, you look for the cheapest option and as such open source will continue to get more attention. Not just because of the lack of an initial license fee, but because it hands more control back to the customer, rather than the traditional model of the supplier keeping it all to themselves, and calling all the shots when it comes to upgrades etc. In addition, companies that use open source foundations to make their own premium products or services will find that open source continues to offer them more freedom to explore business opportunities, without being dependent on a supplier that may pull the rug out from under them, or even become a competitor in the future.
Despite this, I still don't foresee that much growth in the desktop Linux market. Ubuntu continues to make progress there, but I still don't think it's that attractive to the general public. Despite making lots of improvements, it's still more tricky to look after than either Windows or OS X, and I personally am still nowhere near recommending it to non-technical family members. It's probably no more difficult to switch to for general home use, when it works, but things like device compatibility and what you can do when things go wrong still requires far too much involvement from traditional geek circles. Still one for the enthusiasts rather than the uninterested general public IMO.

Server-side though, I see lots of possibilities. Cloud-based hosting services are still in their infancy, and I believe there's a lot of untapped potential there, from both businesses of all sizes and from general consumers. The Internet as a storage space and processing centre has a massive amount of growth still in it, and open source is perfectly placed to be at the centre of that - both because open source already runs most of the Internet anyway, and because the nature of it encourages collaboration, data exchange, and perhaps most importantly, trust. I think virtualised capacity in the cloud will continue to expand & mature in 2009 and well beyond.
  1. Microsoft will continue to do well. Despite open source’s growth, Microsoft isn’t going anywhere soon and will continue to prosper, particularly with existing customers. Not only  will they continue to recognise that customers see benefits in open source, and try to respond to that (like including jQuery in Visual Studio), but they are very good at delivering value and driving down prices, and they will benefit from budget-constrained conservatism in existing customer sites. As a cash-rich company, they have significant room to provide price incentives, and they have proven themselves capable of providing value in a number of core business areas. While I think open source will continue to gain traction in companies that make software, and at companies with a more technical bent or who are starting up and looking to break moulds, companies that mostly use software as a means to a different end, and particularly those that already use Microsoft software are unlikely to risk change in this climate. When budgets are being heavily cut, provided Microsoft can come in with some good deals for products / tech that the business already uses, that will probably be more attractive to that business than risking a migration away from Microsoft, even if doing so has some potential for long-term benefit. For a couple of years, budget horizons are going to be shorter and therefore any projects that deliver long-term rather than short-term benefits are likely to be put on ice, which will undoubtedly work in Microsoft’s favour, particularly with their existing installed base. Also, with headcounts reducing, software which requires more up-front cost but is easier to manage (requiring less expensive technicians) will continue to be attractive. Again, this still applies mostly within their established product lines - Windows, Office, Sharepoint - the more a company needs to stray outside this core, the less likely MS is to be such an obvious choice.
Whether Windows 7 will make it out in 2009, and whether people will care is very hard to tell at this stage. Vista showed Microsoft that people are willing to step off their upgrade treadmill if they feel the product isn't giving them something compelling. In theory there's still some pent-up demand from people who skipped Vista, but that's not guaranteed to be released unless Windows 7 delivers something tangibly desirable. So far, I'm not seeing much that says 'buy me', unless it's somehow combined with a touch-sensitive device or something. Frankly, I just don't think people care about operating system upgrades very much anymore, it's what they can do with an entire device that matters most.
  1. Apple will continue to do well. Even though they make products that are generally expensive, what differentiates Apple from say Microsoft is that they make products that tend to work well as a complete package, and that people aspire to own. People don’t buy Apple because they feel they have to, to be compatible with X, or because that’s company policy, or because the upgrade cycle told them to. They tend to buy Apple because they want the product. As we all know, when you desire something you tend to find a way to obtain it, and are much less likely to be discouraged by extraneous circumstances compared to something that you have little emotional investment in purchasing. While the economy will undoubtedly hurt Apple’s sales like everyone else’s, I think the desirability of Apple products will make them more resilient than most. In addition, offices, long a bastion of Microsoft, seem to be becoming more open to Macs these days, no doubt assisted by the iPhone. Apple is in no danger of overtaking Microsoft yet, but the days of business people ruling out Apple products as just for graphic designers and hippies seem to be firmly in the past.
  2. Contractors will find it particularly difficult. Obviously as headcounts get reduced, contractors tend to get cut first since there are no redundancy complications to worry about. While I have a number of jobs at various stages of the pipeline right now, I’m expecting things to slow down in the next few months and to become less predictable. In a way I don’t mind so much, since I plan to invest any additional free time in R&D / product development for when the market picks up again. When the immediately paying work is there, you tend to take it since you don’t know when the next job will come along, but in fact investing in your own IP can be more important for the longer term. Provided you have the financial flexibility to keep going while the external sources dry up a little (and having been ruthlessly prudent, I’m lucky enough to have that option, for a while), it’s possible to come out the other end in a stronger position than if you’d just contracted on other people’s projects the whole time. That’s my glass-is-half-full perspective anyway 😀
  3. Some SaaS vendors will have problems. “Software as a Service” is a nice idea that sometimes works, particularly in high-margin businesses or where you can exploit leverage the development investment of others (e.g. resellers / deployers of open source software who don’t contribute to the core project). When you need an on-demand service that can be throttled depending on your needs, it is efficient and serves customers well, as well as allowing some vendors to get a foothold in markets otherwise dominated by incumbents. However, the thing about services is that they can also be cut quicker than product investments when you’re trimming costs. Product models load the sales revenue at the start of the customer relationship, when they’re expanding, and that’s non-refundable. Service models amortise that revenue across many months or years, and assume that the costs of signing that customer up will be recouped over the period of time they are with you - eventually of course equalling or exceeding the amount of revenue generated from a product sale. This means that losing a customer, or having them scale back, can lose you more revenue quickly - essentially it’s a model that reacts much faster to a changing situation, so you can’t build a buffer up from the good times so easily to last you through the bad times. The counter argument is that since services are more scalable, customers may still at least continue to spend at some level, rather than cutting completely. I think when you add it all up, the surpluses in product models will exceed those from service models in a volatile environment. Thus, I think some areas of the SaaS market are at greater exposure in a downturn, exacerbated by the fact that they’ve never had to deal with one yet. I think we’ll know a lot more about the practicalities of SaaS models by the end of 2009, particularly which ones are the most resilient.
  4. The traditional PC hardware business will continue to stagnate. Personally, I wouldn’t put any bets on lots of people clamouring for faster CPUs or GPUs in the next 18 months. Enthusiasts will still love them, but I think that for the general public, machines have become ‘fast enough’ for what they need, and they’re much more interested in hardware with a different focus - such as sub-notebooks and smart phones. Dx11 will largely follow the Dx10 trend and be very interesting, but will be mostly of marginal practical importance - optional extensions to mass-market applications, and a prerequisite only for specialist applications where hardware & software requirements are predetermined. Dx10 adoption was even slower than my relatively pessimistic predictions; despite having some nice features, the (artificial) Vista prerequisite and upgrade requirements made it a hard sell (and as expected, a plethora of underpowered cards that supported it on paper but were basically unusable in any practical sense muddied the waters still further). Dx11 will benefit from the fact that more time has passed, and that it works on 2 operating systems (Vista and Windows 7, assuming people start adopting one or the other in greater numbers), but that advantage may well be wiped out by the weaker economy.
In general, I think the time has passed when the general public were onboard with demanding new & faster machines because their operating systems are getting more complicated & demanding. The only areas where I see some headroom still remaining (excluding hardcore gaming here, since it's a minority) are in interfaces - touch, speech, image recognition, automation, trend analysis and prediction. And even then, I think people are more interested in seeing those applied to their portable devices than their desktops.

I do however see potential for much consolidation, where tech that was previously only present in hardcore machines is now far more widespread. You can still create some great looking content with a Dx9-class machine, and the benefit is that now, lots more people have them - in fact cheaper consumer cards sold as Dx10 class are often much better applied to Dx9 class applications, where they can actually perform acceptably. I forsee a lot of potential in bringing high-quality, if not cutting-edge, content to a much broader audience.

That’s the way I see things going anyhow. It’s looking fairly bleak in a great many respects, but there are always opportunities to be found even in the worst of circumstances. At the least, there’s nothing like a good shake-up to really separate the wheat from the chaff.