Friday June 15, 12:15 am Eastern Time
TheStandard.com
Y2K Is Finally Here
By Cory Johnson
Y2K, for those too young to remember, was a fright that first swept the world in late 1997. Aging computers, short on memory, had been programmed with two-digit dates. And as the end of the century loomed, a host of computers, chips, software programs and mainframes seemed unable to deal with the change from "99" to "00." So it was feared that failing streetlights, payroll systems, telecommunications equipment and microwave ovens would send the world into some sort of pre-industrial chaos.
At the time, some of these claims seemed specious. There were stocks propped up by vaporous companies offering Y2K fixes, companies like Accelr8, Data Dimensions, Viasoft, Zeitel - to many they looked and smelled like frauds. But in time, it became clear that Y2K was a very real and looming problem. As promised, we got a meltdown in the financial markets, obsolete product lines, a crippling of small dot-coms, an affliction to large firms like Hewlett-Packard and Sun, massive layoffs and unemployment, a protracted global economic slowdown. Crisis? No. A major pain? Probably.
So rightly or wrongly, corporate IT managers began to address this growing concern. A 1998 Morgan Stanley study said one in eight Fortune 500 CIOs would spend more than a third of their budgets on Y2K projects.
But looking back, it seems that the money wasn't always spent where it was expected. Companies like Viasoft saw just $104.3 million in 1999 revenues; Accelr8 had barely $2.9 million. In the end, IBM probably made more money fixing Y2K code than all those startups combined. But the real money was spent on everything else.
Smart companies looked out over three to five years of technology projects and figured ways to squeeze whatever they could into a pre-Y2K time frame. "The Y2K phenomenon hastened a lot of spending," says Richard DeKaser, chief economist at National City Bank. "If you were, for example, going to upgrade your payroll system in 2001, it probably made sense to do it in 1998 instead."
As a result, firms like PeopleSoft and Oracle saw sales surge in 1998. Telecom equipment saw the biggest spike in spending. Figures from the Bureau of Economic Analysis show that the growth in communications spending rose 436 percent from December 1998 to December 1999.
And then, just as suddenly, there was a spending lull. Even late in 1999, some key components of corporate IT spending dipped. As D-Day drew near, IT managers were battening down the hatches. Oracle saw sales fall 15 percent in six months. PeopleSoft's revenues rose just 2 percent in 1999 after 61 percent growth in 1998.
There was a brief halt to the plunge in corporate IT spending in the first half of 2000, perhaps a last hurrah of pent-up demand. But that was it. Companies far and wide seemed to believe they'd bought far more technology than they needed. Spending ground to a halt, and companies like Cisco found themselves unprepared for more normalized growth rates.
"It was one moment of spectacular growth," says DeKaser, "not a new paradigm."
There may be, however, a lasting positive effect of Y2K. CEOs of all stripes were awakened by fear of Y2K. They got to know their IT directors. They now realize technology-driven change will shape their businesses for decades to come.
But that future ain't what it used to be.
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