After the pain, high tech will revive growth
Irwin Stelzer from today's Times (London)
GEORGE BUSH cut taxes so that American consumers could afford more high-tech products. Alan Greenspan cut interest rates - again - so that it would be cheaper for high-tech businesses to raise capital.
It has been to no avail. The chief executives, entrepreneurs and assorted high-tech types who gathered in Aspen, Colorado last week for a seminar on Cyberspace and the American Dream could find no solace in lower taxes and easier monetary policy.
Not that there was an absence of optimism. Even the Hewlett-Packard boss, Carly Fiorina, whose opening address coincided with the release of a dismal earnings announcement, professed to see light at the end of the tunnel, although she declined to estimate the length of the tunnel. Having studied medieval history and philosophy at Stanford University, she suggested that the solution to all the audience's problems could be found in the writings of Hegel. Get your team together, let thesis be followed by antithesis, and synthesis is sure to follow.
Tom Siebel, chief executive of Siebel Systems, offered a surer map to renewed recovery. He told his colleagues that the current quarter will be worse than the last, that the fourth quarter will be worse still, and that we won't see an economic turnround until the third quarter of 2002. In the meantime, hundreds of companies will disappear.
"But that's not the end of the world," he said. In the longer term, businesses built around the internet will prosper because the world's companies must serve their customers quickly, whether those customers choose to reach their suppliers by mobile phone from a pickup truck on a farm, by e-mail, by fax or by post. Siebel's company, which provides the software to make all this possible, now has 8,000 workers, sales of $2.5 billion, and is growing at 60% a year.
More important to the future of internet-based companies was Siebel's view on privacy. Many people are convinced that the inability to assure privacy, including the protection of credit-card information, is holding back the growth of online sales. Siebel, who has several big banks among his customers, says this is nonsense. "Nothing is as insecure as the telephone," he says, and thousands of people use their credit cards for telephone purchases every second.
The industry also thinks it is being held back by the lack of broadband development, without which the world wide web has become the world wide wait, and internet users who want to download music, movies and other entertainment are frustrated.
Fewer than 10% of American homes have signed on to broadband, and the blame game has started. Many of the players in the high-tech market are convinced that the local Bell telephone companies are using their monopoly of the so-called last mile - the copper wires that go from the street into homes and offices - to freeze out competitors who want to develop broadband services. The Bells deny this, and blame archaic regulations. A few economists point out that the $50-a-month charge for the service might be a bit steep for all save the geekiest geeks.
The discussion of what customers might want to do with fast internet access was the most revealing. The verdict: entertainment.
David Limp, chief strategy officer at Liberate Technologies, pointed out that Britain's interactive games channel has a higher market share every night than MTV, that 60% of households in selected test areas say that they want video-on-demand, and that where this service is available the video rental market has dropped by 50%.
John Sie, founder of Starz Encore Group, agrees that entertainment will drive consumers to broadband, and that movies will be the main entertainment they will be willing to pay for. Since he operates 15 movie channels, that should come as no surprise. But what did surprise his audience was his insistence that consumers do not want pay-per-view. Instead, they want to pay a flat monthly subscription that gives them access to many films at times of their own choosing.
But, Sie warns, the broadband pipes down which these films must be fed will not become ubiquitous until the local telecom companies are forced to divest their networks, removing their incentive to stifle the growth of competitors.
For those who survive the current downturn and are around to offer the myriad services that broadband will make possible, the future seems about as bright as a future can get.
Dale Jorgenson, a distinguished Harvard professor and past president of the American Economics Association, has studied the high-tech industries and how they affect productivity and economic efficiency more carefully than any economist. He says the information-technology (IT) sector is a major source of rising productivity and economic growth, and the continuing fall in IT prices will drive the sustainable, non-inflationary annual growth rate of the American economy to 4.1%.
To be conservative, he forecasts that the economy will grow for years to come at a rate of 3.5% once the current bump in the road is cleared.
That was a thought the beleaguered audience clung to as they left Aspen for the real world of falling profits and credit windows that have slammed shut.
sunday-times.co.uk |
