For two days earlier this month, The Wall Street Journal ran prominent stories about the year-old tech recovery running out of steam. “Drag on high-tech recovery: Companies do more with less” was the above-the-fold, front-page headline on Nov. 9. At first glance, this would seem to be bad news for start-ups, but is it really?
In essence, The Wall Street Journal notes, correctly I believe, that there have been fundamental changes in how IT executives view the world over the past few years. Where in the past they might simply throw money at a problem, now they’ll put considerable effort into seeking alternatives. The Journal views the 15% growth of the last year as a brief “catch-up” spurt, noting that it slowed to 9% in the third quarter.
A day later in The Journal, “Cisco adds to high-tech worries” (on page 3) noted Cisco CEO John Chambers’ “tepid outlook for coming months,” quoting him as saying “the company continues to face challenges, from the hesitancy of corporations to buy technology gear to a rising wave of low-cost Asian competitors.”
It’s interesting to see Cisco on the record about the Asian competitors. While “visibly Asian”-branded products from companies such as Huawei are now in the marketplace, many of the “American” LAN switches that we’ve bought for the past few years have been designed and manufactured in places such as Taiwan.
It previously had seemed that Cisco was immune to that competition. Just recently I had a conversation with an executive at a well-known company that had gone head-to-head with Cisco in the low-end switch arena two years back using Taiwanese technology. Although the company offered dramatically better price/performance, it made few inroads – or at least not the kind of progress it had calculated it would make. It was its experience, then, that customers still willingly would overpay for products that were near-commodity items.
So if The Journal has it pegged correctly, the “It’s only money” days are over – even for Cisco. Not only will this make the aforementioned executive smile, but I think this is good news for start-ups.
When there was plenty of money to be thrown around, start-ups did get some of it but it would be my guess that incumbents got most of it.
Now it’s becoming in vogue to find innovative – and cost-effective – solutions to problems. This certainly plays to the strengths of most start-ups. Of course, where a few years ago it might be sufficient to illustrate how “cool” one’s technology was, today that needs to be married to ROI calculations.
Cisco’s acknowledgement of erosion by Asian-origin products is important, too. Who knows what the field sales teams might say to try to sway customers to keep Cisco, but it doesn’t appear to be working. Note that Chambers didn’t tag these as “inferior” products – because they are not. And, that, of course is the problem – for Cisco.
And, as much as we IT people like to think of ourselves as individualists, we are also part of a herd. Now, with The Journal printing “success stories” of companies that have gone against the grain and delivered better technology for few dollars, more of us will be willing to follow that path.
So start-ups that can “read” what is going on and adjust their message and sales techniques to this new reality might find a fertile environment for their innovation.
