Interesting point this: the lack of price leverage in the technology sector is transferring more power to the end users. This is all part of a fairly predictable process of techological evolution. After the initial surge of speculative activity, the real benefits of the arrival of railway and telegraph were felt in the broader industrial economy which grew more rapidly as a consequence. As the internet and the PC come of age, the interest moves downstream, to individuals and companies who will try and realise the enormous productivity and welfare benefits which are there for the taking in the age of connectivity. Of course, the big unanswered question is still whether the rate of expansion in user markets can grow fast enough to absorb the shock of the Moore's Law driven upward pressure on capacity and downward pressure on prices, and hence turn a deflationary connundrum into a growth explosion. Watch this space for more news!!
Martin Pichinson is one of Silicon Valley's undertakers. His company, Sherwood Partners, has carved out a prosperous niche as an expert in shutting down failed technology start-ups on behalf of venture capital firms and other disenchanted investors. And, this summer, he plans to move his company's headquarters to Palo Alto, Calif., the heartland of opportunity for his rapidly growing business. Mr. Pichinson, 57, does not always bury companies. Some can be rehabilitated or sold off. But Sherwood Partners has shut down 150 once-aspiring start-ups in the last two years, and Mr. Pichinson figures that thousands more are destined to fold. His company stands ready to help things along. "We're doctors of reality," said Mr. Pichinson, who began his business career in the garment industry. "You don't have to have a Harvard M.B.A. to know that more money has to come in than go out." The winnowing of the corporate population is just one sign that the information technology industry is maturing in ways that will affect technology companies, their customers and investors for years to come.
But what's painful for Silicon Valley is beneficial for those who use the stuff it produces. The industry, according to Irving Wladawsky-Berger, a strategy executive at I.B.M., has entered "the post-technology era." It is not that technology itself no longer matters, he explained. Instead, he said, the steady advances in chips, disk storage and software mean that the focus is no longer on the technology itself — with its arcane language of processing speeds and gigabytes — but on what people and companies can do with it. As a result, industry executives and analysts say, the balance of power is shifting away from technology suppliers and toward their corporate customers. At the same time, the use of lower-cost building blocks of computer hardware and software is spreading, making it easier for companies and individuals to share data and work together using industry standards rather than remain dependent on one or two main suppliers. This is more than a backlash against the bubble years, or a mere pendulum swing in attitudes and practices. The technology itself will still deliver waves of innovation in the future. Yet an industry that has risen to account for 10 percent of the economy and nearly 60 percent of business capital spending can no longer play by its own rules. The trends, they say, point to increased pressure on prices and profits for most technology companies, a good deal for corporate customers and a very tricky time for investors.............
Most corporate executives, however, still think there is a lot they can do with technology to give them an edge. Glen Salow, the chief information officer of the American Express Company, sees the recent trends in the industry as working to his advantage. First, he said, the hard times in the technology business have increasingly meant that big corporate customers hold the upper hand in their dealings with suppliers. That shift, Mr. Salow added, has given him not only more bargaining power on price, but also more influence in the products and services that are developed. Corporate customers want to use technology to achieve goals like cutting costs, improving customer service and speeding the pace of bringing new products to market. But in the past, the computer industry has often treated customers with a certain arrogance, selling raw technology, take it or leave it. MR. SALOW recalled a conversation he had in the late 1990's with the chief executive of a major computer company, whom he declined to identify. As Mr. Salow recalled, the computer executive told him, "My job is to make the hottest box on earth and deliver it on your loading dock." "You don't hear that kind of talk anymore from him or anyone else," he said. "There has been a huge change from that perspective. The voice of the customer is being heard."
Corporate customers are insisting that technology companies adopt industry-standard software formats and communications protocols, so that the many different kinds of computer systems in corporate data centers can work together. In doing so, the companies are encouraging a technology trend that was really kicked off by the Internet, with its global reach that connects all sorts of technologies. For the Internet to work, the computer plumbing had to cooperate. And hardware and software standards make it more difficult for technology companies to "lock in" customers to their more expensive, homegrown technology offerings. With their new power, customers are also pressing for greater flexibility in how they buy computing resources — especially as a utility-style service in which they pay only for as much as they use, as if they were buying electricity. Mr. Salow signed a utility pricing and outsourcing deal with I.B.M. last year, in which 1,500 technology workers were transferred to I.B.M. The arrangement, he explained, reduces fixed technology expenses, giving American Express more flexibility. The widespread use of software standards, Mr. Salow added, enables the thousands of internal programmers at American Express to build new applications almost as if snapping together Lego blocks, reducing the amount of code that has to be written by hand. A result, he said, is that the software for, say, a new credit card offering or a fraud-detection feature can be built and put into use in about two weeks; five years ago, this might have taken six months.
Source: New York Times
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