Smell of Change Not So Sweet

Datamation content and product recommendations are editorially independent. We may make money when you click on links to our partners. Learn More.

Nicholas Carr – again. Outsourcing. Identity theft. Security – again. Wireless. Web Services. Service Oriented Architectures. Longhorn, then Vista. RFID – again. If we were pattern-recognition experts, what would we see? “Nothing,” you might say, “it’s all chaos!”

What the hell is going on in our industry, anyway? Here are three things to think about. Should we be happy or worried?

1. The technology industry is consolidating. CISCO continues to gobble up companies and even service companies are attracting mergers and acquisitions – and everyone’s already heard too much about Oracle’s acquisition of PeopleSoft.

Will this trend continue? Yes, with a vengeance. Why? Because commoditization, especially of infrastructure products and services, is continuing with a vengeance. Differentiation in this space is tough – it’s even tougher to generate profits from commodities, which require scale to make money.

What does consolidation mean to us? Fewer choices (like what the new cable TV industry gives us) and even fewer bells and whistles. The change is in the distribution of power among the vendors. First, fewer vendors now have more power; secondly, fewer powerful vendors means less competition and eventually higher prices (or at least less negotiating room).

Is this good for the industry? Well, it’s good for the deep-pocket survivors, but ultimately bad for the consumers of technology products and services. If we fast-forward 20 years, technology consumers will be screaming for more government regulation of technology utilities.

2. There are also major changes in the value and location of skill sets. Undergraduates actually understood this earlier than industry pundits. Voting with their feet, thousands of them have abandoned the technology majors, including computer science, software engineering and management information systems. They saw the handwriting on the wall almost three years ago, when technology and business process outsourcing began to increase so dramatically.

Programming expertise is far less valuable in the U.S. today than it was in the 1980s or 1990s. Much of it is leaving the U.S. for cheaper pastures. It will never return. The only refuge is in skill sets like advanced architecture and complex data integration and mining, areas less likely to be commoditized because they grow from digital technology innovation which is still largely led by the U.S. (but perhaps not for long).

The problem is that the education and training industries are not responding quickly enough to re-orient students to different careers. If educational and training programs remain in the 20th century, there will be no vakuable skills to market.

3. Innovation is at risk. Technology companies are hoarding huge stockpiles of cash. Why? Probably because they have less confidence in future revenue than they are revealing. Why not use the cash for more R&D? The Bush administration has influenced spending reductions in basic research – through the National Science Foundation (NSF) and the Defense Advanced Research Projects Agency (DARPA) – in computer science and information technology. Years ago DARPA funded the lion’s share of Ph.D.s in the field, but no more.

The private equity venture capital crowd is investing less and less in seed and early-stage companies and thereby depriving them of innovation capital. This has already had a profound effect on computing and communications technology innovation. Instead of risking capital on seed and early-stage companies – which, incidentally, have higher historical returns than later-stage companies – they are behaving more and more like conservative bankers (who prefer to loan money to people who don’t really need it). These trends plus the undergraduate boycott of technology majors will create an innovation drought.

Is there any good news? Yes, technology is now cheaper and more reliable than it’s ever been. We have sets of management best practices that actually make a lot sense, things like standardization, project and portfolio management, vendor management, and the like. Integration and interoperability technology is evolving. Whole new hardware and software architectures – which will stimulate whole new forms of transaction processing – are emerging.

All pretty good stuff. But control of the industry, measured by consolidation, skills and innovation, is shifting. Fewer vendors, commoditization, de-valued skill sets, and modest innovation will combine to change the industry in ways hard to imagine today.

Yes, I’m worried.