Extreme swings can have equally bad results

When it comes to information technology, everything is about extremes. If you look back at the past three years, we have been living at one extreme end of the pendulum, which is now in the process of swinging back to the other extreme.

When it comes to information technology, everything is about extremes. If you look back at the past three years, we have been living at one extreme end of the pendulum, which is now in the process of swinging back to the other extreme.

Recent times have been marked by the appearance of hundreds of startup companies all selling the latest and greatest innovation to put your company light-years ahead of your competition. As a force for moving the industry forward, this process is a good thing. But like all good things, too much is less than healthy.

The problem with too much innovation is that as a practical matter, customers can't keep pace. It takes years for most companies to master a new set of technologies, so when the industry proceeds to leapfrog from one innovation to the next, customers get frustrated at a perception that companies are not maximising their investments.

Having said that, the other end of the pendulum is just as bad. Once vendors establish themselves at a customer site, they tend to drop into parasite mode. In the name of helping the customer digest innovation, vendors are very careful to manage the upgrade process as they move customers steadily through new enhancements. On the face of it, this sounds like a responsible way of doing business. But in reality, most vendors are trying to maximise their revenue opportunity, which means they are trying to control the pace of innovation.

Fortunately it is the nature of capitalism that once a company drops into parasite mode, it's only a matter of months before a startup appears on the horizon with a set of disruptive technologies that forces major change. Once that scenario develops, the established company can sit back and watch its market position erode, or it can move aggressively to adopt the disruptive technologies that potentially threaten its existence.

The past few years have been marked by an overabundance of capital chasing every new idea in sight. This led to a state of affairs where too much money was chasing too few good ideas -- I like to call it "webflation". The good news is that this period of irrational exuberance appears to be coming to a close.

With the stockmarket not guaranteeing massive returns, much of the capital available for technology startups will be invested in other sectors. This will slow the pace of innovation, bringing us back to a saner period of time when companies have to actually show a profit before contemplating an IPO.

The danger here, however, is complacency. Established companies will view the change of mood in the venture capital community with relief. And as a consequence, they will become sluggish and less willing to adopt disruptive technologies that may upset the revenue applecart. In fact, if you're a customer of these companies, it might actually become more incumbent on you to push these companies to pursue innovative approaches because the outside forces acting in your interest will have been greatly diminished.

The good news is that this is a temporary state of affairs. When confronted with economic downturns, the venture community eventually recovers and once again focuses on infrastructure technologies for the enterprise. So after a six-month lull, you can expect to see the venture community regroup and make some long-term investments that will pay off three years to five years from now, rather than investing in something that promises a 12-month ROI cycle.

In the meantime, many established companies will take more credit than they deserve for staying in business. And executives at startup companies will take more blame than they deserve for not delivering massive returns on investments.

But like any pendulum, the information technology community is never completely at rest. There's always the next big idea. In the immediate future, we have the luxury of time to figure out just what the next big thing is.

Michael Vizard is editor in chief of InfoWorld.

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