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Monday, November 24, 2008

Tech products: a luxury we can do without?

As money gets tighter, many people are finding that tech products and services are not as essential as they once seemed

When Best Buy, the big electronics chain, last week cited "seismic" shifts in customer behaviour in reporting weak earnings, it confirmed that the consumer side of the tech world is in for a rough ride. When Cisco and Intel also reported poor results, and Sun Microsystems announced a big layoff, they confirmed that corporate tech spending is looking very weak too.

Both business and consumers, it seems, are quickly figuring our what new gadgets and what software and services they can do without, or at least what they can buy more cheaply. And if you think about it, that's likely to be quite a lot of things.

Let's start with consumers. Big-screen HDTVs are an obvious item for the chopping block, but the list is long. Fancy phones, new video game systems, iPods and other music players, satellite radios, global positioning systems – all definitely fall into the category of optional purchases for most people. And that shiny new laptop, or the slick 21-inch monitor? They can wait till next year.

Many of these products are also attached to services, which is another area people are looking to save money. The $200 mobile phone bill, the $120 for satellite or digital cable television, the $40 for high-speed internet access, the $12 a month for the satellite radio – not to mention the Netflix account, and the games you need to feed the machines – can all suddenly look like a luxury. People need their phones, sure, but they don't necessarily need a smartphone.

It's true that entertainment – notably the movie industry – traditionally does well in a recession, since people need escape and have time on their hands. Video game sales were actually quite strong in October – practically the only retail item in that category – which may be proof of that theory. But still, most personal technology products and services are not likely to prove very recession-resistant.

On the corporate side, the picture is a little more complex, but no less ominous. Lots of companies will find ways to push new technology projects back. One of the biggest industries where a lack of cutting edge technology can kill you quickly – finance – is in the midst of a huge contraction. So tech spending would likely be under pressure no matter what the trends in the industry.

Unfortunately for a lot of traditional tech companies, the trends are working against them too. While "cloud computing" is in many ways a meaningless buzzword, it's true that a growing number of tasks that once required expensive desktop software and the machines to run them can now be done differently, and more cheaply.

Leading the charge on this, of course, is Google. At NewWest.Net, we now use Google Apps for document sharing – no server needed in the office! – and as of this weekend we're using it to run our e-mail too. File storage? Web site analytics? Spreadsheets? All free from Google, at least for now. My suspicion is that some of these things will cost money once Google has everyone hooked, but in the meantime it's a mortal threat to everyone from Earthlink to Microsoft.

At the same time, open-source software continues to spread its wings. As anyone who makes commercial use of open-source technology knows, such software is not exactly free; you still need to pay programmers, and it can be much more of a hassle. But in tight times, more companies will be willing to put up with some additional inconvenience if it saves them money.

The credit crunch, in fact, undermines a central premise of the technology industry, i.e. that investment now will pay off later. Even if that were always true, it doesn't help much if there is no money to invest now, and no way to borrow it.

If you have cash, there will undoubtedly be a lot of bargains out there in the coming months. (Try renegotiating that cable or internet access bill; you might be surprised at the provider's attitude.) But if you are on the selling side, get your money upfront – and be prepared for a particularly cold winter.


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