There is a regular-but-not-entirely-regular business cycle, which lasts for roughly 9 years. The cycle is characterized by a period of growth, then strong growth and then recession (or at least very slow growth). Unfortunately, the cycle isn’t exact and it isn’t dependable, or else you could make money out of it, by gambling on it.

Sometimes it lasts 7 years, sometimes 10 or 11. The recession before the current one hit us in March 2001. Before that it was 1991 in the US and the one before that bottomed out in late 1982. Officially the current recession hasn’t yet arrived, but it will probably make its presence felt in the next few quarters.

The current business cycle has been a little odd in the US. Growth in the US economy has been high but it never created many jobs. Productivity statistics from the US Government suggested that from about 1996 productivity has improved at a rate of between 2 and 3 percent per year, which is a dramatic improvement on the 1 percent average for the previous 25 years.

The point at which productivity turned up coincided with the point at which the Internet started to become visible and it has never looked back. There is another quirk in the figures. Investment by US companies since 1990 has been static in almost every area except in IT, where it has risen dramatically (with a pause for breath in 2001/2003). Much of the productivity improvement in the US economy has been within IT industry itself.

The business cycle was shorter this time, fitting in neatly between two bubbles; a stock market bubble in the tech sector, which hit the IT industry hard and a property bubble which has no direct implications for IT, but is giving the financial sector a big headache. As the banks are big IT spenders, IT will inevitably be affected indirectly.

In theory, IT should be counter-cyclical and it usually is. The benefit that IT is supposed to deliver is automation. It either cuts costs and/or improves productivity, accordingly. The figures from the US suggest that has been doing the latter since the later years of the 1990s and it also does the former during a downturn.

Economic Technology

Now that rougher economic times are (presumed to be) around the corner, cost cutting will be front and center on the agenda again. So what are the information technologies that will do well in the coming era, from this perspective?

Here’s a short list:

• Server Virtualization. This is a quick win if you’ve not already done it. Estimates suggest that only 90 percent of the server population out there has been consolidated. The triple impulses to; cut costs, stop the data center from overflowing and be green, make this appealing.
• Client Virtualization and/or Remote Computing. Pushing the desktop into the data center in some way (think Citrix, VMware, PC blades, etc.) will usually cut costs – but please note it is a more arduous project than server virtualization, which has no direct impact on the user population.
• Open Source. Corporate IT Departments stopped being leary of Open Source a few years ago. Now there are opportunities in many places to cut license costs with Open Source products used sensibly. Also a great deal of time can be saved. This is particularly the case on the web where Joomla, Drupal and WordPress have very impressive capabilities (if you want to build a web site or a blog). Do they really cost nothing? Yes they do. Are they really good? Yes they are.
• SaaS. Software as a Service gets more mature every year. It’s inexpensive to implement and easy to trial. The portfolio of Salesforce.com, the leader in the field, is increasing and it is now surrounded by a partner ecosystem. Other SaaS startup companies, such as LucidEra (for BI), Varonis (for data governance) and Workday (for some ERP functions) seem to be making an impression.
• SaaFS. Software as a Free Service could be even more compelling than SaaS. Now is definitely the time to examine the feasibility of web “office applications”, either from Google or Zoho. They are increasing in sophistication by the month and for some users they are “good enough”. Actually there are also advantages to them because the data is held on the server. It allows them to provide an excellent versioning service. Using email as a free service also makes sense for small companies.
• Cloud Computing. The gradual drift towards cloud computing (or utility computing) will become a stronger drift in recessionary times. You can already get many services “from the cloud” like, for example, EMC’s Mozy or LiveVault for back-up.
• Mashups. The joy of mashups comes from opening up your APIs to a developer community and having them develop complementary capability that enhances your own systems/web sites. The neat thing about mashups is that they don’t cost you anything other than the effort to provide a little support to the developer community and enable them to profit in some way if their mashups get used. It’s a kind of free market in software components which can serve a company well if it knows how to manage it cheaply. (See the examples of Ribbit, Facebook, Google etc. if you need a model).

I have a sneaking suspicion that when the IT industry emerges from the downturn, in a year or so it will be a different industry than the one that went into it.