Waiting for rewards to outweigh risks

Outside the Box

There was a time when pundits could predict with a fair degree of accuracy the issues that would provide strong triggers for IT spending.

But the IT industry’s crystal ball is looking pretty murky these days.

If you look at Y2K spending, for example, pundits did a pretty good job of predicting the huge resulting boost in IT infrastructure upgrades. They didn’t do so well, however, at foreseeing the huge sense of letdown in the wake of Y2K for companies that spent vast sums of money merely to ensure that their systems worked as well on Jan. 1, 2000 as they did on Dec. 31, 1999.

Similarly, when many companies allowed themselves to get caught up in the hype around e-commerce and the dot-com bubble, there were strong predictions of big IT spending increases. And they held true – for a short while. But as the bubble burst, the ones who had spent big found themselves with a need to cut costs and question the value of their spending plans.

It is no wonder, then, that the next big prediction of a huge boom in backup storage and security-related solutions in the wake of 9/11 turned out to be a bust. While there were spending increases by government on very specific technologies that related to things such as airport security, it was not all biometric and backup bliss.

The reasons behind all of the letdowns seem to hinge on a single observation: that it’s easier to get people to take a chance on “added-value” technologies in good times than it is in tough times. In the late 1990s, when the economy was chugging along at a booming pace, it wasn’t hard to make the case for at least spending some money on developing an e-commerce solution in anticipation of the demand for online buying and B2B opportunities. If you didn’t pay, you couldn’t play.

As it turned out, playing was a pretty good description of what many e-commerce sites were doing. While they may have spent enough money to be able to take orders and process credit card payments online, they often didn’t have the demand to make it all worthwhile. All the flaws in delivery and customer satisfaction processes didn’t help either.

The irony is that in 2003, the drivers to spur IT spending may not come from a very different place. Like e-commerce and Y2K projects, they will likely be wrapped in a “you can’t afford to be without this” message.

Take the wireless telecommunications industry, for example. The major players are currently being told to spend money on overhauling their billing systems. The reasoning is simple: in order to recover the huge amounts of money (much of it borrowed) that these companies have spent on their next-generation mobile phone and mobile data infrastructure, they will need to sell a lot more new handsets and more added-value services. These new handsets have features such as e-mail, Web browsing, interconnection to corporate e-mail and network systems and instant messaging.

Older billing systems, however, are designed to create bills around airtime charges, voice mail, call waiting and more traditional voice telephony features. The argument is that mobile phone operators need to overhaul their billing systems in order to have the infrastructure to charge for the kinds of new digital services that could make their networks economical.

This notion has been met with some degree of success, and has spawned a number of intriguing business arrangements. Some mobile phone operators have, for example, decided that operating complex billing systems is not part of their core business and have outsourced the task to third parties. Others have gone in a different direction and decided that they will provide customers with the option of aggregating a number of bill payment functions onto their mobile phone bill. You get the idea.

The real message underlying all this is that the “next big thing” will come from the same place that all the other big things have come from – a common understanding that making an IT investment opens the door to save or make more money, and that the potential rewards outweigh the risks. The latter part is really what is putting the brakes on IT spending.

Companies are understandably very risk-averse right now, although with low inflation, low interest rates and governments that seem set on keeping things that way – that risk aversion cannot last forever.

And as it fades, the freeze on IT spending will thaw.

Wheelwright is a freelance journalist, author and broadcaster. He most recently served as editorial director of StockHouse Media Corp.