Has the IT industry lost faith in itself? In April, Larry Ellison told The Wall Street Journal that the computer industry “is as large as it’s going to be.” Google Inc.’s Eric Schmidt and others are making comparisons to historical market bubbles involving canals and railroads, which were followed by relatively humdrum periods. Perhaps most aggressively, in a controversial Harvard Business Review article, editor at large Nicholas G. Carr argues that IT doesn’t even matter anymore, and that it’s rapidly losing its ability to deliver competitive and strategic advantage.
This type of pessimism has emerged during every prolonged IT market downturn. For example, in the late 1980s, when the U.S. economy seemed to have lost its edge, IT got much of the blame. I remember meeting with senior executives at IBM Corp., who were pondering a study from a large management consulting firm that had concluded that IT really wasn’t such a great business to be in and that IBM should prepare itself for a low-growth and low-profit future.
But it’s been more than three years since the collapse of the Internet bubble, and it’s time for all of us to put our hair shirts back in the closet. A practical first step would be to stop referring to the IT industry as “mature,” which Webster’s defines as “having completed natural growth and development.” Does anyone really believe that these words apply to our business?
The most obvious flaw in this surprisingly widespread idea is its total lack of global perspective. The U.S., with 5 percent of the world’s population, accounts for some 40 percent of the global IT business. How could anyone use the word mature to describe the state of IT usage in India, China, Russia, Brazil and many other countries? Indeed, if someday the rest of the world invests in IT at even half the current per capita rate in the U.S., the global IT industry would more than triple.
I’ll give pessimists the benefit of the doubt that when they describe the IT industry as mature, they are really just talking about the U.S. and perhaps a handful of other developed nations. But even here, their arguments can’t withstand much scrutiny. Consider the consumer market, where radical changes can be expected once high-bandwidth Internet, 3G-style wireless and home network systems are widely in place.
Even in business, maturity is the wrong word. Industry researchers say IT spending now accounts for 7 percent to 9 percent of the U.S. economy. But as more business is digitized and more tasks go online, is it really so hard to imagine that in seven to 10 years, IT-based activities could comprise, say, 15 percent to 20 percent of overall economic activity? Such a shift would allow today’s U.S. IT business to more than double. And mature industries don’t double every seven to 10 years.
The reality is that IT isn’t just a separate economic sector like manufacturing, retail or insurance; it’s an increasingly essential part of nearly every industry. It also remains the single largest source of business innovation and competitive advantage. IBM’s Sam Palmisano got it right recently when he said IT spending can consistently grow from roughly 1.8 to 2.3 times the rate of the overall economy. Over time, this will result in a vast new IT landscape, which will make today’s “mature” industry look primitive by comparison.