Venture capital’s hot spots include Internet’s return

Let’s get right to it. Let’s see what this year portends:

1. 2005 will be worse than ‘04 for technology companies, but not bad. What do you mean you didn’t notice last year’s recovery?

2. PC growth will be in double digits, but barely — good for Dell Inc., good for Hewlett-Packard Co. It’s time to trade up. Still, the market growth will be only two-thirds of what it was in 2004. Aren’t you embarrassed by your Sony Viao, and don’t you really want to upgrade?

3. Cell phones are booming; we will soon hit 1.5 billion worldwide. New data services will abound, and you will find a reason to upgrade. But cell phone growth will only be 10 per cent more than 2004, down from 30 per cent growth in 2003. Saturation is rearing its ugly head. The cell phone is the new display device. Don’t you want a GPS phone with a built-in Palm/camera and iPod? Of course you do!

4. The Internet is back…not like 2000, but some of those ideas are cooking. The Internet is still a revolutionary technology, and now that the worst ideas have been shaken out, it’s on the move.

5. Application service providers — like Inc. — will re-emerge. Everyone wants to buy by the drink; no one wants to own the bar. Lots of startups. The pricing model destroys the economics of the older line firms, but it’s the way companies really want to buy.

6. IPOs start warm and then get hot. There are too many companies that need to raise money and that have a track record to prove it. No Googles but no, either. These fledgling IPOs are backed up like airplanes on a rainy Friday afternoon at LaGuardia.

7. Storage is up — isn’t it always? No corporation will throw away any data, ever. The problem is that the price of storage is down. Gotta love EMC Corp.

8. Tech spending by big companies will be up 4 per cent or maybe 5 per cent, about half the growth of the economy. The trouble is, every firm has forecasted a 10 per cent increase in market share. IBM Corp. grows in single digits.

9. Texas Instruments Inc. will continue to kick butt with its Display Systems Protocol chips in cell phones and its digital light processing chips in large TVs. You are about to enter the world of high definition, and size does matter.

10. U.S. exports are up and imports are down as the U.S. dollar continues to get beaten up. Which is good. Everyone wonders when the Chinese will devalue, but it really doesn’t matter. Everything is getting built in China.

11. Japan, which looked like it was coming out of its slump, goes back into it. They are 1 for 20 — 20 being the last 20 years. Amazing that they haven’t figured it out yet.

12. China is on everyone’s mind. It dominates the low end of technology and threatens the high end. Everyone predicted the former and no one the latter, and it’s the latter that has everyone scared out of their minds.

13. Backlash coming on outsourcing but not enough to stop it in its tracks. The price advantage of India dissipates as India explores re-outsourcing to China.

14. Cisco Systems Inc. struggles at the high end vs. Juniper as telcos want big-muscle machines. Cisco holds its share in the corporate world but no longer grows at 40 per cent per year. Makes lots of little acquisitions.

15. Corporations continue to be skinflints, not because they don’t have the money (they do), but because they don’t see the payoff. They are still intent on driving down the cost per transaction. Big software companies such as Oracle Corp. and Computer Associates International Inc. have a hard time.

16. Hewlett-Packard Co. struggles more than most, and calls are made for CEO Carly Fiorina’s head.

17. There is no New Big Thing this year.

18. The digital home is one of the few bright spots.

19. Linux continues to go mainstream — everyone says they are onboard. The open source movement becomes a love-in.

20. VoIP is a given everywhere but on Mahogany Row.

21. Blade servers are everywhere, and they are based on open source. Take that, Sun Microsystems Inc.!

22. The Sarbanes-Oxley Act is almost but not quite the spending driver that Y2K was. Beneficiaries: SAP AG, Mercury Interactive Corp., Symantec Corp.

23. ERP and CRM are dead, and there is nothing hot to replace them.

24. “Excess capacity” becomes a dirty phrase; IT people want “just-in-time” capacity.

25. Cell phone safety becomes an issue as more than a few spontaneously ignite.

Anderson is senior managing director of YankeeTek Ventures, a Cambridge, Mass., venture capital fund for early-stage technology companies. He is also founder of The Yankee Group and the William Porter Distinguished Lecturer at the Massachusetts Institute of Technology. He can be reached at handerson@yankee

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