What a difference a day makes

In a year that saw dot-com turn to dot bomb, North Americans adopted technology into their lives in droves, almost to spite the stalling economy. Then, when it seemed innovations could do no wrong, North Americans watched in disbelief as technology dropped the ball on the day they needed it most.

When future academics look back on last year, they will remember it for one catastrophic event, though it was a year that saw landmarks in many aspects of the industry. And, as analysts and industry participants alike will say, there were problems afoot long before September.

way back when

On the morning of Sept. 11, Nigel Stokes thought things were on the upswing. The CEO of Markham, Ont.-based data-backup company DataMirror, had just arrived at a downtown meeting, grateful that his company had weathered the recently dismal economic temperatures.

“We sure weren’t thinking about changing our name to DataMirror.com anymore,” he said, laughing.

Then, just after 9 a.m., terrorist attacks in the United States changed how Stokes and the rest of North America thought about everything from budgets to how they opened their mail.

“It created quite a shock for most companies and there is still a lingering effect of when the other shoe is going to drop,” Stokes said.

“It’s going to be a difficult first half (2002), but I think we will come out of this with a sense of purpose and optimism. People won’t have spent their budgets in the first part of the year and in the second half of the year they will spend it.”

It’s easier for Stokes to be more optimistic than many CEOs – his business has seen an upturn since the attacks.

But Jonathon Eunice, president and principal analyst at research group Illuminata, said the recession was well on its way before September.

“The years of 2000 and 2001 – well, we were already sliding,” he said from his Nashua, N.H.-based office. “Sept. 11 just really cemented the recession and indicated there was more of a malaise in terms of customer spending. Times were not great prior to the WTC disaster.”

He added, however, that many companies saw the same dubious success as DataMirror did, when sales actually accelerated post-Sept. 11.

“For security, especially for the biometrics folks, there was a tremendous uptake,” he said. “We realized that we have to be a lot more positive when we let people into our computers and into our data systems.”

firewalls are not enough

What seemed the stuff of sci-fi movies six months ago suddenly has CEOs in a tailspin. Measures that before had privacy activists crying foul pre-WTC attack are suddenly making it into budgets nationwide.

“We as an industry have punted on security,” Eunice said. “We have said, ‘Yeah, yeah, it’s important, so we will kind of give it a slap-dash lick and a promise and some day we will look at it.’ Now we know that’s not acceptable.”

That may be why 67 per cent of executives surveyed in an Accenture study this October plan to institute formal crisis management into their business models and 71 per cent said they will initiate greater computer and network security.

But people’s new-found interest in security isn’t all that new, said Doug MacPherson, security specialist at Tivoli. He said CEOs have been making quiet changes for a while.

“The threat is just more real now,” he said.

MacPherson contends that people have always been concerned with security, especially securing online transactions. It’s just that now businesses have started listening.

“What they are all realizing now is that they are going at point solutions and customers are asking for aggregation,” MacPherson said from his Toronto office. “Privacy is good for business. If I talk to you and say that I respect your privacy issues, you will do more business.”

But it won’t be long before MacPherson expects us all to go back to our old ways.

“It’s going to wear off because life goes on,” he said. “If nothing bad happens for another three months, we will be back to normal.”

Renegade nerds

A deluge of mischievous and destructive viruses and hackers came up from their basements this year, producing chaos in personal e-mail with viruses such as Code Red and hacks to online news.

Alex Ferworn, a computer-science professor at Ryerson University in Toronto, isn’t surprised that more malicious hackers and virus writers surfaced in the last 12 months. After all, he said, there are entire Web pages dedicated to teaching code that allows even the most junior hacker to break into everything from telephone systems to e-mail.

“Before, unless you were a dweebie guy in your basement in your underwear dialling in, you probably wouldn’t do it,” he said.

Now, malicious code writers and hackers, around since the dawn of the Internet, are coming out of the woodwork and into a hard-drive near you. What’s worse than the increasing numbers, however, is the intent.

“I think people are being affected more,” Ferworn said. “More and more people are using mail and mail seems to be the avenue of attack.”

He added that hackers were more interested in getting their kudos on a successful attack than ever, resulting in more attacks on more visible Web sites. The embarrassing thing, he added, is that these hackers and code writers are not the evil geniuses the media makes them out to be – they are just folks taking advantage of what he calls “shoddy manufacturing.”

“Why would someone make software that apparently an idiot could break into and many idiots have? All these attacks are the same,” he said. “All of them are based on your stupidity or the poor software.”

Law left in the dust

This year also saw the law – renowned for stagnant attitudes toward decision making – attempt to catch up with the unruly world of technology. As many -including IDC Canada country manager Michael O’Neil – expected, the law lost.

“The legal system does not move fast enough to impose remedies on the software market,” he said. “The legal system is very deliberate because it is intended to be very fair. Deliberation takes time.”

That couldn’t be more evident than in an American Department of Justice antitrust case against Microsoft Corp. that, in the end, left the Redmond, Wash.-based software giant relatively unscathed. O’Neil said it was just a case of the justice department seizing upon an issue that seemed “sexy” and attempting to use it to force Microsoft to change the way it did business.

“It should be obvious to everyone that the one thing this case proved conclusively is that the legal system is not agile enough to produce remedies that apply meaningfully to the software market,” O’Neil said. “What will be interesting is if the government is capable of applying that lesson to the next level of software and competition that is becoming crucial to the market. Merely relaunching an antitrust suit addressing a new technology is simply not adequate. It just dooms us to paying millions more dollars to no particular end.”

In evidence of another legal hangover from the ’90s, the U.S. courts finally decided to side with The Recording Industry Association of America (RIAA) and ordered Napster to remove all copyrighted music from the Internet software service.

O’Neil said Napster, which became the ad-hoc method of sharing files over the Internet, was “unquestionably the single most important Web-based application on earth.”

Napster may have come to a screaming halt following the suit, but it takes more than a court ruling to change the shift of power that it started. For the first time, consumers took power away from suppliers and it worked.

“Napster had huge impact on every aspect of the Web,” he said. “There has been a real reluctance on the part of suppliers of intellectual-capital based services to recognize this, but it doesn’t make it less true.”

Broke budget for broadband

Murmurs of Canada-wide broadband access, which once seemed so exciting, fell out of style quickly in the days following Sept. 11. The brainchild of Industry minister Brian Tobin was almost completely left out of finance minister Paul Martin’s budget speech on Dec. 10.

However, even those banking on the broadband initiative were not bitter about the fund diversion.

“Overall, it was good budget,” said Bill St. Arnaud, senior director at Ottawa-based Canarie Inc., an Internet development organization. “Broadband has been delayed and you can understand, in these circumstances, why. However, the funding has been delayed but the program itself is still going to move forward.”

St. Arnaud reasoned that Canadians carriers are more forward thinking about broadband than their southern neighbours and that is why this country will succeed with national broadband.

What goes up must come down

Last year also saw personal computer sales drop off for the first time in their history, but for once, Sept. 11 wasn’t entirely to blame.

“I think much of the world is just saturated,” Eunice said. “We have been watching the encroaching saturation of the Western world for some time and there is a limit to how fast people will replace computers.”

Eunice explained that PC buyers have just become satisfied with the equipment that they have purchased in the last few years. Rightfully so, considering what buyers can get for a mere $1,000.

“The amount of computing power that we have thrown out there is very high end, and people don’t need to replace as aggressively as they once did,” he said.

Eunice said that the one thing that may have picked up sales again was the one thing computer users nationwide were lamenting in December’s federal budget.

“If we had a world where every home had multi-megabit connectivity, then yes, multimedia on demand would be a much bigger thing, but we are still at a pathetic level of adoption,” he said.

odd bedfellows

In a year where economic woes were the norm, the technology industry scrambled to compete. Some attempts, like Microsoft’s launch of its new operating system, XP, failed to attract buyers, a failure made worse by the lack of PC buyers. Other attempts created company races more competitive than ever before.

Warren Shiau, software research analyst at IDC Canada, said today’s server race means customers are getting a lot more for a lot less.

“You have all this additional functionality added, but do you see the prices that the vendors are able to charge increasing? No, you don’t,” he said.

And when you can beat ’em, you merge, or at least try to – as Hewlett-Packard and Compaq attempted to do in the late summer. That partnership met opposition and confusion from the start, with angry founding families voting against the deal and making stocks of both companies tumble.

Ring in a recession

What’s the new year going to bring? A recent Accenture survey shows that 91 per cent of executives believe that delivering on customer service is the critical factor in getting through the recession.

However, analysts think it’s going to take more than the fabled little something extra to get through next year.

“Survival is going to be the big theme,” O’Neil said. “There is quite a lot of growth opportunity, but getting at that opportunity is going to require fundamentally different approaches than have been successfully exploited in the past.”

In the IT heyday, he continued, you could sell “feeds and speeds” to IS managers in volumes and margins that were sufficient to fuel the growth of the industry. Now, the industry has to understand the business problems that can be addressed with technology and apply in a meaningful way to business managers, not to IS managers.

“The IT industry has a poor record for that,” he said.

Eunice said it is a matter of understanding that people are more interested in cost efficiencies than new opportunities these days.

“Times are not rolling fantastically like they were in 1999 and much of our psychology has yet to adapt to the fact that 1999 was not a baseline,” he said. “Those were boom years.”

Production: create sidebar

The bigger they are, the harder they fall

It seemed like in one minute, Nortel executives were flying first class for morning business meetings, and in the next they were unemployed and crying into their generic brand of Fruity-o’s.

If there was one thing they could all take solace in, however, it was that they were not alone in their fall from grace.

The year 2001 saw companies, such as Nortel Networks and JDS Uniphase, several of which were giants in their fields, take a sharp hit in profits and, inevitably, lay off thousands of people in a single blow. That kind of action, as would be expected, takes an incredible toll on the entire market, says one Canadian analyst.

“It’s devastating – like a mass disaster,” Lawrence Surtees, senior telecom analyst with IDC Canada in Toronto, said. “That number of people and the shock that it puts through the sector is huge.”

Less than two years ago, Nortel and JDS had big plans for 2001.

“Between Nortel and JDS it would have been close to 3 million square feet of new manufacturing that was slated to go in this year,” Surtees said. “Between Nortel and JDS, there would have been around 13,000 new jobs in the Ottawa/Montreal area alone that were slated for the beginning of this year. They were going to hire all these new workers to meet this exploding, astronomical growth.”

But, with the way things played out, the companies quashed their plans and sent workers packing. Surtees added that layoffs of that magnitude – close to 45,000 for Nortel and 15,000 at JDS – can have a ripple effect, making university students trained in the field no longer attracted to careers in the industry.

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