Perspective: Oil is hot, tech is not

Nearly two years ago, a Harvard Business Review editor crashed our tea party--that would be the one in tech wonderland--with the audacious claim that "IT doesn't matter."

Then Larry Ellison (Mr. Audacious Himself) declared "the end of Silicon Valley as we know it."

The reaction was swift.

Carly Fiorina told Hewlett-Packard customers and the rank-and-file that the HBR article by editor-at-large Nicholas Carr was "dead wrong."

Steve Ballmer said: "Our fundamental response to that is hogwash." Bill Gates added: "We disagree with all this." And a Microsoft senior vice president told CNET News.com's Martin LaMonica: "It's insanity."

Scott McNealy, no less, sided with Gates. As the Sun Microsystems CEO put it: "To get an advantage, I need to know more about what happened in the last six hours than my competitor. It won't happen through smoke signals...IT is critical to make that happen."

Intel chief executive Craig Barrett, Cisco Systems CIO Brad Boston, VCs including Bill Gurley and Stewart Alsop, and the trades--Computerworld, eWeek and Infoworld--along with Fortune magazine, all pooh-poohed the idea.

"Silicon Valley isn't dead," Alsop stated in Fortune. "It's just recharging its battery."

Carr's point is that IT follows a pattern that is "strikingly" similar to railroads or electric power.

On Wall Street, IT doesn't matter, at least not much.

"For a brief period, as they are being built into the infrastructure of commerce, these 'infrastructural technologies,' as I call them, open opportunities for forward-looking companies to gain strong competitive advantages," Carr said. "But as their availability increases and their cost decreases--as they become ubiquitous--they become commodity inputs."

As for Ellison, he said: "Well, Silicon Valley had this view of themselves or we had this view of ourselves that we'd be forever young. There would always be lots of little start-ups funded by venture capitalists that would become giant companies.

"The fact is that the computer industry, like every other industry before it is going to mature and we're going through that maturation process right now," Carr said.

So who's right? Well, the proverbial fat lady is still singing merrily, but to borrow a phrase from my hero, Columbo, "Hmmm. They might be onto something."

Your take
Offer your thoughts

In online journalism, you get the last word. What's your view on whether IT matters nowadays?

On Wall Street, IT doesn't matter, at least not much. Oil is hot, tech is not. That's right, an icky commodity, not a server, is what's creating the buzz.

RealMoney.com columnist Jim Cramer echoed a sentiment last week that he is hearing on the trading floor.

"Enough of these Ciscos," Cramer wrote. "I can't take it anymore. I want something that goes up."

You technophiles might want to blame this injustice on President Bush. But beware: More people are realizing that oil prices will remain higher (even with an expected correction), thanks to rising demand in countries such as China and India.

If the low pulse rate beating in the tech sector in recent years isn't enough to remind you, I created a chart (thanks to Stockcharts.com, Mr. McNealy, not smoke signals): It tracks the stock price performance of Microsoft, HP, Sun, Intel and Cisco since mid-2003.

Microsoft, Cisco, HP et al are bellwethers, but IT is much more than that.

From July 9, 2003, to Feb. 5, 2005, it shows Cisco, Sun and HP all down, Microsoft and Intel up about 2 percent, the Nasdaq up more than 17 percent, and the Dow Jones industrials up the most--at 18.41 percent. (There's no URL for this, or I'd link to it.)

"Lies, damn lies and statistics," you say. OK, let's take a look at what's been happening in the real world. Forget, for instance, that TiVo-backer Alsop left his big VC firm for something "more individualized," or that ad lineage at the trades remains slim.

Consider this:

•  Carly "you're dead wrong" Fiorina was ousted as HP's CEO after her acquisition of Compaq Computer "didn't matter" when it came to turning around the legendary computer giant. HP is rudderless and should consider a break up or even selling itself, many analysts contend.

•  Microsoft's growth has slowed--gadzooks, it even pays a dividend now--and its track record in products has been mixed. Redmond continues to improve Windows security, XBox and MSN. But Longhorn--supposedly the kindling that's going to light a bonfire under IT--was significantly scaled back and its launch was postponed.

•  Sun's stock has stagnated in the $3-to-$5 range for two years. Despite some calls for "new blood," McNealy is still the CEO, although he promoted Jonathan Schwartz to No. 2. Management hopes that CIOs will open their wallets this year--just like last year and the year before.

If that's not enough, IT consolidation is in full swing: Oracle bought PeopleSoft after a drawn out process, and Symantec bought Veritas for $13.5 billion--the biggest software deal ever.

"Whatever," you might say, making the shape of a "W" on your hands. Microsoft, Cisco, HP et al are bellwethers, but IT is much more than that.

To be sure, IT is not dead.

Google's initial public offering reminded us of that. Although its stock slumped last week amid fears of an online ad slowdown, the IPO was one of the year's biggest business news stories. Salesforce.com went public in another successful offering. Next year Silicon Valley upstarts such as TellMe are expected to go public.

Open source continues to make inroads, too, although that old bugaboo--the "business model"--worries people.

Steve Jobs is rebuilding Apple Computer into more of a consumer electronics, not just a computer, powerhouse. The iPod, barely 3 years old, now accounts for one-third of Apple's sales and dominates the MP3 player market. I also think the Mac Mini portends Apple's push into the Media Center business, but we'll discuss that at a later date.

OK, you ask, so does IT matter nowadays or not? Is Ellison right? Sure IT matters, and sure Silicon Valley will continue innovating.

But it just might not be the growth business that it was previously.

Nowadays--as hard as it is for technophiles to swallow--IT is playing second fiddle to Big Oil.

Biography
Jeff Pelline is editor of CNET News.com. Jeff promises to buy a Toyota Prius once hybrid cars are allowed in the carpool lane with solo drivers.

More Perspectives

sun microsoft???

I'd be interested to know what Scott thinks.. :-)

[ron williams]

IT investing

If I had the money to invest I would rather invest in oil than microsoft, apple, sun, HPQ, or others. The reason for this is oil continues to go up. Also why should I put money into companies who's tech support is horrible (HP, Microsoft, Gateway) and is supporting helping india sound horrible on tech support. As we all know the bloom of technology if off the US and the possibility of it coming back without major changes it doubtful. One reason for this is microsoft is so expensive for product that are colorful and full of holes. In the "hayday" (mid 1990's) there was more money going around. For example there was not the option for many people to burn CD's, or Peer to Peer networking/napster. I think the U.S. is causing some of our problems anyway.

If you want to tell me your opinion of my statement please e-mail [e-mail]

IT can help compete in Big Energy

Jeff:
I agree that there are some very good reasons why Wall Street is
currently more interested in oil than in bellwether IT stocks.

However, there are ways to overcome the world's thirst for
energy and power that do not depend on dwindling oil supplies.
In particular, nuclear energy has demonstrated that it can
replace oil in many applications; it is simply a more capable
product. One way to discover more energy is to do some
research, and with internet search tools that is a lot easier than
it used to be.

News aggregators and podcasting are also exciting new areas
that provide real value to researchers.

BTW, if you lived in Virginia, you could drive in the HOV lanes by
yourself if you are driving a hybrid car. The trouble is that the
system has proven itself too popular and the HOV lanes are now
carrying tens of thousands of hybrids every day. Guess what -
the lanes are slowing down.

Rod Adams

Disagree

While tech is in a period of consolidation and clearing of the old guard deadwood, I think it's incorrect to pronounce it irrelevant. May I remind you that the environment for tech right now looks very much like it did in the 1991 timeframe, and we all know how well it did subsequent to that downturn.

You fail to see that areas such as security, EII, wireless, and others are full of new an innovative startups. You also fail to see that success stories like Apple are not just abou the iPod, but also about new areas like digital video and audio production.

Anyway, unless one believes that all innovation is dead, and that everything that can be invented has been invented, then the landscape doesn't look so bad. Just because Oracle and Sun and HP have gotten so large that they can no longer innovate, doesn't mean that smaller more nimble players won't.

[betelgeuse68]

Unfortunately....

While your analysis is dead on if you're a consumer of these goods and sercvices, it also does not consider the fact that many jobs in high tech have been lost and will never be replaced again... much like the steel and textile businesses which have sought other places in the world to setup shop. The fact that the iPod and WiFi are hot are no comfort to me as I struggle to find work. I've managed to survive during this downturn but dare I say, the prospects for the future continue to just look flat out grim.

[aabcdefghij987654321]

and oil will last?

he seems oblivious to the fact that all oil on the planet will be depleted in less than 40 years, maybe 20

[JeffPelline]

Thanks for your responses!

Your instant feedback makes for good reading and is greatly appreciated. Isn't the online media gratifying, even if you disagree? As for bearish predictions about when oil runs out, I think the subject is still up for debate. Here's one article that sheds light on the issue: http://www.popsci.com/popsci/science/article/0,20967,670731,00.html

[iqula]

Look beyond and see

The IT market is shifting, like it's design the business hubs will decentralize too empowering the small guy once again.

I say this because with the rise of open source and modern online services the small guy can create a great service as usable at the largest on the web and provide the customer much better personal service.

Revolutionary new services like the free for life 1GB personal online desktop http://www.cosmopod.com are on the rise, whilst some of the older behemoths clutch onto their archaic business models.

In today?s markets one thing we can be certain of is change and considering the internet only became a commercially run backbone in and really, for us, to be in 1995. Change in this space is rapid and ruthless.