Business Tech

It may not be happy holidays for the retail industry overall. But the Web should provide one bit of good cheer.

Retail sales will probably be flat this holiday season, but online sales are expected to reach $44.7 billion, an 8 percent jump over last year, according to the latest data from Forrester Research.

Among 4,000 online consumers surveyed, 94 percent have made a purchase online in the past three months and plan to do the same for the holidays. As for retailers, 72 percent of those questioned for the third-quarter Forrester report "The State of Retailing Online," said they expect holiday sales to increase over last year.

But to cope with the down economy, online stores will try to weigh customer demand against the need to boost profits, says the Forrester report "US Online Holiday Retail Forecast, 2009," released Monday.

"Despite the lingering effects of the recession, the online space remains the retail industry's growth engine," said Sucharita Mulpuru, Forrester Research vice president and principal analyst, in a statement. "What's different this holiday from past years is that online retailers will manage to the bottom line, which will change some of the tactics they have employed in the past."

Retailers on the Web will offer sales and discounts as always, but of a more limited time and quantity. Automatic free shipping may be jettisoned in favor of free shipping only above certain price levels, says Forrester.

To drive business, online sellers may also take advantage of new trends. More detailed product information will be available, as will social networking tools that let customers share purchasing advice with friends and family.

"Tighter offline inventories may benefit the online channel as consumers go to the Web looking for products--and prices--they can't find in stores this holiday," said Mulpuru. "Online retailers will be ready for them with a special focus this year on engagement and service."

This was originally posted at ZDNet's Between the Lines.

The technology earnings season kicks off in earnest on Tuesday when Intel reports its second-quarter results, but the outlook for the sector may sound like a broken record: visibility is low, and IT budgets fluctuate with everything from CEO mood swings to the stock market.

A handful of companies--Dell, Infosys, Red Hat, Oracle, and Lawson--have already riffed on technology budgets amid a volatile economic picture. The common thread: IT budgets are just as jumpy as your friendly neighborhood stock, but there are signs of stabilization.

Goldman Sachs expects an 8 percent decline of global IT spending, followed by a 2 percent gain in 2010. Other research outlets, such as Forrester and Gartner, have been cutting their spending projections but remain more optimistic than Goldman Sachs. To say these projections are moving targets is quite the understatement. Why? Executives appear to be changing their minds each week.

Here's a quick tour of the current state of IT spending and what you are likely to hear in the next few weeks:

Dell CFO Brian Gladden said the IT picture has stabilized, but gross margins will be pinched by business demand, component costs, and pricing pressure. Nevertheless, Dell continues "to believe that customers are deferring IT purchases," Gladden said.

Infosys CEO S. Gopalakrishnan said on the company's fiscal first-quarter earnings conference call:

When we discuss with our clients, they were actually probably more upbeat a couple of weeks back. In the last two weeks, sentiment may have become a little bit negative. They also tell us that recovery will be sometime in 2010, beyond this fiscal (year) for us.

Clearly, the ability of clients to forecast and control their own revenues--that's what drives it. It's all driven from the CEO downward. If the CEO sees revenue drop by 20 percent, there is an immediate cut on expenses by 20 percent. This is in the United States, of course. In Europe, the way they handle these things is slightly different. So, it is CEO-down; it is their ability to forecast their revenues, it is the growth or the impact on their own business, so it's really driven top-down, and the IT departments and various business functions react to that, actually.

We've had clients tell us that in March, April, etc., their ability to forecast was one of the lowest in recent memory. They had absolutely no way to forecast their revenues. In May-June, we got the feedback saying that we're feeling slightly better, but in the last two weeks, there is some slight tentativeness again. So this is the uncertainty we are faced with today, and nobody is able to give the comfort level.

That take was echoed by other technology executives. Red Hat CFO Charlie Peters said on the company's first-quarter conference call:

At this point, I would say we have not seen any recovery, and we're not trying to call the timing of the recovery, the timing on the basis that the economic environment is going to stay fairly similar to what it is for the balance of the year.

I would say this: like others that have recently reported, we see a longer sales cycle and in some cases additional levels of approval in sale cycle. But that's kind of the way it's been for the last couple quarters. Our expectation is, that's going to continue for at least a few more quarters.

Red Hat CEO Jim Whitehurst said budgets are still tight and everyone is waiting to see a bottom before moving.

And then there's Lawson CEO Harry Debes. He has "no idea" if the feds' stimulus package will do any good. Like the other executives, Debes is hearing the same song and dance from customers. Debes' money quote:

We have customers that have laid off 30 percent to 40 percent of their staff in the last 12 months. I certainly don't feel good about asking them to spend $2 million or $3 million at this time. I think we want to work with those customers because we want them for the longer term.

Oracle Co-president Charles Phillips, who happens to work at one of the companies weathering the downturn best, acknowledges that "it's hard to call the environment."

The larger question amid all of this uncertainty is this: If tech budgets are shifting by the week, how can enterprises innovate over the long run?

Once a niche market, online banking has grown into a widely-used tool for the average consumer.

Among 3,988 adults surveyed in the U.S. by Gartner Group, 47 percent said they now bank online. In the U.K, 30 percent echoed the same response.

Results varied according to income. Gartner found that over half of all consumers earning more than $30,000 in the U.S. and 15,000 pounds in the U.K. bank on the Internet. Among lower-income households, 25 percent in America and 17 percent in the U.K. use online banking.

"Over the past several years, online banking has been seen as a way of appealing to more affluent and younger clients," said David Schehr, Gartner research director. "However, what is becoming clear is that the overall level of consumer Internet use and the increasingly narrow segment of nonusers--particularly in the U.S.--are shifting the dynamics of who is using online banking and what they seek from it."

Among people who don't bank online, no one single reason was cited above all others, noted Gartner. Around 61 percent of U.S. households and 58 percent of those in the U.K. said they simply prefer to use other methods. However, 41 percent of U.S. consumers and 38 percent in the U.K. blamed security as the most important reason for not banking over the Internet.

Gartner conducted its survey in December 2008 and January 2009 and questioned people 18 years and older.

Overall, the number of households paying bills online is slated to jump 5.4 percent from 48 million this year to 63 million by 2014, according to another report from research firm Forrester.

The report notes the effect of bill consolidation sites, such as Yodlee and Corillian, where consumers can manage and pay all their bills. Such sites are starting to woo more people from the banks' own bill payment sites and will own a greater share of the market by 2012. Banks will need to do a better job spreading the word about their own online services, according to Forrester.

"eBusiness executives at banks need to work to establish earlier and stronger bill payment relationships with young affluents and other young adults," said Forrester senior analyst Edward Kountz. "To strengthen their position and better support these customers, banks need to add more payment options, deploy online and mobile alerts with greater visibility, and continue to hammer home the message that online bill payment is free."

Open source has become big business, suggests an article in the Investors Business Daily, but it has done so by becoming more like the proprietary-software world it purports to leave behind.

The article cites recent research from IDC indicating that CIOs allocated up to 24 percent of their budgets to open-source software in 2008, up from 10 percent in 2007--a finding that jibes with recent data from Forrester. This open-source growth is propelling Red Hat to grow "at two to three times the rate of the broader software industry over a multiyear horizon," according to research from Piper Jaffray.

Red Hat is an example of "free done right," following analysis from TechDirt. We've moved beyond the business models that insist that every line of software be open source: they couldn't scale and tended to treat openness as an end in and of itself, rather than as a means to an end.

Today, if you look at the most successful open-source businesses, none of them pass the ideologues' unrealistic and counterproductive "100-percent freedom" litmus test. Not a single one of them.

And that's OK. Google does a tremendous amount of good in the open-source world, yet took a beating last week for not being open source "enough" on the Open Source Initiative's osi-discuss mailing list. Google's open-source program manager, Chris DiBona, responded:

Yes, I can see how people would think that Android and Chrome aren't 'real' open source. *rolls eyes* Damn foolish assertion, if you ask me.

DiBona is right to refuse to be goaded into a walk down an inaccurate and ill-conceived open-source memory lane. That "give-away-the-software-and-sell-support" model was always doomed to scale poorly and consign its adherents to minimal relevance to the wider software market.

Fortunately, the software industry has been embracing a broader definition for "open-source business" that includes many different ways to contribute to and profit from this interesting development and distribution model.

Those who persist in trying to shove the genie back into a crippled container are doomed to fail.

Follow me on Twitter @mjasay.

Forrester Research is cutting its workforce by about 5 percent, or 50 jobs, worldwide, the company said on Monday.

The research firm expects to incur pre-tax expenses of about $2.5 million to $3 million in the first quarter related mostly to severance and benefits-related costs.

"We have made this difficult decision in response to challenging global economic conditions," George F. Colony, Forrester's chief executive, said in a statement. "Forrester has lived through tough economic times before. We are confident that with our role-based strategy and our current offerings, we are well-poised to successfully deliver what our clients need today and in the long term."

The layoffs will be across functions and geographies, but headcount in the research department will still be 14 percent above what it was a year ago even after the reduction, according to the company.

Forrester is scheduled to report its quarterly and full-year 2008 financial results on Wednesday.

Growth in information technology spending next year is expected to reach 1.6 percent in the United States, a substantial drop from previous forecasts.

Forrester Research's current 2009 estimate, released on Tuesday, is down from its previous forecast of 6.1 percent growth, which was issued prior to the steep drop in IT spending at the close of the third quarter.

In September, Forrester took the unusual step to outside of its usual quarterly schedule, noting that 2009 IT-spending growth would fall to 6.1 percent from previous forecasts of 10 percent growth.

"Our U.S. tech market forecast now assumes that the...decline in U.S. real GDP in (the third quarter of) 2008 will accelerate in (the fourth quarter of) 2008 and the first half of 2009, before a weak recovery starts in the half," Andrew Bartels, Forrester Research vice president, noted in the report.

Call it the elephant approach to sizing up the health of tech.

In two separate reports released Monday, Forrester Research CEO George Colony and Mayfield Fund weighed in on where they believe tech is headed in this challenging climate.

Colony, who took hold of the proverbial elephant's trunk, noted in his CounterIntuitive blog that the current recession will likely result in a tech spending slowdown, but nothing near the levels seen in the post-bubble-burst era of 2001 to 2003.

He noted CEOs and CIOs are indicating they plan to "change their way" out of the current economic doldrums, while the industry should find some comfort in the fact that technology has become more pervasive since the last downturn. So have the youthful Generation Y folks, 18- to 27-year-olds, who are far more wedded to their cell phones than previous generations, notes Colony.

Venture capital firm Mayfield Fund, meanwhile, noted in its fourth quarter report that its CEOs will rely on innovation, resilience and experience to "navigate the road ahead."

Here are a few CEO comments from the Mayfield Fund report that offer a proverbial feel of the elephant's leg, tusk, and tail:

Centrify CEO Tom Kemp: I am hoping the economic uncertainty will weed out some of our weaker competitors and cause our bigger competitors to not invest in the market.

Adchemy CEO Murthy Nukala: The combination of a recessionary macro-environment along with a dislocation of the online media landscape through advanced math techniques is creating a tremendous opportunity for performance marketing leaders like Adchemy.

Slide CEO Max Levchin: An obvious challenge--the economic downturn--is really a big opportunity for companies like Slide that can grow smart (e.g. hiring the best talent, maintaining excellent customer service, beating out competitors) during a recession.

Forrester Research on Wednesday revised its best-case-worst-case scenario for U.S. IT spending. Rather than possibly posting an upside above the base, Forrester is warning, at the extreme, the situation could get worse than its September base projections.

Back in September, Forrester made a base prediction that IT spending would grow 6.1 percent in the U.S. and between 7 to 8 percent overseas. Forrester, at the time, also noted a potential existed that IT spending could exceed its base projections.

But a dramatic downturn in the markets, a virtual chokehold on credit availability, and a financial crisis that has rapidly spread from the U.S. to world markets has prompted the research firm to revise its "alternative view" from that September report.

Forrester is now warning IT spending growth in the U.S. could come in at 2 to 3 percent for 2009 and 3 to 4 percent worldwide. And the research firm noted that some of the quarters in 2009 may actually post declines in IT spending.

"Usually, we don't change our forecast that frequently. We'll usually update it every quarter and the changes are small, like maybe 5 percent to 6 percent," said Andrew Bartels, a Forrester research analyst. "But it's been hard to ignore what's been happening in the markets in the last three weeks and we needed to take note of it in our forecast."

Forrester, however, accounted for weakness in the economy when it updated its September forecast and, as a result, has no current plans to change its base forecast. Bartels added that, given the lack of visibility companies have in this current market, it's premature to issue a completely revised 2009 outlook.

That said, Bartels is hoping companies will use Forrester's revised best-case-worst-case scenario update to make conservative plans for their businesses.

"They should assume our base is what's going to happen, but also prepare for the alternative," Bartels noted.

IT spending got a dose of good-news-bad-news Tuesday, with Forrester Research nearly doubling its projections for increased U.S. spending this year and virtually slicing growth for next year.

IT spending is expected to rise 5.4 percent this year, revised from previous Forrester projections of a 2.8 percent increase.

But next year, growth in IT spending is expected to get whacked down to 6.1 percent from previous projections of a 10 percent increase.

Forrester, which revises its annual projections on a quarterly basis to reflect changes in the economy, attributed the changes to its most recent projections based on the drama that is sweeping across the economy and world markets.

"We think the economy will turn (for the worse) in the third quarter, and if that happens, we'll see a significant slowdown in IT spending in the fourth quarter and then the first and second quarters," said Andrew Bartels, a research analyst with Forrester Research.

Forrester anticipates IT spending will improve in the second half of next year, as the current credit crunch improves, cost of energy and oil come down, and the benefits of lower interest rates begin to take hold.

And because IT spending, despite the downturn, is expected to continue growing, spending on everything from mobile to software-oriented architecture technologies is expected to accelerate rapidly once CIOs feel more confident in the economy, Bartels noted.

Added Bartels: "As soon as the economic climate gets better, CIOs will go out and get this stuff."