As I See It: Why IT Will Save the Economy
February 11, 2008 Victor Rozek
Explanation #1: Fifteen years ago, two college kids were jogging along the beach and, as they were passing a large clump of flotsam wrapped in ropes of kelp, they noticed something glinting in the sunlight. They stopped, looked, and one of them reached into the slimy mass and pulled out what appeared to be an ancient lamp. As is the custom with ancient lamps, the young man began to rub it vigorously. No sense in taking a chance; they’d feel pretty stupid if they passed up their opportunity to awaken the Genie.
Sure enough, there was a sizeable puff of smoke and a great Genie emerged wearing a dove gray pin-striped suit and hand-crafted Italian loafers. The young men looked on in amazement and confusion, but seeing their dismay, the Genie said, “Hey, I know you were expecting a turban and baggy pants, but I’m a venture capitalist. I used to invest in soft drinks, but I wasn’t very successful. My partners stuffed me in here after I invested in 1-Up through 6-Up. Man, it’s good to finally be out, and to show my appreciation, I’ll grant you two wishes. I know it’s usually three, but times are tough, and I’ve had to cut back.”
Because these kids attended Stanford, one of them said “How about a million dollars in venture capital?”
“You’re not inventing soft drinks, are you?” the Genie asked suspiciously.
“Nah,” said the guys, “software. We were thinking about dabbling in Information Technology.”
“Don’t know what that is,” said the Genie. “Been in here a long time, but as long as it ain’t soft drinks, I can help you out.”
And just like that, a wave rolled up and deposited a large bag at their feet. “Don’t need to count it,” said the Genie. “It’s all there. Now what else would you like?”
The young men consulted briefly, “I guess we want our venture to be successful. . . .”
“Done,” said the Genie, and before either of the guys could say “initial public offering,” the Genie disappeared.
Explanation #2: Fifteen years ago, two young men attending Stanford University took a bunch of hardware and a whole lot of software, mixed it all together, and created an engine that could tame the exploding number of sites on the Web. Oh, and by the way, it turned out it could also generate enormous wealth. Their names were Yang and Filo and when they saw what they had done, they were so happy they jumped in the air and started yelling “Yahoo!” The name stuck. (OK, I made that part up). With a stake of $1 million in venture capital, they worked hard and watched their creation grow. Then, one day, a magic Genie of a different sort appeared. This Genie’s name was Microsoft and it offered $44.6 billion for Yahoo and access to its 400 million registered users.
Consider that the fictional story is only slightly less improbable than the real one. The proposed purchase should hearten the spirits of IT professionals because–monopolistic considerations aside–it speaks volumes about the health and future of Information Technology. Where else could an investment of $1 million produce a 45,000 percent return in under 15 years? Parenthetically, it also strongly suggests that IT can be the crutch that props up the ailing economy.
The sheer amount of the offer is as impressive as it is surprising. Impressive because it is equal to about one-third the value of the government’s proposed stimulus package designed to jump-start the entire nation. Surprising because Microsoft is offering shareholders a whopping 62 percent more than Yahoo’s stock was worth before the offer was announced. It’s no surprise that successful companies are willing to be bold while others remain cautious. Clearly the brain trust at Microsoft is too savvy to buy an overpriced search engine. Nor have the company’s past business dealings been characterized by spontaneous outbursts of excessive generosity. Quite simply, Microsoft knows that the future is synonymous with Information Technology, and it is investing in the potential of that future.
And that potential is vast. According to Newsweek, online advertising alone is a $40 billion annual market “slated to double in the next two years.” [Italics mine.] Microsoft’s brawny buyout offer screams that even in difficult economic times, the smart money is willing to overpay to invest in Information Technology. The investment further underscores Microsoft’s belief that industries unrelated to IT will invest along with it, and shortly double their budgets for technology-based advertising.
For IT professionals, the good news is that the state of the economy is not dissuading critical investment in IT. Information Technology has become the hub of every business, every industry. It is the nervous system of the economy through which digital nerve impulses travel the globe. None but the smallest enterprises could survive for long without a functioning IT department. IT joins water and power as the third utility: a service to which people and commerce simply must have access. Most of us use computers at work; many of us have multiple systems at home, and when we venture into the world, we carry laptops like a fifth appendage.
It is startling to realize that we are still in the formative years of computing and in the infancy of Internet technology. Most of the quantum breakthroughs have yet to be made. Consider how the telephone was used for the first 50 years of its existence, and what capacities phones have now.
Regardless of what the economy does, IT is not going away any time soon. We’ve survived the worst of the outsourcing craze, as its limitations became apparent with overuse. If anything, the need for IT professionals at every level will expand. It will require a continued updating of skills, but when has it not? If Microsoft and IBM are any indication, billions of dollars are being invested in research and development, the pipeline is full of innovation, and the future is bursting with possibility.
Economies are less fathomable than the pundits would have us believe. They may react to market fluctuations and fiscal policies, but are not controlled by them. At core, they are dependent upon the daily choices of hundreds of millions of people whose actions are difficult to predict and more difficult to control. Recessions occur when everyone agrees there is a recession and begins behaving accordingly. Fear itself, as FDR would have understood, can have a greater impact on the economy than the Fed.
Like stock brokers, economists give fortune tellers gravitas, and we’d be well advised to take their predictions with a grain of salt. An economics professor I once met used to begin his classes with this story. An economist traveling abroad was strolling trough a bazaar when he finds the proverbial magic lamp. The Genie offers to grant him a wish. The economist thinks for a moment and says, “I’d like you to make me a time machine. I want to travel back in time.”
The Genie looks aghast. “You don’t know what you’re asking. You want me to bend natural law. Do you know how much energy it would take to do that? I mean, the equations alone could take years. And doing it is one thing, but doing it safely is another. Couldn’t you wish for something else?”
The economist thinks about it, and finally shrugs and says, “OK, I’d really like to understand economics.”
The Genie looks at him and says: “How far back in time would you like to go?”