Editor 06-Sep-01
No Rebound for Tech Stocks

The current malaise has no quick fix, but technology will be coming back, starting around the middle of next year.

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Services

04-Aug-01
MS Guns for Intuit

04-Aug-01
.Net Gains Speed

15-Jul-01
Court of Appeals: Guilty!

13-Jul-01
Back in Operation

09-Feb-01
Software Licensing

15-Jan-01
Is Linux for Your Business?

1-Jan-01
Predictions

25-Dec-00
Microsoft Invades Accounting

21-Dec-00
.Net Takes Shape

24-Nov-00
The Next Windows

08-Oct-00
Winds of Change

23-Jun-00
Microsoft .Net

10-Jun-00
Microsoft strikes out at Linux

7-Jun-00
Tried, Guilty, Sentenced

28-May-00
OS/2 Finally Dead

11-May-00
The ILOVEYOU Worm

6-Apr-00
What's to be done with Microsoft

25-Mar-00
Our Web comes alive again

In the popular mind, the current slump in technology stocks is all about the Dot.coms. Clearly, this is not so. Take the NASDAQ averages where most of the important tech stocks trade and compare to Microsoft. Two years ago, the NASDAQ and Microsoft tracked together, and had for a year previous. Then the great Dot.Com boom, and bust, and the NASDAQ is back tracking right along with Microsoft again, headed down. With the Dot.coms canceled out, there is evidently a more serious problem.

The PC Industry - down for the count

For two decades the tech stock market was driven by the PC, but the sizzle is gone from the PC market - it's deflating, and it's going to stay that way. The PC market was born of innovation, and grew and prospered by innovation, but that's gone - there hasn't been anything really new for a decade.

There's little reason to buy a new PC, because all you get is the same thing you already have, running the same software that does the same stuff the same way - Windows and Microsoft Office. Since it'll come with newer, fatter, slower versions of Windows and Office, it won't even be any faster. Unless your old PC dies, why bother?

The PC architecture is disfunctional, unstable, hopelessly obsolete, and should have been scrapped more than a decade ago - but it's what runs Windows. Microsoft now has total control of PC design - even Intel is no longer allowed to participate. Windows is tied tightly to the existing PC architecture, so Microsoft will allow no significant improvement. End of story.

Since PCs are in "maintenance mode", there are far more PC manufacturers than the market wants, all making identical products that provide the "Uniform Windows Experience". Further, thousands of "white box" builders make better PCs than the big guys for about the same price.

In the business market, PCs are starting to be displaced by Web based applications and "thin clients" of various descriptions, though plenty of PCs will remain for the forseeable future. Thin clients cost much less to administer and maintain.

Ironically, Microsoft's monopoly has hurt Microsoft's growth plans. Low PC sales have forced them to meet sales numbers by selling investments while they seek to leverage their current monopolies into new ones.

Microsoft's next generation XBox, now in the planning stages, is aimed at taking the consumer hardware market away from the PC makers entirely. Sony has similar plans. I see no significant recovery in this market for a long time to come.

Services?

"Services" is the golden fleece sought by every company in the technology business today, including the PC manufacturers - but the lucrative big business market is already occupied by the likes of IBM, Price Waterhouse, Anderson Consulting, EDS and Perot Systems. The PC makers, Hewlett Packard and Compaq in particular, are not making much progress here.

IBM's grip will be particularly hard to break So focused is IBM on services it has suppressed it's own highly superior operating system, OS/2. The disfunctional nature of Windows combined with continuous forced "upgrades" guarantees continuing service revenue at a much higher level than for OS/2.

Now everyone wants to expand into the huge SMB (Small and Medium Business) markets. SMBs, especially the Small part, are nearly impossible for large companies to service - they've tried before and failed before and they'll fail this time. Only small integrators can provide the flexibility and totally customized solutions small business needs.

A bunch of companies thought the rise of Linux would get them on the ground floor of a growing but not yet occupied service area. Results have been disappointing so far. Linux tends to be used for simple, straight forward applications, it has the "OS/2 disease" (once set up it doesn't need service), Linux growth is steady but not earth shattering, and the field was quickly staked out by IBM and Red Hat.

What about Wireless?

Last year wireless was the "Great White Hope" of the industry, displacing PCs as the dominant focus of the Comdex show. I predicted it was vastly overblown, and that has proven the case. Wireless is great for specific uses, but those tend to be niche applications, not mainstream technology.

Problems: the U.S. has fallen badly behind, allowing Europe to take the lead (and the profits). Wireless is more urgent there (to get around telephone monopolies), and here Microsoft uses it's monopoly power to delay wireless standards, slow deployment and discourage software developers. Windows doesn't fit wireless devices, so wireless competes directly with Microsoft.

Companies manufacturing wireless equipment will prosper and grow, but at nowhere near the rate high growth "investors" (speculators) want to see. There will be a few successful "pure plays", but much wireless development belongs to telephone equipment companies, network equipment companies and other manufacturers with established product lines.

Infrastructure?

Makers of high end network gear, like Cisco and Nortel, will be down for awhile, but they'll have solid growth again in a couple of years. The problem these companies have is that the Dot.com frenzy caused overbuilding of infrastructure. there is now far too much fiber already in place, and dead Dot.coms have dumped vast amounts of almost brand new equipment on the market. It's going to take some time to absorb all this.

Companies that serve smaller networks are also overpopulated. Most companies already have networks in place now, so the high volume of the buildup period is no longer needed. There will be fatalities.

So Where Will Recovery Come From?

Ironically, it'll come from the Internet. The Dot.com boom was a total scam, but the reason the scammers were able to pull it off is because there really is something there. The Internet is changing the way people communicate and the way we do business. It just isn't going to happen "on Internet time".

Internet growth is now happening the way business change always happens, by careful planning and cautious implementation, testing for profitability all the way. It's being done by real businesses to fill real business needs.

ASP Services will be a major contributor. This field has a definite upper limit, but it's high enough to allow considerable growth - unless Microsoft crushes it, as they intend to do (see below).

The infrastructure companies will be back as soon as the Dot.com slack is absorbed, but with steady business and reasonable profits, not the high flying fantasy they lived in the boom.

Wireless will be a solid player, connecting various mobile devices to the Internet. Wireless service providers will prosper if they can avoid biting off more than they can chew like Ricochet did.

The PC manufacturers will not be coming back as long as Microsoft holds monopoly control, nor will the software industry in general. Software companies of modest size and ambition will thrive, but many of these will be based outside the U.S., as explained above. U.S. companies with products that threaten Microsoft will be bought out and liquidated.

Service providers supporting Open Source software (Linux, etc.) will prosper, but not as pure plays. They will provide support in combination with other products and services. Open Source provides a low cost foundation that can be combined with proprietary products and services offering more for the money than with a Microsoft based system.

What Are the Dangers?

The U.S.has lost its technological lead in wireless and is rapidly losing its lead in software. Windows is well beyond "end of life" technology, and the longer the U.S. is dominated by Windows, the more of its lead will have been lost to other countries by time Windows finally falls.

Microsoft's clear and expressed intention is to crush the life out of the Internet the same way they crushed it out of the PC, by establishing monopoly control through their .NET Initiative. There is no innovation under monopoly, just ever increasing profits for the monopolist and ever increasing costs for everyone else.

The motion picture and recording industries (MPAA, RIAA) are another major threat. It is their clear and expressed intent to sponsor repressive legislation to end innovation in the distribution of entertainment. Some (DMCA) has already been passed, and they have already introduced legislation to make it a criminal offense to build or own any device that is capable of copying or distributing copyrighted content, or playing it at all except from original CDs and DVDs.

If this repressive legislation is passed, the U.S. will become a backwater in entertainment technology, once again to preserve monopoly profits. Innovation in the production and distribution of entertainment will be halted completely in the U.S., and heavy restrictions will be placed on PCs, game consoles, Internet devices and anything else that could be used to handle entertainment content.

Monopolies stick together. Microsoft is in ongoing negotiations with the motion picture and recording industry to be the approved provider of equipment and software for distribution and playing of entertainment content under the tight controls the industry wishes to implement. A major reason why Microsoft has seized control of PC design is so they can dictate copy protection schemes and playback controls.

To give you perspective on how you will fare as a consumer, a music (or data) CD-ROM, with label and jewelcase packaging, manufactured in modest quantity, is about $0.55. A top artist gets less than a dollar from each CD, most get very much less. I suspect you are paying significantly more than $1.50 for CDs under the RIAA monopoly.

- Andrew Grygus

©Andrew Grygus - Automation Access - www.aaxnet.com - aax@aaxnet.com
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