The IT Crash in the rear view window

In the mid-1990's Client Server computing was the hot ticket, but on the horizon were two new challenges: the internet and the Year 2000 problem. These were to have dramatic influences in how the new century started and how the disastrous and ongoing IT depression was formed.

The internet really forms a side show to the real story of the IT depression, the big DOT.COM bust looks horrible but the money for this was never lost, it fueled the economy, it perpetuated the industry, and covered over the cracks that were the real reason things got bad.

The Year 2000 problem (a.k.a. Y2K), the change in dates and the consequent super spend to fix ancient and often useless software, is the real culprit in all this. Companies ceased spending on all forms of IT infrastructure other than that required to clear up Y2K issues in late 1999. At that point all resources were being poured into 'fixing' a problem that in some ways need not have existed at all, the trend continued into the early part of 2000, with ever more expensive and ever less productive activities taking place to correct problems that had been inserted as a consequence of the 'fixes.'

The boom in IT spending seen in 1999 is colossal. By some estimates IT spending doubled and tripled that year alone. I have gone on record as saying we probably spent a trillion dollars trying to 'fix' the Y2K issue, companies like Forrester suggest it was closer to $600million - I'll be magnanimous and agree to differ!

The spending was in the budgets for 2000, as well, however it was not used. Best estimates seem to be that actual spending on all IT services by the end of 2000 were running at or about 1998 levels. The kicker came in 2001. After all the spending on Y2K that corporate America made in the prior years, they took a deep breath and looked behind them to see what had been achieved. The view was not pretty. For all the spending they had committed to they had little to show. The old Client/Server systems were basically what they had in 1998 (little was done to add new services in 1999/2000, they had many old systems that due to the Y2K remediation were now useless and urgently needed replacement, an activity that should have occurred in 1995.

A big move occurred in early 2001 as corporations made a headlong dive into ERP systems, intended to replace the creaking older systems. Companies like SAP, Oracle and PeopleSoft boomed as corporations spent to rectify the 10 year oversight of the end of the century.

The real story was obscured by the colour and pizzazz of the Internet boom. Companies winked into existence all over the USA blooming on the gracious capital outpourings of Venture Capitalists, people who suddenly saw new opportunity. Had the big corporations been looking or thinking they might have invested heavily in all this Internet 'hype' and radically reworked their IT structure, but instead they held to the sidelines trying to fix the issues they had with ERP systems purchases the scale of which makes VC capital floods look like a drip from a closed tap. Corporations could not stomach the change that would be needed to fully vest in the concepts that were running rampant through the new Internet companies, so they just sat on their corporate hands. Big corporations had the internet companies in for the dog and pony shows, but they bought little. By the close of year in 2000, closing on the peak of VC investment, corporate IT spending had almost ceased on anything other than ERP systems.

As VC's noted that their investments in the new DOT.COM companies were not being met by wholesale penetration of the corporate world, they quickly turned off the flow of money. With no investment and no sales, the bust in the internet economy was writ large by the winter of 2000. By Spring 2001, internet companies were finding that there was no more money. Some attempted to tighten the belt, reign in spending, but the end was in sight for too many small start- ups. Layoffs soared in the spring of 2001 and didn't tail off until the start of 2002, by which time the 'old' DOT.COM segment was essentially gone.

During all the hoopla that surrounded the Internet boom and bust, Corporate America was backing down the spending as fast as it could.

Candidate George Bush made scathing comments about the economy and its disproportionate wealth creation in the autumn of 1999 in the run up to the November presidential elections, these comments put the hurt on the stock market. The stock market was to climb further, but the brakes had been put on. As VC's funded their excess spending through their market investments, they were in retrenchment mode fairly fast.

In 2000, Corporate America sniffed an economy that needed a rest, after 8 years of boom, and obliged by trimming spending. An easy target were IT projects and procurement. As the economy wobbled in late 2000, corporations also started to divest themselves of IT personnel, often in the form of cutting outsourcing and consultant contracts. By the summer of 2001, these activities were in full flow. IT consulting companies, the tool corporations had used to reduce headcount, slashed employee numbers like never before; certain companies I was aware of expelled 2/3^rds of their employee base - these were all IT people: developers, managers, analysts.

When, in the late summer of 2001, the economic analysts woke to the fact that the US economy was not working well it was all too late. Corporations were not spending on IT, VC's had removed their money, and the fat that the industry had built up was being burnt up rapidly.

Layoffs in IT seemed to crest in the spring of 2002. Employment has not recovered as corporations left alone in the field, once more, have failed to refuel the IT budgets.

The Great IT Depression will likely continue into 2003, but the roots and solution sit in the hands of America's Corporate CFO's, it never rested with the Internet crowd. However, the spending that will pick the industry out of the doldrums will likely be made in an effort to implement many of the concepts and ideas that were fostered in by the now lost dot.comers.