UNDER THE TECH RADAR By Michael S. Malone
While we’re worrying about making the next mortgage payments, great corporate armies clash by night.
Long before the popularization of White House Chief of Staff’s Rahm Emanuel’s line, “Never let a good crises go to waste,” that idea has ruled here in Silicon Valley and the in the rest of the high tech industry.
As you may have noticed over years, tech is not a traditional business, but rather a series of redirected frenzies. First, you have a boom . . .and everyone works 80 hours per week, paddling first to catch the wave, then to stay atop it, then to get rich before it crashes.
Then comes the bust – often welcomed by tech folks because, for all of the misery it brings, it also seemingly presents a chance to catch one’s breathe and put the craziness of the last boom in perspective. But, in fact, that is not what happens. In a process that has been going one now for a dozen boom-bust cycles over the last half-century, once the players recover from the initial shock of the crash, pick themselves and dust themselves off . . .they quickly recognize that a new opportunity has presented itself. Once more, a frenzy begins – but this one much less reported and much more under the radar than the Mardi Gras of the boom cycle.
This new ‘bust’ opportunity is almost as exciting as that presented by a “boom”. It is the chance to pursue a new product, technology or market . . .or company . . .without the usual attention (and thus competition) that characterizes business life in the tech world.
Think about it: during the dot.com boom of the late 1990s, it was almost impossible to do anything in tech under the radar. Not only were literally dozens of magazines dedicated to covering the tech boom, but the mainstream media also suddenly re-discovered Silicon Valley and assigned reporters to cover it full time. Meanwhile, thousands of budding entrepreneurs, backed by billions in venture capital, were shaking every bush to come up with a hot new idea around which to build a company. Some of those entrepreneurs were your own employees – and they would have been more than happy to take one of your ‘secret’ project ideas, steal it, and find investors to build a company to compete with you.
So, in those days, unless you had a secret skunkworks lab hidden in Burkina Faso, the world was going to pretty find out what you were up to.
Now, roll forward just a year after the dot.com bubble crashed. Thousands of start-up companies have disappeared, big and mature electronics companies have laid-off tens of thousands and a struggling just to stay alive. Almost every one of those specialty business magazines have died and the national media has packed up and gone home.
It was during this black-out period that Apple Computer embarked on a little project in consumer electronics. During good times, everyone in tech would have heard about it – just as they did about the iPhone a few years later during the next, smaller, boom. But in 2000-2001 no one was watching, especially after 9/11. So, Apple was able to carry out this product’s development with remarkably little scrutiny – especially given that this was Apple Computer.
That product, the iPod, quickly proved to be one of the greatest products of the era . . .not least because it caught the competition so flat-flooted, and because it was such a superior product of long and secret planning. The competition to the iPod was so stunned by Apple’s announcement that, one can argue, it still hasn’t caught up – and Steve Jobs has used that market leadership (and the billions of dollars the iPod has made) to introduce a series of category-defining products that continue to keep the competition on its heels.
Now Apple appears to be about to it again with the rumored impending announcement of a ‘tablet’ computer. Once again, we are seeing the advantage of an economic downturn for a smart company. Note the difference between the ramp-up to the iPhone 3G last year and the “tablet” today. A year ago, with the economy still strong, scores of reporters were analyzing Apple’s every move; employees, not concerned about their jobs, were leaking information about the new product – and almost everything about the new phone was in the public domain weeks before the device was formally introduced.
By comparison, look at the coverage of the Apple “tablet”. No one is even sure it exists. There are no photos, other than photoshopped speculations. There are no specifications or price points. No one in Apple, afraid of losing their jobs in a Silicon Valley with record unemployment, is talking. If this Kindle-Killer is actually real, its formal introduction by Apple will be a bombshell, the first big product announcement of the new, post-crash economy. And Apple will once again steal the march on its competition.
Right now, to a lesser degree, this kind of thing is happening all over Silicon Valley and the tech world. And perhaps more than ever before. One reason is that, thanks to incredibly misguided government interference and regulation, the traditionally biggest playing field in tech during a bust – new company creation – is all-but non-existent. There’s a lot of iPhone app developers and small-time entrepreneurs out there using this interval (and their unemployment) to try and start new enterprises. But with the venture capital industry paralyzed, IPOs rare, stock options all-but outlawed and Sarbanes-Oxley punishing success, the usual rush to create the next eBay or Google, just isn’t there this time. Real talent these days is choosing to spend this bust cycle in safe jobs in big companies.
A second reason for all of this corporate maneuvering is that smart CEOs and their executive teams now have full learned the lesson of undertaking big campaigns under the cover of economic darkness. And those companies that have any cash on hand (another lesson some have learned: hoard cash during the good times to pay for strategic moves during the bad times) are already on the march: Intel has held steady on its R&D investments even as profits have fallen, Cisco is in the midst of a massive internal reorganization to create three dozen stand-alone business units, HP has merged its computer and printer groups and squeezed every penny out of its overhead rather than cut back on investments, Oracle continues to buy companies, Google is still rolling out one new application after another, and Microsoft – suddenly not bleeding talent from every doorway – can now, for once, get its new version of Windows out the door and, according to early reports, looking like a coherent product rather than the work of a committee.
These companies are also quietly maneuvering against each other as well. Traditional strategic partners, such as Cisco and HP, have now quietly begun to sever there ties and reposition for a fight. Just this week, Apple bought a digital mapping company – suggesting that, now that Google CEO Eric Schmidt has left the Apple board, the two companies are preparing the sever their long-standing ties. And over at NVIDIA, that company’s new chip architecture announcement this week suggests that it is going to abandon the gamer market that once made it rich, and is now turning to collide with Intel over the high-end/supercomputer market.
If you’ve read about any of this in the media it was likely only as an anecdote – or as an aside in a larger story. But time will soon show that many of these will be industry-changing events – moves that will create fortunes and destroy others, that will reshuffle entire businesses, and which will ultimately affect our daily lives (and our stock portfolios). And when that happens, we will be surprised . . .and wonder why we didn’t see it coming.
But it is coming already, as these little-noticed moves suggest. What these brilliant, and often ruthless, corporate executives understand is that, as one Fortune 50 CEO once told me: You merely survive good times; you win or lose during the bad times. And these folks play to win.
[To read ten years’ worth of Michael S. Malone’s columns on technology and culture, please visit www.abcnews.com]