The economy and technology

We are currently living during extraordinary times; a subprime mortgage mess that has effectively put the entire world economy on hold. Everything from neighborhood grocery stores to the biggest software makers are feeling the pinch. Chipset makers to hardware provides are not immune either and are laying off employees left and right to help remain profitable.

The past few weeks have been brutal to tech industry employees. Microsoft made a historic announcement and said that it will be cutting 5,000 jobs, Sony will cut 16,000 jobs, Seagate will axe 800 jobs, Google will remove 100 jobs, Logitech cuts 500 jobs and the list, unfortunately goes on and on with companies slashing jobs.

The slowdown in the economy has put a massive damper on consumer spending. For the most part, consumers are holding off on big dollar item purchases and instead are saving their money. While it is good to save your hard earned cash the unfortunate downside is that the marketplace solely depends on you purchasing items of want rather than need. This can be seen in the massive downfall of home sales, new car purchases, technology purchases and other tangible items that are not needed to survive day to day.

When consumers stop spending revenue streams for corporations dry up. If you're not in the essential industry (food, water, clothing) generally your products are the first to be ignored as consumers reduce spending. This is prevalent by the amount of jobs lost across the globe.

This is especially true for the technology based sectors that heavily depends on consumer purchasing for pleasure as noted by the job lost listed above. What many fail to understand is how this will impact the market place for consumer based goods.

It's a simple business idea that you can increase profitability in two ways, boost sales or cut expenditures. For a corporation it is much easier to cut expenditures than it is to boost sales, especially in today's marketplace. When a company cuts costs it looks to the areas that it spends the most amount on with the lowest return; in general it's the R&D department. The reason for this is that to create the "next big thing" you have to create a bunch of "not the next big things". Take for example Logitech, they make great peripherals that are generally all the same shape and size. During this hard time they will keep funding proven methods of evolution and will stop funding revolutionary products that may or may not sell well. It's the method of sticking to the tried and true investment, essentially you cut all risky or unproven products to ensure a solid return on your investment. It's this idea that will slow down the advancement of technology.

Many technology corporations have only begun to cut costs. They have been funding R&D for many years and today we see the fruits of that labor. There is no set time table that takes products being in the R&D lab to being on the consumer shelf but it's safe to say that we probably will not see any revolutionary products hit the shelves in the next 24-36 months because of cost cutting done today.

The cost cutting methods are a necessary evil of the stock market as companies need to please shareholders by returning high dividends or earnings per share each year. As we sink into a long dark recession we are all trying to save as we don't know long the recession will last and if you're saving you're not spending. Little spending leads to lower revenues and job cuts which finally results in fewer products to the marketplace in the future; let's all hope we get out of this mess soon so that we can all go back to work again.

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Well written editorial. This is the kind of OC I like to see on Neowin, and hope that future posters use this as a model for their own works.

Sadly, these layoffs are going to lead into more layoffs before the market "settles." You better believe those people losing their jobs aren't going to be doing any economy stimulating.

I think we're going to start seeing a shift. The late 90's and early parts of this decade had an economy that was driven by high tech toys. In a sense, the toy makers are losing their jobs and this is to be expected. I think that the infrastructure advances (as proposed by President Obama) in the US is a good next move to hopefully create new jobs for people and stimulate growth.

MitchLeBlanc said,
There always seems to be an underwhelming response to editorials. I enjoyed the read Brad.

Not to dis Brad - it was an even handed and well written editorial - but the content is, well...a bit obvious and not particularly informative.

Some constructive criticism: take it to the next step. Have an opinion about when the market will turn around. Provide some evidence (even anecdotal) that supports your view. Suggest some companies you think will weather the recession, or how this recession might effect the Internet (both from a technology and financial standpoint).

I'll kick it off by saying "Good-bye" to the many, many, many stupid web 2.0 start-ups that sprang into existence in San Francisco with no business plan or even good idea (I'm looking at you twitter). Some of them might survive if they can generate a revenue stream and the recession doesn't last too long, but since it looks like things are still going to get worse before they get better I doubt it.

Vlad said,
Not to dis Brad - it was an even handed and well written editorial - but the content is, well...a bit obvious and not particularly informative.

Some constructive criticism: take it to the next step. Have an opinion about when the market will turn around. Provide some evidence (even anecdotal) that supports your view. Suggest some companies you think will weather the recession, or how this recession might effect the Internet (both from a technology and financial standpoint).

I'll kick it off by saying "Good-bye" to the many, many, many stupid web 2.0 start-ups that sprang into existence in San Francisco with no business plan or even good idea (I'm looking at you twitter). Some of them might survive if they can generate a revenue stream and the recession doesn't last too long, but since it looks like things are still going to get worse before they get better I doubt it.


+1

Good read, if a little obvious.

Editorial posts are normally interesting reads - I enjoy reading the views and opinions of others. Nice work.

Thanks mitch and Vlad!

@mitch, i know how to write them to get big responses, see my two 6 reason editorials...problem is that its boring to write only about MS or Apple, but the nature of the beast is that those two will get big hits

I went for a more general approac that not many people think about during a recession


@ vlad, point taken and good thought

When things are going so well and you're business is on a high, the only way to go from there is down. Nothing can continue to grow at the rate it has been over the last 10 years. It's already happened in this day and age with the .com bubble bursting at the turn of the millenium. Most of that was bad business practices I'll agree, but it showed just what can happen to an ecomonic upturn in such a short space of time.
My only annoyance is that the UK government did not learn from the last slow down in the late 80's/early 90's. It's even worse than then and anyone who says that they did not forsee this is lying to themselves as much as they are to everyone else.