Happy New Year … I guess.
I can't help thinking that 2008 is going to be a strange year, filled with far too few wonders and a whole lot of the unpleasant and unexpected. And nowhere will that be more true than in Silicon Valley and high technology.
Here are my predictions for the coming year in Tech:
Recession — Early last year, I predicted it for late 2007. And I think we'll look back this year and see that, at least in high technology, it did indeed arrive about last September, if not even earlier. This downturn in tech is hardly unexpected: It typically comes every four years or so, and though unwelcome, usually has the beneficial effect of killing off the old and feeble companies as well as the uncompetitive new start-ups. This frees talent and money to go elsewhere — usually into the creation of the next generation of hot new companies.
I've been smelling recession in the air here in the Valley for months now. People are tired, the money is getting distorted, and most of all, a lot of people who shouldn't have jobs are being snatched up by companies desperate for warm bodies.
I also think that the reality of this recession has been largely masked by a handful of great companies — HP, a resurgent Dell, Google, Microsoft and most of all, Apple — swimming against the trend and posting numbers that not only makes the Valley look healthier than it is, but also buoys up the entire U.S. stock market. As we'll see in a moment, that won't last much longer.
I once predicted that this recession would be deep, but short. Now I'm of a different mind: Because it has taken longer to unfold, I also think it will take longer to end. On the other hand, I also think that the larger U.S. recession, which despite recent GDP numbers, also seems under way, may not be as bad as I first thought, as the slow slide downward will help reduce the damage of the mortgage mess. So, look for a shallower recession in both the U.S. economy and in high tech, but also expect it to last into late 2009, with tech coming out of it first at midyear.
Apple Stumbles — Hard as it is to believe, the Apple iPod is now 6 years old, being first introduced just weeks after 9/11. Add to that the introduction of the first iMac a couple years before that, and the iPhone early last year, and Apple has enjoyed one of the most spectacular and innovative runs in U.S. business history. In the process, the company has transformed not only consumer electronics, but also the culture itself. That's no mean achievement for a firm that was at death's door a decade ago.
The question now is whether the company can keep going, pulling still more rabbits out of Steve Jobs' hat. The answer, I think, is probably not.
That's not to say that aren't a few terrific products waiting out there that seem logical extensions of Apple's current trajectory. For example, everybody expects the company to come out with a 3G iPhone sometime soon, which would be a welcome improvement. Even better would be an Internet phone — which is what I think the iPhone should have been in the first place. And coming up with a real keyboard for the iPhone, a la the new LG Voyager, or at least a pulsing touch screen keyboard, would overcome the iPhone's one big flaw.
But then what? The iMac, the iPod (and iTunes) and the iPhone challenged major consumer electronics industries that had either grown complacent (PCs, the music industry) or missed a key innovation (the cell phone industry and feature integration). But now what? The quick price discounting of the iPhone underscored that the mobile phone world was a far more aggressive and competitive one than the aging personal computer world. And already, Nokia, LG, Samsung and every other cell phone maker is rushing to introduce iPhone killers, and the first wave looks pretty damn good. Can Apple really stay ahead of these guys?
And that isn't the only market in which Apple is coming under assault. The company picked up some market share in computers, thanks to the stupidity of the competition, but that isn't going to last. Mark Hurd is riding hard on HP to make it not only the biggest company in the business, but also the leanest, and when times get tight next year, he's going to squeeze the profits right out of the industry. Meanwhile, the prostrate Dell is beginning to show life again — its recent product offerings are pretty sexy — and Lenovo is starting to make its move. Will the results be superior to Apple's computers? Likely not. But these giant competitors need only be nearly as good at half the price.
That leaves music and video, where the iPod owns the market (by the way, when Microsoft, IBM and Intel had this kind of market monopoly, the SEC came knocking; where was it with MP3?). No one's going to take this business away from Apple anytime soon. But once again, short of a quantum leap in innovation, this is now an incremental market — something that Apple has never been that good at. And the competitors are swarming: seen the new Zune? While the world laughed it off and dismissed it, Microsoft, relentless as ever, went back to the drawing board and came up with a nice little machine. It ain't the iPod, but it, and all of its other friends, just may keep Apple from making Apple-like profits. And when that happens, Apple's stock falls … and then how will the company continue to afford fighting this three front war it's now put itself in — all against bigger and richer competitors?
Google Tumbles It goes without saying that Google has been the Golden Company of the last tech boom. It's IPO created thousands of billionaires and millionaires, and its skyrocketing stock prices has made a lot of averages small fortunes over the last couple years. And every time experts have placed a ceiling on its revenues or stock price, Google has smashed right through it as it races upwards into the stratosphere.
It would be comforting to think that the company can maintain this levitation forever. But I've followed Google closely almost since day one and right now, every alarm is going off in this reporter's brain. If you were to come up with the most dangerous possible mix of competitive, cultural and structural threats for Google to face, that's where I think the company is at right now.
I don't have the space here to enumerate all my reasons for thinking Google is heading into a minefield. But simply: Every major media company, smarting from being hoodwinked out of advertising revenues by Google, is beginning to fight back.
Other search companies are racing to come up with better paradigms that Google's own. The company has also begun to bleed a lot of the brilliant talent — the latest being new business director Chris Sacca — that made the company great (and one of my rules is to always ignore the reasons key people leave, just count the feet). Google is also beginning to rush around into all sorts of unconnected new businesses — electrical power? — that suggest too much money and too little focus. It's begun to execute new projects — the Android 'Google Phone' initiative for example — with a mediocrity far removed from its traditional brilliance. And, if what one reads on tech gossip sites like ValleyWag is true, then the top executives of Google are beginning to exhibit the kind of arrogance, indifference to common morality, and sheer decadence that always precedes a fall … not to mention a whole host of shareholder lawsuits and a visit from the Justice Department.
I wish I could be more optimistic about such a remarkable company. And certainly no company with the market presence of Google will simply go away. But right now I can't give the company better than a 50 percent chance of escaping one of the biggest meltdowns in tech history.
Those are the three big ones. Here's a few other predictions as well:
Sun Microsystems: There's nothing more tragic than a once-great company spending years crawling back from disaster !33; only to get blindsided by yet another recession. I'm not sure these guys will make it. On the other hand, hard times will probably be good times for Yahoo!
eBay: Recessions are good for these guys too. But Meg Whitman either needs to shake the place out of its current indifference and torpor, and start rethinking the whole business model … or, she needs to fire herself and get someone who will do the job.
Remarkably enough, especially after its incredible capture of the technological leadership just a few years ago, AMD is at very great risk in the next year of losing everything to Intel — a sad end to a company that fought the good fight for 30 years. AMD needs to make its move right now, while it still has pre-recession profit margins. And, irony of ironies, Intel had better start deciding whether it really wants the one company that keeps it honest — and the Feds away— to die.
Mark Hurd has done a brilliant job turning HP around. He now has the biggest prize of all — leadership of the electronics industry — within his grasp. But if Hewlett-Packard doesn't start exhibiting some real, world-class innovation soon, the company is going to start sliding back into its old post-Bill & Dave ways.
That's it. Like I said, not a whole lot to be thrilled about. But down years in tech are also carrying with them one bit of optimism: They almost always produce the really great companies and products that drive the next tech boom. Find one of those, invest in it and you will have the best chance in the modern U.S. economy to become super rich.
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This work is the opinion of the columnist, and in no way reflects the opinion of ABC News.
Michael S. Malone is one of the nation's best-known technology writers. He has covered Silicon Valley and high-tech for more than 25 years, beginning with the San Jose Mercury News, as the nation's first daily high-tech reporter. His articles and editorials have appeared in such publications as The Wall Street Journal, the Economist and Fortune, and for two years he was a columnist for The New York Times. He was editor of Forbes ASAP, the world's largest-circulation business-tech magazine, at the height of the dot-com boom. Malone is the author or co-author of a dozen books, notably the best-selling "Virtual Corporation." Malone has also hosted three public television interview series, and most recently co-produced the celebrated PBS miniseries on social entrepreneurs, "The New Heroes." He has been the ABCNEWS.com Silicon Insider columnist since 2000.