Economic crisis as a technology change agent

Economic crisis as a technology change agent

Summary: Sometimes, to make an omelette, you need to break a few eggs. However if this week's bloodbath on Wall Street is any indication, then I would say we've made ourselves a full-blown deep dish quiche the size of Yankee Stadium with tens of billions of cartons of eggs.

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Sometimes, to make an omelette, you need to break a few eggs. However if this week's bloodbath on Wall Street is any indication, then I would say we've made ourselves a full-blown deep dish quiche the size of Yankee Stadium with tens of billions of cartons of eggs. The biggest and most costly damn quiche that you've ever seen, and the likes of which we can hardly afford the indigestion from.

Click on the "Read the rest of this entry" link below for more.

What has happened to Bear Stearns, CitigroupLehman Brothers , Merrill Lynch and AIG this year is tragic, and we all know what caused it, which is the subprime mortgage crisis. We all know that this is going to have long lasting effects on the economy and international markets, and that the lives of millions of Americans are going to be affected by the death throes of some of the biggest financial institutions in the world. We can also be certain that the ensuing belt tightening that is going to follow will have a lasting impact on all kinds of spending habits by large corporations as well as individuals, and most certainly will affect spending on technology. The question is, what forms will these changes take?

Clearly the IT services sector is going to have to diversify, particularly those firms which are so heavily focused on dealing with some of these monster-sized financial companies and that engage in big, risky contracts. However, as my colleague Larry Dignan said recently, there is still a lot of room for those firms which have skill sets and experience doing Infrastructure Consolidation.

Infrastructure Consolidation in and of itself is a change agent because as IT spending decreases and the inevitable headcount reduction associated with it also comes into play, we will see many disruptive technologies that wouldn't necessarily see such aggressive adoption come more to the forefront -- case in point, Virtualization, Open Source, SAAS and Cloud Computing. Sure, all these technologies were on the radar in many firms, and they've had their initial pilot projects and the tires have been kicked, but in the new economy, these are going to be recognized as essential components of the reference architecture which is going to allow everyone to do more with less and will become the new model of business computing going forward.

Virtualization solves server sprawl, which begets greater investment in virtual infrastructure and for the largest of companies, mass consolidation of distributed systems on mainframes and large scale midrange systems (the "Big Minis" like IBM's pSeries 570/595 and HP's Integrity systems). Virtual infrastructure and mainframe consolidation begets use of Linux and other Open Source technologies on the server as increased software license costs and the traditional Wintel model starts to become less viable and breaks down.

Once all the server infrastructure is consolidated and we've reduced data center operational costs and moved more and more of our applications to SOA/Web Services in large enterprises and SAAS/Cloud Computing in SMBs that are less tied to managing their own infrastructure (case in point, the increasing popularity of services such as Salesforce.com) the focus will inevitably head towards the desktop and eliminating as much of that infrastructure as possible with Thin Clients, Desktop Virtualization and Linux, or a solution that combines the two.

While this thrashing about on Wall Street is distressing for everyone, myself included, the silver lining may be that the paradigm shift we were all hoping for may be coming quicker than we thought.

Will the economy force us to do more with less and use radical enabling technologies to help us accomplish it? Talk Back and let me know.

Topics: Storage, Data Centers, Hardware, Linux, Open Source, Operating Systems, Servers, Software

About

Jason Perlow, Sr. Technology Editor at ZDNet, is a technologist with over two decades of experience integrating large heterogeneous multi-vendor computing environments in Fortune 500 companies. Jason is currently a Partner Technology Strategist with Microsoft Corp. His expressed views do not necessarily represent those of his employer.

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16 comments
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  • Protect America

    We are witnessing the evacuation of the best jobs as they continue to move offshore all in the name of Corporate profits and the so-called Free Trade Economy.

    Free Trade isn't free if there are inequities and trade imbalances.

    America can and will return to its former self only if we return to becoming self-sufficient and compete in the world on a level playing field.

    Leveling the playing field necessitates a 'protectionist' approach to ensuring that tariffs apply to goods imported from countries who don't provide equal access to their markets for the sale of American-made goods.

    We must take care of our own back yard. To 'protect' is not a perjorative and means:

    [b]To keep from being damaged, attacked, stolen, or injured; guard.[/b]

    In the same regard, the [url=http://www.answers.com/protect]definition[/url] also mentions:

    [b]To help (domestic industry) with tariffs or quotas on imported goods.[/b]

    Free Trade is a failure. Protect America before it's too late.

    FYI, I also discuss this topic at my website. More [url=http://www.dtschmitz.com/dts/2008/08/i-am-a-god-damn-protectionist.html]here[/url].

    God Bless America and Jason Perlow for his fine blog.

    Dietrich T. Schmitz
    Linux IT Consultant
    D T Schmitz
    • Actually, you're not quite right

      The primary reason jobs are moving off shore has more to do with two factors. The first would be a school system that consistently and continually graduates uneducated children. Children who can't do the jobs because our public schools have become indoctrination centers rather than education centers. They don't teach spelling or grammar anymore because marking something as wrong stifles the child's "creativity". They don't teach math or even arithmetic anymore because they are difficult and cause problems with the child's self esteem. And with out math and a grounding in English there is no science.

      Secondly, we've pushed our skilled labor force out of the market. In a free market economy both parties are free to buy and sell what they can except when it comes to labor. In the case of labor minimum prices are set and in union jobs both minimums and maximums are set as far as costs. The rather comical idea that paying some 8.50 an hour to sweep floors is going to help them buy their daily bread misses the fact that because the bakery has to pay 8.50 an hour for somebody to sweep the floors drives up the cost of that bread by the amount of the raise.

      Inside our borders, the single most expensive part of a product is labor. The next major cost is regulation. Both of which are under the control of our government. Want manufacturing jobs back stop controlling wages and reduce at least the insane and contradictory regulations. The stupid stuff like having the city require fire hydrants be yellow, the country require them to be blue and the state require them to be red. So the poor sap who has a fire hydrant to protect his business and employees has to paint the hydrant every couple of months depending on the inspector showing up. Other examples are Osha requiring hand railings on steps in a meat packing plant and the USDA requiring the hand railings be removed. Both those are at the federal level so it's a bullet we put in our own foot.

      Want the jobs back, tariffs won't do it, taxes won't do it. Take the brakes off businesses, stop screwing with wages at the governmental level, get rid of the more insane regulations and adopt some common sense. Businesses will come back. Don't do either of those we're going to lose our standard of living and our place in the world.
      maldain
      • Anarchist or reactionary?

        Probably conservative is what you'd say, perhaps libertarian.

        If people always did the right thing, we could follow your utopian plan. But they don't. And we don't always agree about what the right thing is. So we have government, ideally run by those chosen by a majority of those governed.

        Except for the Cold War and Viet Nam, things were pretty good 40 or 50 years ago, wouldn't you say? We had nearly the highest standard of living in the world in this country. Labor unions were at their peak. Public schools were doing well too, emphasizing studies in math and science, just like I hear them giving lip service to now. What has changed, besides labor laws, is the deregulation of the banking and finance industry that began during the Reagan years. Feel free to sort out my facts; I'm going somewhat off the top of my head.

        Anybody remember Black Monday, October 19, 1987? It's an interesting parallel to what we're seeing now with the sub-prime mortgage crises. Instead then it was the so-called "junk bonds" that was at the bottom of the problem that caused international investors to get nervous.
        http://www.fool.com/features/1997/sp971017crashanniversary1987timeline.htm

        Republicans have been undermining the underpinnings of Roosevelt's [i]New Deal[/i] since at least the beginning of the Reagan Administration if not before that. And if you want to formulate a new Domino Theory
        http://www.britannica.com/EBchecked/topic/168794/domino-theory
        how about the fall of the Soviet Union and the US failure to capitalize on its position as the only remaining superpower as the cause of our current economic crisis?

        Cynical, you say? Yes, it is. Reagan was very dependent on an arms race to keep the economy vibrant. He was no miracle worker, but in fact a charlatan in my opinion. He was an actor playing the role of his life. While many see Jimmy Carter as a weak and ineffective president he at least spoke the truth. Speaking of economic malaise from the White House may not be good leadership, but it wasn't a lie. While Reagan was racing our Military Industrial Complex economy, he and his cronies were engineering the beginnings of deregulation that has led to this current crisis.

        More deregulation probably isn't the answer. Better laws and regulations, with clearer language and less loopholes designed by lobbyists, are needed. Legislation needs to be better vetted to make sure special interests' aims do not become part and parcel of any government regulations.
        djchandler
        • You're right!

          The idiots insist on more laws when they can't even deal with all the BS congress has pushed on us already, especially when the right tries to constantly fill our heads with incongruous notions about abortion or aliens entering the country illegally or not having we trust in god printed on currency or whatever they think can get people forgetting about the real problem-like this instead of getting a change voted for in a president & the rest of congress. It's all a ploy to make republicans richer & us poor schmucks poorer & without more freedoms.
          mickire@...
      • Stupid floor sweeper example

        >>The rather comical idea that paying some 8.50 an hour to sweep floors is going to help them buy their daily bread misses the fact that because the bakery has to pay 8.50 an hour for somebody to sweep the floors drives up the cost of that bread by the amount of the raise.

        That's pretty silly. It assumes that there's one bakery per factory (i.e. the bakery floor sweeper's salary is not spread over many hundreds of customers), and that the wages of the bakery's floor sweeper account for a significant portion of the cost of a loaf of bread.

        Typical Republican nonsense that sounds like it's saying something, but falls apart the minute you try to figure out what it's really saying.
        littlenoodles
    • I agree the management bonuses these large corporates issued

      aren't far off the amount of money they now have to borrow to stay open. I think these corporations were huge blocks of gold that were mined out inside, but from the outside they still looked like gilt edged stocks, but in reality, they collapsed when touched.

      So basically those that ran those businesses now have our money, and they should give it back.
      stevey_d
  • Bringing services back in house

    There are a lot of tech trends in transition right now. The Microsoft ecosystem is one, but hardly the only one.

    I see a trend away from contracting out projects to big consulting firms. I've never seen an IBM, EDS or BearingPoint deliver anything that worked on time and on budget. Not once. My perception is companies are, rightly, questioning the value of the services they get from those companies.

    The falling dollar has taken some of the shine off what used to euphemistically called "right shoring". Shipping jobs out of the country to places they can be done cheaper. The quality frequently varies between bad and hideous and with the shrinking dollar it's not nearly as lucrative as it used to be.

    And, as I mentioned, challenging the MS ecosystem. Just like every other component of business, MSFT has to earn their place in the mix and they haven't been getting it done. Vista was the straw that finally got people questioning whether they need Windows. You can build enterprise quality systems without SQL Server, Windows or their expensive, bloated and seemingly perpetually buggy visual development environment.

    Good riddance to all those trends.
    Chad_z
  • RE: Economic crisis as a technology change agent

    I don???t think what happened to these firms is "tragic". The financial services industry was living on borrowed time for awhile. The industry has been affected by changes like deregulation, blurring of the lines between banks and brokerage firms, the Internet and access to information are just some of these changes. The products that these firms were selling became more complicate and intertwined to the extent that firms ended up buying their own products from themselves. The risk models couldn???t keep up with the complexity of the risks. The regulators didn???t even understand what the potential risks were so how could they regulate these firms to ensure they had adequate capital on had to weather a crisis? The financial markets have become global and even more complicated by the various policies and rules around the world. Of course we shouldn???t forget the greed factor. While everybody was making big money there was no appetite to get off the merry-go-round. Neither the firms themselves, the regulators or the government were willing to stop the money from flowing. So to use an overused analogy it was the ???perfect storm???.
    There are numerous other factors that contributed to this perfect storm. The ratings agencies and their biases. The problem of pricing complex derivatives that have no traded market and the transparency in the market. When you start to see terms like ???dark pools??? in the industry it makes you wonder about what???s going on in the market.
    Every time there is a meltdown in the financial markets, everyone panics. The crash of 1987, the Internet bubble and let???s not forget the tulip crash.
    Also, I don???t believe that the subprime mortgage crisis was the cause. These firms were creating derivatives that looked good and appeared to make them money but obviously they underestimated the risk. We???ve seen this all before; Long Term Capital Management. The mortgage crisis was the catalyst. These firms tapped one of the last remaining asset backed source of credit, homes. The assumption was that house prices would continue to skyrocket. Another example of irrational exuberance.
    Lastly, I don???t think that the effects on IT or the application of IT will significantly affect or be affected by this latest crisis. This crisis is not a technical problem but a social problem. People and firms willing to take on big risks for big rewards, the changes in the way the financial markets operate and the roles of the various constituents in this industry and the financial markets are the areas that have to adapt. If the model you run says your risk is a once in a 100 year event and you accept that risk and the event happens, it???s not a technical problem it???s a social problem. The industry and government have to develop a new model that they can understand and manage. Technology may provide some help but I don???t think IT is the key to the solution. New policies of risk management within these firms and within the government will have to be developed. These firms will have to provide greater transparency.
    It???s not clear how SaaS or cloud computing will help at this point in time. The remaining firms are struggling to survive. I don???t think adopting new technologies is on their radar screen. Their paychecks are however.
    richord@...
    • You're right to a point

      I think that the problem is severe enough that large companies are going to have to scale back spending in many areas. In the case of IT that scaling back will accelerate the adoption of more cost effective technical solutions. I know where I work we're actively looking at using Ubuntu as our desktop just to avoid the fees associated with MSFT software. We're looking at using Open Office for our standard desktop package. Since we're tied to the home construction industry we've been feeling the pinch for a year now and we've been cutting back on our licensed products in favor of Open Source projects. Our store servers are completely Linux and we're looking at converting our last bastions of MSFT to linux desktops. It's a cost issue with us. A comparable MSFT server for our stores would cost about 5k just for the server and probably another 10 or 15k for the workstations. Our current expenses on store computer equipment is about 3k per store. We use a server that's put together in house costing us about 500 bucks including the OS and POS software. We have 3 - 4 thin clients running linux as work stations in the stores plus a couple of printers and bar code scanners. Basically, we have our stores equipped for about 10-15% of what the costs would be with Microsoft's products. That's a huge savings for us just in license fees we don't have to pay. When company's get pinched they'll make similar decisions even though they are painful.
      maldain
  • How wrong you are Jason

    Do more with less is ok, but reconfiguring an enterprise to run on a cloud that will be vulnerable outsourcing?

    Come on. You know the writing will be on the wall. The cloud will be outsourced to India or some other slave labor mecca as will all the good technical jobs, and America will once again take it on the chin.

    Of course the economic elite always say America has to transform into a service economy. I guess now that the financial services sector has tanked, we can all get service jobs at McDonalds.
    croberts
    • I'm not suggesting that enterprises rely exclusively on cloud or SAAS

      Large enterprises are tied to their infrastructure and will look to reduce using virtualization and consolidation techniques. SAAS and Cloud will be for SMBs and medium sized businesses, who have less investment in infrastructure and home grown apps. However I am already seeing the biggest of companies use products like Salesforce to replace their own internal app functionality.
      jperlow
      • Please don't suggest cloud computing or SAAS at all

        I see issues with data security using cloud computing if it stores data outside the enterprise's boundaries. SAAS is just a new name for software rental as was done in the mainframe days.
        gypkap@...
  • Opposite more likely

    When companies are facing
    perilous times they tend to avoid
    uncertainty and, of course, costs.

    All of the financial sector
    companies are hoarding their
    cash so it's unlikely that new
    initiatives, IT or other, would be
    undertaken.

    Campaniles risk changes and
    capital and spend when
    prospects are good. Right now
    things are just too uncertain to
    take that risk.
    j.m.galvin
  • RE: Economic crisis as a technology change agent

    Short Term: conservative. Long Term -- they will investigate everything and anything that realistically and honestly reduces costs.

    Cloud? Yes. WAN OPT? Yes. VDI? Yes Yes
    Stewart Levin
  • RE: You are incorrect with the example of SAAS

    By referring to Salesforce.com you have hit the wrong example. I have reviewed the options available to my business and I can tell you that buying an extra server with a Windows server pre-loaded and some good CRM software is a hell lot cheaper then Salesforce.com. I have used Salesforce and other systems extensively but they are too expansive. In addition the opensource package turn out to be as good as Salesforce.com. We currently use Maximizer Enterprise but will move to the opensource CRM because it is mature and as good as the others. But I do agree that many services could and should be done through SAAS.
    [GZ]
  • Crash II - when "cheap" chickens come home to roost

    You could say the mortgage crisis happened because we acted on the wish that things could be as they are not - e.g. that folks who couldn't afford homes could buy them anyway.

    Crash II could be when the wheels fall off the "cloud", when the consequences of wishing we could enjoy the benefits of data security without managing our own infrastructure kick in.
    cquirke1