Devil's Advocate: Gloomy analysts?

There is a general consensus that although the late 1990s saw unreasonable hype around high-tech, today we're living in overly pessimistic times. But could we be teetering on the edge of something altogether much worse? Martin Brampton asks the questions...

Well I expect you have noticed IT is in rather a poor way. People are no longer throwing money at it, double-digit expansion rates are a thing of the past, and technology stocks fail to sparkle. But now some journalists are berating the gloomy analysts and suggesting that innovation will drive exciting new growth.

The optimists make a fair point when they say IT is not in recession. It is just that the growth is unaccustomedly slow, after the frenetic pace of the late nineties. But slow growth is translating to job losses in some sectors and retrenchment by many of the vendors. Marketing plans are muted as companies look carefully at their weakened balance sheets.

A much more dubious claim is that innovation will get us back to dramatic growth. Maybe but I rather doubt it. When technology stocks were flying high and people were ploughing their bonuses into technology ISA investments, the idea that information technology had forever changed the whole economy for the better might have had some plausibility.

But with those investments down by 80 per cent or more in some cases, more sober judgements prevail. One is entitled to a good deal of scepticism about the extent of the efficiency gains from IT. Sure, there are some gains and that is what has driven the steady expansion that has occurred over many years. But the idea that IT brings a revolution is highly suspect.

Over a long period, the growth in IT spending has always been just a few per cent higher than the overall growth in the economy. The figure does vary, which is one of the causes of much excitement. An event such as the year 2000 transition can have a highly distorting effect. So too can sentiment. When people are excited by IT, they spend heavily, and only in tougher economic times are those IT investments critically evaluated.

Unfortunately, under critical evaluation, all too many developments turn out to have provided only marginal benefits. There is little to suggest that the innovations that are in the pipeline will make a dramatic difference. People have been talking up 3G phones for years now, while the mobile operators have been writing off the huge sums spent on government auctions.

Now don't get me wrong. Although current take up is slow, gadgets such as the latest phones combined with digital cameras could very well become extremely popular. If people are willing to spend money phoning friends they are expecting to meet in a few moments time, then why would they not send them photographs of the most trivial events and enjoy doing so?

The answer, of course, is that they probably will but that each consumer's pocket is not of unlimited depth. There is a plethora of blandishments aiming at that limited budget, and all the signs are that consumer confidence is becoming decidedly shaky. It will not take much to tip the balance towards a distinctly pessimistic outlook and a real tightening of purse strings.

At some point, we will be up against the fact that IT cannot indefinitely take an increasing proportion of the economy. Life cannot revolve entirely around computers and data communications. Eventually, the growth rate of the IT sector cannot exceed that of the total economy.

But it would be too pessimistic to suppose that we have reached that point yet. There is almost certainly a good deal of scope left to extend IT into new areas and to make it a growing part of other technologies. Just don't expect that growth to be spectacular in the foreseeable future.

** Martin Brampton is a director and founder of Black Sheep Research (www.black-sheep-research.co.uk ), an independent consultancy providing research, writing and speaking services on a wide range of business and technology subjects. Martin was previously a director at Bloor Research, and has worked with IT as a user and analyst for over 20 years. He is a frequent contributor to silicon.com's weekly Behind the Headlines TV programme and can be contacted at silicon@black-sheep-research.co.uk.