From the boardroom of Ramp Technology Group in downtown Bellevue, you can see remnants of the dot-com implosion. Empty office space. Still cranes. Gaping holes where buildings failed to rise.
If 2001 was the year in which Wall Street demanded profits replace scale, focus replace speed — and venture capitalists cranked the funding spigot shut — local technology pundits say 2002 is a time for survivors to examine what’s left and build businesses around it.
“The mentality,” said Joe Barrett, chief executive officer of Count Me In, a Ramp Group venture, “has changed from ‘get big fast’ to ‘do it right.’ “
The Seattle Times conducted a forecast survey to commence the start of our Monday Business/Technology section. We asked local industry leaders to reflect on 2001 and share what they believe the stars hold for the year ahead.
Here’s what they think.
A year of mergers, acquisitions, spectacular flameouts. As the economy recovers from a brutal year of recession and war, one observer predicted spectacular bankruptcies and restructuring, particularly in telecommunications, an industry in which companies paid prime fees for spectrum licenses and assumed heavy debt to build the infrastructure to carry voice and data traffic.
“At the same time, we’ll see continued growth for the demand of telecom services,” said Keith Grinstein, a partner with Second Avenue Partners, a Seattle venture-capital company.
While start-ups tend to go out of business, established companies are bought or merged. It’s with this discernment that tech observers plan to watch closely the dance between Seattle-based Amazon.com and AOL Time Warner, which made a $100 million investment in the online retailer last year. (Amazon is expected to hit an important financial milestone tomorrow when it reports its fourth-quarter performance, but its future remains uncertain.)
Others guessed further consolidation for online portal, infrastructure and retail companies. Simply put: Survivors have even less access to capital now than they did a year ago and, hence, less runway before they crash and burn.
“Staying alive,” Grinstein said, when asked what would be the most popular buzzword this year. “It’s a return to 1978.”
Wireless, biotech take center stage. When asked what industry local companies wished they belonged to most, they said “biotech,” followed closely by “anything wireless.”
That envy is no doubt spurred by deals such as Amgen’s recent offer to buy Seattle-based Immunex for a cool $16 billion — by far the largest biotech deal ever. It also represents the one industry segment in which companies can still raise money, still add employees and still sit on piles of cash.
Meantime, observers say, this year will bring compelling new software or services that make us use our cell phones more — justification, no doubt, for the expensive infrastructure already in place.
Many await devices such as Handspring’s Treo, to be introduced early this year, which is a combination cell phone, personal digital assistant and Internet connector. Others expect wireless services to take off, including instant messaging, photo downloading and digital-music playing.
While many say any defense-related and security technologies will receive attention this year, Suresh Kotha, a University of Washington associate professor of strategy and e-commerce, said perhaps the most critical missing piece is widespread broadband adoption.
How many homes and businesses will carry broadband, a high-speed Internet connection, by year’s end? “At some point, this has to start clicking,” Kotha said. “A lot of technologies depend on that.”
Layoffs taper off, hiring remains soft. If companies continue to lay off staff members in the first quarter, observers say, those actions should soon be replaced by a slow, steady improvement in hiring through the year.
Dave Chen, a general partner with Kirkland-based Olympic Venture Partners, said perhaps the most critical driver of a company’s success this year may come in hiring sales executives who know how to sell products to other businesses. Meanwhile, he predicts companies will continue to thin out middle management.
“We realize that most (vice presidents) are titles only (and) not reflective of capability or level,” Chen said. “Gray hairs count.”
Should a recession persist, those likely to weather a storm remain tech-industry stalwarts, such as Microsoft or Dell.
For smaller companies, said Tom Simpson, general partner with Northwest Venture Associates, a venture-capital company in Seattle and Spokane, it’s anyone “with current cash balances that exceed 24 months of net cash outflow.”
Chen said not to underestimate companies that provide existing technologies.
“Our first instinct when the lights go back on is not to buy new revolutionary stuff,” he said. “It will be to leverage/patch the old (legacy software) and try to make it do new tricks.”
Consumers must spend. What will spur a turnaround? Companies said it would be a confluence of forces. A rise in consumer confidence. The revival of corporate spending. Purging of the system, whether it be debt, excess servers or venture capital.
Bo Wandell of Grays Harbor-based SafeHarbor Technology, which provides outsourced online customer-service support for companies, said the recession won’t bottom out until a venture–capital shakeout occurs.
“The oversupply of capital encouraged too many VCs (venture capitalists) to invest in too many undifferentiated ideas and products,” he said. “In turn, aggressive investing created an artificial and fragile growth bubble.”
Joel Sider of DigiMine, a Kirkland database–management company, was more philosophical.
“There needs to be a psychological turnaround more than anything else,” he said. “Companies, consumers and tech vendors themselves all need to recognize the current downtrend is temporary and that technology will continue to grow in importance in all facets of life.”
The biggest story of 2002. We wish we knew. There was no consensus, but many agreed this year would be a convergence between “what is possible and what is palatable.”
Some of the more interesting predictions:
A resumption of technology companies going public.
Microsoft’s game console Xbox crosses the chasm from hard-core gamer to widespread consumer acceptance.
Digital cameras as common a household item as a toaster.
A nasty fight over which entertainment device occupies the center of the home.
A bit of nostalgia. While most were happy to rid themselves of one annus horribilis, some miss technologies that heralded the technology boom and signaled its bust. At the top of everyone’s list: Kirkland-based online grocer HomeGrocer.com.
Second choice: Kozmo.com, described by many as a guilty pleasure they knew would not last.
“It was a rare opportunity to have someone else (investors) pay for a company to deliver things to my home below cost,” said Chris Rogers, marketing director of Express Metrix, a Seattle company that develops tools to help companies manage their technology assets. “I’ll never forget the first time the Kozmo delivered a rental video for a total cost of $2.79.”
Parting thoughts. “Getting rich takes a lot longer these days,” said Wandell of SafeHarbor. Others simply said this year would, no doubt, be better than last.
Perhaps the most poignant parting thoughts, however, came from Bill Ashley at Seattle-based Impinj, which makes wireless applications circuits.
“Mariners,” he wrote, “in 2002.”
By: Monica Soto