The most enlightened suppliers are producing sustainable, reliable products that fix problems or improve efficiency, says Bob Jones.
After the debacle of the past few years, with the combination of Y2K and post-dotcom blues, you would have thought the IT industry had learned its lesson.
Looking back at the good old days, the pace of innovation seemed to be ever-increasing and customers' appetites for the latest and greatest technology seemed insatiable. But it is very different now. Technology is no longer a fashion business, where products change with the seasons. Instead, company executives are looking for a cast-iron return on investment. Maintaining the status quo has become a legitimate business strategy.
Some companies in the IT industry have understood that the market has changed radically, but too many are still in denial, expecting a return to the heady days when products were developed, launched and sold at breakneck speed. The reality now is that although customer interest and the market is picking up, we cannot expect to return to the past.
That is not to say there are not hot areas - such as the security market or wireless technology - but as these areas are few and far between, suppliers still rush almost lemming-style for what they perceive as the "next big thing". Not surprisingly, over-capacity has become the scourge of the IT industry and sadly it is going to end in tears for many suppliers.
It is a simple equation. Many IT products are already treated as commodities, with the accompanying mass marketing and lower margins that these types of products inevitably bring. However, an essential element for a successful commodity is a large market where economies of scale enable suppliers to make the level of investment necessary to develop new lines.
But markets for innovative IT products are very different from those for soap powder. Product volumes are initially small and margins need to be high to sustain the business and to encourage further investment.
Bringing radical new technologies into emerging markets inevitably carries a high element of risk. The rate of change of customer demand is much slower than either the industry's expectations or the rate at which it is capable of producing new goods. The end result is that commodity market principles are being applied to innovative market products, making the whole equation neither cost-effective nor sustainable from a business point of view.
Over time supply and demand will become more evenly balanced, but customers will have learned from their experiences. Even today users are buying solutions, not technologies. With so many disappointments in terms of the return on investment of IT projects in recent years, those holding the purse strings are passing a critical eye over technology purchase orders. The more enlightened suppliers are selling products that fix problems or improve the efficiency of existing processes. Those who are still on a mission to discover the next big thing are heading for disaster.
Bob Jones is managing director at Equiinet