The Bear's Lair: Anatomy of the tech wreck
MARTIN HUTCHINSON, 08.16.04, 2:55 PM ET
WASHINGTON, Aug 16, 2004 (United Press International via COMTEX) -- If you're thinking of studying computer science in college, don't waste your time. The great tech boom of 1965-2004 is coming to an end, and it's not going to return. On a 40-year view, or the average length of a professional career, there will be better opportunities elsewhere.
In the short term, tech shares have been declining more or less throughout 2004. Various Initial Public Offerings have been postponed, for example that for Lindows, a Linux software vendor now surviving on a $20 million legal settlement from Microsoft (under which it promised to change its name) thus demonstrating that it is no longer possible to raise large amounts of money for companies whose direct costs consistently exceed their revenues. Reality may -- at long last -- be returning.
Nevertheless, in the week when Google approaches the market for an initial public offering expected to capitalize the company somewhere north of $30 billion, it may seem eccentric to call for the end of the tech boom, as distinct from just another fluctuation in its expansion. After all, the opportunities for enrichment in the tech sector over the last decade have been legendary. According to press reports, the average stock option profit to be received by Google employees, including the janitors, will be well in excess of $1 million each.
This sounds wonderfully benign, until you pause to think about who the money for the overpriced Google IPO is coming from -- mostly retail investors, generally pretty unsophisticated, many with a net worth well below that to be gained by the average Google janitor. The Google founders proudly proclaimed in their registration document that their central business principle was "Do no evil." They seem by so egregiously overpricing their IPO to have failed in this endeavor pretty well as conclusively as did Bonnie and Clyde in robbing banks.
The unfolding Google IPO fiasco strikes to the core of what's wrong with the tech sector: the excessive sense of entitlement among its youthful and fabulously rich elite, who seem to think that simply because we don't understand the arcane jargon of their cult, we are mere "little people" to be fleeced through overpriced IPOs and moved aside for their luxury housing developments and yacht marinas.
However we didn't understand the detailed mechanics of carburetors and magnetos in the 1920s, we didn't understand the detailed mechanics of turbines and transformers in the 1890s and we didn't understand the detailed mechanics of piston diameters and boiler pressure in the 1840s. Since the Industrial Revolution began around 1780, there have always been new technologies, invented by geniuses, that changed our lives, but the job of understanding the details of their design was for engineers, not for the public at large. These engineers were skilled people, and rewarded as such, but they were not the original inventors, and were not entitled to become fabulously wealthy through working out the detailed design implications of the inventors' inspiration. (By and large the geniuses themselves didn't get rich, either.)
The reality is that tech today has become a mature industry, and both the opportunities and justification for creating new tech billionaires have become outdated. The Internet has been around for a decade and broadband (in any case hardly a technical advance of genius) for half a decade. Any solidly blue collar inhabitant of a Western country not living in the depths of isolation can now have a broadband connection that will allow him to play the same mindless computer games as everybody else.
Further, the quality of the tech experience has significantly declined in the last few years, because of the twin threats of spam and viruses. This did not happen with say automobiles; once they'd been invented they stayed invented, and they became more reliable and effective, not less. However, anyone who has experienced a perfectly decent computer being reduced to a pile of junk by viruses in little over a year, as I have, will have little enthusiasm going forward for buying any but the most basic hardware. The business has been commoditized, and is in the process of moving entirely to China and the like.
Techies at this point will respond that the next generation of chips, soon to appear, will be twice as powerful, or a thousand times as powerful -- I can never remember which -- as anything we've yet seen. To which I respond, so what? Business users of the Internet require primarily text, which has been available perfectly efficiently for several years now. While leisure users want video, with a modern connection, they've got it, and if they want extra high quality, they'll buy a high definition television, and get it that way.
No sane consumer is going to spend a couple of thousand dollars on something that is invaded by spam and attacked by viruses, and possibly useless in a year -- and that no power of God or man, in a modern suburb, can find you a way to get repaired efficiently and cheaply. The only remaining area of advance is new and better video games, which will continue to appear at regular intervals. Like new and better television programs, they are merely a branch of the entertainment industry with no great new technological features on the horizon and few barriers to entry other than the limited number of good designers.
All good things must come to an end. What's more, all high level scams peopled by boring socially-challenged overpaid engineers must come to an end too, which should be a relief for the rest of us. The tech sector will shortly migrate to the low cost manufacturing sectors of Asia, where quality will be excellent and overpaid "entrepreneurs" almost non-existent.
This is not to say that the world economy has gone "ex-growth." Of course not. The next great industry, still several years away from its full flowering into a financial cornucopia, is pretty clearly that of genetic manipulation, whether to create new pharmaceuticals, new defenses against hereditary ailments or, in the long run, new people and maybe even improved people. If you start to postulate all the things that are likely to be technically possible with genetic manipulation in the next generation, assuming that the Luddite political attempts to prevent it fail, you quickly come to realize that the genetic industry potentially dwarfs hardware, software and telecommunications combined.
Of course, in the current political climate, the United States, home of the stem cell research ban, will not be part of this bonanza, but even cautious Britain announced this week that it is permitting the creation of new stem cell lines and less restrictive polities in Asia may well be far advanced in the necessary capabilities.
Neither perpetual tech sector dominance, nor perpetual U.S. economic dominance, are in any way pre-ordained in the long run.
(The Bear's Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that, in the long '90s boom, the proportion of "sell" recommendations put out by Wall Street houses declined from 9 percent of all research reports to 1 percent and has only modestly rebounded since. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)
Martin Hutchinson is the author of "Great Conservatives" (Academica Press, 2004) -- details can be found on the Web site greatconservatives.com.
United Press International
Copyright 2004 by United Press International.
AI
