A cooling economy chills innovation

Big financial services companies will have less to spend on IT, but the real crisis for the tech sector is that VCs are throttling back on enterprise startups

There’s lots of buzz in the industry right now about how the financial services sector’s subprime debt meltdown might affect IT. Companies such as Bear Stearns, Citigroup, Countrywide, and Merrill Lynch are some of the biggest buyers of tech gear, so if they cut back on IT spending, the industry might be in trouble. Unless, as some hope, faster growing overseas markets pick up the slack.

But these are short-term concerns and don’t really matter because we all know that technology marches on, as does the global economy. What really matters is what kinds of early-stage investments in IT innovation are getting made now that enterprises can reap the benefit from in 3-5 years.

And here, the news is not stellar, either. Goldman Sachs issued some research this week with the catchy title “Takeaways for the Tech investor from VC Trends.” (They may make billions at Goldman, but nobody taught them capitalization). They didn’t post this report on the Web, so you’ll just have to take my word for it (I have a source on the inside there, and photos).

The gist of the research, based on interviews with venture capitalists, is this: From 2004-2006, VCs reduced their funding of enterprise-type technologies including storage, servers, software, and networking equipment in favor of the sexier Web, wireless, video, and SMB technology areas. And the implication of that, to quote Goldman, is that “enterprise customers will have to innovate (and spend) more as they won’t be able to depend as much on R&D spent at VC-funded startups.”

Another interesting tidbit from the report: technology represented 64 percent of total VC investing in the 2001-2003 period, but dropped to 54 percent in 2004-2006 at the expense of other areas such as healthcare and green technology. And more VC dollars are going overseas, because of lower development costs there and a new generation of tech entrepreneurs in places like China and India.

How much should enterprises care what VCs do, anyway? These ivory-tower moneymen actually missed the single biggest enterprise vendor success story of the decade anyhow: VMWare (turned it down). And they tend not to be a driving force behind building enterprise vendors to a sustainable scale (they just want to fatten them up enough to sell to IBM or Oracle). Maybe it’s time for large enterprises to pool their lunch money and start their own IT VC firm? Let me know your thoughts on exactly how stupid an idea this is…

The only-thing-we-have-to-fear dept. (is bad PR). A couple of weeks ago I got a forwarded e-mail from my editor with a short note: “This is a classic.” And it was. The press release, from Unisys, purported to examine “global consumer anxiety,” as part of an ongoing effort called the Unisys Security Index.

Some of the ‘findings’: 1) Brazilians are afraid about airport safety and banditry in urban areas, 2) Hong Kong, Malaysia, and Singapore are extremely concerned about pandemics and national security, 3) The British are afraid of bankcard fraud; and 4) The French “aren’t worried at all.”

Although it sounds like a fun job to globally catalog everybody’s fears (I could add some items to that list) and then try to glean insights from them, I have this to say to Unisys’s PR team: stop being clever and get back to work on technology! Oh, and pass me some of that French wine.

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