This Is Not Your Father’s Recovery
August 1, 2003

OK – GNP is up 2.4% and the outlook is bright for the foreseeable future.  Last quarter revenues for infrastructure companies were the best in a long time.  But wait a minute, we’re not about to get back to business as usual.

We need to warn you that we see the world going forward as quite different from the recent world we’ve just encountered (but not altogether unfamiliar).  The recovery that is in front of us will be quite different than the demand that we got used to in the 90’s.  The Internet infrastructure boom was characterized by horizontal plays. GM and a big pharmaceutical house looked more or less the same to hot Internet technology providers. Everyone was putting up important Web sites. Everyone needed to juice their networks up. Everyone needed more terabytes of fancy storage. But that’s not what the future is like.

The future will be about differentiation within a vertical sector. GM is going to drive IT spending to win against Ford, not to keep from being Amazoned by an eCar company.  And what GM is going to do will have little in common with what Hoffman-La Roche does in the pharmaceutical arena.  This is deja vu. This is industry marketing. Companies going forward have to understand more about the application investments in specific markets, and relate to them. It’s good news for marketers able to differentiate in specific industries.  It’s bad news for VC’s in over invested companies. There will be far fewer infrastructure companies that become successful selling horizontally across all markets.

The recession does end.  Enterprise spending for new IT applications will increase.  But the recovery led by a few industry segments that are both growing and profitable – two important ingredients that make infrastructure products and services more valuable.  This means that there will be less companies out there that will pay a premium to buy what you make than there were during the last growth period. 

So what do you do?  We think there’s only one answer – you’ve got to figure out a way to sell more (provide more value) to fewer customers. 

John Katsaros
john@netsedgeoneline.com