Does a Tech Bubble Threaten UC?
Many industry observers are sounding the alarms about the current tech bubble and warning that we are headed straight for another massive correction like we saw at the turn of the century. Especially those writing about financial trends and stocks see good press in drawing parallels and forecasting impending doom. So, does this threaten the Unified Communications part of the business?
In a recent UC Strategies podcast, UC Implications of Mary Meeker's "Internet Trends 2014" Presentation, we reviewed some of the observations presented by Mary Meeker in her annual Internet trends talk presented in May.1 One of the main points she makes is that the current tech bubble is different than the first Internet-driven "dot-com" bubble of 1997 to 2000 that ended with such drastic impacts. Among the many slides Ms. Meeker quickly put up were some that graphically highlighted the differences between then and today when looking at things such as venture capital investments, IPOs, and percentage of the market's total value represented by tech companies.
However, several financial analysts are convinced the technology industry is in another bubble. David Einhorn of Greenlight Capital recently said there is "clear consensus that we are witnessing our second tech bubble in 15 years."2 Although it does not seem like there is consensus, there are many that agree. Steve Tobak posted at Foxbusiness.com in May of this year "Its Official: We Are in a Tech Bubble."3 Also in May, Adam Lashinsky posted at Fortune.com "Yes, we're in a tech bubble. Here's how I know it."4
Rather than debating the boom or not question, the bigger issue for the UCStrategies view point is what impact this may have on UC-focused companies. People may recall that even stellar companies such as Cisco lost tremendous market valuation (86%) in the dot-com bust, but still emerged as a strong leader. In addition, many of today's most familiar names such as Google, Amazon, VMware, etc. were born during the boom, survived the bust, and grew into dominant players. But if the current boom leads to a bust, will it swallow emerging UC firms and pull the financial rug out from underneath the rest?
The firms that went bust last time tended to share a couple of traits, and those same elements will threaten any tech company once again. Financial fundamentals such as debt versus capital will limit any company's flexibility, and it is therefore a concern with companies such as Avaya. This is not a prediction of calamity, just an acknowledgment that cash is critical during tough times and is one more thing for some companies to address. But there may be time to fix those problems. Economist Ken Rosen, chairman of the Fisher Center for Real Estate and Urban Economics at UC Berkeley, was quoted by James Temple as saying there's enough real cash being generated to likely drive several more years of expansion.5
A more focused viewpoint is needed for those in the Unified Communications business. Most UC products and firms are not dependent on a big share of the mass market while struggling to identify a source of sustainable revenue. UC products tend to be higher cost (revenue source) for specific solutions (focused marketplace opportunities). At the same time, many of the UC firms are old-guard telecommunications firms transitioning to a UC-focused business. If this is being approached as a marketing-inspired relabeling of the same-old baseline products (PBX, voice mail, etc.), then a general financial belt-tightening will cut into sales and profits. Many UC firms are building ongoing revenues while decreasing the dependence on moving hardware to create cash flow.
Unified Communications can make a real impact on a business and its profitability. In fact, if there is a wide-reaching financial rough road ahead, it could actually improve the outlook for many UC firms. That is because, properly implemented, using advanced communications tools and techniques to change and improve business processes can help an organization survive (and, by comparison, thrive) during difficult times. Once communications enabled business processes have been implemented, the impact is a measurable difference between competitive firms. The suppliers of that change will be in demand, and they will generate for themselves a revenue stream from ongoing support of the technology solutions.
Will UC-based businesses therefore be immune to a technology bust? Of course not; but properly positioned and with difference-making solutions, some firms could ride the wave of change to new heights.
1Mary Meeker's speech can be seen (video) here: http://recode.net/2014/05/30/mary-meekers-annual-rapid-fire-internet-trends-talk-video/
(A rapid fire style is necessary when you bring 164 slides to a 25-minute speech)