Still Betting on Tech

There has been significant (and accelerating) controversy regarding potential growth rates for the technology sector. Tech spending has grown faster than the economy as a whole for the past several decades--the key driver for significant wealth and employment creation.

An amazingly frustrating experience got me thinking about these issues: Last month my website and email went down due to still unexplained problems at my web hosting company. I was traveling for business, couldn't get or receive emails, and was forced to spend hours on the phone with tech support. As a small business user my web hosting needs are modest (no transactions and relatively light traffic) and the support available at $9.95 per month is minimal. The problems continued for a full five days despite multiple daily 60-90 minute calls.

Homicidal, I used Google to identify the hosting company's board of directors via state filings. I then called each of the directors, explained the issue, and told them that I would continue to call daily until the problem was resolved.

Late on a Friday afternoon, I received a call from the company's counsel with the head of tech support on the line. The problems were quickly resolved.

Other than Google's ability to help me identify the board, this sounds like the kind of headache that would cause any sane person to avoid technology at all costs.

But there is another and more provocative perspective: Much of the growth in the US economy comes from small to mid size businesses and these entities need access to technology that works. At infoUSA.com we served the SMB market and I discovered how expensive it is to reach and service these companies. The only cost effective way to do so is to provide intuitive and close to zero defect products and services. For vendors serving the SMB market, the smaller size of the transactions (my $9.95 monthly fees) means that customer service, warranty, and other post-sale costs kill profits.

How does one achieve low/no zero defect products? Technology. Engineer things to be great from the start, make the upfront investment in things that work, and minimize the likelihood that human intervention will be required.

If my former web hosting company had gotten the technology right the issues would never had arisen. And if something had come up and their customer service reps had had better access to information and tools (which would have to be driven by technology) the fix might have taken minutes rather than days. Though if I'd stayed with them I'd have become a highly unprofitable customer.

The poster child for making cost-effective technology work has been Toyota. Herein lies a key caveat: Toyota has been able to produce zero defect products at lower prices due in part to scale. Scale is advantageous in justifying the upfront investment in great technology. Conversely, Toyota's superior technology has been a key driver in their obtaining scale.

Yahoo! and Microsoft. Yahoo! as losers?

Much of the press around the MSFT offer for Yahoo! has a dirge like quality reflecting a sense that one of the Internet's most important and creative companies has become road kill. The size of the initial offer, $31 per share and $44.6 billion, got me thinking about how big the losers at Yahoo! really are.

Since Yahoo!'s IPO in April 1996 its stock is up approximately 1,500%. Over the same period the S&P 500 is up about 15% and MSFT about the same. That said, during the height of the bubble, Yahoo!'s stock was up approximately 9,000%. Nonetheless, an impressive performance.


Even understanding the emotion around Yahoo!'s potential sale, and how it reflects Google's dominance in search, it's a bit hard to see this as a poor performance.

On the question of whether a Yahoo! MSFT merger will work my vote is no. The cultures are extraordinarily different and MSFT has historically been a 2nd tier Internet player--the area for which they need Yahoo!. Putting together the two struggling entities and expecting a positive result when Yahoo!'s management confronts the bulldozer Gates/Ballmer team sounds like a loser to me.