Tech Trends for 2009 — This Time Global

Last year, I limited my predictions to the U.S. market. But the global economic meltdown has made the world flatter — and landed our nation flat broke. So to keep things interesting, I’ll extend my prognostication across borders.

I was playing with the idea of titling this column “Top Ten Tech Bailouts for 2009″ or “DeathCrunch: 2009,” but thought it best to keep our VentureBeat readers in high spirits (what with the holiday cheer and all). So without further ado, here are my top global trends to watch for the new year:

PC and online gaming continue healthy growth

There is no better indicator of this than World of Warcraft’s Wrath of the Lich King’s first-day sale of 2.8 million copies in mid-November. At $40 each, this accounts for $112 million, an astounding figure. I imagine the folks at Blizzard Entertainment had a pretty nice holiday party — drinking eggnog and munching on gingerbread cookies, macaroons and Turkish Delight to their hearts’ content…

And it’s not just the geeks keeping this segment of the market afloat either. Remember Swingers? Solid proof that cool, hip, unemployed men (and there will be many more of them) tend to play a lot of games.

But does this mean that all video game companies are recession-proof? Will that many more people opt for lazy, relatively inexpensive entertainment over going out? Not really. The NPD Group, a leading consumer market research firm, recently issued a report showing a dip in the overall video game market. October saw an 18 percent increase over sales from last year, but November’s sales were only up 10 percent. So the downturn is in fact taking a toll.

Console sales — which made up $9.4 billion of the $18.9 billion gaming industry in 2007 (according to the Entertainment Software Association) — will take a major hit. How many people will be willing to drop a few hundred bucks on a console? Plus $50 more for a game easily finished in a few days or weeks? That’s a lot to ask in the current environment. Even perennial favorites like Rock Band and Wii Fit will probably trend down due to expensive accessories.

PC and online gaming account for only 9.5 percent of total gaming sales ($9.5 billion). But the segment has the strongest prospects for growth. MMORPGs (massively-multiplayer online role-playing games) and others with multi-dimensional interaction options provide continuous character development, storylines and gameplay that bring you into contact with likeminded others. This gives them longevity and makes them worthier of that initial investment.

Video game makers should take note: Titles that deliver more value over a longer period of time will bring in more money during tough times — and that’s exactly what PC and online games do.

Surface computing slowly breaks into the mainstream

Traditional mouse and keyboard setups will start to be replaced by touch-sensitive screens that allow users to control functions with their fingertips. Hewlett-Packard’s TouchSmart PC is just the beginning.

I’m far from becoming a Microsoft fan, but Microsoft Surface is an important step forward for this technology, which will only become more pervasive in the next year. And Microsoft isn’t the only player in the game. As a TEDster, I have to plug Jeff Han’s multi-touch interface (see video below). All the while, Innotive, a company I advised, offers very cool interactive display technology.

The novelty of surface computing has led Microsoft into partnerships with Sheraton Hotels, Disney and Harrah’s Casino Hotels. These resorts have installed touch screens in their lobbies to provide local information and media tailored to their customers’ needs. The technology may only be mindly entertaining for now, but it provides substantial practical value. With the ubiquity of the iPhone, multi-touch screens are becoming increasingly intuitive, and already feel more natural than typing on a keypad in some settings. Say, for example, you are presented with a multi-touch screen as a menu in a restaurant — one click with your finger orders your meal.

But there’s even more potential in the boardroom with smart white boards becoming a reality. Imagine all the graphic facilitation geeks in your office suddenly gaining the ability to map out their ideas with just their hands? Joyous pandemonium! Dry-erase marker bonfires amid hearty rounds of Kumbaya! (At least that’s how I picture it.)



Shift from offline to online ad spend picks up speed

Advertising goliath GroupM projects that global ad spend will decrease by 0.2 percent to $458 billion in 2009 — dropping 3.2 percent to $157 billion in the U.S. alone. But I think online ad spend is a different story, and should see slow but steady growth. After all, eMarketer forecasts an 8.8 percent increase in online ad spend from $23.6 to $25.7 billion in 2009, and a 10.8 percent increase in 2010.

What will drive this growth? In short, more advertisers waking up to smell the recession. Newspapers make up only 5 percent of Americans’ media diet, yet they consume 30 percent of ad dollars. A report from Morgan Stanley last month revealed that, last year, advertisers spent $288 per home on internet advertising and $818 per home on newspaper ads. There’s something wrong with that picture when “death spiral” is the phrase usually ascribed to the state of print journalism. And more brands are starting to realize it — newspaper advertising has dropped 18 percent (about $2 billion) from this quarter last year.

Innovation increasingly imported from Asia

I appreciate Fareed Zakaria’s vision of a post-American world, but if we’re talking about 2009, I’d narrow it down to just Asia. Already, China and India produce five times as many engineers as the U.S., and it’s predicted that 90 percent of all engineers will hail from Asia by 2011. Yes, as in two years from now.

For the time being, the U.S. leads in R&D worldwide with 35 percent of the total output. China comes in second with 16 percent, and Japan in third with 13 percent — but both are catching up fast. The money is there, no doubt. It’s the culture of creativity and entrepreneurship that will really give these countries the boost they need. Innovation and idea generation are fairly strong in Japan and Korea, and have been picking up in China and India due to improving education and a reverse diaspora. Taking these factors into account, Asia is clearly poised to overtake the west in technological achievement in the coming decade.

As a student of Czech economist Joseph Schumpeter and Columbia University’s Richard Nelson, I believe that this type of achievement is the primary driver for long-term economic growth. With its workforce dominating engineering, its growing entrepreneurial spirit and its hunger for knowledge, Asia is positioning itself as the world’s primary economic engine — with the potential to reign indefinitely.

Regardless, the U.S. will maintain its leadership in innovation through the end of next year, but perhaps not long after that. Will Asia’s brute strength in the tech arena outweigh cultural, legal and policy limitations?

This is a question not just for 2009, but the next five or even ten years. For now, these are my predictions for the year ahead. Do you agree? What global trends do you taking hold in 2009 and beyond?


Originally posted at VentureBeat.

It's Not The Deficit Stupid!... Tech is the Primary Driver of Economic Growth

During the Clinton years, the two most common things I heard from high-profiled Democrats was how the deficit reduction caused the boom times, or how Clinton asking Greenspan to lower short-term rates caused the Internet boom. I would just roll my eyes at such simplistic statements. If only cause and effect could actually be that simple, the Merovingian would truly rule our matrix. The reality is that for every effect there are probably at least 5 or more factors causing it… probably a dozen more. But that is the way of politics, pick one of the causes or statements that can effectively cling to the minds of most voters and spread the virus of malcontent against your opponent, or create a statement of “fact” that makes a candidate or party a hero.

Anyway, the article from last week’s BusinessWeek begins to unravel the Democrats' claim that Clinton caused the boom times of the ‘90s. It almost similar to Al Gore claiming he invented the Internet. Interesting article to read below (for those wondering, i paste the whole article on my blog because many online publications archive the articles after a few weeks and are not accessible anymore for free), but not really the focus of this entry.

The cause of the boom times can be traced back to the DARPA's (Defense Advanced Research Projects Agency) project that led to the birth of the Internet (yes, not Al Gore, DARPA... with respect to Joseph E. Stiglitz below, I'm going to take a step back into a bigger picture). More importantly, this was the result of the unique matrix within the fabric of the U.S. that invests public and private money into science. University labs, corporations, and government research centers all heavily invest into science. Whether the search for the "truth" in the universe, basic science, or research for a commercial purpose, applied science, all types of research have led to the benefit and growth of our society and economy. On top of this layer, is America's strong encouragement of entrepreneurship and the availability of risk capital, especially for early-stage companies. This complex web of universities, government institutions, corporate entities, venture capital firms, wealthy individuals investing in high-risk ventures, and the abundance of entrepreneurs have allowed the U.S. to prosper at various times and lead the charge into new eras of economics growth and technological advances.

To be upfront, I'm influenced by my former professor, Michael Crow, who taught U.S. science policy while he was at Columbia University (also gracious advisor to my first startup and failed early-stage fund effort). He was influenced by Richard Nelson, a neo-Schumpeter, considered a founder of evolutionary economics.

Nelson and others within the same camp believe technical advance or growth in technology account for 50%-70%+ of long-term economic growth. Seeing how the U.S. has become the world's foremost economic power, it's difficult to deny some of the truth and theories developed from Nelson and others. Whole new industries were created by developments that sprouted from U.S. R&D labs throughout the 20th century. From Xerox's fabled Palo Alto Research Center (PARC) to AT&T's Bell Labs to DARPA, inventions such as laser printing (1971), Ethernet, the graphical user interface, the Internet (1969), and cellular communications (1947) were given birth to in these halls.

One of the people most responsible was Vannevar Bush, Director of the Office of Scientific Research and Development under FDR. His report to President Roosevelt, "Science The Endless Frontier" (July 1945), help set forth and secure U.S. investment into scientific research as one of its core policies. Heavy investment by the government into various military and non-military labs were initiated.

One danger that is recently occurring is the decrease in funding for basic research. Basic research allows scientists to research for the sake of researching. To seek out their curiosities and find the truths of the universe. This is more of a non-linear approach that allows for a wide-range of possibilities, and many inventions that have changed our lives have come from basic research (e.g. x-rays, superconductivity, laser... what would you do without CDs or DVDs?). Over the past decade, corporations under pressure to perform have cut back or closed down their basic research efforts and only focused on applied research that seeks out a specific solution or product that can eventually generate revenue for the company. Even universities have scaled back on their basic research efforts since the licensing of their patents and inventions have become huge sources of funding since the Bayh-Dole Act of 1980, and have become more focused on applied research.

I really don't know the true impact of this shift in research funding and focus, but I hope it does not lead to the loss of leadership for the U.S. in the area of technical advance. Of course, the funding shift alone probably will not lead to the U.S.'s decline since there are many factors that make the U.S.'s innovation engine unique in world history (e.g. spirit of 'mother necessity', educational development of its citizens, legal foundation of the U.S... such as separation of church and state, freedom of speech, and so on). As long as the U.S. maintains its leadership in technology, I believe it will be in good position to remain the dominant power in the world.


Harping On The Deficit May Undo The Dems
NOVEMBER 24, 2003

BusinessWeek
ECONOMIC VIEWPOINT
By Robert Kuttner

I hope the Democratic candidates for President are in touch with Joseph E. Stiglitz, the 2001 Nobel prize co-winner in economics, who served as chairman of President Clinton's Council of Economic Advisers from 1995 until 1997. In Stiglitz' new book, The Roaring Nineties, and at a recent conference at Columbia University honoring his work on market failures,

Stiglitz challenged a premise that has become like holy writ: the idea that deficit reductions caused the boom of the 1990s.

Under this scenario, Clinton agreed to cut the deficit, the Federal Reserve obliged with lower short-term rates, markets were reassured, and the great boom was on. Message: A balanced budget equals prosperity. Stiglitz has a more persuasive view: Other forces, most notably higher productivity growth, allowed the Fed to run a hotter economy. "Deficit reduction," he writes, "accelerated the decline in interest rates, which helped recapitalize the banks. But interest rates would have fallen anyway. The forces taming inflation -- weaker unions and increased international competition in addition to rising productivity -- were already at play. It was the lower inflation as well as the deficit reduction that lowered long-term interest rates."

STIGLITZ DID SUPPORT REDUCTION of the structural deficits inherited from the Reagan and Bush I administrations, resulting from excessive tax cuts. These had to be reduced because they had put the budget on a path to ever-rising national debt. But in Stiglitz' view, Clinton overdid a good thing. He writes that if the Clinton Administration had put less money into deficit reduction and more into research and development, technology, infrastructure, and education, "given the high returns for these investments, [gross domestic product] in 2000 would have been even higher, and the economy's growth potential would have been stronger."

Stiglitz told Clinton all this. But he lost that argument with Treasury Secretary Robert E. Rubin, on whom Clinton relied to understand the markets' pulse. Recently, Rubin reiterated that high deficits cause high interest rates because government competes with other users of credit for a limited supply of savings. However, this premise is true only at full employment.

Stiglitz' point on the deficit is especially important now, as George W. Bush repeats Reagan's squeeze play: cut taxes, generate huge deficits, make Democrats play the role of fiscal Scrooges, and force permanent program cuts. As Rubinomics has more sway over most Democrats than Stiglitz-omics, Democrats are about to repeat Clinton's mistake.

It's hardly surprising that the immense deficits have stimulated sizzling short-term growth. The third-quarter growth is impressive, but entirely Keynesian. And while temporary deficits can generate short-term stimulus, permanent structural deficits can sap productivity.

As Stiglitz made clear at the recent conference, the Bush tax cuts should certainly be repealed, save those for middle- and lower-income taxpayers. But the revenue gained should not go entirely for deficit reduction. Rather, it would be better in the short term if the money went to help states and localities avoid cutting jobs. In the long term, it would be better for more money to go into productivity-enhancing public investments in education and technology. And the proposed new corporate tax cuts? They won't spur much investment, given the capacity overhang.

Bush's earlier tax cuts were so huge that even if those for the rich are repealed, there appears to be little room for increased public outlay. Here, I commend The New York Times reporter David Cay Johnston's Perfectly Legal, the definitive investigation of legal (and illegal) tax cheating. Johnston shows how tax avoidance among corporations and upper-income individuals is far outrunning the audit capacity of the Internal Revenue Service. There's a $113 billion gap between what corporations should be paying and what they pay. And 78% of the cases of known underpayment by partnerships were not even pursued by the IRS.

Combine a repeal of much of the tax cut with a serious effort to collect revenue, and the deficit can be brought down to, say, 2% of GDP, with money to spare for new public outlays. This would be sensible economics and better politics, since it would let Democrats offer something tangible to voters. But it's more likely the Dems will wrap themselves in the reassuring -- and suffocating -- blanket of Rubinomics.


Robert Kuttner is co-editor of The American Prospect and author of Everything for Sale