In the first of two articles David Shapshak reviews 2001 and tells us what to expect in 2002 After Stanley Kubrick’s eponymous film, the year 2001 was tipped for mighty things. Although 2001: A Space Odyssey heralded technological marvels such as the talking computer called HAL and the scenes of space travel they would prove the undoing of the central characters in much the same way that George Orwell’s 1984 predicted how technological advances would be used against humanity. Last year saw a similar kind of betrayal: not through technology per se, but because of the unrealistic expectations heaped upon it by greedy humanity. It goes without saying that 2001 was the information technology industry’s annus horribilis. But it came at the end of a cycle of unsustainable expansion and hype after 2000’s Internet boom and its huge spending. Then the crunch came last year, bringing an era of financial tight-fistedness. First the Internet bubble burst, pulling the high-flying tech stocks down with it. After years of unprecedented growth the super-charged global economy ran out of rocket fuel. Without the demand it had been predicting, the once-mighty telecommunications sector, for one, was left in tatters. After the dot.com bomb in the overvalued world of tech stocks there came the added blow of September 11, which pushed those firms teetering on the edge right over. Adding to these woes was that New York’s Twin Towers housed many telecoms hubs, and many connections to the United States network terminated there or nearby. These telecoms shockwaves were felt all over the world as bandwidth was affected. Locally, IT firms fared no better. All the big names saw their shares slide on the back of the Nasdaq losses and almost all the firms on the venture capital board on the JSE Securities Exchange delisted. IT and network giant Dimension Data suffered the worst of the bloodletting, while Datatec also lost massive share value. Didata’s fall from grace was preempted by the late and inadequate disclosure of poor results. This led to distrust of the directors and suspicions about why the directors sold their shares when they were high. Datatec’s corporate governance indiscretions of 2000 came back to haunt it after a fine-payment scandal, when the directors got the company to pay their R1-million fine for insider trading, and then took a disproportionate profit from the sale of UUnet the year before. The year also saw the demise of many ambitious Internet ventures. Some sites were simply turned off, among them news services, including Woza (one of the earliest) and the interactive arm of Kagiso Media, Broadcast Interactive, which published websites for the company’s various radio stations. In addition, the country’s largest computer distributor, Siltek, was liquidated when it accumulated too much debt. At the other end of the scale, there was the largest computer merger when Hewlett-Packard and Compaq announced they would join businesses. Described by one tech pundit as “like watching a train wreck in slow motion”, the merger is set to make the new company the largest computer force in the world.
Last year also saw the finalisation of the largest media merger, AOL Time Warner, which fused the world’s largest online service America Online with media conglomerate Time Warner. The media world was stunned in December, however, when CEO Gerald Levin stepped down so that Richard Parsons, the co-chief operating officer, could become the most powerful black executive in America. The year began, not so much on a high, but with the expectation that the let-down after the rapid rise of the Clinton years would be a cooling off rather than a sudden crash. The US Federal Reserve cut interest rates sharply to prevent its economy fromstalling, and took global markets and bourses with it. Nothing, though, could protect the over-hyped New Media. The hollow predictions of gung-ho investment analysts were revealed for what they were. Incredible amounts of money were lost by venture capitalists who threw money at Internet start-ups and “day traders”, the individuals who traded on the stock market from home. The most famous of the hype-talking analysts was Merrill Lynch’s Henry Blodget, once dubbed King Henry by the Wall Street Journal and the most enthusiastic Internet cheerleader. He rocketed Amazon.com into orbit with his prediction in December 1998 that it would reach $400 when it was trading at $240. It went up 20% in a day but in November it was trading at $9 when he took the firm’s $2-million voluntary retrenchment package. However, the Internet as a service and a means of delivery has not been discredited, only dampened. The fight for online users that erupted between Absa when it launched its free Internet service and M-Web, the country’s largest Internet service provider, certainly showed this. Absa intended to provide a means of increasing its online banking customers but was overwhelmed by the number of subscribers to its freemail offering, causing it to end the free dial-up offering to non-Absa clients and refer them to other bona fide Internet service providers, including M-Web (which closed its portals to non-M-Web dial-up users to counter Absa’s free dial-up offer).
It also revealed what is becoming an increasing trend: paying for services and content that used to be free. M-Web for one views this as integral to its business model, as well as for the next coming revolution which is the mobile Internet, or means to access the Internet through a variety of devices.
As ever, in an industry dominated by Microsoft, the Redmond giant was in the news. First came the judgement in the US government’s antitrust case that it should be split in two. But on appeal, a settlement was reached when Microsoft showed that the original judge was more than partial to the anti-Microsoft cause. A slap on the wrist followed and eyes turned to how the world’s largest software maker tried to get its software on to every other computer platform that has emerged: from the cellphone to the personal digital assistant. Towards the end of the year Microsoft hit the headlines again for its controversial Internet strategies, including .NET the suite of online services that it hopes will allow it to store users’ data and make this available across a range of mobile platforms. Wary of Microsoft’s previous unsavoury tactics in leveraging dominance from its Windows desktop computer operating systems into other fields, critics decried what they saw as another takeover. Nor did many trust that Microsoft, whose security has been compromised on many occasion, could securely and safely hold on to so much personal information. Microsoft was accused of monopolistic practices again with the release of its best-yet operating system, Windows XP, in October. The system includes Microsoft’s own version of the popular instant messenger and media player software much like the incorporating of Internet Explorer in Windows 98 sounded the death knoll for Netscape in the browser wars. Another major court case gripped the tech world: that of the MP3 file-swapping site Napster, which let users swop the popular music file format easily and royalty free. While Napster eventually sunk under the mountain of paperwork and legal fees, releasing a much modified, slimmed-down version, the big five record companies Sony, Vivendi-Universal, BMG, EMI and AOL Time Warner who brought the legal challenge, united to form similar, but paid-for, services. Napster and its ilk will probably disappear from the cyber landscape and from everyday use as much as Netscape has. Still raging are two other standards wars, though: for instant messaging and for media playing software. Microsoft has weighed in with its own versions and has incorporated these in Windows XP, but there are still other significant players. In the latter, RealMedia (which saw two of its major contracts cancelled after September 11), and in the former AIM (or AOL’s instant messaging service), are popular in their own right. It was a roller coaster of a year for the IT industry. Like the Californian power crisis, which in some part was caused by the energy demands of Silicon Valley, the rolling black-outs of lost stock market confidence, bad management and poor financial performance took the shine off everything. Despite this, Intel, the world’s largest chip manufacturer, shipped 40-million processors in the fourth quarter. Survival took on a new meaning in an industry that has been the golden goose of the global economy, and as Intel’s chief Andy Grove once remarked: “Only the paranoid survive.”
Ends