From Out of the Ashes
Technology plugs in.

By Edward B. Driscoll, Jr., a tech writer living in San Jose, Calif.
September 20, 2001, 8:00 a.m.

Technology, in the form of telephones, cell phones, satellite, the Internet, and cable TV kept America informed through the day’s terrible events. Cell phones helped avert a second terrorist attack on Washington, D.C., and played an amazing role in the rescue and investigation.

But if technology performed heroically during the week America was attacked, its short-term prognosis is uncertain. The sector had been reeling in 2001, and while it has a lot to offer a wartime economy, there are still many factors that could hinder its rebound. NRO Financial asked several technology experts for their sector prognosis.

James Glassman, TechCentralStation.com
The real question is what happens next in a political sense, and in a national security sense. If we assume that this country, as it always has, rises to this challenge, as it did during World War II, as it did during the Gulf War, then the basic pattern in all previous crises has been a major shock to the stock market, sometimes throwing the economy into recession, but then back into a recovery, usually within a few months. And the recovery tends to be very good for just about all sectors — and certainly technology.

The historical difference is that this could be a new kind of a threat. If terrorist activities continue, then you’re going to have a gigantic depression of consumer confidence, as well as investor confidence. I don’t think that’s going to happen — I’m just saying that this could be different, even from World War II.

In a somewhat ironic way, these attacks have forced some policy changes — some of which are good and should have happened anyway. Number one is monetary loosening, and we’ve already seen that. Number two is an abandonment of the obsession with a surplus, which is insanity for both parties. We’re seeing that ending with increased spending. Third, I think we’re going to see a more sensible energy policy come out of this, and increased supply. And fourth, I think we will see better regulatory policy, especially in anti-trust. In other words, we’re going to see the government allowing mergers, which should have been the case earlier.

All these things are good. The only threat that continues to hang over the market and the economy is the continuing anxiety over what might happen next militarily. That’s the big problem.

At least in the short term, it's good that we have the technology today, which we didn’t have in the past, to allow people to do business from remote locations. More and more of that technology is going to be used. But we need to do a much better job with the infrastructure. It's now more urgent that all Americans get access to broadband.

Why is it that fewer that ten percent of Americans have broadband? I think it’s a lack of enforcement of the 1996 Telecommunications Act. We’re seeing the Bells extending their monopoly and monopolists are not all that fond of innovation, and so we really need to solve that problem and liberate the supply of broadband. Technologically, it’s not difficult, but as far as creating a real free-market, that’s difficult, because it’s generally not easy to de-regulate anything that’s been a monopoly for a hundred years, and that’s the problem here.
— Glassman is Host of TechCentralStation.com

Larry Buchsbaum, The Yankee Group
It’s almost miraculous how well things held up. From the standpoint of infrastructure, from the standpoint of IT services, I would say that the system performed at and exceeded expectations as to how it was built. Nothing severely crashed; the infrastructure was able to handle everything.

Now, that doesn’t mean that there’s not going to be a need for a lot of building and rebuilding of solutions, based on what was knocked out on September 11. Telecommunicating and audio-conferencing are going to be areas that people will strongly look towards as — at least — temporary solutions. The ability to get people to fly is going to be severely hampered for a long time, so those are strong alternatives to business as usual.
— Buchsbaum is Director of E-Sourcing Strategies at The Yankee Group

Wayne Crews, CATO Institute
There are a lot of implications over cyber-security and its related issues. We’ve always faced hacking threats, and we probably always will. Part of the problem with the Internet is that it’s a commons — anyone can walk into a Starbucks or a public library and get onto the network, and from that spot they can inflict a lot of damage if they want to.

But part of the market response is that companies have to secure their networks, and they’re getting better and better at that. And I don’t think that this particular terrorist act really has any implications for shutting down the Internet in that respect. The Internet was designed to withstand a nuclear attack. If you knock out a whole piece of it, the traffic gets routed elsewhere.

On a different note, you may see legislators who want to restrict the ability to create anonymous communications. And I think that’s a risk, because encryption technology is out there. It’s not going to do any good to ban it for use in America. Criminals will get their hands on it, and will use it, one way or another — you can’t ban ones and zeros. Banning it isn’t going to help, and it also impacts American civil liberties.

With respect to Carnivore [the FBI's e-mail surveillance tool], nothing should change. If you had to get a warrant to break down somebody’s door after the Bill of Rights was passed, then you should have to do the same thing in cyberspace. If government needs to track certain individuals, and it has probable cause, it’s not going to have any trouble getting the proper clearance to do that. In fact, we were tracking these terrorists and their associates for a long time, and no one has any problem with that. The problem is if government employs a drift net, and that’s what we don’t want. There needs to be probable cause, there need to be reasonable searches and seizures, not unreasonable ones that implicate innocent citizens. You don’t need to pull innocent individuals into the maul here because we can do the kinds of surveillance we need to do on a limited basis.
— Crews is Director of Technology policy for the CATO Institute

Donna Scott, Gartner, Inc.
There’s obviously a lot of equipment that needs to be replaced — 220 floors and some surrounding buildings that were totally destroyed. So you’ve got a lot of activity going on, leasing new space in and around Manhattan, networking that space, and getting PCs, software, and network components delivered. It’s a kind of one-time replacement deal that’s going on.

That undoubtedly is a positive for the technology sector. But at the other end, countering that to a certain extent, are delayed purchases by customers that are distracted by the disaster. Certainly, in some segments, the net-effect is going to be positive. But this won't be enough to jump start the whole tech industry. The jump start will occur sector by sector: security, disaster recovery, business continuity, archiving, off-site storage, etc.
— Scott is a Vice President and Research Director covering 24/7 Availability, and Business Continuity and Disaster Recovery with Gartner, Inc.

Nina Yablok, Yablok & Associates
Most of my clients are smaller companies, but they have to have a really good sense of the bigger technology sector in order to have survived this long. The general feeling here is that we expected third-quarter figures to show a bottoming out of an "almost recession" with the start of a recovery in the fourth quarter. Now we expect fourth-quarter results to show that the "almost" recession in fact blossomed into a real recession. But recessions are basically Darwinian events. The fit survive, the unfit do not.

My clients are already seeing short-term equipment shortages. One client who manages large telecommunication projects can't get telecommunications switching equipment. Even equipment on firm delivery schedules was re-directed en-route and sent to Manhattan. Those shortages will result in a small and short-term benefit to manufacturers.

One small segment that might see some longer-term benefits is data back-up. And companies that provide both the equipment to enable telecommuting and consulting will be part of disaster planning; eventually this will lead to wider use of telecommuting on a day-to-day basis. Companies like AT&T, that have been trying to establish themselves as telecommuting consulting firms to a somewhat unenthusiastic business community, may find increased interest in the concept.

However, standing in the way of the growth of this sector are archaic laws protecting home workers, which harken back to the days when working at home usually meant children and women doing piece work for virtually no money. These are inappropriate laws for sophisticated telecommuting executives. Likewise, IRS rules on home offices are totally ludicrous in light of existing technology. If these impediments can be overcome, this tragedy could be a jump-start to a new way of doing business, which will be even more technology dependent than what we have now.
— Yablok is a San Jose, Calif.-based business attorney

Marie Menendez, Moody’s Investor Services
We expect to see some sharp increases in retail-technology buying over the short term. A lot of people will be working from home, and will need to upgrade or get connectivity for the first time. I believe that there is also going to be more interest and more awareness of personal connectivity around the country. As a result, the buying of electronics, which really had been in the doldrums for quite a while, will experience a short-term uptick on the retail side.
— Menendez is Vice President and Senior Credit Officer of Moody’s Corporate Finance Group