I.T. Companies – Look Back for Keys to Vendors’ Future

This year marks a decade since the Internet bubble started inflating. Today, with IT spending on the rise again, “we’re entering a new 10-year period that I suspect will wind up being even more important than the bubble was,” observes Mark Stahlman, managing director of equity research with Caris & Co.

IT industry analysts believe the dominant vendors then—such as IBM, Microsoft and Cisco—sowed the seeds for how they would fare in the future in they ways they responded to the dotcom boom and bust.

IBM, observes Stahlman, has been resilient. Ten years ago, as it was being outpaced by other companies as a technology innovator, it sought refuge in the services market. After the bubble burst, IBM was able to capitalize on CIOs’ need to cut costs by outsourcing. Now that IT spending is picking up again, the company is reemerging as a technology maker, with an emphasis on high-end servers, mainframes and semiconductors. Meanwhile, it is repurposing services as boosters to its hardware and software sales.

Microsoft’s overreaction to the Netscape threat landed it in antitrust court and caused it much damage, says industry analyst Rob Enderle of Enderle Group. On the other hand, Enderle says, Microsoft succeeded at building a credible suite of server software, which it lacked in 1995, enabling the company to become “solidly entrenched in the back office.”

Today, the company faces another challenge: the need to reinvent itself for the new wave of software as a service, says Amy Wohl, president of Wohl Associates. Google is a particular threat because it can use its dominance in search engines to offer Web-based software as a service to consumers and enterprises, she says.

Cisco opted to grow through acquisitions and alliances, broadening its scope in networking and later entering new markets, says Frank Dzubeck, president of Communications Network Architects. But now, Cisco plays in so many markets—networking, voice over IP, security, storage and services—that it risks clashing with IBM, Microsoft and other partners in the marketplace.