March 28, 2002, 12:00 AM

The Case for an Internet Technology Recovery

The information technology sector, which led us into the recession, will now lead us out of it.

Last year’s recession was largely the result of a decline in business spending. It was nowhere more pronounced than in the information technology sector, and particularly in anything related to the Internet. Businesses, believing that a downturn in consumer confidence would result in lower demand for consumer goods in 2001, decided to cut back on technology investments, which made their economic prophecy self-fulfilling. Furthermore, corporate America had spent heavily on Internet and other information systems in the latter half of the 1990s, and not all of those investments produced the returns some executives were hoping for. So, about 18 months ago, senior managers decided they could afford a hiatus from information technology investment.

Surely it is time for that hiatus to end. For one thing, the much forecast decline in consumer spending never materialized. What meager growth we experienced in GNP last year was driven by personal, not business, consumption. Retail sales remained surprisingly strong during the economy’s slump. And now there are clear signs that the recession-the shortest and shallowest in the post-war period-is over, and a recovery is underway.

 

How robust that recovery is will depend in large measure on the information technology sector. I believe that this sector, which led us into the recession, will now lead us out of it. That belief is based on a strong and abiding faith in competition, Adam Smith’s “invisible hand” that guides and powers our free enterprise system for the societal good.

 

Business spending on information technology may have taken a breather in the last year and a half, but technological advancement has not slowed. Moore’s Law has not been repealed: the chips coming from Silicon Valley today are twice as powerful as they were 18 months ago. As important, the software that runs on those chips is far more advanced than when we entered this downturn.

 

Clearly, the advances in technology related to the use of the Internet in retailing continue unabated. In this and other recent issues of Internet Retailer, we have reported on new technologies that allow retail web sites to provide shoppers with real-time inventory data, cross-sell and up-sell options, vastly improved product searches, shipment tracking, custom-fit apparel, 3-D imaging, on-line customer service and many other innovative applications.

 

Marvelous Internet technology is out on the market, in spades. What has been lacking is the will to deploy it. That’s where the invisible hand comes is. While many retailers and catalogers will continue to play it safe on Internet technology investments, others will take a gamble that the technology now on the market will give them a competitive advantage, and for some the gamble will pay off. The early adopters will be rewarded-and eventually copied, which in turn will fuel an investment spending recovery.

 

Our mission in this cycle is to report on how the latest web-based information systems are changing the competitive balance in retailing. This month’s issue has a full menu of stories on new Internet retailing technologies. For those of you mulling over IT investments, consider it food for thought.

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