How does the economy affect the tech sector?

I'm an editor here at How Stuff Works, and sitting next to me as usual as senior writer Jonathans Rackland. Hello. There. The economy has been in the news a lot lately. Yeah, not not in a good way. Well, now it depends on who even even the good stuff about the bad stuff is still bad stuff, so just blew my mind. Yeah,

well there there goes that. All right, Well, thanks for listening. Now, Um, we were we were talking about the economy and how it has been affecting the tech sector, and uh, you know, there are a lot of different things that if you go through the news and and specifically look for tech stuff, you can find in an entire range of how the economy, the troubles with the economy are affecting tech stuff if you I mean just taking it on the surface level.

A lot of the companies that are you know, that are mainly affected are the financial organizations Shanks, investment banks, UM and uh. You know an article I read in the in the Guardian from October two, the British newspaper UM said that one of the things that you know you would look for, companies are cutting back on discretionary spending. So that's a lot of tech hardware. People are gonna stick with older computers. They're not going to run out and and buy a lot of new machines UM and

you know, smartphones, things like that. Things that people would normally you know, go ahead and invest in for their companies to keep them going and and say, oh, well we've got a new way to stay connected to our employees. They're not going to go out and spend money on that. So, you know, while the tech companies are not the ones leading the headlines right now, they are directly affected by by that sort of behavior. Yeah, they kind of lagged

behind both economic downturns and upturns. You if you look at the tech industry for a while, even before we had the the massive drops in and consumer confidence and the stock markets around the world. Even before that happened in September, we had people kind of shouting out warnings about the economy. Sure, you know, you had the whole reduced economic growth. We're not in a recession. We just

have reduced economic growth. Yea. For months they were debating whether it was a recession or and and the thing about the tech industry was a lot of people out there were saying, Hey, you know, it hasn't affected us at all. We're still going strong. We've got all these different companies that are starting up. Um, we've got just success story after success story. Well, here's the thing is that when the economy takes a downturn, tech may not

be hit immediately. But look at the tech industry three or six months down the line and see how it's affected at that point, because that's really when these sort of things that Chris has talked about about, you know, the reduced purchases, that's where it really when you're gonna

start seeing that appear in their financial statements. Sure, if you're um, if you're a techie listening to this podcast, it's our you know, our audience I guess, um, you may be saying, well, you know we're involved in I T. You know we'd recession proof everybody needs computers. Well, that's true.

But if companies are starting to cut corners and they start looking at things like job growth and whether or not there's any room to hire additional i T staff, um, they may be looking at ways to cut addition I T staff. Um spending on external I T. If you're contracting with if you've outstoresd um your I T or you know, tech support, Um, you may be looking at cutting down on on those expenditures too at your company, and small vendors especially are more likely to feel it

than than some of the big guys. Uh, you know, depending on how much of the fat they can trim. You know, I'm sure big companies probably could let go of more people. That will probably be a smaller percentage of the overall workforce. Actually, I that kind of segues nicely into a discussion about the the Internet giant Google. Oh, yes, I think I've heard of them. Yeah, you may have

heard a kind of things about Google. So Google recently it's stock fell to more than it fell down to hit the of what its highest amount was so so like billion dollars to share more like, but um, it's still a lot of money for share. But it really did take that, Like by the time October rolled around, it had taken about a hit off of its top market price. Um. That wasn't all at once or anything or else. You really hear about it on the news all the time. But over time it is lost value.

And this is a concern for a Google. Uh. And it's a concern for Google shareholders, which brings us to another important distinction is that if a company is publicly traded, they have to answer to the people who hold shares in that company. They can't just make decisions willy nilly, because the shareholders will definitely make it known that that's not acceptable. Um. So you have a responsibility to your shareholders if you're a public company. And Google is a

public company. So I was reading an article, uh, and actually a few articles about Google, and there were some nice interesting points about what might happen to a Google in the future if they aren't able to turn this around and get regained their their dominant position in the market. Really yeah, so here's here's some points. Okay, so they could share holders could pressure management to be more forthcoming about how they're spending Google's astronomical R and D budgets.

Are we talking about cutting the free food to possibly the fruit? Well, the free food actually has already been had a cutback. Know that that the engineers still get it. Um, And actually I think everyone still gets breakfast in lunch. It's just dinner now that only the engineers are that's a shame because you know, they got to keep the engineers there as much as possible to get this stuff out right, So you don't cut their food because otherwise

they might leave to go eat. Um. I love Google, by the way, but some of their some of their practices do seem a little kind of manipulative, let's say. But r indeed, so we're talking about like everything in Google labs. Um, think about the twenty percent time that people get of their time to work on personal projects. UM,

projects that could eventually become something that Google invests in. Uh. But if shareholders are saying, hey, why aren't you concentrating on your core business and regaining this great market share price that you used to have, Why are you concentratings down this little twenty percent time thing, you might see that go away. But you might also see things like you might see uh employee cutbacks where they have to layoff employees. Um that you might see other benefits start

to get the squeeze. We've already seen some of that at Google too, with the the childcare brew. I'm using brewha a lot recently. I think that's my new term. Yeah, it's very technical, yes, sure is. And another concern is that if Google continues to struggle, then some of the top talent a Google will leave the company. They've there have been some instances of that already, and that it's kind of one of those you know, rats abandoning the

sinking ship kind of thing. It's not necessarily that Google sinking. No one thinks that Google is going away. They just think Google is going to have to slow down, and that a lot of the people who are really you know, kind of those brains behind Google, who really push what Google is doing, They're gonna think, you know what, this isn't much fun. Cleaning this up would be a lot more fun doing something new and exciting and jump into that. I don't really want to spend my time fixing problems.

I want to spend my time doing new stuff, so you might see more people from Google who are really the creative types, uh, kind of look around for other opportunities. So I mean this so it can affect the big guys Google. You don't get much bigger than Google when it comes to Internet companies. That's true, that's true. You know,

speaking of stock price. Um, an article in Business Week was mentioning that, you know, with the investment banks closing a lot of these investment of banks were the ones who helped launch, uh, the I p o s of people like Yahoo and Google. Uh, so they've been historical supporters of the tech industry. They are you know, responsible for for these companies being on the stock market essentially. Now. I mean there are other people who can do that. But you know that's one thing that's that that is

going to hurt them in finding funding, finding funding. That's fun. Um, you know in the future is that that the banks are not, as you know, readily available. And uh, some are concerned that venture capital could be drying up right, And venture capital is one of those interesting things about the Internet where the more you learn about the more you start saying this really this this works how again? So venture capital is sort of it's it's a risk.

I mean, it's when you are investing millions of dollars into a company with the hopes that of eventually this company is going to turn around become profitable, and because you're essentially, you know, an early investor, you're gonna see a huge return on that investment. Yeah. Um. And there are a couple of different ways that companies can actually turn this around and make this happen. They can they can find a way to actually make money off of

whatever it is they're doing. Or they can get bought up by a larger company, which you know, if you give enough attention, eventually Google or Yahoo's gonna buy you, or maybe Microsoft. So so the idea there is that even if the company itself doesn't really get off the ground financially, you might still see a return on your

investment because someone else went and bought them. Um. And and here's the interesting thing about the Internet is that you've got engineers, not not economists, who are driving innovation. So these engineers are figuring out new services and programs and applications things that make the Internet really really cool, and they do some really neat things. But the engineers aren't thinking in terms of how do I make money from this? It's more like, how can I accomplish this

knowing what I know? And so then they accomplish it, and then it comes time to figure out, well, how do I make money from this? And and not everyone has an answer for that, and some people are proud of the fact that they don't have an answer for that. I'm sorry. For some reason, I was hearing Twitter in

my hand. Twitter. Yeah, yeah, you used companies like Twitter and and for a while Facebook, you had people specifically saying, hey, we don't have a business plan, and we're okay with that because what we're doing is we're providing a great service and people are willing to use it and people would be upset if it went away. And all of those things are true, but it doesn't mean that you're

making money. And without money, you can't keep you can't keep going because there are costs associated with these services, and whether it's the server cost or renting the space or the power or that you can continue to do, all these things cost money. And you can't just sit there and say, oh, I'm going to be truistic and offer this up for free, because that's not the way the world works, there's no there are no free lunges and uh so well okay except at Google, I'm gonna

hit you so hard. So so, venture capital is one way these companies stay alive. You have people who are actually it's really organizations. Usually it's not normally people. Well, occasionally you might have some multi millionaire who wants to invest in a company, but usually it's it's organizations and financial companies that kind of thing. Um. They'll pour money into a business to keep it afloat, to keep it innovating, and to um to hopefully reach a point where it

turns a profit, it finds a way to generate revenue. Um. But without this venture capital, these companies just can't exist. They don't have anything else generating revenue. So if venture capital drives up, drives up for something like Twitter, as soon as that money runs out, you can bet Twitter is gonna go away because it can't run other wise,

it can't run on its own. It's funny though, Um, if you really look at all the different articles about the economy and especially the tech stuff, Um, it's obvious

that people are sort of throwing guests out there. Because I saw another article that suggested that venture capital actually it's a good time for tech companies because venture capitalists have money on hand and other investments are drying up, so they're gonna look back at tech you know tech um operations and go, hey, you know they look good there.

That's an opportunity to make some money. And that that may be good, especially in the rebuilding effort, because there are going to be a lot of companies that are restructuring their businesses and business operations, and they may be looking at new kinds of technology to help them do that more efficiently. Is saying, well, you know, we have this crash, We're gonna have to redo some things in order to survive another one. UM. And I think I saw that in the info world. Yeah, the dot com

crash was was a different animal. Uh, there are a lot of people who are looking at this time and they're they're kind of pointing back to the dot com crash. Um, but dot Com that bubble burst mainly because people were pouring so much money into unproven uh services and technologies, and uh, it just it just went way too fast. People are a little more savvy now, they are a

little more cautious. It may not seem that way when you start reading about these venture capital deals, but there it's not the kind of wanton spending that was going on back in two thousand that led to the bubble bursting. And then I was just dreadful here in Atlanta. It was pretty tough. We have a lot of tech companies here in Atlanta that folded um after that happened, um and and you know, it was a real wake up

call for a lot of people. Now we're kind of gotten back to sort of a complacent state of mind in the tech industry a little bit um for a long time, Like in the nineties, late nineties, early two thousand, if you were an I T guy, you know, the sky was a limit. You could jump from job to job, getting increasingly better salary and benefits, and there was no

sense of job loyalty, nothing like that. Sometimes months at a time, you know, yeah you might, yeah you might work at a company for a couple of months and then immediately get hired away for twice the salary somewhere else. And that's not an exaggeration. That really did happen. Um. And then that that obviously came to a stop after the bubble burst and all these companies went out of business and suddenly being an ide guy was not necessarily

the best thing in the world. Um, but it steadily it got better, and UM, I don't think we're quite at the point where we're gonna have to worry about other dot com bust And there's still people who are investing venture capital, like like you you know, like some people are saying this is the right time. Dig got a twenty eight point seven million dollar ventury capital deal just a couple of weeks ago. So it's still happening.

It may not happen as often, and it may be uh, people might be much more picky when it comes to figuring out what they're going to invest in. It's not just going to be a oh well that sounds like that's interesting, throw money at it kind of approach. So people aren't just gonna be spending willy nilly on a lot of expensive items that they don't need. Oh, that's

always gonna happen. That's always gonna happen. In fact, you know what I can tell you about an interesting item that you might you technically need it, but you don't necessarily need this particular version of it. Oh yeah, yeah, and it's pretty expensive. But first we'd like to thank our sponsor, Audible. You can sign up for an account over at audible dot com slash stuff, which actually gives you a of your first download for free. And we thought we'd recommend a couple of books that relate to

this topic. Chris, you've got a recommendation for our listeners. Yeah, Personally, I would advocate trying to stay out of this bind in the first place. And uh, I was thinking of the Rich Dad series, which is, you know, a very popular way to um get a little bit better at managing your money. And uh, the latest is Robert Kiyosaki's Rich Dad's Increase your Financial i Q gets Smarter with your Money. Oh okay, that's a good one. I've got.

I've got a recommendation as well. This comes from the writer Chris Anderson, who you may know from Wired um. He has this book called The long Tail, Why the Future of Business is selling less of more Now. The long Tail kind of goes into this whole web two point oh model of web economics, and so if you are at all confused about web economy, I would recommend

reading this book. Getting it off Audible take a take a good listen, and that explains a lot of why these companies are interested in getting into venture capital in the first place. Um and you can find both of those at audible and like we said, sign up at audible dot com slash stuff. You can get your first download for free. Okay. So we're gonna talk about an item that's expensive and necessary, but you don't necessarily need

this brand. Okay. Have you heard of bling? Uh? Yeah, I had to, you know, take all my bling off so I didn't rattle right, No, okay, gangs to see. It's not that kind of bling. Now there's this. There's this kind of designer bottled water known as bling and has crystals on it. That's spill up bling. Okay, So so hang onto your heads, folks. If you haven't heard about this. This water is um on average, fifty five dollars a bottle of water from Tennessee. We lived two

hours from Tennessee. Chris. We could go and make a mint right now, I mean granted, okay, when you figure gas gas prices into it, all right, maybe half a mint, but still half a mint, Chris, that water just sitting there. Just give me a bedazzler and some plastic bottles and we will be in business. Yeah, you would like to learn more about bling and all the wonderful facts and figures of surrounding it, You can read this great article written by John Fuller. It's called Would You Pay Dollars

for a Bottle of Water? That's live right now at how stuff works dot com and we'll talk to you again soon. Let us know what you think. Send an email to podcast at how stuff works dot com. Brought to you by the reinvented two thousand twelve camera. It's ready, are you