Beginning of the End of the U.S. Technology Market?

Rob Enderle

Governments tend to be reactive, and if any market gets too much regulatory attention, the tendency is to overregulate and possibly kill it. The United States owned the oil market coming into the last century and breaking up Standard Oil shifted that ownership overseas. The same thing happened with trains, which are in their second shift now to China, and consumer electronics, which first shifted to Japan and is now shifting to China. We missed a bullet when IBM was nearly broken up, but we might not miss the next one.


We have, during an election year, three big issues: alleged antitrust behavior surrounding anti-poaching agreements between companies; alleged anti-competitive behavior among venture capitalists, an episode nicknamed AngelGate; and an increasingly financially hostile environment in the United States and particularly in California, where many tech companies are headquartered.


On top of this, the government wants access to all encrypted communications, which might take RIM out, suggesting that this desire to kill technology in the United States might be drifting to all of North America.

The Danger of an Election Year


In the United States, the Democrats are on the ropes largely due to impressively bad execution on pretty much every major initiative that mattered. The Republicans are divided between moderates and a group named the Tea Party Movement, best translated as the "throw the bums out" movement. While it has a conservative voice, it's largely made up of folks who are really angry at incumbent politicians.


This creates a dangerous environment where both incumbent Democrats and Republicans are at risk and where politicians from both sides have one thing in common: the need to keep their jobs. This common need often focuses on a common message to get the voters engaged, and last cycle's message of corrupt bankers has become old and stale.


This means they are looking for another group to pound on and, if it isn't far more careful, it might be the technology market. This could kill technology in this country.


Google: The Poster Child for Trouble


A decade ago, you would have put Microsoft in this spot, but Google has apparently developed an even stronger skill at ticking off governments. Apple, on the other hand, seems to have figured out that there is no upside to upsetting government. Even though it, too, gets into trouble, it's able to elegantly get out of it again.


Case in point is how Apple's manueuvers appeased European regulators in an antitrust investigation. Rather than going to war as Microsoft used to do-and Google still does-Apple made a few simple changes, and the European regulators focused elsewhere.


Microsoft doesn't even seem to get into trouble anymore.


But Google seems to go from crisis to crisis, and its CEO tends to get in front of audiences and say stupid, inflammatory things. His remarks about personal privacy have resulted in an ad campaign that makes him look like a serial killer. While his inappropriate jokes on privacy got him on "The Colbert Report," it is clear most didn't think that joke was funny. And, of course, he and the company were just convicted of defamation in France.


Google might do more than its share to damage to the technology market, but it is far from alone.


Woes of AngelGate, Non-Poaching Agreements


Whether or not there was really collusion, the idea of angel investors (AngelGate) meeting secretly during an election year to coordinate their investment strategies sounds really bad. Since these aren't publicly traded companies, most folks likely wouldn't care. However, the idea of big technology companies colluding to hold down salaries by creating anti-poaching agreements is like a Union war cry. In a market where people have taken sharp salary and benefit cuts and many are unemployed, suddenly we have an election issue. Combine them and it sounds like something that would work well in a stump speech, particularly for politicians who don't have technology companies as contributors.


On top of this, we have a major move to provide the U.S. government access to all encrypted communications. That likely will take RIM out at the knees, but could also render the encryption market-one in which the United States leads-non-viable.


Placed on top of Google's efforts, we have the foundation for a firestorm just waiting for that one politician to connect the dots and come out swinging.


U.S. Hostile to Technology?


To be clear, at the Intel Developers Forum, Paul Otellini didn't just complain that the United States was hostile to tech companies, but to all businesses. He painted the current administration as anti-business. This highlights two problems: One is the possibility that his arguments have merit. The second is that he effectively calls out the party in power and once again puts the spotlight on the technology segment as a problem to be solved. By in effect threatening to move business out of the United States, something many industries are doing at the moment, he painted a target on the technology market in case the administration wants to respond punitively. And governments tend to respond punitively, particularly when the incumbents' jobs are at risk.


Wrapping Up: The End of Tech in the U.S.?


That is the trend, whether we like it or not. Looking across all this news in an election year suggests that there are problems ahead for U.S. tech companies. That likely will result in more outsourcing of jobs to countries that treat technology more favorably, with China the current leading beneficiary. Tech, like trains and consumer electronics, could be departing for more favorable shores. If you are tied to tech, you may want to factor this into your long-term career goals.

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