Everyone pays a price for Y2K hype

The near-hysteria of many Y2K warnings rarely reflect reality. Is all the money spent to trumpet impending Y2K crises really necessary?

Mike Ricciuti Staff writer, CNET News
Mike Ricciuti joined CNET in 1996. He is now CNET News' Boston-based executive editor and east coast bureau chief, serving as department editor for business technology and software covered by CNET News, Reviews, and Download.com. E-mail Mike.
Mike Ricciuti
6 min read
The most expensive spin-control campaign in modern history could be emanating from Silicon Valley, not Washington.

For years, businesses and governments have spent untold sums to warn of widespread chaos from the millennium bug. In turn, the dire predictions have driven companies, agencies, schools, corner stores, and ordinary citizens to collectively spend billions of dollars--some say trillions--in preparation for the impending Year 2000 disaster.

Now, just weeks away from the red-letter date, much of the initial hype has subsided. Although some problems have appeared, Year 2000: The cost of fear many experts believe that serious damage from the most celebrated bug in high-tech history will be minimal.

Which raises an irresistible question: Was all the money spent to trumpet Y2K crises really necessary?

Increasingly, investors are wondering whether the barrage of corporate Y2K warnings amounts to little more than excuses for poor earnings or sales pitches for so-called corrective software that no one needs.

Consumers view the bug with similar skepticism, showing little interest in the panoply of books and shrink-wrapped products that have invaded stores everywhere. And retired programmers who read headlines saying their skills would be in high demand have found such talk to be greatly exaggerated.

"There's no question in my mind that Y2K has been used as a scapegoat by companies paraded forth as the reason that times are tough," said Bob Austrian of Bank of America Securities, widely considered the dean of Year 2000 experts on Wall Street. "There is real impairment from Y2K--it does actually weaken the demand for software and other technology products--but I think it is overused as an excuse, particularly in the last two quarters by business software providers of every kind."

Any attempt to estimate Y2K-related costs is a study in guesswork. The cost to federal and state taxpayers could exceed $13 billion, according to very rough estimates by the Office of Management and Budget and International Data Corporation. Even less clear is the percentage of that amount devoted to marketing and public relations campaigns.

But if the ballpark estimates for the overall costs of the Year 2000 problem are anywhere near true, they would tax even the most nimble mathematical mind.

Some place the figure somewhere between $1 trillion and $2 trillion. That's more than the combined market capitalization of the top ten Fortune 500 companies, nearly twice the cost of the Vietnam War, or more than enough to fund ten Apollo space programs, adjusted for inflation.

Perhaps the most visible Y2K impact won't come from the bug itself, but from the vast amounts of money spent on related lawsuits, software, and preparation--as well as on canned goods and gas-powered generators.

CNET News.com TV talks to John Koskinen, chair of the President's Council on Y2K Conversion, on the panic factor 
John Koskinen
"The overall impact to the economy will be a lot like what happens due to a snowstorm," said Robert Kugel, an analyst with FACEquities. "We'll experience some minor inconveniences, most likely. People won't come into work for a few days, and they'll have to work weekends to make up lost productivity. That's the cost to the economy more than any actual catastrophe."

The first major financial setback to be blamed on the Y2K bug came just weeks ago, when IBM, the grandfather of high-tech companies, warned that it would lower earnings projections for the next half-year--and its stock plummeted accordingly, initially taking much of the market along with it. But the Dow closed with losses limited to double digits, hardly a suicidal number these days, and Big Blue has regained ground since.

Although IBM and other companies are facing legitimate technological problems related to the millennium problem, the near-hysteria of many Y2K warnings rarely reflect reality. And much of that panic has been inspired by the same technology companies that have spent billions of dollars to warn of potential damage or to offer solutions to avoid it.

"Investors aren't believing the hype of Y2K," said Louise Barbic, associate director of research for Yankelovich Partners. "The number of people who are planning to take their money out is a very small pool."

As they get a clearer sense of reality regarding Year 2000 issues, many consumers, businesses, and taxpayers worry that the costs of extraneous or hyperbolic marketing will be passed along to them--especially given the the propensity of the government and corporate America for excess.

Bell Atlantic, for example, has even tapped the expertise of a sociologist to help it communicate Year 2000 matters to consumers, the brainchild of a Boston PR firm hired to help shape its Y2K message.

Among the messages Bell Atlantic wants to communicate: Don't pick up the phone and call your 25 closest friends at midnight on New Year's Eve. The company worries that too many calls could overload the system. At the sociologist's suggestion, the phone company will print messages on the envelopes of all November statements, asking customers to space out their phone calls on December 31. It will repeat that message three times on each envelope back.

"It's becoming much more complex than just 'get the usual readiness message out,'" said Jim Smith, a spokesman for Bell Atlantic's Y2K team. "It's more of the psycho-social reaction that we are trying to address."

Bruce McConnell, director of the International Y2K Cooperation Center, discusses public confidence 
Bruce McConnell
To get the word out on their Y2K status, companies have created Web sites, published brochures, started mailing campaigns, and even begun road shows.

Steven McManus, communications director for BankBoston's Year 2000 program, said he did 100 presentations on his company's program around the country in 1998 alone. His communications program "goes back to those days when people didn't even know what Y2K stood for, so we first worked internally to educate employees on the issue through emails, fliers, posters, and an intranet site."

Others, however, are not so sure that all spending for corporate warnings is justified. In particular, many point to the alarmist calls for older programmers that pervaded the industry a few years ago. In a 1997 interview, for example, one consulting firm manager said: "We're going to enter a horrendous bidding war."

"This never happened," said Lou Marcoccio, an analyst at Gartner Group. "In fact, we found that only 3 percent to 7 percent of large companies went to outside consultants for Y2K work."

Interestingly, some blame Gartner itself and other research firms like it for overstating the need in the first place. "The information groups grossly overemphasized the market potential," said Bill Schlondorn of Blue Moon Consulting. "Also, no one anticipated all the Y2K tools that came out early on" that made it easier for programmers in big companies to fix problems themselves.

Although hard numbers for nontechnical Y2K spending are sparse, analysts agree that expenses beyond code-crunching have become a significant part of budgets targeted at the computer glitch.

By the fourth quarter of this year, costs related to companies' Y2K public relations and other nontechnology projects will reach 80 percent of the total Y2K budget, according to Marcoccio of the Gartner Group.

As 2000 approaches, more companies have begun looking beyond their own systems' compliance and evaluating the broader Y2K environment around them. Risk assessment, contingency planning, and quarterly disclosures to the federal government all demand money.

Patrick Campbell, Nasdaq chief operating officer, stresses the importance of staying calm 
Patrick Campbell
Globally, the technological costs to handle the computer problem ranges anywhere between $300 billion and $800 billion. When PR and other costs are added, the Y2K estimate is closer to $1.5 trillion, according to estimates from various analysts.

"I don't think we will ever really know how much companies spent on related Y2K costs outside of the actual IT spending because a lot of companies aren't tracking separately from their total Y2K budgets," said Anne Coffou, an analyst at Giga Information Group.

The only thing that's certain, Coffou said, is that companies are devoting much of their resources to spreading word of their Y2K compliance to customers, partners, and investors.

BankBoston, for example, did a mailing and put messages on the back of all transaction receipts. The issue "goes way beyond just fixing two-digit code," McManus said.

At Bell Atlantic, Smith is more worried about what will happen after the clock strikes midnight on December 31. Phone lines typically get besieged with calls on every New Year's Day.

"This coming New Year will be like Mother's Day and New Year's Day combined. Our assessment is that telephone traffic will be phenomenal," Smith said. "We expect to see possible delays, as we would on any big day like this, but people might react to a delay on this New Year and think the world's ending. The goal is to try and mitigate the panic issue." 

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