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Welcome to Recession Valley

From San Jose to Redwood City, Calif., the ever-optimistic Silicon Valley is scared and somewhat frozen.

Jon Oltsik
Jon Oltsik is a senior analyst at the Enterprise Strategy Group. He is not an employee of CNET.
Jon Oltsik
3 min read

I spent the last two days in the Silicon Valley talking to IT vendors about the economy, IT spending, and near-term marketing plans. From San Jose to Redwood City, Calif., the ever-optimistic Valley is scared and somewhat frozen.

Venture capitalists are telling their portfolio companies to establish a hiring freeze and hoard cash. More troubling, VCs are running scared from sound investments like Identity Engines and others. In the meantime, large IT vendors are freezing budgets and developing contingency plans. So far, eBay, Qwest, and Yahoo have laid off employees; look for others to follow soon.

It's strange to visit the Valley under these circumstances. We Bostonians tend to be cynical all the time, so it's always a breath of fresh air to take in the tech enthusiasm in the Valley. Now it seems like the entrepreneurial spirit has been replaced by panic--strange indeed.

As an industry watcher, I'd like to address this emotional rollercoaster with a bit of pragmatic advice. Yes, things are bad and will likely get worse, but the sky isn't falling. IT budgets will remain flat or grow slightly (2 percent to 3 percent) on average in 2009, but spending will be heavily scrutinized. Given this, senior marketing people at IT vendors should:

1. Stress near-term ROI and TCO product benefits
Forget blue sky strategic initiatives and paradigm shifting technologies (SaaS, cloud-based computing, etc.). This hype should be reserved for growth periods. Let your customers and prospects know how your technology offers benefits in 3 months, 6 months, 12 months, and 24 months. Back rhetoric with solid metrics and help your customers achieve these goals.

2. Adopt creative financing options
This may include extended terms, pay-as-you-go, leasing, or outright loans. Even if users can get financing from traditional sources, they may not want to do so. Help them overcome this as best as you can.

3. Look for opportunities in ongoing projects
Large organizations aren't about to pull the plug on projects like data center consolidation, server virtualization, and SOA that they are already working on. If you can add value, reduce the cost, and accelerate the benefits of these projects, you are golden.

4. Stress services
Companies are likely to cut IT staff or at least freeze new hiring. This means that they will have to do more with less people. In this economy, service providers with skills in complex areas like identity management, security architecture, and application networking will be plenty busy. Note that these winning services are based upon short-term ROI, not long-term commitments.

5. Cut the big spend marketing items first
While I look forward to the RSA Security Conference and Interop each year, it is likely that many prospects won't attend next year. Why spend $500,000 to buy beers for your competitors in Las Vegas? This is an easy cut. Ditto for a lot of industry-specific trade events, media, and Web-based visibility gimmicks. Cut, cut, cut.

During hard times, the winners offer help, flexibility, and immediate benefits. Any spending that doesn't support these goals should be eliminated, cut, or fought for by a stakeholder willing to stick his or her neck out and take accountability. In the meantime, dedicate precious resources to customer advocacy, field support, and overall service.