Why did Y2K software companies not strike it rich??

greenspun.com : LUSENET : TimeBomb 2000 (Y2000) : One Thread

Here is part of an article from Salon on the software industry. (The company I work for is not a public company and is not mentioned in it.) The article examines the paradox of why Y2K companies did not strike it rich.

IMHO, there are two basic reasons: some of those companies in fact did not have a good product, but, just as important, many corporations were not willing to spend enough money on Y2K remediation, and did it on the cheap.

Time will tell.

The real Y2K crash
Why did stocks that skyrocketed on the promise of "silver bullet" millennium bug solutions fall back to earth?


De Jager now speaks dismissively of companies, like Zitel, that that tried to make an instant killing by selling Year 2000 solutions, even though he consulted for some of them and advertised them on his heavily trafficked Year 2000 Web site.

"I call companies like that 'Wayne and Garth's Excellent Aluminum Siding and Year 2000 Services' companies," he says.

In all fairness, the De Jager index has done tolerably well. It lost over a quarter of its value when the Year 2000 stock frenzy ebbed in mid-1998, but has recently risen substantially. But don't thank the Year 2000 problem for that. Nobody, big or small, came up with an easy fix for the millennium bug; instead, legions of programmers spent millions of hours debugging code. Smaller companies like Zitel, Viasoft and Data Dimensions that were pegged as "pure" Year 2000 plays watched their stock drop as much as 90 percent, while some of the other more versatile companies included in the index have done well. But their stock has risen in lockstep with the rest of the technology industry, with little of the gain attributable to the Y2K problem.

(SNIP) . . . .

EDS spokesman Reed Byron says that EDS did get a total of about a billion dollars' worth of Y2K-related business. But Y2K worries also slowed down installations of major software systems. "You wouldn't want to start an ERP [enterprise resource planning, the trade name for huge software projects that tie together a major company's computer systems] project before you're finished with the Y2K remediation and testing," said Byron.

Or look at Computer Sciences Corp., the next-biggest company that works on maintaining big corporate computer systems. One might have expected that as U.S. companies spent more and more money furiously testing and modifying their systems to reach the Nirvana of being "Y2K compliant," the revenues of companies like CSC would grow at an increasing rate. In fact, while CSC has indeed grown very quickly, the opposite has been the case. The company's revenue growth has actually slowed substantially, from 25 percent a year four years ago, when few companies were devoting substantial sums to Y2K fixes, to 16 percent in the last fiscal year.

Some of the very same companies expected to profit most from selling solutions for the Year 2000 problem are now feeling the pinch of corporate belt-tightening as companies that spent loads of cash to become Y2K compliant find little money left in their technology budgets for anything else. The Gartner Group, a research and consulting company that rose to prominence largely on the strength of a series of reports that drew attention to the vast sums of money that would have to be spent on Y2K bug fixes, now says that big companies are postponing spending on Internet initiatives because of Y2K costs. De Jager himself points out a "lockdown" in effect at many corporations that, having painstakingly modified their computer software, are now unwilling to make any big changes until well after the date change.

In a press release announcing the results of Data Dimension's dismal last quarter, the company presented a tellingly dour and, as management analyses go, fairly trenchant description of the unfortunate situation that hopeful Year 2000 solutions providers now find themselves in:

"Clearly we are disappointed with our financial results for the third quarter. We, along with the broader IT services market, are seeing a general reluctance on the part of clients to commit to new technology spending prior to the Year 2000 date change." (SNIP)

-- kermit (colourmegreen@hotmail.com), December 21, 1999


Al siding reflects microwaves; that might have sold better, if allowed, heh.

-- Hokie (va@va.com), December 21, 1999.

One reason may be that there were not enough qualified people to make up the Y2K remediation teams. Another that this one time business opportunity had too many liabilities attached to really interest the EDS's of the world..they would rather have fat multiyear contracts which chain the customer to their software forever rather than a quickie that could bancrupt them via liability issues. And then there is the fact that many companies already have contractual commitments with their software vendors and could only go through them for repairs. Also no big interest in giving out big bucks to unknowns.

For me it all boils down to they didn't get enough done. Alot of folks did te fed.gov thing...just kept whittling down their list of 'critical systems'...

-- ..- (dit@dot.dash), December 21, 1999.

A lot of y2k work went to India, or was done inhouse using conventional products. None of the silver-bullet products were useful, it was more of a manula coding exercise. Alternatively many companies replaced their systems (with upgraded packages or new products). Some comanpies started their remediation years ago when no y2k products existed (say back in 1993/4).

-- Sir R (richard.dale@unum.co.uk), December 22, 1999.

Other companies found that Y2K remediation wasn't nearly as complex a task as they had believed it to be at first, and that the task could be handled with in-house staff.

-- Paul Neuhardt (neuhardt@ultranet.com), December 22, 1999.

Moderation questions? read the FAQ