Roger McNamee Says the Consumer Tech Will Remain King in 2003

The last three years have been about eliminating those activities and, just as important, setting new priorities -- figuring out what mattered going forward. Now, superimposed on top of that was a recession. And that's too bad.

2. What effect did the recession have on the technology industry?

The recession changed the culture of IT at large enterprises. For the first time in history, IT people found it good for their careers to spend less than their budget. So for the last two years, you have seen budgets reduced. In 2002, you saw almost every large enterprise spend less than they had budgeted for technology.

The result: What is being spent is being spent on maintenance-type activities. There are very few, if any, significant initiatives going on in large enterprises.

This contrasts dramatically with the consumer-technology world, where the flow of new products is breathtaking. Frankly, consumer spending has defied prognosticators to the benefit of the technology companies that serve the consumer sector.

You've seen new products across such a wide range. Fabulous new videos games, DVD players were huge, products like Apple's(AAPL) iPod. You've seen new generations of wireless data and even new cell phones.

And not all of these are doing equally well. The thing to understand is that innovation in the consumer space is proceeding at a breathtaking pace. We can only describe it as incredibly exciting. And it's likely to last as long as consumers are willing to spend.

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The good news, though, is thanks to Moore's Law [the computing power of chips will double roughly every 18 months at no increase in cost] and the Internet, lots of these technology products are priced at $50, $100, $200. This makes them, for the consumer, operating expenses, not capital expenditures. Think back 20 years ago to the early days of the PC. If a family wanted to put a PC in the home, it really meant deferring the purchase of a car for a year or two. Now, some people can pay for a DVD player with the cash in their pocket, and everybody can pay for them with their credit card. That's why you saw DVD players become a mass market overnight.

So, here you have this problem. You're looking forward to 2003, and you say, Oh my gosh, now what? The enterprise side is the one where most people spend most of their time. And the reason is in the 1990s, that's where the action was. And there are thousands of technology companies serving enterprises.

The investment world is organized as though enterprise technology were the be-all and end-all of technology. I'm guessing that 90% of the resources on Wall Street and 90% of the resources in the venture industry are directed at enterprise. Fortunately, something less than 90% of the resources of the industry is directed that way.

Consumers account for almost half of total demand for technology. Right now, they may be more than half. At least as long as they stay employed -- and that's the key test on the consumer side of the equation. There are no issues on the product-innovation side there. It's very hard to tell which products will succeed, but it's also very clear that certain categories are going to do really well. Wireless stuff is really obvious. I think there's some incredibly cool things associated with digital photography and digital video, digital music as well. I expect a continuous flow of great stuff and a ready market as long as employment stays in a range similar to where it is today.

If unemployment were to rise dramatically over the course of 2003, that would be very bad news. The great part about the consumer side is that technology is no longer this weird externality. It's part of the fabric of everyday life.

Products like personal computers are standard in the homes of employed families. Cell phones are pretty much in the same place. DVDs are getting there very quickly. MP3 players are there. The idea of living without new technology is inconceivable to most people of the developed world. As messed up as the industry is right now -- particularly in its distribution channel, the way it brings things to market -- there are no issues about really cool new products. I expect the flow to be continuous in 2003 and beyond. As long as people are employed, they're going to be presented with an endless stream of things to buy, and I expect them to buy at least some of them.