Larry Ellison, the chairman and owner of Oracle (Nasdaq:ORCL), the world's second-biggest hi-tech company, proffered some decidedly unusual advice to hi-tech wannabes this week.
Asked in an online Financial Times chat-room what advice he could give would-be hi-tech entrepreneurs, his best shot was Get Out. It's too late. There won't be any more megacompanies.
Let's begin by raising an eyebrow. For the last five years database king Oracle and the other hi-tech giants have faced bitter competition from startups. The young companies were financed generously by Wall Street, which bought into that Young is Beautiful chestnut. Fledgling firms raised billions, sassed the colossi, poached their workers, and forced them to take steps that led to heavy losses.
In other words, Nasdaq's collapse and the demise of the dot.coms hurts Ellison, but it's also a moment of sweet revenge on those upstart startups that dared nip at his heels.
But he has a point. His thesis, that the technology world is entering a new era in which the giants will rule, could be substantiated.
More to the point, his advice is cardinal not only to Israel's budding entrepreneurs but also to its economic leaders.
Coming of age
His claim is simply that all industries mature at some point. So must hi-tech, as cars and oil did. The maturity of hi-tech means that it will come to look more like other, more veteran industries.
It will do so through consolidation, the code-word for minnows getting snapped up by the big companies, or dying. In the Internet industry, the process of consolidation was terrifyingly fast. Most of the dot.coms that thrived thanks to Wall Street euphoria were dead within two years. The rest are on their last legs, or about to be bought.
Are we claiming that technological advance is over? Are we denying that progress is led by driven, starry-eyed visionaries skilled at making dreams come true?
No. Technology will continue to advance. Some of the dreams woven during the bubble days will come true ¿ broadband, third-generation wireless, total computerization of enterprises, e-commerce. They will happen, just not at the pace we'd expected. Moreover, they will all be controlled by juggernauts, not feisty little companies with loud mouths and small wallets.
Communications, hi-tech, computers and Internet will, in short, come to look like any other industry.
Who's making the money
Hi-tech has already come to look like traditional industries. Note that it's the mammoths making the money in information technology. Microsoft (Nasdaq:MSFT), for instance, earned $30 billion over the last decade ¿ roughly equivalent to the aggregate profits of the ten companies after it on the list.
It's no coincidence that the most profitable New Economy company is a declared monopoly with a talent for wielding its clout in its target markets.
How will the coming of age look? Less new companies will be established. There will be an advantage of size. The financial markets will confine their attentions to companies with clear business models.
It also means that the share of employees and entrepreneurs in the value generated by companies will shrink.
Hi-tech will continue to create successes and millionaires, at a slower pace. The concept that hi-tech is a different, separate economy with rules of its own will change.
None of this augurs well for Israel's hi-tech. Most of its growth in recent years was led by startups, or small and medium-sized companies that managed to raise capital on the financial markets. It's bad news for Israel, which has yet to create any real hi-tech giants. Meaning, there's a reasonable chance that most of our companies will continue to operate in the niches, or get swallowed up by the giants.
Great success in the past and its high profile gave hi-tech the image of the Israeli economy's savior and engine. Even the crisis couldn't discourage the faithful.
But that axiom should be treated with caution. Even if hi-tech has the greatest potential of all the sectors, the entire marketplace should heed the lesson learned by the entrepreneurs ¿and moderate expectations accordingly.