Why 2002 Will Be Better Than 2001

2001 does not look like a good year for computer and Internet businesses, but I expect 2002 to be decent, if not spectacular, for a number of reasons including IRS policies. I also predict that Microsoft's software leasing concept will be more acceptable to businesses than you might expect, as will Red Hat Network and other subscription-based software support schemes. But before we go on, let's accept the fact that 1998 and 1999 were unusually good, and that we're unlikely to see anything like those years again in our lifetimes. We not only had Internet companies popping up all over the place -- much faster than they should have, in my opinion -- but we also had a major pre-Y2K hardware and software buying frenzy.

Commercial Web Sites Will Make Money in 2002

Commercial Internet expansion will not stop just because some of the most-publicized early dot-coms were run badly and are now going broke. For every Amazon that goes down, there will be another company like J C Penney that expands its Web presence and turns it from brochureware into a complete online shopping experience, another airline like Southwest that decides to rely more on its Web site than on travel agents to sell tickets, and a whole new crop of online businesses that will be started by people who learned their lessons from the first burst of ecommerce and will be more hardheaded and profit-oriented than their predecessors.

There may never be as much venture capital looking for silly Internet schemes as there was before 2001, but so what? I started the limo business that gave me the "Roblimo" screen name without venture capital, and it is a lot more expensive to buy limousines than it is to make a Web site. I have many friends who own and operate small and medium-sized businesses they founded either with their own savings or with the help of friends and family, who are making excellent livings today and aren't thinking about going public or getting bought out. They take in more than they spend every month, expand a little at a time, and that's all they need to keep them happy. I believe we will see more of this thinking applied to Internet businesses in the future by both small-timers and big companies. The land-grab mentality is over. The Internet is now part of the business landscape, not something special.

Internet businesses will still come and go. The classic figure is that 80% of all small businesses fail in their first five years. But plenty of online businesses will grow and prosper, buy or lease server hardware, and hire programmers and Web designers. They aren't going to do it in frenzied end-of-the-20th-century style, and the days of workplace-as-playground are probably gone, but there will be more Internet jobs than ever once we get through today's shakeout.

Hardware Will Wear Out

Advances in hardware, especially desktop and laptop units, have been negligible over the past few years. Yes, you can now buy a GHz uP for less than you paid for a 500 MHz one a few years ago, and RAM is cheaper, and so on. That's all very nice, but it means nothing. A majority of desktops and laptops in the world today are used for nothing but running business software, email, and Web browsing. In this context, rather than in the geek/techie world of speed for its own sake (and for game playing), there is little practical gain in doubling CPU speed, and a 20 GB hard drive is plenty big enough, especially for a business desktop connected to a network -- as most are nowadays.

The generally accepted lifespan of a computer in the world of corporate accounting is about three years, and the IRS depreciation schedule says it's five years. So all those computers purchased in the last half of 1998, in all of 1999, and into the first quarter of 2000 are still new enough that there is no compelling financial reason to replace them. But computers wear out. Keyboards get grungy, monitors get dim, and cases start to get a yellow tinge even if they are cleaned regularly. Hard drives crash after they've spun around umpty-ump times, and parts failures in general increase with age. A manager who is trying to look thrifty might not feel comfortable asking to replace two-year-old computers, but can easily justify replacing three-year-old computers that are starting to need regular repairs. And after five years, when those computers are "depreciated out" by IRS standards, and buying new ones can start the depreciation tax break cycle all over again, it becomes mighty tempting for even the worlds' most penny-pinching boss to start taking bids for new boxes.

Computers bought in 1997 will reach the end of their tax-depreciation life next year. Computers bought in 1999 will be three years old in 2002. Even if no great new technologies hit us in the next few months, we are going to see a lot of old computers replaced before long, probably starting in the fourth quarter of 2001, in a cycle that is going to continue for at least another three years after that.

Why Corporations Will Happily Lease Software

As co-owner of DSM&RM Inc, the holding company that owns Robin's Limousine and rights to any freelance writing I do outside of OSDN, I love to lease instead of buy. For many years, the limousine I drove was owned by a corporation controlled by a friend, who leased it to me. We did this because limousines, like computers, have a five-year tax depreciation lifespan, while lease payments are 100% deductible in the year you make them. It gets a bit more complicated than this in practice, and you can buy up to $20,000 worth of computer equipment and deduct it all in a single year, but Slashdot is not a tax advice site and I am not a CPA or a tax lawyer (and this article should not be considered personal or corporate tax advice, which you should only get from a qualified professional) so we'll keep things simple here.

Suffice it to say that from a tax standpoint, most companies consider leasing better than buying. And as a side benefit, leasing leaves capital in your hands to carry you through a slow month or make a sudden purchase instead of tieing it up in things like computers, limousines, trucks, bulldozers, office furniture or whatever -- or in software, which the IRS allows you to depreciate over three years.

You can laugh at the idea of software having a three-year lifespan if you want, but that's the IRS rule right now, and if you look at Microsoft's release cycle, you'll notice a three-year pattern. You may not like Microsoft, and the company may make a lot of mistakes, but when it comes to macro-marketing, especially in the commercial arena, their people generally know what they are doing. And Microsoft is turning to software leasing.

"Ha ha," lots of techies say, "Who in their right mind is going to lease software instead of owning it?"

Answer: Lots of corporate managers who listen to their financial people and tax strategists.

Besides tax advantages, leasing software with upgrades as part of the deal makes software budgets predictable, and unless your business is software, you'd just as soon not spend any time or energy worrying about it. It's lots easier to sign a lease contract once every two or three years than to constantly track software upgrades. I'd like to do that myself. Of course, since my business runs entirely on Linux, I am not interested in leasing software from Microsoft. But isn't the Red Hat Network essentially the Free/Open Source Software equivalent of a Microsoft software lease program? If I sign up with Red Hat Network, every dime I spend on it is tax deductible, and I have a fixed-price contract with a known company that (for a fee) makes sure my computers have the latest stable versions of all the software I use, and will take care of security patches and upgrades so that I don't have to worry about such things and can concentrate on running my business instead.

And note that everything I say about my tiny, home-based business applies even more to larger companies. I have five computers, three of which are critical for everyday operation. If you have thousands of computers, anything that makes managing them and making their cost more predictable is worthwhile. Whether you are using Macintosh, Windows, Amiga, OS/2, BSD Unix or Linux doesn't matter. Money and taxes are totally OS-independent.

Open Source Opportunity

What I -- and most people in business I know -- really want from our computers is to have them do their jobs without any fuss. I have more personal commitment to Open Source and Free Software than most small business owners, and I'm more than typically willing to experiment with hardware and software, but in the end my main desire, most of the time, for my business computers, is to not think about them at all!

For me, business computer nirvana would be the ability to write a single monthly check (of moderate size) to a local company and have that company take care of all my computer needs. Other than out of curiosity, I wouldn't care whether my computers were running an RPM-based or Debian-based distribution. As long as my computers worked reliably and ran all the software I needed at a reasonable speed, I'd be satisfied

There are plenty of systems packagers and value-added resellers [VARs] that provide this level of service for Windows-based business computing, but few for Open Source users. This is silly, and it is going to change. There is a grand business opportunity in this area for small entrepreneurs who don't have a lot of capital, and it continually shocks me that companies like VA (which owns Slashdot, remember), Red Hat, and others that play heavily in the Open Source sandbox haven't been encouraging resellers and systems packagers all along, right down to providing franchise-style "Linux Consultant in a Box" packages complete with "approved" software, "certified" hardware packages, and all the rest of the support structure that has long been availbale to Windows-based VARs.

This is not the first time (or place) I've suggested this business opportunity, and it won't be the last. But now that investment capital is not easy to come by, and Linux companies need to make profits just like car parts warehouses and all the other businesses in the world, maybe a few more people will listen to the idea.

What I Say Here Doesn't Matter

Real life is real life. It will take its course whether you agree or disagree with what I have said here. Aging computers are going to wear out and get replaced either way. The cost of developing proprietary software is going to keep on rising, and Open Source is going to become an increasingly attractive alternative. Sooner or later -- probably sooner -- at least one innovative politician will claim he or she can save taxpayers millions (on the local or state level) or billions (on the national level) by switching from proprietary to Open Source Software and, especially if the local, state or national economy is in "down" mode at the time, will get additional votes by taking that stance. Other politicians will notice, and suddenly you'll see Linux and Open Source popping up all over the place in government buildings, even (perhaps especially) on office desktops.

IRS policies have -- and will continue to have -- more effect on corporate computer purchasing policies than all of the articles and comments on Slashdot put together. All the dying "pure" dot-coms in the world aren't collectively spit next to the big, established companies like J C Penney and Wal-Mart that are just now starting to pick up steam on the Internet (and are hiring laid-off dot-commers). And even these giants aren't going to have as much of an effect on Internet spending over the next few years as the millions of small businesses that are only now discovering that a Web site is less expensive (and often more effective) than a big Yellow Pages ad.

So relax. Whatever you and I say or do, things will be better next year than this year for almost everyone who works with computers or the Internet. And while Linux and Open Source may not dominate the world as fast as some people would like, you are going to see them become steadily more popular over the next few years, no matter what happens to any particular Linux or Open Source company.