How Tech's Future Success Will Hinge On Its Users, Not Its Producers

In terms of realizing acceptable customers' return on tech investments, the future is now. JL

Bart van Ark reports in Forbes:

While tech production accounts for less than 10% of GDP in the US and less in the other larger economies, the users represent everyone. Investment in “intellectual property products,” which includes business spending by the tech sector, will grow 5.8% in 2019, down from 7.2% in 2018. That’s better than investment growth in machinery, structures, etc. But at slower growth rates the returns on tech investments become critical. Absorption of new technologies in business is time and resource consuming, outcomes uncertain. After more than a decade of experimentation with new digital technologies, the harvesting time to reap results is upon us.

At face value, the first two months of 2019 have relieved concerns that the global economy may be entering a phase of rapid decline. Financial markets have delivered large recoveries. For now, political brinkmanship seems to have waned. And business leaders have become somewhat less pessimistic about their outlook for the remainder of the year.

The sigh of relief extends to the tech space: The NASDAQ recovery has been impressive, and earnings reports of tech giants for Q4 of 2018 have come in beyond expectations following warnings of a revenue drop-off, especially in China.
It would be reckless, though, to argue that the coast is clear. Significant anxiety remains that the economy may still weaken more than anticipated. And in the tech realm, additional concerns arise from a range of factors: as just a few examples, look to the concerns about China ranging from the theft of intellectual property to a potential large consumer slowdown, regulatory challenges in Europe and India, fallout from more hacking incidents or breaches of privacy and a possible decline in the slope of new innovations in consumer and business tech.
However, the biggest uncertainty regarding tech’s wellbeing in 2019 is not how the tech producers themselves will fare. Rather, it’s how the users of new technologies will fare. After all, while tech production accounts for less than 10% of GDP in the US and less in any of the other larger economies, the users represent, well, everyone.
The first critical group of users are the individual consumers. One forecast suggests that AI and faster connectivity could unlock almost $400 billion of consumer spending on consumer tech in 2019, up by 4% from 2018. There was also no shortage of new exciting things on show at the latest CES conference in Las Vegas in January. How much consumers are willing to spend on new gadgets and services in 2019 depends on their confidence, their income, the strength of the labor market and to what extent wages increase. In mature markets, “nice to have” goods are usually passed up for “need to have” ones as these sources of consumer strength begin to wane.
The second important user group is the non-tech corporate sector. These are the thousands of large and small companies, incumbents and startups that use the technologies produced in the tech sector to create and bring to market new products and services. In doing so, they raise their productivity and are better able to compete even when demand growth is slowing.
Business spending on tech products and services in 2017 and 2018 benefited from the combined rise in overall business confidence and the widely felt disruptive pressures from the New Digital Economy (the combined impact of mobile, ubiquitous access to the internet, the cloud, AI and robotics). For 2019, most companies across Europe and North America are still expected to raise their IT budgets or have them remain level, according to one survey of 700 technology buyers across those two continents. But less than 40% of respondents plan to raise their budgets in 2019 more than in 2018.

The Conference Board forecasts that investment in “intellectual property products,” which includes most of the business spending by the tech sector, will grow at about 5.8% in 2019, down from 7.2% in 2018. That’s still better than investment growth in other machinery, structures, etc. But at slower growth rates the returns on tech investments become more critical.
Two other data points critically determine why the users of technology will ultimately decide the future of digital technologies. First, productivity growth is the ultimate outcome of a successful technology transition. Whether improved tech usage supports the numerator (more revenue in real terms) or the denominator (fewer inputs) in the productivity equation, the albeit modest upticks in US productivity in recent quarters provides reason for hope. Specifically, hope that tech will be able to sustain medium-term economic growth even if business spending will moderately slow in 2019.
Second, it has been well-documented that the absorption of new digital technologies in business processes is time- and resource-consuming, and that the outcomes are uncertain. After more than a decade of experimentation with new digital technologies, there is a clear sense that the harvesting time to reap the results is upon us. In a recent survey of CEOs, more than 50% picked the need for “creating new business models as a result of disruptive technologies” as one their top three internal stress points for 2019. And on a scale of 1-10, the confidence level that the CEOs’ organization had the “right go-to-market model” in place scored only 6.7; moreover, their confidence level for technology was only 6.5.
The producers of tech almost always make a bigger splash in the news than its users and consumers. Data on business or consumer spending on digital technology are perhaps more boring than the launch of a new gadget or service from a household-name company or new startup. But let’s not forget that the user response to this new service will make the difference between tech’s ultimate success or failure.