Analysis: After yesterday, it's time to reset

Among the comments we received yesterday after our all-day, wall-to-wall coverage of the deluge that struck the technology industry, was a complaint asking, why we didn't pick some happier news?

One of the many things I've always appreciated about the movie Apollo 13 is that penchant for its historical accuracy enabled it to introduce the world, by way of actor Ed Harris, to one of the 20th century's greater heroes, former NASA flight director Gene Kranz. Sure, after the movie, folks everywhere had adopted one of Kranz' true-to-life catch phrases, and what had been emblazoned on my wall as a teenager: Failure Is Not An Option. But there was another Kranz phrase used in the movie that is applicable to yesterday, a day which revealed for us the wide extent of the damage incurred during this ongoing, global economic failure.

That phrase is: Work the Problem.

Yesterday, we saw a plethora of examples of companies being bowled over by the problem at hand -- the sharp downturn in the global economy -- and a few examples of executives who may have learned a thing or two from Gene Kranz. In one of those examples, Microsoft CEO Steve Ballmer said one of the smarter and more relevant things I've ever heard him say.

During yesterday morning's quarterly conference call, analysts tried framing the economic problem for Ballmer in a context they hoped he could address directly, and solve for them. From their perspective, they need to be able to see further out than three months down the road, to determine whether their employers' investor customers should hang on or bail out. And the volatility in the current market narrows the visibility for them somewhat, creating a "cloud" of the variety that you wouldn't want to host Windows Azure on.

Microsoft couldn't provide any firm guidance on future quarters as it has in the past, because the variables in front of it are so unpredictable. So what analysts tried to do is move Ballmer from point A to point B, ascertain where point B was, and then see if they could draw a line between it. Specifically, they wanted him to account for the degree of volatility the "cloud" brings into the picture, so that they could factor it out and derive something that had some semblance of normal.

"Our model is not for a quick rebound," Ballmer said at last, after sustaining this line of questioning for as long as he could take. "Our model is, things go down and they reset. The economy shrinks, and then it doesn't rebound; it builds from a lower base effectively...Our work on cost overall reflects that model. So no, I'm not expecting a 'bounce,' and when we did our resizing, [it was] with an eye towards margin, total profit, shareholders short-term, and long-term investment in the growth opportunities that we see.

"I would say that the economy stays down," the CEO continued, "and then builds slowly." It was the "economy of scale" concept that Ballmer had been espousing for years, applied in the opposite direction for the first time -- thinking in terms of a smaller company with smaller costs that plays in a smaller overall market with smaller revenues, but which grows from there.

Betanews asked our frequent contributor and AR Communications Senior Vice President Carmi Levy, suppose this isn't really such a bad way of thinking about it after all? If we truly do have an economy of scale in place, once we've adjusted for the seismic shift, should we truly go on paying attention to the shift itself? Or should we accept that relativity will put everything back in order, giving us a situation where the economy is smaller and thus so are we?

"Coming out of this economic phase, it'll be more likely than ever before that consumers and business leaders alike will have finally internalized the message that generations of parents have tried to instill in their children: Live within your means," Levy responded. "That means holding onto your old iPod -- or Zune -- instead of upgrading to the newest model as soon as it hits the local Best Buy. It means redefining that line between want and need and having the discipline to stay on the right side no matter how tempted we are by the latest shiny gadget. It means every purchase decision will have to first be vetted through a budget before being considered further. For much of the past decade, budget was simply an afterthought in the mind of the consumer.

"Against this somewhat more rational backdrop, the resizing of the business community to meet this new, more muted consumer demand curve will be just as painful," he continued. But at the very least it will be easier to swallow as businesses in all sectors -- tech and beyond -- readjust their messaging to reflect a more realistic approach to consumerism than we've previously seen. Opportunity will continue to be out there, and smart companies will still be able to connect with markets in ways that support sustainable growth. And in many ways, this will be a kinder, gentler way of doing business."

Next: Shrinkage as a solution...