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January 15, 2009

No Really, It’s Good Kool-Aid

Addison Snell

I loved Kool-Aid when I was a kid. Not only were the commercials fantastic – admit it, if you were a kid in the 1970s, at some point you crashed through a homemade barrier singing “Oh yeah!” – but it was sweet refreshment on a hot day. My favorite was when my mom would mix the raspberry and lemonade flavors, a formula I soon learned to copy. Simply zip open the envelopes, put in just the right amount of sugar (i.e., way too much), add water, and stir. Delicious!

What a shame that we grow up into the business world to continuously hear admonishments of business leaders that are “drinking their own Kool-Aid.” We mean by this that the organization in question is sufficiently internally focused that its leadership is exclusively considering the views of like-minded conspirators while dismissing signs of economic doom that are evident to those outside the groupthink klatch.

And speaking of obvious signs of economic doom, have you seen the news at any point in the last five months? It’s enough to drive anyone to drink.

Sweaty Tabor Research Kids: “Hey, Kool-Aid!”
1970s Kool-Aid Pitcher Thing: “Oh yeah!”

With the economy beginning to crash down around us, Tabor Research issued a press release in October stating that the majority of users expected to increase their spending on HPC, with most of those expecting a significant increase. Three months later, we stand by that insight.

All right, I admit it. I’m drinking my own Kool-Aid. But hear me out. This is some mighty refreshing stuff.

Our press release was based on a broad survey of actual HPC users worldwide, after the start of September, the beginning of the financial crisis. In October we conducted another survey – a deep dive into one specific geographical region – and we got the same data again. We recently wrapped up a Quick Question poll on our Web sites, which not only confirmed the findings, but also showed no degradation of budget expectations over time. All in all, we have hundreds of consistent data points.

In addition, we’ve conducted in-depth, site-specific interviews with users in multiple industries, including banking and U.S. automotive manufacturing, easily the two most beleaguered vertical markets. Again, the results were the same. We spoke with HPC vendors, too, and found more evidence. Users expect their HPC budgets to increase. And more importantly, these interviews helped us understand why.

In most commercial organizations, HPC usage has a direct link to revenue production. Let’s say the forecast is bleak for your trinket company. You need to do two things: increase revenue and lower costs. Any costs you do incur must be revenue-generating. For the broad IT world, this is bad news. A new IT initiative might save you money in the long run, but it costs money this year. It can wait. However, you need to do everything you can to get your next-generation gewgaw to market faster. That takes HPC.

The money is there, and it will be spent, eventually. The unfortunate (for HPC vendors) side effect is that although the budgets are there, we see ample evidence that sales cycles are lengthening. Many new capital acquisitions must now undergo additional levels of assessment, review, or signature authority, to prove their worth. Dieters still eat; they just don’t eat as much, and they pause to read the labels to make sure food is healthy. HPC is healthy food that growing companies need.

To be sure, there will also be some pockets of actual market contraction. University programs, for example, could see significant drops in endowments, reducing money available for research. Companies could also merge or go out of business entirely, reducing the total pool of buyers.

2009 could therefore see a total decrease in HPC spending, not because users’ budgets are contracting, but mostly due to purchases being placed on hold for a time before they are finally approved. Occasionally, all purchases, whether budgeted or not, are suspended at an organizational level until a future date. Deals slip from this quarter to next quarter, and some eventually topple from 2009 to 2010. The good news is, when the economy eventually turns around (yes, please), sales cycles will shorten again, and we’ll see a positive blip as deals pull back in.

So, yeah, I’m drinking Kool-Aid. I know what went into the pitcher, and I know how we stirred it. And I love Kool-Aid. Oh yeah.

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