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New realism punctures tech bubble

30 November 2004  |  14228 views  |  0 Source: Finextra Research

Market data technology outfit CMS WebView is looking for cost-saving cutbacks under a strategic review initiated after failing to meet targets for its proprietary TDI software. A statement issued by the company earlier this week had a wearily familiar ring to it: "Whilst the directors remain confident of the advantages of the TDI product, they believe that the sales cycle for complex software products such as TDI has become longer than previously expected."

On the same day, Australian FIX engine supplier Cameron Systems announced a new sale at Winterflood Securities. The contract materialised from a two-year courtship of the UK-based marketmaker by the vendor’s head of sales Glenn Cruickshank.

Taken together, these two episodes tell us all we need to know about the current state of the financial technology market. Firstly, the go-go days of the late 80s and 90s tech boom are not going to come around again anytime soon – if ever. Secondly, the usual approach to sales, built around expectations of a return to big-ticket spending by spendthrift institutions, requires a fundamental rethink.

True, banks have got more money to spend on IT than they had two or three years ago. But a fair portion of any bigger budget is already allocated to compliance-related projects and upskilling of depleted workforces. Compliance aside, there are no looming issues – like Y2K and EMU – to disturb the equilibrium of CIOs.

Attitudes to tech spending have also hardened. Big-picture infrastructure projects have given way to tactical implementations designed to resolve specific business-related problems. If anything, the architectural changes underway at most shops, led by investments in Web services and thin client technology, are contributing to downward pressure on margins.

Nor is there much to cheer in the wider economy. The continued decline of the dollar and widening of the US trade deficit, the high price of oil, political instability in the Middle East, and depressed and depressing GDP growth forecasts for the industrialised nations, presages no imminent rally in share prices.

This is bad news for the smaller cap companies, many of which have been through successive restructurings and capital raising exercises while waiting for the economy to pick up.

For many, the realisation is slowly dawning that it’s no longer good enough to post another flagging set of interims and trot out the familiar line that the company is well-placed to profit from a return to better times.

The more far-sighted have tried to change their business model to adjust to the new economic climate – usually based around a shift from license sales to software rental. But even here, the cost of sale is key.

Others have bowed to the inevitable and been swallowed up by bigger, better capitalised companies. But even among this upper tier of top performers, the pressure to deliver results rather than merely grow revenues through acquisitions, is leading to a tighter focus on business models, restructuring and further asset sales.

The successful companies in the current environment will be those that can wean themselves off the idea of rich pickings from free-spending fat cat institutions. Instead, a focus on long-term relationship building and the presentation of solutions to specific business problems – as opposed to sales slideware and glossy brochures - is the only way forward.

Finextra is preparing its annual state-of-the-nation report on IT budget planing and tech strategies in the wholesale markets. Please complete our form to participate in the survey.

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