With broad indications that we are probably in a recession it is likely a good time to look at the impact that will have on the Tech Segment.

Consumer Segment Advantage Offset

The advantage to the consumer segment is it moves to a different drummer than the enterprise market does and it has been the major driver for tech reflected in companies like Apple for much of this decade. However, consumers are vulnerable to a recession and will shift their buy behavior away from high ticket items during one to protect liquidity. This doesn’t mean they will stop buying just spend less and focus on lower cost items.

Mergers/Acquisitions/Hostile Acquisitions, Aggregation, and Consolidation

In addition this will reduce, sometimes dramatically, the valuation of many companies in the tech segment and likely increase mergers and acquisitions. Hostile acquisitions become more attractive because the employees, often the most exposed during a hostile takeover, face an uncertain job market and are less likely to want to take job risk.

Look also for aggregation efforts particularly on the web as companies, particularly small ones, and look for ways to consolidate efforts and better attract a declining pool of advertising dollars.

For distributed companies expect efforts to consolidate to fewer sites and therefore reduce operating expenses to gain some traction both because of efficiencies and because these moves are a forcing function that helps with voluntary staff reductions (for people who can’t move).

Enterprise Technology Spending

Enterprise spending has been flat for awhile now and largely operating at reduced cost already. While spending will decline some, it can’t go down much more and with budgets are typically set the preceding year should hold the line relatively well. This should help firms like Dell and HP who have feet in both corporate and consumer markets and might actually advantage Dell which is less balanced between them.

Business Spending Focus in General

Increasingly business will be looking for tactical payback on purchases and for things that will lower their monthly spending short term. Because of the financial pressure a recession puts on the top line (revenue) buyers across the business segment will be increasingly focused on things that improve sales and reduce operating expenses in the current year. Long term projects will be increasingly hard to sell and soft benefits (like productivity increases) will be less effective over time in moving products.

Labor savings, on the other hand, should open checkbooks because companies are likely to suspend staff increases and increase staff reductions. That means the firm has to operate with less and that managers are going to be increasingly challenged when doing that. This does suggest that products which can help the company do more with less will be increasingly favored as well.

Increasing Possibilities for Major Changes

When there is a lot of external pressure on costs, as will be the case here, there is an opportunity to drive into the market significant changes. On the consumer side offers by competing vendors to reduce household expenses and might have been ignored in better times will get more interest and be more successful. While corporations move more slowly, this will also shift their focus towards massive cost reductions related to new platforms and IT managers will be more willing to accept the risk if the savings are believable.

This could mean some major shifts between services companies like Cell phone providers, Cable and DSL companies in homes, and solutions providers in Business. Expect a lot of vendor movement between businesses as sales teams move on this opportunity.

Recession = Change

People can be moved by fear and fear of losing one’s job or career is one of the most powerful. This fear will be running rampant in some organizations and large vendors who have historically taken care of their customers may benefit from this significantly if they play their cards right. This is not a good time for customer facing functions to change much as that kind of change may trigger erosion in that base.

Unfortunately environmental initiatives typically become less important in the face of economic pressure but those that can also demonstrate savings should be sustainable.

Finally this typically drives some companies to rethink the markets they are in and those that have been moving far afield of core competencies will likely feel forced to refocus.