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The Recession: Here it comes
For the last two years, the digital sector has been a minor miracle in the wider economy. Whilst everybody else was fretting over bank collapses and credit crunches, the software sector has held firm.
Services companies (like Vagueware), have seen revenue growth as people seek efficiency gains, more streamlined processes supported by software and ways to leverage data in more creative ways. Product companies have ridden the wave of efficiency gains as people upgrade to compete. Together, we’re probably the only areas still recruiting and holding firm. The recession is something we’ve been sheltered from for the most part.
No more.
This morning Adobe – creators of the cornerstone software of many a web outfit in Photoshop, et al – announced they’re shedding 680 employees, a total of 9% of their workforce in order to “align costs with its 2010 operating plan and budget [...] and the realities of the business environment”.
So that’s 9% from one of the industry top dogs. Ouch. Maybe they were heavy, and it was time to restructure, but that’s one big kick in the stomach for a sector that’s been strong whilst all else flails.
Add into the mix EA’s 1500-job cull and things start to look grimmer still.
One phrase springs to mind: buckle up.
I'm not sure that Adobe or EA are bellweathers for the entire industry these days. It's possible that Adobe's performance is an indicator of sales of Photoshop, Illustrator, Dreamweaver, Flex etc., but surely it's a lagging indicator (people stopped buying PS etc. 12 months ago, now Adobe are cutting costs).
In my opinion Adobe are paying for a lack of innovation in their main product lines. Is Photoshop CS4 so much better than CS3 that the upgrade is a 'must-have'? Dreamweaver is probably slightly less relevant in an age of content management systems and the proliferation of Flash tools doesn't seem to add much, whilst Microsoft are promoting their own alternative and standards-based web browsers are getting good enough to erode the advantages of Flash.
EA, in their own way, have spent the last decade getting bigger and bigger, spending larger and larger sums of money. They were bound to come a cropper sooner or later, and we're somewhere near the end of the console upgrade cycle with console sales falling as everyone who wants a PS3 or a Wii already has one.
The last year has been fairly tough in comparison to previous years. It has exposed a lot of errors to the harsh light of day and has made companies think twice about their strategies. But it does seem, to me at least, that we're over the worst of it now and the redundancies at Adobe or EA are more of a reflection of the failure to meet last year's growth targets than a prediction of worse things to come.
Rob Knight
11 Nov 09 at 14:52