The Risk to Tech's Innovation Economy

Risk is going away but it isn't gone. As the world haltingly starts to open back up after the abrupt coronavirus-related shutdown, uncertainty still lingers heavily. That is forcing a shift in strategy at tech companies, putting them in the unusual position of playing defense rather than offense.

After years of operating with a move-fast-and-break-things mantra, tech vendors are slowing down and being conservative in the pandemic. It's an understandable effort to 'de-risk' business. But the shift in strategy will likely have repercussions that will linger long after COVID-19 diminishes as a threat to the public health.

As tech companies rewrite their playbooks, growth is no longer the overriding principle. Marketing initiatives have been scaled back, with budgets trimmed accordingly. In sales, account preservation – rather than account expansion – is the order of the day. And behind it all, product development at companies has slowed to a cautious crawl.

When it comes to expanding their offerings, companies have two primary options: Buy or build. We have already noted that tech giants have abandoned acquisitions at a historic rate in the current pandemic. Even the deals that do get done now appear less ambitious and more reactive. For instance, in Zoom's first-ever acquisition earlier this month, it reached for a tiny encryption startup to plug some security holes in its platform.

For corporate development, M&A is mostly off the table. But what about R&D? It turns out the other engine of innovation (research and development) is also sputtering during the pandemic.

And this pullback has been the case since the very onset of COVID-19. As early as mid-March, in a landmark survey from 451 Research of 820 IT professionals, more than one in five respondents said the outbreak had scuttled the rollout of a new offering. That was the second-biggest impact on business from coronavirus cited by survey respondents, trailing only cuts to hiring plans. (Note: 451 Research will be updating its COVID-19 survey in the next few days to chart the changes in sentiment among IT buyers and users.)

Investing less right now in growth – whether it comes organically or inorganically – is probably the fiscally prudent approach for a tech vendor as the broader economy contracts at a historic rate because of the pandemic. But the changes in corporate strategy also suggest that the recovery in the tech industry won't simply be a matter of picking up where it left off before coronavirus. Business will take some time to settle into a new normal, one that will almost certainly be lower and slower than the old one.