Downward business cycles are when we expect to see an increase in mergers and acquisitions. This article gives some general background for those interested in reviewing their organization and measurement systems for increases in efficiency and profitability. This information can be applied to any industry, but this article focuses on Internet service providers, called ISPs for convenience. These are companies offering services or products over a backbone network for remuneration. They go by monikers such as ISPs, ASPs, MSPs, CSPs, and so on. In-depth information can be found in my book: Service Provider Strategy (Prentice Hall PTR, 2001).
Events are conspiring to bring hard times to most businesses, and Internet service providers are no exception. A global recession, made worse by the aftermath of the terrorist bombings on September 11th, has slowed trade on a worldwide basis. As business slows, operating expenses creep up as a percentage of sales. To make matters worse, there is a global overbuild out of Internet data centers to handle a predicted business volume that never occurred. One would expect many mergers and acquisitions on the horizon.
Global trade was in slow decline for several quarterseven before the terrorist bombings in New York and Washington, which seemed only to speed up the decline. One could say there was a double hit, the first to the dot-com/communications/high-tech industries, and next to the airline industry. Coordinated actions between central banks are ameliorating the situation, but papers are filled with stories of layoffs, which is one way companies can reduce their expenses in these hard times.
Facility Overbuild-out In Many Industries
The overbuilding of Internet data centers is a complement to the people who advertise and sell industry analyst reports. Most analysts have been proclaiming the huge potential market size for Internet-based services, and providers have seemingly built Internet data centers to handle expected capacity without validating or verifying analyst reports. In essence, they've outsourced their marketing without researching actual target market needs and without analyzing the actions of competitors.
Cut Costs and Increase Customer Loyalty
Decreases in sales combined with excess capacity mean that costs need to decrease, and profitable customers need to be kept very happy. In other words, the business need to work extremely efficiently while increasing its unique value add to the end customer, and often to the customer's customer.