FORECASTS: Despite the dotcom bubble bursting, analyst companies still find technology research lucrative ground, writes Fiona Harvey

By 2007, 70 per cent of the world's computer programming activity will be in developing countries. Companies such as Accenture, EDS and IBM will go out of business unless they adapt, by farming out their programming to countries such as India and China, and concentrating on high-value project management work.

Mr George Colony, chairman and chief executive of Forrester Research, delights in such challenging predictions. He founded Forrester in 1983, with a brief to examine new aspects of computer technology and how they would affect business.

In typically trenchant style, he dismisses Microsoft's latest operating system, Windows XP, as unfit for corporate use. "It is not ready for prime time. Too many bugs. It would be a big mistake for any large corporations to adopt it," he says.

It is no wonder that, according to Mr Colony, Bill Gates hates him, although Microsoft continues to be a client.

He shrugs: "People can keep old versions of Windows. One of my main pieces of advice to companies is that if a technology works, keep it."

Before and throughout the late-1990s technology boom, Forrester was among leading consultancies advocating the immediate adoption of new technologies, from the internet to customer relationship management systems.

Despite technology companies' recent setbacks, innovation in the sector has not slowed, he contends. Over the next few years, he says, the internet will extend beyond the 500 million PCs connected to it now to encompass billions of wireless devices.

"Soon, the average person will have between one and four devices on their body connected to the internet. A watch. A pacemaker. A drug delivery system. A pulse monitor," he predicts.

Mr Colony's sweeping visions of the technological future have not been dimmed by the damage done to analysts' reputations by the internet boom. Forrester was certainly buoyed by the dotcom bubble but has not emerged well from its wreckage, having lost three-quarters of its market capitalisation.

As dotcoms sought to persuade investors of the value of their big new idea, they needed some intellectual validation. That is where the analysts came in. The business community was bombarded with predictions of astronomical growth in online markets and seeming endorsements of the business plans of scores of online hopefuls.

When the bubble burst, many of the predictions that had been used to shore up the likes of eToys and Boo.com were shown to be unrealistic. Analysts at investment banks came in for the worst criticism but Mr Colony accepts that independent analysis firms also suffered a blow to their reputations.

Forrester's research was quoted widely by dotcoms. Its forecast was that, in 2000, online retail sales would be worth $32 billion in the US. The real figure, according to the US Census Bureau, turned out to be 25 per cent less.

Mr Colony seeks to distance his company from "other internet \ companies", claiming that these had a greater proportion of dotcoms among their clients and, therefore, an interest in talking up the boom and so consistently overestimated the prospects of many dotcom sectors.Forrester, he argues, did not fall into that camp.

"We are analysts: very large corporations make very big decisions based on our guidance. We have to be objective," he says.

These standards, he contends, were maintained throughout the period. For evidence, he points to a report published by Forrester in January 2000 predicting that spiralling costs would cause most dotcoms to fail and that consolidation would begin at the end of that year's first quarter. The dotcom crash started in March 2000.

An internal audit of Forrester's research carried out after the market peaked showed its figures were often conservative, according to Mr Colony.

Forrester gets its estimates right about 65 to 80 per cent of the time, the audit concluded. "That is a pretty good average," Mr Colony says.

Whatever their lapses, analyst companies still find technology research lucrative ground. It is not difficult to see why: technology plays a bigger part than ever in business and yet most senior executives in large companies have little idea about new developments.

The sigh of relief from traditional company executives when the dotcom bubble burst was almost audible. Many thought their scepticism about the role of new technology had been vindicated and no longer felt any pressure to think about technology investment. Mr Colony shakes his head, warning that companies that switch their attention from new technology will be lost.

Mr Colony divides executives into ties, turtlenecks and T-shirts: directors, marketing departments and technology workers. As the bubble burst, the first two categories retreated from technology. They need to come back, he argues, to marry business acumen with the possibilities technology opens up. The T-shirts will also have to change, he says.

"I am astounded by the lack of vision of the technologists. The PC arrived and the IT department fought it. The internet arrived and the IT department fought it. Companies need the whole view, both the business strategy vision and the technical savvy."

Of course, he would say that. Though he denies cheerleading for the technology sector, Mr Colony's success is wholly bound up with IT. As the dotcoms and technology start-ups went to the wall, and established technology companies were forced into profit warnings, technology analysis companies also suffered.

Forrester cut 220 jobs in the last year, leaving 455 staff worldwide. It recorded net income of $18.1 million for 2001, down from $21.6 million in 2000, on revenues of $159 million, roughly flat with the previous year.

Forrester's fortunes clearly depend on more than just the reputations of its analysts. Only when IT budgets stop shrinking will the prospects perk up for companies such as Forrester, which rely on large companies' need for advice on IT spending.

Though he estimates that companies overspent on technology by more than $65 billion during the boom, Mr Colony remains bullish even on the near-term prospects for the sector.

This year, he thinks, will see technology companies grow at 3.9 per cent; next, growth will reach 10.4 per cent, and the following year hit 12.5 per cent. - (Financial Times Service)