Government // Mobile & Wireless
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3/7/2012
11:52 AM
Rob Preston
Rob Preston
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IT Vendors Inflate Job Creation Claims

Microsoft, Apple, and others have commissioned studies showing they're spawning thousands of jobs. But they don't tell the whole story.

IT vendors and policy makers are taking credit for creating many millions of new U.S. jobs, even as the national unemployment rate hangs at a disconsolate 8.3%. Are other parts of the economy really losing jobs as fast as the tech industry is spawning them, or are these job-creation claims at best overstated and at worst a bunch of bunk?

The most recent claim comes from research firm IDC, in a report commissioned and touted by Microsoft, which maintains that the cloud computing movement will generate 13.8 million tech and related jobs worldwide by 2015, nearly 1.2 million of them in the U.S. and Canada.

In driving home its claims, it's logical for Microsoft to point to cloud providers such as Vorsite, a Seattle-based partner that plans to double its workforce this year. But Microsoft and IDC also argue that the economies of scale of public and private clouds, by lowering customers' IT and process costs, will free up funds for new business investment and innovation that ultimately will add jobs. Left out of their analysis is the fact that those efficiencies are achieved mostly through infrastructure consolidation, which eliminates IT jobs even if it spawns jobs elsewhere. No doubt those jobs elsewhere are more productive jobs, but putting a number on the net gains in this case is more guesswork than science.

Microsoft isn't the only one playing fast with the jobs numbers. Apple, under fire for labor practices in some of its offshore suppliers' factories, last week released the results of a study it commissioned claiming it's responsible for creating or supporting 514,000 U.S. jobs--257,000 of them at partner and supplier companies such as glass manufacturers and shipping companies; 210,000 of them at third-party app development firms; and the remaining 47,000 under its direct employ. The assumption, of course, is that those jobs wouldn't exist were it not for Apple, but taking just one example, we can't assume that all Corning employees producing glass for the iPhone would be out of work otherwise.

Thankfully, the firm that conducted the study for Apple, the Analysis Group, didn't include in its job-creation estimates wealth managers, car salesmen, tailors, pizza delivery guys, and others who may (or may not) owe their livelihoods in some way to the financial largesse of Apple and its employees. In estimating its indirect job-creation numbers, the Analysis Group did apply an "employment multiplier," developed by the federal Bureau of Economic Analysis, to the amount Apple spends on goods and services. But such multipliers are notoriously imprecise. As a New York Times article noted on Sunday, Congressional Budget Office estimates of how many jobs the 2009 federal stimulus created fluctuate wildly, between 1.6 million and 8.4 million.

A separate study commissioned by TechNet, a lobby group representing tech industry CEOs and other top executives, found that the so-called App Economy--third-party development of lightweight apps for not only Apple platforms, but also for Amazon, Google, RIM, Microsoft, Zynga, Facebook, and a range of others--has created a total of 466,000 direct and indirect U.S. jobs since the iPhone and its app store construct were introduced in 2007.

That study, released in February and written by Michael Mandel of South Mountain Economics, uses a multiplier to estimate the App Economy employment "spillover" to the rest of the U.S. economy. Mandel noted that multipliers of between 2.4 and 3.4 have been used to estimate the job impact of broadband, and those have been carried to other studies "no matter how outrageous they are." So he settled instead on a "conservative" multiplier of 1.5: Every App Economy job generates another 0.5 jobs in the rest of the U.S. economy. That rough estimate sounds reasonable enough.

But no IT sector attracts as many job-creation shell gamers as mobile does. AT&T, in its desperate attempt to win approval for its (now dead) $39 billion deal to acquire T-Mobile, had the gumption to argue that the merger would create thousands of new American jobs. AT&T attached some of those jobs to the "billions" it said it would spend to expand its mobile broadband network following the T-Mobile acquisition. And in an offering to the U.S. regulatory and Big Labor gods, it promised to bring back to this country 5,000 wireless call center jobs it had outsourced to other countries. But the fact of the matter is, mergers on that scale always result in a net job reduction as the alpha company eliminates redundant positions.

Remember the metropolitan Wi-Fi movement? Government muckety mucks and mobile industry execs talked up public-private Wi-Fi network partnerships for Philadelphia, San Francisco, suburban New York, and smaller metro areas as a way to create thousands of jobs while closing the "digital divide"--even if the technical and economic underpinnings of such large deployments were tenuous. Metro Wi-Fi service providers went bankrupt, equipment vendors sought higher ground--and the government opportunists moved on to the next big thing.

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More broadly, as part of the FCC's national broadband plan, the agency aims to free up 500 MHz of unused or underused spectrum now controlled by broadcasters and auction it off for broadband wireless communications. It's a worthy goal. But rather than sell the plan based on what it will produce--show how boosting broadband wireless connectivity will drive up productivity, output, and commerce nationwide--FCC Chairman Julius Genachowski has treated the proposed auctions like a government jobs program. "My message today is simple: We need to get it done now and we need to get it done right," he told an audience at the Consumer Electronics Show in January. "Few areas hold more promise for creating jobs than mobile."

Another sector with glowing promises of big job creation is big data. Anecdotally, CIOs we talk with are looking for business intelligence and analytics experts. And according to a report last May from McKinsey & Co., U.S. organizations could face a shortage by 2018 of 140,000 to 190,000 people with "deep analytical skills," as well as 1.5 million managers and analysts "with the know-how to use the analysis of big data to make effective decisions." Unclear is whether the big data movement will create lots of new jobs or mostly require lots of new training and skills for existing positions.

We're presented with the prospect of so many new jobs, yet as of January, 12.8 million people in the U.S. couldn't find one and 1.1 million more had given up trying. A mismatch of skills explains some of that unemployment, but the brutal reality is that advances in IT and other fields permanently destroy some jobs and send others offshore.

No question, such "creative destruction" is absolutely essential, as innovative business models, technologies, and processes replace legacy ones. And no doubt technology remains one of the biggest job creators in this country, even if some of those jobs are moving to other countries. But let's not sugarcoat or oversimplify what it takes to get from here to there.

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Todd Shelton
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Todd Shelton,
User Rank: Apprentice
3/14/2012 | 9:16:04 PM
re: IT Vendors Inflate Job Creation Claims
(Quoting the IDC/Microsoft study):

"The basic rationale for job growth is that IT innovation allows for business innovation, which leads to business revenue, which leads to job creation Gă÷ a premise that is not unique to this study."

There's no doubt that cloud, and especially public cloud economies of scale will take a bite out of the world's 7 million server administrators (~1 million US). While IDC doesn't offer a net-across assessment, the study does look to new jobs of all kinds created in response to bigger business revenues.

Assuming they are close to right, even if *every* admin job goes away, we are still net-up 5 million worldwide, and break-even in US. Not all server admin jobs will vanish, for a variety of reasons, but let's say half go away (and probably retrain to one of the new jobs). We're net-up over 8 million jobs, 500k in the US.

The study calls out "legacy drag"--a nod-your-head notion for any business or IT leader needing new IT capabilities but facing big legacy infrastructure. Upgrading equipment and skill sets is no joke, especially in smaller shops (where IDC suggests there is less legacy drag and so more and faster cloud uptake).

At the end of the study:

"Beyond this, and not measured in this study, is the use that cloud computing can be put to beyond mere capital cost avoidance."

So are net-new jobs more or less than 12 million? Don't know--we'll have to wait and see. But the estimated impact cloud will have on business revenues, plus the un-estimated impact of a new world of IT agility, especially for smaller businesses, makes me pretty confident that the cloud, net-across, is really good news for all of us.

Todd Shelton
Cloudrocket
Mark Montgomery
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Mark Montgomery,
User Rank: Strategist
3/7/2012 | 8:47:09 PM
re: IT Vendors Inflate Job Creation Claims
Hello Rob,

A refreshing bit of journalistic integrity you display here, which is much needed in the IT industry.

A couple of thoughts--

1) Creative destruction only works relative to job creation in my observation when it results in new business creation, or in some cases significant cannibalization of legacy products internally at incumbents. For the latter Apple is the best example in recent years, but the former is far more common and essentially the primary job engine in the economy. Creative destruction has two elements in this context-- one is innovation, another is economic, with significant overlap and interaction. Some incumbents have become extremely sophisticated--masters actually, in playing this game--very very few in my experience are even capable of seeing it.

We've had a decline in new company creation for a great many reasons, but certainly market power with incumbents is chief among them. Dysfunctional economies usually are the result of some sort of market failure, and that is certainly the case in this era both in terms of cause and in terms of recovery (trust me I am very well aware of the obstacles to new innovation and new companies), both of which by extension are a symptom of regulatory failure. By regulatory failure I am not at all limiting to government regulation, but rather all forms of regulation, including the role of media, customers, partners, self-regulation, and innovation from would-be competitors-- unhealthy relationships between corp. research, jobs, etc. with universities is one good example, another is political dysfunction--incumbents have lobbyists in states, not just in D.C., and the revolving door syndrome. Dysfunctional democracies rarely if ever result in functioning markets, eh?

This article I wrote touches on just a few of the issues:

Regulatory Failure on the Web; Consequences and Solutions:
http://kyield.wordpress.com/20...

2) Aside from the well-known and sometimes amazing stories of outsourcing, where other countries often tie market access to importing of jobs and IP (placing IT companies in direct conflict with the U.S.), which is then rewarded in the U.S. by contracting from our governments with those same companies.... the enormous issue today is the inefficiencies in reinvesting the hundreds of billions in cash in IT. A large portion of the excess has resulted from the market failure, and in part I admit also includes strong innovation in a few incumbents like Apple.

However, we have a very serious problem in our economy when those who are being rewarded for shipping jobs overseas to develop new markets simply have no viable path to re-investment--this is as much a policy question as an IT leader and fiduciary issue. The last thing incumbent leaders want to do is create real competition for themselves, what little effective regulation that exists won't allow even more over-consolidation, and when market share approaches monopoly levels they cannot then use that position to enter new industries without risking anti-trust backlash. So Houston we have a problem. I don't currently hold stock in any of the IT leaders, but I would strongly favor/recommend some sort of effective pressure for distribution of those excessive funds to shareholders, including both the threat and execution of legislation--otherwise capitalism cannot function properly. We simply cannot experience this level of tectonic shift without at least functional re-investment so that we can achieve some form of creative destruction and let's not forget the essential other half of that dynamic-- creative rejuvenation.

While I am personally very much in favor of free markets, there isn't much freedom in the shadow of global oligopolies, which only can only exist with the nod of national policy that often either presumes alignment due to importing of cash--in which case is dangerously toying with sending new industries to other countries, a more pure form of corruption, or I fear more often a combination of both.

Bottom line is that we are living in substantially new territory than ever before with the expanding neural network economy now representing almost a full half of the global economy, yet so far we have not seen anything like the response to previous revolutions in terms of policy, market behavior, or consumer reaction -- flight, motorization, farm automation, electric grids, interstate highway systems, reservoirs/aquifers, international shipping-- just thinking of standards alone. Frankly I think a few IT leaders think the U.S. is just simply a basket of fools. Unfortunately, most of our behavior in recent times rather agrees.

Mark Montgomery
Founder & CEO
http://www.kyield.com
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