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Fear and Lying on the Y2K Trail

What the spin doctors aren't telling you about Y2K could kill your e-commerce site dead.

By Avery Beckett

The year 2000 has been a boon to the public relations industry. Most companies and government agencies now have their own spin doctors who comment on the Y2K bug, led in a chorus by Bill Clinton's No. 1 Y2K flack, John Koskinen. The top dog of Y2K spin has racked up thousands of frequent-flier miles telling America that business and government are ready for Y2K.

But if Y2K is under control, why is the Gartner Group (IT) estimating that 5 percent to 9 percent of all Y2K bugs will remain after current remediation efforts? Is it to inspire more spending on Y2K "fixes"  such as the $650 million so far spent by AT&T, the $575 million by IBM (IBM) , the $250 million by Hewlett-Packard (HWP) , the $100 million by Microsoft (MSFT) , and the $1 billion-plus spent collectively by the eight largest Wall Street firms?

What the spin doctors are glossing over is how Y2K will bring to center stage the interconnectedness of the world trade market. A glitch in this lengthy supply chain could ricochet around the globe, and ultimately wreak havoc on the Internet.

In fact, the Senate's Committee on the Year 2000 Technology Problem issued a report last month that predicted severe short- and long-term disruptions to global supply chains as a result of Y2K failures, as well as an economic downturn in industries that depend on foreign suppliers.

Y2K is a systemic problem that could bite anywhere a computer stores dates, and its effects could well be felt online, where glitches could cripple e-commerce and lower confidence in a new medium that may not be able to do something as seemingly simple as changing a date.

"This is a very complicated issue when it comes to connectivity," says Dennis Grabow, CEO of Chicago-based Millennium Investment. "We're going to have an economic recession in the U.S. because roughly 20 percent of our GDP is tied to foreign trade."

Months ago, Scott McNealy, chairman and CEO of Sun (SUNW) Microsystems, said he was worried that breakdowns among Sun's suppliers in Southeast Asia could hinder his company's ability to make machines. That was before Sun's spin doctors shut him up, sending all press and analyst queries on Y2K to specifically appointed flacks in its PR department.

Intel (INTC) is in a similar situation. Semiconductor manufacturers rely on chip components made in Asia that must be built with an uninterrupted stream of electricity. A power outage in Asia will quickly and adversely impact the semiconductor business in Silicon Valley.

The Internet Economy is susceptible to Y2K because virtually any glitch with electricity, telephones and credit cards could bring e-commerce to an abrupt halt. "Some Y2K spokespeople are only giving basic information" about the problems and solutions, says Leon Kappelman, an associate professor at the University of North Texas and an expert on Y2K. "The highest priority should be telling the truth in a balanced way."

Meanwhile, the White House's Koskinen trots out impressive-sounding General Accounting Office statistics that report high percentages of 34 key federal agencies are "Y2K-ready." In press conferences, Koskinen addresses questions about the remaining portion with assurances that they'll be ready later this year and that his office is monitoring them closely.

Some government agencies, such as Social Security, were Y2K-ready months ago; others, such as the Department of Defense, won't be until the fourth quarter, if at all. The Department of Energy's Comanche Peak nuclear power plant in West Texas won't be Y2K-ready until well into December.

The continual smooth operation of government is critical to the Internet Economy, says Edward Yardeni, chief economist at Deutsche Banc Securities. Many technology vendors and e-commerce players rely on government contracts for business  the U.S. government is the largest payor to U.S. companies  so system failures at the government level could bring crucial revenues to a halt.

Many Y2K statistics concern mission-critical systems and say nothing about less vital areas. At most firms, mission-critical apps comprise no more than 35 percent of computer systems. Spin doctors rarely talk about the 65 percent deemed nonmission-critical. The White House defines "mission critical" as systems whose failure would cause a problem for the consumer. So, doesn't that make all computers mission-critical?

In order to sail smoothly through Y2K, spin doctors should acknowledge that we can expect it to leave some communities without power, some ATMs without cash and some shipments not received  due either to one's own system failure or a failure that befalls a business partner. But these problems are not signs of the Apocalypse. It may be little more than a lot of everyday inconveniences hitting all at once.

Koskinen and thousands of Y2K spin doctors like him regularly plead with the press to convey the message to readers and viewers that Y2K is not a problem. Unfortunately, many media outlets fall for it. The ad world is different. Early this summer, Polaroid (PRD) launched a tongue-in-cheek TV commercial that showed a guy finding a giant New Year's Eve bank error in his favor while withdrawing cash at an ATM. The American Bankers Association wasn't laughing and strong-armed the company into yanking its ads, according to sources at Polaroid and the ABA. But no one stopped Kia Motors from running its Y2K doomsday spots that blame the hype on the press.

What's wrong with these ads? The spin doctors tell us Y2K is no problem for the U.S. financial system  the most Y2K-prepared industry in the world  but the Federal Reserve certainly doesn't want a run on banks, and for good reason. A Great Depression-style cash-flow problem could result if ATMs go down both before and after Y2K.

By the end of the year, the Fed will have stockpiled $200 billion, enough cash so every American can withdraw $700. Preparing yourself for Y2K means stocking up on cash, food, water, batteries and flashlights. But corporate stockpiling at the end of 1999 could trigger a recession, because companies are buying some of next year's supplies in advance, agree Y2K watchers like Yardeni, Kappelman and Grabow.

A Y2K-induced recession could last through the middle of 2000, according to Yardeni and others. Although these experts are not alone, a growing number of economists, including Alan Greenspan, regularly downplay the negative effects of Y2K.

Preparing for Y2K's effect on capital markets could involve temporarily selling stocks and buying bonds, but financial spin doctors won't tell you that because Wall Street can't continue on its current wave if too many of us start selling our overvalued stocks. Those who get out now may be rewarded with the opportunity to snap up some tech stocks in a fire sale next spring.

On the other hand, once businesses get past Y2K, they'll rapidly focus on IT implementations that have been pushed to the back burner.

"After Y2K, we'll see one of the biggest IT booms in 20 years because of freed-up attention spans and money," says Carl Howe, director of computing strategies for Forrester Research (FORR) .

Many of the biggest spenders have overbudgeted money for Y2K, and will have leftovers for other technology projects. If anything, Y2K's been a brilliant call to arms.

-- Helium (Heliumavid@yahoo.com), October 21, 1999

Answers

"......Is it to inspire more spending on Y2K "fixes"  such as the $650 million so far spent by AT&T,......"

PSST - in case nobody noticed they haven't finished yet.

-- no talking please (breadlines@soupkitchen.gov), October 21, 1999.

Just watched a local news blurb on TV about Y2K and investments. Good segment on the situation saying that no one has the answers and if you are unsure of your investments one should see your broker and get your money in Canadian GICs (bonds) so you can sleep better at nights.

I was quite suprised as there wasn't a happy face in the broadcast.

-- Brian (imager@home.com), October 21, 1999.

The thin veneer of global society and economy has obviously started to disintegrate. Every Beckett is an astute reporter reporting on how the Spin Machine is handling the unfolding of Infomagic's downward spiral. We're living history. (Alas, Every Beckett stands never to be remembered.)

-- (flakygirl@home.now), October 21, 1999.