Software as a service (SaaS) has already been declared by Forbes as a recession-averse part of the tech sector, citing the fact that it weathered an earlier downturn in 2000-2002. Cleantech barely existed as a category in 2002, so we don't have historical performance to go on. Would consumers and businesses continue to spend on green? Would investment remain hot? Would many of the positive environmental gains made in the past several years stall or even reverse?
Those are some of the questions posed informally to companies that I work with. The conclusion? Cleantech, like nearly every other sector, would take a hit, particularly the companies still in need of funding, but it would also find distinct opportunities – in particular efficiency plays (some are already calling 2008 the year of energy efficiency given that energy costs are at record-breaking highs and that the most significant energy-efficiency legislation in three decades was recently enacted.
If we think back to the dot-com shakeout, while the losses were staggering for many, the collapse separated the wheat from the chaff. Current blue-chips like Amazon, Ebay and Expedia all proved that they were more than just clever ideas and marketing gimmicks and used a tough business environment to propel themselves. If a recession hits, it is likely to have a similar outcome for cleantech, a market ripe for a shakeout. Who will be the winners and the losers? Here are some comments to consider:
From David Rosenberg, CEO of Hycrete, whose product makes concrete waterproof in an environmentally-friendly, cost-saving way:
"The answer is yes and no. All of construction is effected by a recession and we are already starting to see some projects getting delayed and cancelled and financing getting tighter. On the positive side, a slow down often allows greater time to investigate and improve construction practices – like green. On the negative side, where budgets are slimmer and profits are less, greater upfront costs associated with green construction get harder to justify – of course this is not a Hycrete problem as we are better, faster, and less expensive.".
From Matt Heinz, senior director of marketing at Verdiem, a developer of power management software for PC networks:
"The polar ice caps don't care too much about recessions. Less flippantly, I think in the not-too-distant future, sustainability will be a fundamental, 'table stakes' part of doing business for global enterprises. Reducing the impact companies have on the world around them will soon become non-negotiable, and a requirement for doing business with customers (commercial and consumer) that expect them to act responsibly.
"Today, that isn't the case – at least not yet. While several businesses have blazed a trail with significant corporate responsibility and sustainability initiatives, not enough of those efforts have paid off – either in increased sales or decreased operational costs. Unless such initiatives demonstrate a consistent ability to provide value to the organization, they'll be close to the chopping block in leaner times.
"That said, technologies are emerging that allow companies to 'go green' and save green at the same time. And if this kind of savings is both real and verifiable, it's the kind of thing that will get prioritized higher in lean times."
From CEO Michael Ford of Choose Renewables, a source for consumer information and products on renewable energy content and commerce:
"It's tough to make a broad projection regarding cleantech because there are so many facets. In general I think the entire space will perform better than most other segments – but I doubt it's entirely recession proof. I think energy efficiency / fuel efficiency will actually see a significant bump from recessionary times. And maybe even the biofuels movement, though I personally think the overall philosophy around ethanol in particular is questionable. However, I think some of the more expensive pure play renewables (solar, small scale wind, fuels cells, hydrogen, etc...) will suffer a bit – but still grow. I think big wind is going to keep going no matter what – unless Congress continues to screw up with the PTC."
Michael Meehan, CEO of Carbonetworks, software platform that helps companies create effective carbon emissions strategies:
"Cleantech as a whole will definitely feel the crunch, but it's a two-sided coin – how clients' requirements will likely change, and what will happen to vendors as a result.
"The market is still immature and spans a lot of industries. 'Niche-fication' (as Will put it in his blog) is only starting to occur. Especially in technology markets, niches can provide some insurance against recessive markets because the need for the service/technology is clearly defined and the incumbents are often well established. Cleantech is still a bit nebulous and a recession will have a direct effect on many areas of the cleantech spectrum: funding sources for startups, increased cost of outsourced services (e.g., int'l support, sales), and decreased demand for point products. That's one side of the coin: increased competition, consolidation, and likely a more protectionist industry as the US/CAN dollar weakens against the Euro, inhibiting growth in an emerging market.
"The other side of the coin (the clients) will hasten this process as their expectations and requirements change out of necessity. Faced with increased demands on potentially shrinking budgets, companies will be forced to place more stringent diligence on technology investments, and cleantech is no exception. But there's a somewhat unique opportunity for cleantech in this: the key here for vendors is to increase the focus on cost savings, process efficiencies, or uncovering opportunities that will help lower operational costs for these companies. That's where the defining line will be for successful cleantech vendors and those that simply react to the market as it tightens up. Unlike other supply/demand markets such as manufacturing or distribution, cleantech has an edge because it can become strategic by helping companies be more competitive through improving their bottom line. This of course is our strategy at Carbonetworks, but it is also true of Verdiem, GreatPoint Energy, IT virtualization technologies, and other innovators who help companies do more with less and diversify. That's the other side of the coin: rather than fighting over decreasing market share, successful cleantech companies will instead seek to increase the clients' competitive position through cost reductions and diversification. Recession may be the impetus for this cleantech market shift, but it will be the clients under pressure that will drive it to consolidation. Whether that's good or bad depends on where you sit, but cleantech is definitely not immune to market recession."
January 30th, 2008 at 9:13 am
Thanks Mr. Brent. Very well put together. I have added your link to my blog, and i'll be back to read your commentary again!
January 30th, 2008 at 4:16 pm
Great post, and yes, the efficiency play will "sustain" sustainability this year and hopefully drive greater uptake in the market. With that, you've answered the question you pose at the beginning of your post: [In a recession], would consumers and businesses continue to spend on green? My answer would be this: it depends on what "green" is. Much has been written in the last year over the substance of that term, and the extent to which "green" represents an end or a means. I think there's going to be a heck of a lot more traction in 2008 if we can frame it as the latter.