What the Fall of the Dollar Means to IT

More than any other market segment, IT truly is global.  Parts and manufacturing typically happen outside of the United States (unfortunately for us), and we’ve seen an explosion in international startups lately.

If you haven’t been keeping up on the financial news lately, the dollar has been absorbing body blows left and right.  A recession looks imminent, and the Federal Reserve is kicking the dollar while it’s down by lowering interest rates and flooding the market with more money.  Kuwait recently stopped accepting dollars for oil, and there’s been talk of Saudi Arabia following suit.   Major foreign dollar holders such as China are losing value every day and are likely looking to get out of the USD as well.  Bush has suggested bailing out the sub-prime mortgage market.  The dollar index just reached an ALL-TIME low.

(Apologies to Line Rider)

All this adds up to bad, terrible, abysmal times for the dollar, and changing market dynamics across the board.  In IT, I think it means the following:

• Offshore outsourced labor will no longer be cheaper than domestic outsourced labor.  I think the falling dollar will eventually equalize the cost of doing work onshore and offshore.  IT labor is a global market.  Short-term, offshore costs will go up.  This will be good for domestic outsourcers workers, as it will create more demand here (especially from international companies—the shoe is on the other foot now), and bad for offshore workers, as they become more expensive to US companies. 
• Domestic Software as a Service will become an even more critical infrastructure component.  Hardware costs will go up at the real rate of inflation (not the artificially low CPI the Fed uses), which has been running about 10%.  As hardware becomes more expensive, the benefits of SaaS (no hardware to buy or maintain) will just keep on growing.
• International Software as a Service will become more expensive.  There have been a lot of cool international startups lately, such as FlexiScale, an alternative to Amazon EC2 in the utility computing space.  You’d better be prepared to pay a premium to use them, though, because they typically your monthly bill will be denominated in the Pound or the Euro instead of the dollar.  You will feel the decline of the USD directly and painfully in your monthly budget if you use these international SaaS companies.
• Lock in prices for as long as possible, in dollars.  Prices will eventually have to go up in USD to compensate for increased expenses, so lock in your current prices and contracts for as long as possible.  Use dollars if you possibly can, if you lock in the prices in Euros or anything else it really doesn’t do any good.

I’m not an economist, but I do keep an eye on the financial markets and I do possess a little common sense.  This is what I see as the ramifications of the great dollar crash of 2007-2008.  There’s not much good here, but there are a couple of things you can do to protect yourself as much possible.