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Gartner predicts slow-down in IT spend as focus shifts to digital disruption

Derek du Preez Profile picture for user ddpreez June 30, 2014
Summary:
Cloud-based services, cheap hardware and a focus on digital projects has resulted in less IT spend than had previously been anticipated, as buyers try to figure out how to implement new business models.

Gartner surveys can be a little bit, well, dry at times – but one popped into my inbox this week that subtly highlighted the changes that we at diginomica are

man giving money
seeing every day when we are out and about talking to customers about what new projects they are tackling. Over the past 12 to 18 months I have found that the conversation has shifted away from companies looking at IT projects that deliver strong cost savings (which I saw a lot of after the 2008 financial crisis) and it has moved towards how digital technologies that incorporate mobile, cloud and data can create new and interesting business models. However, this shift has meant that spend on traditional IT systems and products is slowing – something that Gartner underestimated and has now had to adjust its forecasts for.

The latest estimates suggest that worldwide IT spending is on pace to hit a total of $3.7 trillion in 2014, which is a 2.1 percent increase from last year, but is down from earlier projections of 3.2 percent growth. The slower outlook for the coming year has been attributed to a reduction in growth expectations for devices, data centre systems and to some extent IT services. Richard Gordon, managing vice president at Gartner, said the following:

“Price pressure based on increased competition, lack of product differentiation and the increased availability of viable alternative solutions has had a dampening effect on the short term IT spending outlook.

“However, 2015 through 2018 will see a return to ‘normal’ spending growth levels as pricing and purchasing styles reach a new equilibrium. IT is entering its third phase of development, moving from a focus on technology and processes in the past to a focus in the future on new business models enabled by digitalisation.” 

Here is a neat little table summarising the spend by product area for the next few years:

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I'm not going to focus too much on the devices or telecom services spend, as I think these are probably less interesting for the average diginomica reader. The only point really worth mentioning on the device front is that spend has been constrained as penetration of tablet owners in the US reaches 50 percent, and so focus is moving towards lower priced devices. The same is true of smartphones. However, things get a bit more interesting when you take a look at the spend across other areas, as this clearly highlights the changes in decision making from technology buyers across the enterprise.

For example, data centre systems spend is projected to reach $140 billion in 2014, a 0.4 percent increase from 2013. This is largely being driven by cloud-based storage and a shift away from high-cost systems to commodity platforms – even though consumer-orientated services are helping given the scale that is required,

Cloud Computing Concept
they are largely being run on low-cost systems.

IT services, on the other hand, is forecast to total $967 billion in 2014, up 3.8 percent from 2013. Gartner states that cloud is again to blame for the slow-down in growth in this market. It states:

“IT outsourcing is growing slower than expected as sharply reduced pricing by the largest vendors is impacting the cloud storage services market. In addition, public cloud services are proving increasingly cannibalistic to more traditional data centre outsourcing services. Implementation services are also growing slower than expected as risk-averse buyers remain focused on smaller, safer projects and some of the largest sellers remain focused on maintaining margins over growing revenue.”

And finally, in the all important enterprise software market, spending is on pace to total $321 billion, a 6.9 percent increase from 2013. Here you can definitely see the disruption of digital at play, as there is an increase in growth expectations for infrastructure and a decline in growth for applications software. This is because companies are beginning to spend money on database management systems, which is being driven by big data and digitalisation projects. Notably, this is the only place in the Gartner release that gets a mention of “strong growth”. And again, slower growth is expected in the applications market, specifically office suites, which is being impacted by the “rapid move” to cloud-based offerings.

Verdict

I see this every day when I'm out listening and talking to customers. Hardly ever do I hear people talk passionately about data centre consolidation, or how they are planning to do something exciting with their outsourcing partner (it does happen, just less and less, and it tends to be purely about cost savings). However, people are beginning to get really excited about how they can spend their money on data, on analytics, on new cloud tools, on personalisation software – digital products that help create new revenue opportunities and transform traditional business models. Good to get some Gartner figures to support this.

 

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