At the end of June, Gartner published research saying that global IT spend will shrink by 5.5% in 2015. Needless to say, media was all over this headline grabbing story. Gartner though was quick to caveat the research findings by adding that this is not a 'crash' but a result of a strengthening of the US dollar against other currencies. When taken on a constant currency basis, they predict spending is rising by a 'robust' 2.5%. Confused? You might be.Around the same time, Computer Economics put out research saying that operational spending and especially among large enterprises is on a clear upswing although capital spending is flat. That research was based upon respondents in the US and Canada.
Is there a disconnect here? Yes and no.
Gartner's model is global and the methodology is based entirely upon researching vendor profiles. Computer Economics on the other hand uses buyer responses. You can argue that taking vendor numbers provides insights into a reality that is hard to fathom from buyer sentiment but then it is my experience that buyers often see research of this kind as sending a signal to the market of their intentions in advance of buying.
Gartner says that the currency 'tax' is a major problem and especially for hardware manufacturers where margins are already thin. As a consequence, Gartner believes that vendors operating in segments like devices, server and software would like to see price rises of 20-22% in order to maintain profit parity. That isn't going to happen any time soon although buyers in EMEA are facing hefty price increases at the moment coming out of committed spend related to large projects. Gartner believes this relative overspend will be ameliorated later in the year as buyers negotiate or put projects on hold.
Gartner takes the view that there is significant price pressure in SaaS resulting from competition. Computer Economics says that cloud spending is set to increase:
Regardless how you view these apparently divergent yet sort of compatible views, there is one thing that sticks out to me like a sore thumb. Assuming BOTH are right, which is perfectly reasonable and assuming you buy into the argument that competitive advantage is won through technology, then US and Canadian businesses win - all other things being equal.
Developing new business applications has been among the top priorities for IT organizations since the beginning of the recovery. Now it is becoming evident that many of those new systems are in the cloud. A net 56% of all IT organizations plan to increase spending on cloud-based applications this year after subtracting out the percentage that plan to reduce spending.
The continuing strength of the US dollar against other currencies and the Euro in particular mean that American businesses can afford to invest more heavily relative to their European counterparts. Recent events in Greece only serve to strengthen that view in the short/medium term.
For the UK, the position is different. Over the last 18 months, there has been considerable volatility in USD/GBP rates with a general decline in favor of the USD of around 8%. That has changed in the last six months, with a strengthening of GBP and right now, we seem to be settled in a relatively steady range of $1.55-1.57. But when you look at GBP to Euro currency rates, the position is dramatically different. As I write this, GBP is trading at an eight year high of €1.44/£1. That makes the UK a very attractive market for continental European vendors like SAP and Siemens that price in Euros. That in turn could give UK based businesses with operations in the US an advantage.
One element of Gartner's research that sticks out to me is the relative resilience of telecommunications costs. While there may be intense competition across the board, telcos are well insulated against currency fluctuations, largely because they are locally based an operated. That's not to say that competition doesn't matter. It just means the general currency issue Gartner highlights doesn't have much, if any impact. Time for the Amazon's of the world to step up even more into the enterprise space?
Disclosure: SAP is a premier partner at time of writing.