No Bubble Here: IT Spending Going Up Next Year!

by drjim on October 24, 2008

The Market Downturn Will Impact IT Spending, But Not Too Much!

The Market Downturn Will Impact IT Spending, But Not Too Much!

As the rest of the world seems to be going through some sort of complete meltdown, the IT industry is in the  process of holding its breath. 2001 was not all that long ago and we can remember what happened back then all too well: days of unlimited spending, lots of travel, and lavish celebrations came to a screeching halt almost overnight as the banks cut off credit and the IT bubble popped. Reading the newspapers and watching TV one would be lead to believe that the same sort of doom and gloom seems to be settling over all industries right now. Is another bubble popping what they mean by Internet 2.0?

Well the folks over at Gartner have some (basically) good news for you. They’ve been talking with everyone and their mother’s brother and what they have found out is that YES, IT spending is going to get cut back because of all of the financial turmoil that is currently going on. However, we’re not going to see the massive cutbacks that came after the dot.com bust.

Before the subprime fueled meltdown of the financial markets started to happen, Gartner had been predicting that spending on IT for next year was going to increase at a healthy 5.8%. To put this in perspective, you’ve got to realize that during the dot.com era, IT spending lived in the middle double digits. However, after the bust happened, IT spending descended into the basement of low single digit growth (less than inflation!) and remained there for several years. Gartner’s new guess for IT spending next year is (drum roll please) 2.3%.

Peter Sondergaard is Gartner’s global head of research. He believes that IT spending generally lags behind the general econonmy by at least two quarters, so the current meltdown won’t impact IT spending until roughly mid next year.

What’s going to get cut? Sondergaard says that hardware spending is an easy hit – it will probably get curtailed earlier and harder than either software or IT services. Spending on those IT services should probably focus on off-shore outsourcing. What’s interesting is that they aren’t predicting any more really big, big deals. Instead you should expect to see a collection of smaller outsourcing deals.

The folks in the software industry have cleverly thought to set up sorta of a “safety net” for themselves should this kind of contraction occur. Most software vendors (Oracle, SAP, Microsoft, etc.) have gotten their customers to sign up for long term support contacts so they may be able to dance by any general market slowdown with minimal impacts.

In IT it generally takes us about 10 years to adopt a new technology. This time around, the experts are thinking that the downturn may cause everyone to adopt new technology faster because it will result in big cost savings just when they are needed the most. Expect Software As A Service (SaaS) and so-called Cloud Computing services to be among the early winners from this situation.

What do you plan on doing differently within your IT department during this downturn? Do you believe that your budget will or will not be impacted by what’s going on in the market right now? Do you offer any long-term support contracts to your customers and if so, will they help you if things get tight? Leave me a comment and let me know what you are thinking.

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