Why is business tech spending on the rise?
At the start of April, both Gartner and IDC released their latest forecasts for technology spending. The good news for technology vendors? Both forecast solid growth across all areas of spend, from telecoms to devices. It’s a stark turnaround from the 2013 reports that showed a contraction in spending in three of the five main tech categories. Good news, overall – but the real interest in these predictions is behind the scenes. The financial troubles of the last few years, coupled with external and internal changes in the business environment, have left us looking out at a very different landscape. As Quentin Hardy succinctly put it in The New York Times, “Tech Spending Recovers, but It’s Different.”
So what is this new landscape? And how have we ended up here?
First, the obvious
Finally, we’re starting to see a better outlook in the economic forecasts. Global economies are moving again after stagnating or contracting for a long period. Confidence is returning to business and the investment is starting to follow. However, these aren’t the same businesses anymore.
How the financial crisis changed business as usual
The world pre-crisis looked very different. Cloud computing was still in its (relative) infancy, most IT spend was centrally controlled by a large IT department, and companies still operated on the principle of asset ownership and in-house expertise. Large outsource deals were fine for big companies, but out of the reach of small- and mid-size businesses. The financial pressures brought to bear have refocused this model.
There are two macro-trends that have shaped the current business landscape and led to a change in tech spending trends:
1. The cloud came of age
Over the last five years, cloud services have moved from bleeding edge to mainstream. Cloud is now a mainstream delivery model for services, and business critical services at that. Businesses of any size can now take advantage of these services and have the confidence to do so. Large vendors have entered the marketplace, following the vanguard of smaller service providers. These big brand names in the technology space are creating a competitive market place that is benefiting the consumer in terms of price and product quality.
2. Flexibility is critical as businesses shed non-critical cost
Businesses could no longer carry additional weight and slimmed down where they could. Non-essential roles – and, more broadly, non-essential services – were cut. These “low-fat” businesses were forced into a sharper focus. In time, the appetite to take people back on board becomes lower. Now, as we start to move into a more favorable economic environment, the amount of cash available to businesses to invest in growth is increasing. Traditionally, this has meant resourcing up, but now even large enterprise find themselves taking lessons from start-ups. Taking on additional headcount, which requires long-term commitment in terms of salary and benefits, is seen as a less flexible approach compared to spending available cash on a service and supporting resource, which can flex over time (both up and down) to meet needs.
At a macro-level, then, 2014 was always going to be a year of increased spending. But let’s dig a little deeper, as there are also some micro-trends within the enterprise software space that are affecting your picture.
It’s not how much is being spent, but who is spending it
The biggest change in technology spend is driven by a diversification in purchasers. Formerly the domain of the IT department, technology is now being purchased by different lines of business, from finance to marketing. In fact, marketing is leading the way in this regard, with the CMO and CIO’s relationship changing radically. IDC state in their report: “Marketing is the fastest growing functional area, growing at a 5 year CAGR of 9.5%, reaching nearly $26 billion by 2017.” 9.5% is a remarkable figure, especially when compared to the relatively modest growth in traditional enterprise IT spending (1.8%).
Although it may seem like free rein is being given to this line of business spend, it comes with its own challenges and needs to be managed carefully. Finding may come from numerous areas within the business, but there is good reason to continue to include IT within the purchasing and management process when bringing these services into the business.
It’s not how much is being spent, but how they are spending it
Two of the big growth areas within technology spend are on low to middle-tier devices and on cloud services (both infrastructure and applications). Taken together, we can see an underlying trend for centralized, cloud-based solutions accessed through a wide range of mobile and desktop devices. Five years ago, this simply wouldn’t have been possible – how quickly we forget that the iPhone was only launched in 2007 – as the market in both was nascent.
In 2014, we have a much wider choice of solutions, and with the macro-trends that remain in play (leaner businesses, mature services, and cash available), we are seeing a shift in spending patterns away from traditional hire purchase or straight purchase of assets into a rental market. These investments in IDC’s “four pillars” of social, cloud, mobile, and analytics are driving 55% of technology spending, with an expected spend of $275.2 billion in 2014.
And cloud services are the perfect solution for these conditions, making best use of OpEx and limiting CapEx, effectively reducing the risk of holding long-term assets. Companies are purchasing core services from cloud providers, including storage, which would traditionally have been an area where control would have been paramount.
These services offer the ability for business to remain flexible, agile, and scalable – all essential elements for operating successfully in today’s market.
Technology spend is increasing, and it’s a good time to be buying
With overall growth in technology spend forecast at 4.6% in 2014, this is a good time for cloud service providers and device providers. But it’s also an excellent time to be in the market for these services. The maturing marketplace offers a higher quality and more varied set of vendors to purchase from, and the price of access is lower, with low-cost tablets and phones entering the market. Businesses of all sizes can take advantage of these services and the efficiencies they can bring. The question is now: how can your business make the most from the opportunity?
Are you planning to spend more this year? Have you changed your approach to technology spend? Are you in a non-IT line of business and taking more control over the technology you use? What are your critical investments for 2014? Let us know in the comments.