IT Spending Up Despite Down Economy
August 27, 2008 -- The U.S.-led economic downturn shows no sign of causing a recession in worldwide IT spending, which Gartner Inc. projects to exceed $3.4 trillion in 2008, an increase of 8 percent from 2007 spending. According to Jim Tully, vice president and distinguished analyst, Gartner, "Emerging regions, replacement of obsolete systems and some technology shifts are driving growth."
Worldwide versus Consumer Goods
We asked Gartner Research Vice President Dale Hagemeyer to compare worldwide IT spending findings with predictions for the consumer goods market. Correspondingly, he says that IT spending will not slow as consumer goods companies look to optimize retail, promotional and supply chain activities to offset fuel costs.
"Certainly, the consumable companies are in better shape than those in durables, but I believe that they all recognize a need to sharpen their IT-enabled capabilities in anticipation of the economy coming back into like. They know that competing for share of wallet will go on, and the more analytical and insightful consumer goods companies will carve out share against competitors."
Hagemeyer notes that total IT spending is unlikely to increase on a company by company basis. For example, some companies in the consumer durables market will cut spending in absolute terms as well as a percentage of sales. Others are just starting to automate more processes or upgrade systems, resulting in flattened spending by this sector as a whole. For the most part, "growth will be driven by consumables (like food, beverage, cleaning products, etc.) because they are not adversely impacted by the downturn," says Hagemeyer.
Software versus Services
Gartner's research shows that IT spending in the worldwide market is dominated by services rather than products. Software spending is on pace for the strongest growth rate in 2008 at more than 10 percent (see Table 1). IT services spending alone ranks a close second with more than 9.4 percent growth, but IT services and telecom services combined account for 70 percent of total IT market spending.
Worldwide versus Consumer Goods
We asked Gartner Research Vice President Dale Hagemeyer to compare worldwide IT spending findings with predictions for the consumer goods market. Correspondingly, he says that IT spending will not slow as consumer goods companies look to optimize retail, promotional and supply chain activities to offset fuel costs.
"Certainly, the consumable companies are in better shape than those in durables, but I believe that they all recognize a need to sharpen their IT-enabled capabilities in anticipation of the economy coming back into like. They know that competing for share of wallet will go on, and the more analytical and insightful consumer goods companies will carve out share against competitors."
Hagemeyer notes that total IT spending is unlikely to increase on a company by company basis. For example, some companies in the consumer durables market will cut spending in absolute terms as well as a percentage of sales. Others are just starting to automate more processes or upgrade systems, resulting in flattened spending by this sector as a whole. For the most part, "growth will be driven by consumables (like food, beverage, cleaning products, etc.) because they are not adversely impacted by the downturn," says Hagemeyer.
Software versus Services
Gartner's research shows that IT spending in the worldwide market is dominated by services rather than products. Software spending is on pace for the strongest growth rate in 2008 at more than 10 percent (see Table 1). IT services spending alone ranks a close second with more than 9.4 percent growth, but IT services and telecom services combined account for 70 percent of total IT market spending.
Table 1: Worldwide End-User Spending (Billions of Dollars)
| 2007 | 2008 | 2009 | |
| Computing Hardware | 382 | 408 | 423 |
| Software Annual Growth (%) | 178 | 196 | 211 |
| IT Services Annual Growth (%) | 748 | 819 | 872 |
| Telecom Annual Growth (%) | 1,843 | 1,983 | 2,093 |
| Total Annual Growth (%) | 3,151 | 3,406 | 3,600 |
Source: Gartner (July 2008)
Joanne Correia, managing vice president at Gartner, points out that the replacement of systems does not automatically equate to new software market growth. "Software as a service (SaaS)/cloud computing, service oriented architecture/Web 2.0, and open source software are causing huge changes to the software market. Many of these factors are impacting market growth as enterprises replace assets with per-use services."
Contrary to Correia's prediction for the worldwide IT market, Hagemeyer says that there is room for both SaaS and on premise solutions in the consumer goods market. "Think of it as a vacation house," he theorizes. "Those who can afford to own it and want to be able to decorate to suit their own taste will buy a home. Those who can't will opt for fractional ownership. Larger companies with unique requirements, lots of data integration needs, and a propensity to customize are opting for on-premise. Those that can live with more standard solutions and less enterprise focus are purchasing SaaS. I think having both delivery options keeps the market more efficient. Competition is good," he concludes.