10 Things To Know About Gartner's 2015 IT Spending Outlook
Cloud, Commoditization Drive Slowdown In IT Spending Growth
This year is expected to be a good one for IT companies, with Stamford, Conn.-based Gartner projecting spending will rise 2.4 percent in 2015 to $3.83 billion. That, however, is down from earlier predictions of 3.9 percent spending growth. Even though sales activity has remained in line with expectations, spending has fallen due to commoditization in everything from the smartphone market to on-premises data center infrastructure. The cloud also poses stiff price competition in the software markets, with seat prices for sales force automation (SFA) expected to drop by 25 percent through 2018. Finally, enterprises are exiting the device and data center markets, letting employees or third parties pick up the slack.
10. Telecom Services Businesses Hard-Pressed To Tread Water
Following two years of running in the red, the telecom services market is expected to return to the black in 2015, with Gartner saying sales are slated to rise 0.7 percent to $1.64 billion. That's still short of the $1.65 billion of sales notched back in 2012. The primary driver behind the struggles, according to Gartner, is a reduction in expected mobile voice revenue due to a lack of new mobile phones sold. That phenomenon is particularly pronounced in European countries such as Austria and Italy. Still, the sector is projected to have annual growth rates of at least 1.5 percent for every year between 2016 and 2018.
9. Software Struggles Expected To Hamper Services Business
Weaker-than-expected enterprise software sales have prompted Gartner to scale back its 2015 IT services growth projections from 4.1 percent to 2.5 percent, or $981 billion. Expected reductions in software support services throughout the globe contributed disproportionately to the lowering of the overall IT spending forecast through 2018. Declining economic conditions and political uncertainty in Russia and Brazil are expected to cause a short-term dip in IT services spending.
8. Software-As-A-Service Displacing Licensed Deals
Revenue from licensing customer relationship management (CRM), enterprise resource planning (ERP) and supply chain management (SCM) deals has gone the way of the Pony Express, Gartner said. Large North American organizations were allocating 95 percent of their ERP, SCM and CRM spend to licenses in 2000; by 2020, that figure is expected to fall to just 21 percent, with Software-as-a-Service (SaaS) picking up virtually all the slack. John-David Lovelock, a research vice president for Gartner, said years of economic uncertainty have given SaaS a boost, allowing end users to scrap annual maintenance payments. SaaS also makes it easier for business units within a large company to act like a startup and determine their own technology spending rather than going through the CIO or IT department.
7. Competition Between Cloud, On-Prem Providers Have Driven Down Software Prices
Enterprise software spending is expected to rise 5.5 percent in 2015 to $335 billion despite fierce competition between cloud and on-premise software providers. Price erosion and vendor consolidation are the name of the game, with incumbent on-premise vendors expected to discount their cloud offerings heavily in an effort to maintain their customer base. Competition is expected to be particularly fierce in the customer relationship management (CRM) market, with sales force automation (SFA) seat prices expected to decline by 25 percent through 2018. Significant -- albeit less fierce -- competition also will emerge from cloud offerings in areas such as middleware, application infrastructure and database management systems (DBMS).
6. Hyper-Scale Data Centers Have Gained A Fast Following
Enterprises have been finding that they lack the computing horsepower needed to maintain their own data centers. Customer demand led to hyper-scale data centers first becoming a possibility in 2008, with end users also relying less on on-site servers in favor of cloud or third-party subscriptions. Lovelock expects the next inflection point to come in 2018, when the needs of digital business will surpass the capacity of traditional data centers, which will be seen as too slow and siloed. From that point forward, virtually all of the growth and additional capacity created will be in hyper-scale data centers.
5. Cloud, Longer Replacement Cycles Have Squashed Server Spending
Data center system sales are expected to climb 1.8 percent in 2015 to $143 billion, thanks to growth in the enterprise communication application and enterprise network equipment segments. However, Gartner found a faster-than-anticipated switch to cloud-based services and a longer replacement life cycle have stunted sales for servers and controlled-based storage segments. Spending on servers and network infrastructure has held relatively flat as businesses move away from on-premises to off-premises or hyper-scale servers.
4. Enterprise Customers Are Shedding Their Devices
The number of enterprise devices in use has held pretty steady since 2002, Lovelock said, even as the consumer device market exploded. Enterprise device ownership actually peaked in 2011 as companies hang onto existing devices longer and are less likely to buy new ones. "The recession changed enterprise's approach to devices," Lovelock said, adding that enterprises are increasingly utilizing a bring-your-own device model. This phenomenon has fueled the smartphone divide, with employees using a company stipend to purchase a high-end smartphone for business purposes, while low-end smartphones are deployed purely for consumer use.
3. Tablets, Midrange Smartphones Losing Market Share
The device market has become very polarized over the past year, Gartner found, with some items gaining headway and others falling behind. Gartner's Lovelock said the tablet market is suffering from a lack of innovation, with a 1.1 percent drop in the number of units shipped. He said tablets could be displaced by the phablet (a hybrid smartphone-tablet) or hybrid PCs. Similarly, the smartphone market has become stratified between premium iOS phones (selling for an average of $478) and basic Android or OS phones retailing for less than $100. Gartner found the market opportunity for midrange smartphones has become increasingly limited.
2. Lower-End Smartphone Market Quickly Commoditizing
The device market has become commoditized much faster than Gartner projected, prompting the technology research firm to project device sales of $732 million in 2015, representing year-over-year growth of 5.1 percent. Gartner defines the device market as including PCs, smartphones, tablets and printers. While mobile purchasing activity has kept in line with expectations, Gartner said manufacturers of lower-end Android and OS devices have relied more on pricing for differentiation. Fierce price competition isn't exclusive to the device market, however; bargain-basement prices for public cloud have driven down margins in both the private cloud and data center sectors.
1. Strength Of U.S. Dollar Has Driven Down Spending Projections
IT spending predictions by 2015 have been scaled back, but things aren't as bad as they seem. Gartner projects technology spending will rise 2.4 percent in 2015 to $3.83 billion, down from an earlier prediction of 3.9 percent growth. That's due almost entirely to the strengthening of the U.S. dollar rather than a reduction in demand for devices. Spending projections vary greatly by region, with the Asia-Pacific market expected to grow by 8 percent in the coming year, thanks to sustained demand for on-premises infrastructure and enterprise devices. Meanwhile, IT growth rates in Japan and Western Europe are right around 1 percent due to macroeconomic uncertainty and deflation.