A recent survey suggests that CIOs are loosening the purse strings on IT spending. IT vendors may want to hold off their celebrations, though, because much of the spending appears to be headed for deflationary forces like cloud computing, virtualization, and their kissing cousin, open source.
An economic rebound never looked so dire.
That's unless you're an IT buyer, of course, suggests a new report from Goldman Sachs. In this week's report, titled "A Paradigm Shift for IT: The Cloud," Goldman Sachs said it expects that pent-up IT dollars will flow in the short term to building out next-generation data centers (e.g., cloud computing). But in the long term, less money is expected to find its way into fewer wallets:
After the initial build-out, Cloud Computing could drive some headwinds for the IT industry, as a result of two factors. First, we see virtualization as a deflationary technology. Second, we see IT spending consolidating in the hands of fewer buyers--the Cloud providers, hosting vendors, and large enterprises. These factors will likely dampen IT spending growth due to greater utilization and buyer pricing power.
Even short-term build-outs may prove disappointing, however, as Goldman Sachs expects large enterprises to grow existing virtualization and automation technology adoption in the rollout of private clouds, shifting slowly to an embrace of public clouds over time. The chart below gives some idea as to when cloud computing will hit its stride:
Who wins in this scenario?
According to the report, Red Hat stands to benefit from the cloud-computing craze. ("Red Hat is well positioned for the emerging Cloud Computing ecosystem, largely due to its open source background and current ubiquitous deployments in data centers, including enterprises, as well as in Cloud providers such as Amazon," the report states.)
But the real beneficiaries will be...the same old crew. "[K]ey suppliers for internal Clouds are likely to be those that have the most complete portfolio of hardware, software, and services," including IBM, Hewlett-Packard, Cisco Systems, EMC, and Oracle.
New boss...same as the old boss.
The other beneficiaries are the start-ups that provide critical components of cloud computing, with an emphasis on management tools. Here we may see open-source companies benefit, including Reductive Labs (Puppet project), Cloudera, and the two rising private cloud companies, VMOps and Eucalyptus, among others.
While open source doesn't factor heavily into this particular Goldman Sachs analysis, the firm has before called out open source's role in wringing more value out of fewer IT dollars. Open source is a primary driver of the global reset in IT spending expectations.
With less money flowing into the pockets of fewer vendors, we can expect to see both increased consolidation and fierce competition for the IT spending that remains. Those vendors that can help CIOs do more with less stand to benefit from this shift to low-cost, high-value computing.
And those that can't? Well, let's just say they may pine for the good old days of the global recession.
It boggles the mind, but it's apparently true: nearly half of enterprises think a software purchase is successful if the software is installed/deployed, according to a new study. If ever there was reason to believe there's room for improvement in enterprise IT, and billions of dollars to go with it, this is it.
Working software should be the starting point, not an end point.
According to a study recently released by Neochange, Sandhill Group, and the Technology Services Industry Association (TSIA), 45.3 percent of the 353 IT professionals surveyed call a software purchase successful if "the software is deployed/installed."
No, this isn't enterprise IT's only criterion for software success. After all, 75.4 percent pegged their aspirations a bit higher: "Business benefits realization (cost reduction, revenue generation, etc.)." (Note: respondents could choose more than one answer; hence, the results don't add up to 100 percent.)
But it's scary that the software industry has conditioned IT buyers to expect so little. No one should claim victory on the basis of getting software installed, and we should be hitting close to 100 percent actually getting tangible business value for their software investments.
But then, more than half the survey's respondents admitted to not even measuring success criteria. Could this be a sign that IT executives, like the sign greeting Dante on his descent into Hell, have abandoned all hope of getting real value for their software spend?
Things may be getting better. As reported on Tuesday, Google and Red Hat topped CIO Insight's Vendor Value survey. Times are tight, and enterprises apparently can't afford to call software purchases successful just for running as they should.
Red Hat's chief of European operations, Werner Knoblich, says as much in an interview with The Register:
Microsoft was untouchable until recently, but now everything gets considered, which is one of the reasons [Red Hat's] results have been pretty strong. Clearly a downturn is never good generically, it's a bad thing. But our value proposition resonates pretty well all the same.
In the case of both open source and SaaS, enterprises don't pay a dime until they actually see the software working. Working software is the default. It's not cause for special celebration.
The Neochange, et al, survey also asks, "What is the most important factor for realizing value from enterprise software?" The answer "Gaining user buy-in and ensuring effective usage to deliver business impact" garnered a 71.7 percent vote. That's more easily achieved with open-source software, in particular, which allows enterprises to evaluate and use software long before they opt to purchase support or add-on services/software (if, indeed, they ever elect to do so).
In this way, open source improves upon typical IT success. With more than half of those surveyed reporting "less than 49 percent effective software usage," there's clearly room for a better model to optimize software utilization.
We can do better. We must. About 30 percent of those surveyed look to software to enable "business innovation, revenue generation, and market competitiveness."
Such enterprises are increasingly looking to open source to serve as the foundation for innovation. This probably wasn't the "fundamental economic reset" Microsoft CEO Steve Ballmer had in mind, but it will do. And it's about time.
Follow me on Twitter @mjasay.
|
Lotus knows there's more to work than just email.
Connect with people. Get live feeds. Create widgets. Work securely online or off. Try IBM Lotus Notes.
|
 |
For years, Red Hat sat unopposed at the top of the CIO Insight Vendor Value study. In 2008, however, Google pushed Red Hat aside with its low-cost, easy-to-use enterprise applications. This year, Red Hat has come roaring back to share the top ranking with Google.
Could this be a sign of CIOs' restive relationships with traditional vendors and an increasingly insatiable appetite for the cost and ease-of-use advantages of open source and software as a service/cloud computing?
The answer is almost certainly "Yes." It is telling that old-school vendors like IBM (ranked 20th overall), Microsoft (25th), Novell (29th), and Oracle (35th) are so far down the CIOs' list.
It is equally telling, however, that it is with these apparently less-preferred vendors that CIOs spend the vast majority of their IT budgets. Or perhaps that's the point? In other words, CIOs spend with such vendors today because they have to, but given their druthers, they're going to invest more money in Red Hat and Google going forward.
Red Hat and Google are still rounding errors in the overall IT spending picture, but CIOs seem to be signaling an appetite for more. It's not about reducing lock-in and other colorful marketing phrases, either: it's about great, easy-to-use software at a compelling price.
You know, the very thing that Microsoft used to win CIO plaudits for delivering.
From the report:
CIOs are more likely to try software as a service (than traditional, packaged software), which is better understood and simpler to use and requires no upfront investment in hardware or software.
This is the heart of the CIO uprising. And it's why low-cost, high-value companies like Intel (ranked first overall), Cisco/WebEx (ranked sixth and 11th, respectively), and Sun (sixth) are climbing the charts.
For now, however, Google and Red Hat rule the roost in the Software category of CIO Insight's annual study:
Both Red Hat and Google essentially offer the same thing: great software on a subscription basis. While this model often offers lower prices than competitors, it's important to note that "free" is not the value proposition here. (If it were, for example, Red Hat customers would be leaving in droves for Red Hat Enterprise Linux clone, CentOS. They aren't.)
No, the value proposition is customer control via the subscription model that enables less costly ways to buy into the software, and to turn off maintenance costs, if desired.
It's a winning formula, one that more vendors should consider adopting. Today IBM, Microsoft, and Oracle command the majority of IT dollars, but this survey suggests a rebellion is underway. Inertia can only support the traditional vendors for so long.
Goldman Sachs IT Spending Survey
(Credit: Goldman Sachs)IT spending may be tight, but chief information officers plan to increase their budget allocation to a select group of virtualization vendors, including VMware, Citrix, and Red Hat, according to a Goldman Sachs CIO survey released Monday.
It's not surprising that virtualization is top of mind and wallet for CIOs, but things look particularly rosy for Red Hat, given its position as the market leader in open source and a strong challenger in virtualization.
While the percentage of CIOs expecting to increase IT spending has grown since Goldman Sachs' last survey in June 2009, a full 69 percent expect to maintain or decrease their IT spending.
Against this backdrop, Goldman Sachs sees Red Hat boosting its share of IT spending as the open-source leader claims the lion's share of a Unix-to-Linux server shift that "remain(s) in the early innings." Equally important, Red Hat is seen as a critical integration and distribution point for other vendors:
Red Hat is positioned well for the emerging cloud-computing ecosystem, given its open-source background and current positioning in data centers, including enterprises as well as cloud providers such as Amazon. In addition, Red Hat's strategic importance to others is also increased by its platform capabilities that provide a beachhead for many other software products into the corporate data center. That being said, cloud computing remains a nascent opportunity with little revenue contribution to date and an increasing competitive landscape.
To date, Red Hat has mostly resisted the temptation to expand its product portfolio beyond the operating system, and directly adjacent opportunities like virtualization and cloud computing. However, as the company further strengthens its balance sheet and grows in confidence, we should finally see Red Hat use its dominant brand to give CIOs more reasons to pay Red Hat money.
(Credit:
Goldman Sachs)
Intriguingly, Red Hat may be pushed to this step by the increasingly ambitious VMware, which has far more cash and a strong interest in being the foundation for enterprise's cloud-computing technology. According to the Goldman Sachs report:
VMware is a leader in three important growth themes in IT: server virtualization, desktop virtualization, and cloud infrastructure. We also believe that as virtualization penetration increases, the company has an opportunity to take significant share of the large systems management software market. Microsoft's increasing focus on the space is a risk; however, our latest checks give us greater confidence in VMware's customer loyalty and the company's significant technology lead. We also see room for significant ongoing margin expansion as the company matures.
With the recent acquisition of open-source vendor SpringSource, VMware can deliver on the powerful "Build-Deploy-Manage" mantra that SpringSource championed to its 2 million developers.
Both companies should thrive as IT budgets remain lean. But which will ultimately benefit most is a question of execution and ambition.
Follow me on Twitter @mjasay.
At the end of this year, the number of PCs shipped is expected to be lower than the previous year, a rarity for the industry.
In fact, it would be the first time that's happened since 2001, when the tech world collapsed in on itself, according to market research firm iSuppli. A report released Tuesday by iSuppli is projecting that 287.3 million PCs will be shipped in 2009, a 4 percent decrease from the 299.2 million shipped around the world in 2008.
And though expectations weren't particularly high for this year, the industry is now on track to do worse than previously thought: iSuppli had predicted 0.7 percent growth for the year. PC makers have been able to ship more each year for eight straight years, so it's fair to say this dip is unusual. Said iSuppli analyst Matthew Wilkins, "Even in weak years, PC unit shipments typically rise by single-digit percentages."
The culprit in this case is the fading out of the desktop computer. Shipments of desktops are expected to decline 18.1 percent this year, as notebook PCs become ever more popular. Notebooks are on track to grow almost 12 percent this year, for the first time outpacing desktop shipments for a whole year.
It's been clear for several years that PC buyers prefer mobility, and the increasing power of notebooks have helped push more customers in that direction. PC manufacturers have looked for ways in the last couple years to reinvigorate desktop sales. Many have been pushing all-in-one desktop computers, some with touch-screen interfaces. iSuppli's numbers show that mainstream consumers have yet to take the bait.
Another factor in the sagging PC industry is the severe drop off in IT spending by large corporate customers. There could be good news ahead though. Dell's CFO said Monday the company is seeing demand for its computers, servers, and services stabilizing, which could mean they think they've seen the bottom of the market.
|
Lotus knows there's more to work than just email.
Connect with people. Get live feeds. Create widgets. Work securely online or off. Try IBM Lotus Notes.
|
|
Hit by the economic downturn and fluctuating exchange rates, worldwide IT spending is expected to drop 6 percent this year, according to a new Gartner report.
Spending will likely settle in at $3.2 trillion for 2009, compared with $3.4 trillion in 2008. Last year, IT spending had actually surged by 6.2 percent over 2007.
Due to the ongoing recession, the projected 6 percent spending decline is greater than Gartner's original forecast of a 3.8 percent drop, which the firm made in March.
"While the global economic downturn shows signs of easing, this year IT budgets are still being cut, and consumers will need a lot more persuading before they can feel confident enough to loosen their purse strings," Richard Gordon, head of global forecasting at Gartner, said in a statement Tuesday.
This year's spending decline touches all four major IT segments tracked by Gartner--hardware, software, IT services, and telecommunications. Hardware spending will see the sharpest drop at 16.3 percent, while software spending will ease down only 1.6 percent.
For comparison, Gartner noted, a drop in all four segments did not occur during the last major downturn in 2001.
As the global economy revives, Gartner believes IT spending will shoot up 2.3 percent next year. Overall, Gartner expects IT spending to grow annually at a weak 1.9 percent rate from 2008 through 2013.
About 42 percent of chief information officers have cut their budgets to grapple with the economic downturn, a new survey by Gartner shows.
Among the 900 CIOs questioned, 42 percent said they had lowered their budgets for the first quarter of 2009, an overall drop of 4.7 percent compared with the previous quarter, according to the report released Monday. This contrasts with Gartner's study for 2008's fourth quarter, where most of the 1,500 CIOs surveyed said their IT spending was relatively flat.
For the recent survey, 54 percent of all CIOs indicated no budget changes, while 4 percent confirmed a boost in spending for the first quarter.
Survey results on IT spending
"CIOs reported that renegotiating vendor contracts and head count reductions were the primary focus areas for accommodating budget reductions," said Mark McDonald, group vice president and head of research for Gartner EXP. "CIOs report shifting more work to in-house resources and delaying capital expenditures more than reducing IT project investments."
Most industries reported lower IT spending, noted Gartner. Professional services companies and those in the telecommunications and technology fields registered the biggest decline with a 10 percent drop. Manufacturing firms indicated an 8 percent fall in spending, while utilities and financial firms cut back by 4 percent. Only the health care industry reported a 2.2 percent increase in tech spending.
CIOs seem ready however 2009 plays out. Most of the executives questioned realize further cuts may be needed later this year but see them as unlikely. More CIOs have contingency plans in place for 2009 that cover a possible uptick in IT spending but further reductions as well.
"Based on CIO contingency plans, they are now better prepared for future economic challenges," said McDonald. "However, most CIOs do not see immediately implementing those plans. This supports a position that the first quarter budget adjustments reflect firm plans for the remainder of 2009."
CIOs see the economy bouncing back sometime between the first and third quarter of 2010. Once the signs look good, they expect to boost spending on both IT projects and staffing.
Open source has become big business, suggests an article in the Investors Business Daily, but it has done so by becoming more like the proprietary-software world it purports to leave behind.
The article cites recent research from IDC indicating that CIOs allocated up to 24 percent of their budgets to open-source software in 2008, up from 10 percent in 2007--a finding that jibes with recent data from Forrester. This open-source growth is propelling Red Hat to grow "at two to three times the rate of the broader software industry over a multiyear horizon," according to research from Piper Jaffray.
Red Hat is an example of "free done right," following analysis from TechDirt. We've moved beyond the business models that insist that every line of software be open source: they couldn't scale and tended to treat openness as an end in and of itself, rather than as a means to an end.
Today, if you look at the most successful open-source businesses, none of them pass the ideologues' unrealistic and counterproductive "100-percent freedom" litmus test. Not a single one of them.
And that's OK. Google does a tremendous amount of good in the open-source world, yet took a beating last week for not being open source "enough" on the Open Source Initiative's osi-discuss mailing list. Google's open-source program manager, Chris DiBona, responded:
Yes, I can see how people would think that Android and Chrome aren't 'real' open source. *rolls eyes* Damn foolish assertion, if you ask me.
DiBona is right to refuse to be goaded into a walk down an inaccurate and ill-conceived open-source memory lane. That "give-away-the-software-and-sell-support" model was always doomed to scale poorly and consign its adherents to minimal relevance to the wider software market.
Fortunately, the software industry has been embracing a broader definition for "open-source business" that includes many different ways to contribute to and profit from this interesting development and distribution model.
Those who persist in trying to shove the genie back into a crippled container are doomed to fail.
Follow me on Twitter @mjasay.
For those searching for an IT spending recovery in 2009, new data from an Information Systems Audit Control Association survey offers some reason for hope...and confusion.
On the positive side, the survey of 500 IT professionals suggests that 25 percent of enterprises surveyed will be investing through the downturn.
This is great, especially when coupled with other data from the survey that suggests:
- Only 16 percent will make "sweeping cuts" in IT spending.
- 14 percent will keep spending at the same rate.
This is good, right?
Well, it might be, except the survey, which was released Friday, also reveals a very disjointed IT decision-making process across the organizations surveyed. So, 66 percent of the organizations surveyed "do not share an understanding of IT value across different departments," only 51 percent even have a way to prioritize IT investments based on IT value, and barely 29 percent fully measure the value of their IT.
In other words, it is doubtful that this (or any) survey captures any particular organization's IT spending outlook. It is equally doubtful that vendors that actually deliver significant value will get the credit they deserve within enterprises, given this groups' inability to measure and then prioritize that value.
This isn't cause for despair, of course, but it may be reason to pause before celebrating any alleged uptick in IT spending based on CIO surveys, or any IT spending surveys. The CIOs probably don't know what is going on at the frontline of their organizations, and the frontline apparently doesn't coordinate very well, either.
This has worked to the advantage of open-source companies that find their way into organizations through the casual downloads of the frontline of enterprise developers and architects, but it doesn't bode particularly well for spreading the message of success (or failure) of those open-source evaluations and purchases throughout the wider organization.
Follow me on Twitter @mjasay.
This was originally posted at ZDNet's Between the Lines.
EMC Chief Executive Joe Tucci on Thursday said the storage giant expects technology spending in the second half of the fiscal year to improve, and it noted that the worst is largely over.
EMC Chief Executive Joe Tucci
(Credit: EMC)Tucci's comments came amid EMC's earnings, which met expectations. In a statement, Tucci said:
As we look to the balance of 2009, we believe the global IT-spending environment has reached, or is very near, the bottom. We expect IT spending to improve in the second half of 2009, as customers will have better budget visibility, be further through their own restructuring programs, and broader stimulus packages should be under way.
With these comments, EMC becomes the latest company to call a bottom. Intel and Nokia are among the others noting that the worst may be over. EMC's "best guess" is that 2009 global IT spending will decline in the "very-high-single-digit to very-low-double-digit range, compared with 2008." Second-quarter IT spending will be flat with the first quarter, it predicted, and then improve.
EMC reported first-quarter net income of $194.1 million, or 10 cents a share, on revenue of $3.15 billion. Non-GAAP net income was $323.7 million, or 16 cents a share, down from $460 million, or 22 cents a share, a year ago, but in line with Wall Street estimates.
The company noted that it is aiming to save $100 million in 2009, and it expects to cut its infrastructure costs by $450 million relative to 2008.
