Forrester CEO Weighs In on IT Spending for 2009
November 3, 2008 Timothy Prickett Morgan
If you had a crystal ball, or any inanimate object (such as a computer running a simulation like nothing Earth has ever seen and likely never will), and you could predict IT spending in the coming year, you could make yourself a whole lot of money. But you don’t. So that means we have to listen to what the experts have to say and then try to reckon our own way through their prognostications, perhaps with a little of our own input.
As the chief executive officer at IT market research firm Forrester Research, George Colony speaks to a large number of CIOs and CEOs as part of his job, and obviously gets a lot of input from the 1,068 people at the publicly traded company that he founded in 1983. Of that staff, 411 are researchers, who do IT research and analysis for the more than 2,700 customers that Forrester has today. Colony’s company generated $212.1 million in sales and $27.5 million in profits in 2007, if money is any measure of how good the analysis is. That’s one reason why Forrester shelled out $23 million in February to buy Jupiter Research, a competitor. “There is tremendous upheaval,” Colony told the Wall Street Journal back in February, even before the economic meltdown was in full swing. “When that happens, you need research.”
In a recent blog posting, Colony tried to make the case that the current situation in IT and extending into 2009 was not parallel to the IT depression that raged–or more precisely did not rage–from 2001 through 2003.
“Tech will be down, but not out,” Colony explained, recalling that IT depression. “Spending stopped, projects were canceled, excess inventory flooded the market destroying pricing. Cisco lost half a trillion dollars of market cap. Why? Tech had a long way to fall. Tech spending in 2000 in the U.S. was up 12 percent–there was fluff and fat everywhere. When the bubble burst, the fall was precipitous. But tech spending was up only 6 percent from 2006 to 2007. Users of technology are far more disciplined and have cut out the nonsense. So yes, growth will slow, but it won’t fall off a cliff.”
Colony went on to say that IT is embedded much more deeply in corporations today than it was even seven years ago, making it all that more difficult for companies to cut spending. “Technology has become markedly more pervasive in that time–it’s the air we breathe and the water we swim in.” To make his point, Colony said that cell phone penetration has tripled in the United States and e-commerce has almost doubled (up 85 percent). “IT has become Business Technology,” Colony said. “If you don’t believe me, start unplugging wires at your company and see how long you can develop, manufacture, deliver, sell, and service your products.”
There is plenty of good news, apparently, if there is a recession for those social networking sites and online application providers. “In a recession, the use of Facebook, LinkedIn, e-commerce, blogs will increase, not decrease, as people look for jobs, companies stay closer to their customers, and easier-to-ROI Internet advertising accelerates,” Colony wrote. “Companies will have to stay focused on their Web sites, social strategies, and e-commerce this time around–or risk losing their next generation of customers.”
The one area where I don’t agree with Colony is where he asserts that “tech issues are burning” today and that there were “no big tech changes afoot” back in the 2001 and 2002 IT recession. While I will agree that virtualization, social computing, mobile computing, green IT, and service oriented architectures are important to driving IT spending today, it is silly to argue that the dot-com bubble, the ERP wave, and the Y2K transition did not drive a tremendous amount of change. The IT market was on fire, and burning a hell of a lot hotter than it is now. There was tremendous amount of competition in the server and operating system space, and there were more players who were credible, too. What can be honestly said is that once the recession stopped, there was so much excess capacity sitting around as everyone went nuts over the rush to be on the Internet that they didn’t need server capacity–and then the real recession hit in 2001 and companies had to worry about doing more with less and cutting IT costs. And while the global economy grew (some would argue through financial shenanigans that we will pay for with interest), therefore driving IT spending in the past several years, if business contracts sharply you can bet that once again, as before, IT will be asked to do even more with even less. If the global economy doesn’t contract–and I hope for all our sakes it doesn’t–IT is still going to be under pressure earlier than other business units.
Andrew Bartels, an analyst at Forrester, presented his own take on the IT situation. “We are still sticking to our forecast of a sharp slowdown in growth for U.S. tech purchases with no downturn,” Bartels explained in the executive summary of a recent report. “Why? Our tech market forecast already presumes the recession that is actually happening. We also expect governments and central banks will take actions to stabilize financial markets and prevent an economic disaster. Still, with the financial crisis now spreading around the world, risks have grown that the US and other major countries will experience a longer and deeper recession than we had expected. If so, the tech market would see several quarters of declines in purchases, not just two or three quarters with little or no growth in late 2008 and the first half 2009.”
The way I read this situation simple: We just don’t know what will happen with the economies of the world, the companies that work in them, and the IT spending they budget–and we won’t know until we are through it. Whatever “it” may be, a recession, a depression, or a mere slowdown caused by financial confusion. All I know for sure is I don’t want to spend anything on anything, but in some cases, I don’t have a choice. In this, I am not alone, which is why economies never go to zero. Thank heavens.
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