Accelerating DX Does Not Necessarily Mean Spending More Bucks
August 17, 2020 Timothy Prickett Morgan
It is important to not confuse activity with the money it generates. While activity and money can sometimes be proportional as well as rising and falling together, it is not always the case that they point in the same direction. And particularly when it comes to IT spending during a pandemic-induced recession that the world has not seen in a hundred years. Equally important to consider is that overall IT spending is not necessarily an indicator of how spending in any particular area will rise and fall. All boats definitely do not rise together, especially in the choppy economic waters of a recession.
We hear anecdotally from both vendors of tools and services to do digital transformation, or DX for short, as well as from some end users that activity is up and that some customers – particularly those that were of a progressive frame of mind – were accelerating their modernization and transformation efforts. This is good for them and for the IBM i ecosystem, obviously. But there are some mixed signals out there, and we though it was appropriate to take a look at them. As you can see from this issue, this was on the mind of both myself and my co-editor Alex Woodie at the same time, and we drew from different sources to offer some observations even if we cannot really come to any firm conclusions.
Earlier this year, we drilled down into the projections that market researcher IDC made to predict IT spending before and after the coronavirus pandemic broke out, and a hopeful tone by the economists at IDC quickly went south in only a few weeks in April. We are not going to repeat all of those figures here, but they concluded that spending would be down 2.7 percent across the IT sector, but that spending would actually be up by 5.3 percent (but down compared to the 8.8 percent growth rate for 2019) for datacenter infrastructure like servers, switches, and storage and software spending would rise by 1.7 percent (but also down from a 10 percent growth rate in 2019).
A few weeks ago, the economists and market researchers at rival Gartner gave an update on IT spending that caught our eye, and they are now projecting that overall IT spending will fall by 7.3 percent in 2020, to $3.53 trillion, after growing 2.3 percent to $3.81 trillion in 2019. The good news is that they are projecting growth of 4.3 percent to $3.68 trillion. That sounds like a typical post-recession recovery, and a particularly fast one at that. But compared to IT spending just growing at the pace set in 2019, the aggregate money that will be lost and never return in 2020 and 2021 together is $672 million, or about 8.5 IBM’s. That’s 8.5 percent of what would have been total revenues in those years, gone. And it does not return. In fact, it is transformed from things we used to do to things we now do. This is how recessions work. And the things we now do cost a lot less so even as they add cost, there is a much greater amount of old cost that comes out of the overall IT ecosystem. The impact is greater than it looks on the surface.
Here’s the table Gartner shows for IT spending projections in 2020 and 2021 by category:
As you can see, everything is down, but device spending (PCs, tablets, smartphones) is particularly hard hit even as a lot of us are upgrading to do work from home better. Datacenter system spending, even with the boisterous budgets of the hyperscalers and cloud builders, will fall by 10.3 percent in 2020, to $188.3 billion, according to Gartner, and enterprise software spending will fall by 5.7 percent to $449.5 billion. The good news is that Gartner believes that global IT spending will bounce back faster and more smoothly than the global economy overall. The bad news is that global IT spending will bounce back faster and more smoothly than the global economy overall. They won’t be in lockstep, rather IT spending is a kind of leading indicator of survival, hope, and transformation.
So this picture was forming in our mind until we saw another bit of data out of IDC, which is shown below:
OK, first of all, only $1.3 billion for digital transformation seems like a very, very, very low number. So this must be a precise and confined definition of DX. The thing that caught our eye was the delta of before and after COVID-19. Every industry was down, not up. Application and database modernization are arguably bigger markets that are also undergoing transformation, so the aggregate business is large but maybe the spending could decline in these areas even as it becomes more important because spending can drop even if activity doesn’t. People tend to focus on key things when the economy goes up on the rocks.
We poke around the Intertubes for a bit and came across a COVID-19 digital transformation engagement report from Twilio, a maker of modern communication software that merges voice, text, and other kinds of communication and manages it from the cloud. Twilio conducted a poll, and found that 97 percent of those polled sped up their digital transformation efforts because of COVID-19, and within that, 68 percent said they sped it up a great deal and 29 percent said they sped it up somewhat. The digital communication platform had to shift from on premises to the cloud, obviously, with people working from home, and on average companies polled reckoned they moved their digital communications strategy ahead by six years; 43 percent said it was accelerated by one to three years. Some 26 percent of those polled said their digital communication transformation budgets increased dramatically and 53 percent said they increased somewhat; the rest were flat or down or didn’t know. It’s hard to say what this means, but it probably means the phone system is toast and the cloud service is less expensive and the PBX is probably headed for the dumpster or an emerging economy.
While digital communication transformation is not the same thing as digital transformation of applications and databases, the same phenomena are at work, we believe.
We would love to see some real data from IBM i vendors about what they are hearing from their customers and how modernization and transformation efforts in IBM i Land relate to overall IT spending trends in IBM i Land.