Check out these fresh numbers. According to a survey of the Society of Information Management, 38 percent of IT managers say their spending will increase over this year’s expenditures. Overall, 72 percent said their IT spending in 2011 will be at or above pre-recession levels.
Sounds optimistic? It probably is. I can tell there’s still anxiety out there about the state of the IT marketplace, and for good reason. That same group reported similar numbers last year, and the actual increase in spending only materialized in 27 percent of its members.
While the market grew at healthy clip this year, this was no ordinary year – it’s a recovery year, which means we’re still looking to replace all of the spending we lost when the markets collapsed.
How deep of a hole are we digging out of? IT spending contracted nearly 9 percent in 2008. In real numbers, the recession wiped out between $100 billion and $250 billion in IT sales in the U.S. alone. That means a 3.5-percent growth curve this year will only recoup a fraction of what was lost compared to 2008 spending. Many analysts say the IT market will not recover to 2008 spending levels until 2012, and only in 2013 will true growth return.
Not all technology segments are feeling the same pinch. Business intelligence software, communications and telephony, consumer electronics, storage and some security are selling quite well. Of course, the ubiquitous offering known as “cloud computing” is doing exceptionally well in this challenging climate.
What is going to stymie growth is not recognizing economic realities:
- IT spending will increase, but probably not at a robust rate. If I had to guess, 2011 IT spending will increase between 3 and 4 percent. Where did I get that number? U.S. GDP will be about 3 percent next year, so I assume IT spending will perform slightly better than GDP. It’s probably better than what some analysts will tell you.
- Increasing sales volume does not equal value. Part of what’s holding back IT spending increases is the declining value of many core technologies. PCs and other computing devices will record a 15 percent growth rate in 2010, but the average sale price of these devices continues to erode at a double-digit pace.
- Businesses need value. The Society of Information Management reports its members aren’t being asked to cut spending as much as identify areas where technology can help to cut expenses. As a result, IT managers will ask solution providers for technologies that automate processes or replace analog and paper-based systems. Such spending often isn’t creating new growth, but rather shifting spending from existing budgets.
- The cloud isn’t a guarantee. Cloud computing and similar services offerings aren’t saving IT businesses on either side of the channel. Vendors and solution providers alike are wrestling with replacing product sales revenues (one-time, high value) with services revenues (fractional, but recurring). While many cloud-based services will yield more revenue over the course of their contracts, vendors and solution providers must support their operations out of existing revenues.
The bottom line on the channel bottom line is the affects of the recession are not going away quickly or easily. The best advice while planning for 2011 is to think conservatively and take any unexpected windfalls as a gift.
