July 2, 2014
After a year of little growth in 2013, Gartner experts are speculating that IT spending worldwide will increase by about 2.1 percent this year. That’s a jump from $3.6 to $3.7 trillion between 2013 and 2014.*
But wait – anyone who’s been paying attention will note that this number is lower than an earlier Gartner estimate† in April, predicting that global IT spending would increase by 3.2 percent this year. That would have been a total of almost $3.8 trillion – and speaking in terms of trillions of dollars, that’s a big difference.
Firstly, expectations for growth in the smart device industry, overshot reality. The device market is now expected to grow 1.2 percent to $685 billion this year, compared to a previous estimate of $689 billion.
Experts blame a lack of product differentiation, leading to increased competition and price cuts in the industry.
In other words, devices are becoming commoditized faster than expected. For example, although iPhones led early advancements in the smartphone industry, today there is little difference between the iPhone and its counterparts in terms of quality or features; thus, competitors must wage pricing battles.
Furthermore, as tablet penetration increases, sales of high-end tablets are expected to decrease, with the next wave of adopters more attracted to lower priced utility tablets, thus creating lower price points.‡
Price wars also affect cloud computing and software-as-a-service offerings, as some of the biggest cloud vendors compete with each other. Gartner also notes that fewer businesses are outsourcing IT management than expected.
However, an overall rise in cloud computing and hosted services means that IT services spending is set to jump 3.8 percent to $967 billion in 2014, compared with zero growth in 2013 and in addition to 4.6 percent growth‡ earlier this year.
Gartner adds that public cloud services are replacing more traditional data center outsourcing services, while implementation services are growing slowly, due to risk-averse buyers focusing on smaller, safer projects.‡
Spending in this area is projected to reach just $140 billion in 2014 (a 0.4 percent increase from 2013)‡, making it the slowest growing category in 2014. It’s clear that high-end, on-premises data centers are in trouble, as everyone focuses instead on lower-cost cloud storage options.
Enterprise software spending is projected at $321 billion‡, a 6.9 percent increase from 2013, with increased growth expectations for infrastructure (such as database management systems software).
Telecom services spending makes up a large percentage of the IT spending sphere, reaching $1.63 trillion in 2014 – a growth rate of 0.7 percent.
Yet this is much less than the industry’s earlier projected growth† of 1.3 percent, originally expected to total $1.655 in 2014. According to Gartner, this is due to an annual decrease in voice average revenue per user (ARPU) by about 10 percent through 2018. It seems that fewer consumers are using voice services — particularly among prepaid users.‡
Price competition also plays a role here, as the emergence of low-cost mobile data services lowers total spend.*
These altered spending projections point toward an overall gradual shift in IT spending.
For CIOs, this indicates a professional outlook from viewing themselves as a single purchaser to instead acting as the purveyor and coordinator of many distributed systems. Naturally, seeing the big picture of IT spending results in a greater priority toward constantly optimizing IT costs overall, rather than just specific segments.
In addition, as businesses gain greater technology budgets, cloud adoption will continue to grow – especially as employees rely increasingly on their personal devices in the workplace (making strong BYOD programs and contracts more essential).*
* Norton, Steven. Gartner Predicts 2.1% Growth in Global IT Spending for 2014, The Wall Street Journal. Dow Jones & Company, Inc.
† Gartner Says Worldwide IT Spending on Pace to Grow 3.2 Percent in 2014, Gartner Newsroom, 2 April 2014. Gartner, Inc.
‡ Gartner Says Worldwide IT Spending on Pace to Grow 2.1 Percent in 2014, Gartner Newsroom, 30 June 2014. Gartner, Inc.