Computer Business Review

Why IT spending growth is “anaemic”

by Joe Curtis| 30 June 2014

Gartner blames device saturation and cloud pricing wars for forecast cut.

Global IT spending 2014 growth is forecast to be an "anaemic" 2.1%.

Market watcher Gartner revised its 3.2% growth prediction to 2.1% in today's quarterly report on the global IT market, blaming cloud pricing wars and commoditisation for driving down the net spend to $3.7 trillion.

Managing VP Richard Gordon told CBR that the third age of IT, where businesses embrace digitisation and the Internet of Things (IoT), is seeing firms switch their business models from technology and processes to ignoring traditional providers in favour of cheap, commoditised cloud services.

"The era of the traditional IT spending is in transition right now," he said. "We're seeing a consolidation in the industry where data centre spending is getting more concentrated on the hyper-scale segments, the big, large huge data centres of the likes of Google and Amazon.

"There's much more flexibility there and much more competition in the market. That's tending to cannibalise the traditional IT outsourcing model."

Pricing wars between Amazon, Google and Microsoft to attract cloud customers have undercut traditional providers, Gartner claimed, leading to growth of just 0.4% to $140bn in data centre systems this year.

Large outsourcers are also suffering from businesses taking a more risk-averse approach to IT projects, using a number of smaller suppliers instead of one large provider, Gordon added.

The research firm said that commodisation is also hitting external controller-based storage providers and servers, with little to differentiate such products, leading customers to look at the bottom line.

Gordon said: "The technology argument doesn't win it anymore. Clearly there's always a spec sheet to be scrutinised but if the technology is good enough, people will just buy the good enough technology.

"IT spending growth is very anaemic, particularly in the short term, much of that is because we're seeing this commodisation across the board."

Tablet devices also contributed to the revised growth estimate, with Gartner attributing 1.2% growth to $685bn to penetration in mature markets like the US reaching 50%.

As wider adoption of mobile devices comes on, Gartner expects to see people buy lower end hardware with improving specs, such as Tesco's Hudl, leading to a lower overall spend.

However, Gordon added that 2014 has signalled the start of a third era in IT, following phases focused on automation and increased productivity and then IT management.

"If you look at the future what you're seeing is this rise of digital business," he said. "The IoT is really opening up a whole new landscape in business moving away from traditional back office functions to an era where technology is embedded everywhere."

While technology will become a business driver, it may not result in increased revenues - but it could open up opportunities for additional services.

"In some areas you'd think they'd add a whole load more revenue but in others all you need is a sensor or some small processor and wireless technology and that can be done for a few cents, not much money at all," claimed Gordon. "But what are the apps and services you could provide through those things?"

Gartner believes market growth will improve in 2015 to 3.7%, or $3.8 trillion, with some major phone and device releases, as well as more interest in wearable technology.

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