January 29, 2004
Laurie M. Orlov
Vice President, Research Director
Forrester Research
Important Software Technologies and
Trends: 2004
Theme
The technology recession
is ending – but the
Agenda
•
Where do executives plan to invest?
•
New trends in software development
•
Software licensing trends
Strong economic indicators haven’t lifted IT budgets
. . . yet
•
Consumer-facing sectors will pull through first
•
IT shops want to make room for new investments
•
eCommerce initiatives will receive the most budget
Forrester expects US IT spending to grow 4% in
2004
•
Spending on computers will lead the way at 9%
•
Infrastructure software will outpace apps
•
Targeted outsourcing will carry the services market
Preliminary Estimates Of Future US IT Spending
-4% 3% 1% -5% 28% 3% 2% -6% -5% 1% -9% 11% 0% -1% -4% -10% 5% -3% 4% -1% -1% 9% 2% 6% -2% 7% 1% 4% 2001% change from prior year
2002 2003 2004
Computers and peripheral equipment Communications equipment Software IT consulting and SI services
IT outsourcing IT salary and benefits
Overall
(numbers have been rounded)
More retailers increase IT budgets. . .
5% 5% 6% 5% 12% 8% 4% 6% 8% 22% 14% 18% 17% 26% 21% 19% 42% 37% 47% 47% 42% 42% 57% 45% 45% 36% 33% 30% 29% 24% 18% 30% Don't know LowerRemain the same Higher
Total Manufacturing Chemicals and energy
Tech and telecom Services Distribution Finance and insurance
Retail
"How will your company's 2004 IT budget compare with its actual spend in 2003
. . . by a larger amount
4.9%
2.2%
2.2%
1.4%
1.3%
-0.4%
-0.9%
1.3%
Total
Manufacturing
Chemicals and energy
Tech and telecom
Services
Distribution
Finance and insurance
Retail
"By what percent will your company's 2004 IT budget change?"
Most services firms spend all of their IT budget
8% 8% 14% 17% 8% 9% 8% 10% 36% 37% 33% 35% 47% 49% 53% 41% 56% 55% 53% 48% 45% 42% 39% 49% Don't know Less or more than budgetedAlways all of it
Total Distribution
Retail Finance and insurance
Tech and telecom Chemicals and energy
Manufacturing Services
"At your company, what percent of the IT budget typically ends up being spent?"
Tech and telecom firms’ IT budget is the most up for
grabs
Allocated to existing investments
Allocated to new investments
Not yet allocated
72%
Tech and telecom 11%
17%
68%
Retail 10%
22%
71%
Finance and insurance 10%
19%
76%
Services 10%
14%
70%
Distribution
9%
21%
75%
Chemicals and energy 9%
16%
75%
Manufacturing
8%
17%
72%
Total 10%
18%
Percent of 2004 IT budget allocations
e-Commerce regains traction
Less About the same
More
"For each of the following categories, how will your company's 2004 planned spend compare with its actual spend this year?"
Base: 528 IT decision-makers at North American companies
21% 22% 25% 20% 22% 18% 23% 30% 43% 44% 41% 47% 45% 52% 50% 45% 36% 34% 34% 33% 33% 30% 27% 25% Outside IT services PCs and workstations Application software licenses and development
Server hardware Networking equipment
Storage products Infrastructure and integration software
Apps buyers show concern over price
“Which of the following criteria are critical in your evaluation of enterprise apps and their vendors?”
Recommendation of consulting or SI firm Quality of available implementation staff
Ease of implementation or upgrade Post-sale service and support
Purchase price Compatibility with existing systems
Scalability 87% 87% 85% 84% 83% 81% 50%
Base: IT decision-makers at North American companies (multiple responses accepted)
Security and disaster recovery are top of mind for IT
organizations
2.54 2.51 2.46 2.33 2.31 2.28 2.21 2.15 Replace proprietary or legacy systemsConsolidate IT infrastructure* Support changes in corporate governance
Upgrade your Windows desktop operating system* Replace or upgrade your PCs*
Deploy or upgrade a major application software package Upgrade disaster recovery capabilities* Significantly upgrade our security environment
“Which of the following initiatives are likely to be one
of your IT organization's major themes for 2004?“
(1 [not on our agenda for next year] to 4 [it’s a critical priority])
Base: 818 technology decision-makers at North American companies * 528 IT decision-makers at North American companies
How software customers pay for enterprise
applications
Don't know 26% Other 3% Per usage 3%Per concurrent user 21% Per total employee base 31% Per named user 17% Per CPU 13% Per server 13%
“How are you paying?” “How would you prefer to pay?” Other 1% Per usage 1% Per CPU 26% Per server 27%
Per named user 13%
Per concurrent user 15% Don't know 20% Per total employee base 29% Base: 156 IT Executives
How software customers pay for infrastructure
software
Other 3% Other 1% Per usage 7% Per usage 1% Per named user 8% Per named user13% Per concurrent user 13% Per concurrent user 15% Don't know 16% Don't know 20% Per CPU 7% Per CPU 26% Per server 27% Per server 27% Per total employee base 32% Per total employee base 29%
“How are you paying?” “How would you prefer to pay?”
Challenges with software pricing models
“What is the biggest challenge with today’s software pricing models?”
Other
1%
Don't know
9%
The pricing models
are too rigid
14%
The pricing models are
too complex and
difficult to understand
15%
Maintenance costs
are too high
19%
The pricing models are not in-line
with our goals and metrics
for measuring the value
of the technology
42%
Software discounts increasing
Yes 68%
No 28%
Don't know 4%
"In general, have you received bigger discounts on software prices
during 2002 and 2003 compared to 2001 and earlier?"
Incentives abound from software vendors
“Have software vendors provided you any free services, training,
or hardware to sweeten your purchase deals during the past two years?”
Base: 25 IT decision-makers
68%
16%
68%
60%
12%
8%
None
Free other
Free services
Free software
Free hardware
Free training
What do firms think about Linux and offshore?
2.04 1.92 1.80 1.71 1.61 1.60 Move more of our systems onto Linux*More IT development or maintenance activities offshore*
Look seriously at outsourcing business processes outside of IT Look seriously at IT outsourcing alternatives
Implement a portfolio management model for governing IT investments Eliminate shadow IT spending through centralized control of IT
Base: 818 technology decision-makers at North American companies * 528 IT decision-makers at North American companies
"
Which of the following initiatives are likely to be one
of your IT organization's major themes for 2004?“
Many companies move forward with single sign-on
technology
25% 47% 33% 37% 49% 64% 51% 67% 23% 15% 28% 28% 19% 13% 21% 14% 13% 10% 14% 12% 11% 4% 8% 4% 12% 8% 9% 7% 6% 5% 7% 5% 27% 20% 16% 16% 15% 14% 13% 10% No plans or don't know Considering Piloting Rolling out or upgrading In production RFID Server provisioning software Open source middleware Business process managementsoftware Voice over IP Single sign-on technology
Instant messaging Wireless networking
"At what stage are you in the adoption of the following technologies?"
Customers demand security technology
"During 2004, will your company purchase the following technologies, including first-time deployments as well as upgrades?"
Base: 818 technology decision-makers at North American companies *528 IT decision-makers at North American companies
52% 33% 27% 26% 25% 24% 24% 24% 24% 18% 18% Procurement or sourcing software
Supply chain planning and execution software CRM software Human resource application software Systems management software* Enterprise application integration technology*
Content management software* Business intelligence software
Finance application software Portal server software* Security technology*
Hot (5% or more growth in 2004) sectors for
2004
•
Application integration
•
Blade servers
•
BI software
•
Collaboration tools
•
Directory services
•
E-learning
•
Enterprise content
management
•
Financial management
systems
•
IP telephony
•
IT outsourcing
•
Linux servers
•
Mobile & wireless telecom
apps & services
•
Networking equipment
•
Outsourcing of business
processes
•
Portals
•
Risk mgmt/compliance s/w
•
Security
•
Storage hardware
Larger companies especially want steep discounts
Base: IT decision-makers at North American companies
“How much of a discount off the list price will you expect to receive from your vendors?”
$1B-plus companies Midsize companies
28% 25% 25% 25% 24% 24% 24% 33% 29% 29% 29% 27% 26% 26% PCs General IT services Apps maintenance renewal Server hardware Storage hardware Network hardware New enterprise apps
Summary
•
The tech recession is over but the boom isn’t back
•
It’s a buyers market for software
•
Infrastructure software will get more investment in
Retailers and tech and telecom companies are
optimistic about 2004
21%
17%
16%
25%
19%
27%
32%
23%
27%
37%
30%
31%
33%
39%
38%
34%
31%
28%
38%
33%
39%
25%
27%
32%
21%
18%
16%
11%
9%
9%
3%
11%
Extremely
challenging year
Somewhat
challenging year
Somewhat
good year
Very good year
Total
Chemicals and energy
Manufacturing
Finance and insurance
Services
Tech and telecom
Distribution
Retail
"What's the outlook for your industry in 2004?"
(1 [an extremely challenging year] to 4 [a very good year])
Lukewarm sectors (less than 5% growth)
•
App dev tools
•
App servers
•
Call and contact centers
•
CRM
•
Database management
systems
•
Desktop software
•
E-Sourcing/e-procurement
•
Human capital management
systems
•
HR management systems
•
IT consulting and integration
services
•
PCs
•
Storage software
•
Systems management
•
Unix servers
•
Voice and data
Preliminary Estimates Of Future US IT Spending
2001
IT spending in billions of dollars*
2002 2003 2004 $86 $100 $180 $105 $60 $201 $733 $81 $95 $183 $95 $67 $202 $722 $77 $86 $192 $92 $70 $200 $717 $84 $88 $203 $90 $75 $203 $743 Computers and peripheral equipment Communications equipment Software IT consulting and SI services
IT outsourcing IT salary and benefits
Overall
*IT spending is by US business and governments.
The direction of IT services spending
“How will your company’s 2004 planned spend on outside IT
services compare with its actual spend in 2003?”
Much less
12%
Slightly less
18%
The same
44%
Slightly more
21%
Much more
4%
Base: IT decision-makers at North American companies (percentages do not total 100 because of rounding)
Despite skill gaps, firms are cautious about
outside services
•
Most companies are concerned about a lack of internal IT
skills
•
Business and IT don’t see eye-to-eye
•
One-third of firms plan to close skill gaps only from within
•
Companies reducing IT staff were 56% more likely to
outsource for first time
•
Staff cutters are three times more likely to consider moving IT
Infrastructure buyers demand reliability
“Which of the following criteria are critical in your evaluation of infrastructure technologies and their vendors?”
Base: IT decision-makers at North American companies (multiple responses accepted)
97% 84% 79% 77% 75% 72% 70% Purchase price
Ease of implementation or upgrade Total cost of ownership Post-sale service and support
Scalability Compatibility with existing systems Reliability and availability
The direction of IT services spending
“How will your company’s 2004 planned spend on outside IT services compare with its actual spend in 2003?” (1 [much less next year] to 5 [much more next year])
2% 5% 5% 3% 4% 7% 3% 5% 41% 26% 26% 26% 14% 17% 34% 15% 14% 12% Primary production and supply Utilities Services Chemicals and petroleum Insurance Distribution Tech and telecom Finished good mfg
Financial services Retail
% of IT budget spent on Consulting Outsourcing
4 [slightly more next year] 5 [much more next year] Average score
3.17 3.05 3.04 3.00 2.90 2.87 2.81 2.72 2.69 2.48 7.3% 8.7% 7.1% 7.7% 10.6% 9.0% 9.4% 7.3% 10.4% 7.9% 11.1% 10.2% 11.7% 14.4% 23.4% 15.8% 15.0% 7.7% 12.7% 13.1% Base: IT decision-makers at North American companies
Source: Forrester’ s Business Technographics November 2003 North American Benchmark Study
Outsourcing and offshore plans for 2004
It's a critical priority May be a critical priority
May be on agenda Not on agenda
Look Seriously at IT Outsourcing Alternatives
“Which of the following initiatives are likely to be one of your IT organization’s major themes for 2004?”
Consumer services Technology and telecom
Chemicals and petroleum 44.7% 23.7% 23.7% 7.9%
45.5% 21.2% 21.2% 12.1%
82.2% 8.2% 4.1% 5.5%
Consumer services Technology and telecom Chemicals and petroleum
Move IT Development or Maintenance Offshore
34.5% 25% 23.8% 16.7%
45.3% 30.2% 20.8% 3.8%
69.1%
16.5% 10.3% 4.1%
