Important Software Technologies and Trends: 2004 January 29, 2004 Laurie M. Orlov Vice President, Research Director Forrester Research
Do technology investments still matter?
Theme The technology recession is ending but the recovery will be moderate
Agenda Where do executives plan to invest? New trends in software development Software licensing trends What technologies are hot and what are not?
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 reward
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 Spending on IT salaries will remain relatively flat
Preliminary Estimates Of Future US IT Spending % change from prior year Computers and peripheral equipment Communications equipment Software IT consulting and SI services IT outsourcing IT salary and benefits Overall 2001-4% 3% 1% -5% 28% 3% 2% 2002 2003 2004-6% -5% 1% -9% 11% 0% -1% -4% -10% 5% -3% 4% -1% -1% 9% 2% 6% -2% 7% 1% 4% (numbers have been rounded) *IT spending is by US business and governments.
More retailers increase IT budgets... "How will your company's 2004 IT budget compare with its actual spend in 2003 Higher Remain the same Lower Don't know Retail 45% 42% 8% 5% Finance and insurance 36% 37% 22% 5% Distribution 33% 47% 14% 6% Services 30% 47% 18% 5% Tech and telecom 29% 42% 17% 12% Chemicals and energy 24% 42% 26% 8% Manufacturing 18% 57% 21% 4% Total 30% 45% 19% 6% Base: 818 technology decision-makers at North American companies
... by a larger amount "By what percent will your company's 2004 IT budget change?" Retail 4.9% Finance and insurance Distribution Services Tech and telecom 2.2% 2.2% 1.4% 1.3% Chemicals and energy Manufacturing -0.4% -0.9% Total 1.3% Base: 818 technology decision-makers at North American companies
Most services firms spend all of their IT budget "At your company, what percent of the IT budget typically ends up being spent?" Always all of it Less or more than budgeted Don't know Services 56% 36% 8% Manufacturing 55% 37% 8% Chemicals and energy 53% 33% 14% Tech and telecom 48% 35% 17% Finance and insurance 45% 47% 8% Retail 42% 49% 9% Distribution 39% 53% 8% Total 49% 41% 10% Base: 818 technology decision-makers at North American companies
Tech and telecom firms IT budget is the most up for grabs Percent of 2004 IT budget allocations Not yet allocated Allocated to new investments Allocated to existing investments Tech and telecom 11% 17% Retail 10% 22% Finance and insurance 10% 19% Services 10% 14% Distribution 9% 21% Chemicals and energy 9% 16% Manufacturing 8% 17% Total 10% 18% 72% 68% 71% 76% 70% 75% 75% 72% Base: 818 technology decision-makers at North American companies
e-commerce regains traction "For each of the following categories, how will your company's 2004 planned spend compare with its actual spend this year?" More About the same Less Internet and e-commerce initiatives 36% 43% 21% Infrastructure and integration software 34% 44% 22% Storage products 34% 41% 25% Networking equipment 33% 47% 20% Server hardware 33% 45% 22% Application software licenses and development 30% 52% 18% PCs and workstations 27% 50% 23% Outside IT services 25% 45% 30% Base: 528 IT decision-makers at North American companies
Apps buyers show concern over price Which of the following criteria are critical in your evaluation of enterprise apps and their vendors? Scalability 87% Compatibility with existing systems Purchase price 87% 85% Post-sale service and support 84% Ease of implementation or upgrade Quality of available implementation staff 83% 81% Recommendation of consulting or SI firm 50% Base: IT decision-makers at North American companies (multiple responses accepted)
Security and disaster recovery are top of mind for IT organizations 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]) Significantly upgrade our security environment Upgrade disaster recovery capabilities* Deploy or upgrade a major application software package Replace or upgrade your PCs* Upgrade your Windows desktop operating system* Support changes in corporate governance Replace proprietary or legacy systems Consolidate IT infrastructure* 2.54 2.51 2.46 2.33 2.31 2.28 2.21 2.15 Base: 818 technology decision-makers at North American companies * 528 IT decision-makers at North American companies
How software customers pay for enterprise applications How are you paying? How would you prefer to pay? Per server 13% Per CPU 13% Per usage 3% Other 3% Per total employee base 31% Per CPU 26% Per usage 1% Other 1% Per total employee base 29% Per named user 17% Don't know 26% Per server 27% Don't know 20% Per concurrent user 21% Per named user 13% Per concurrent user 15% Base: 156 IT Executives
How software customers pay for infrastructure software Per usage 1% Per named user Per 13% concurrent user 15% Don't know 20% How are you paying? Per CPU 26% Other 1% Per usage Per total 7% employee base Per named 29% user 8% Per server 27% Per concurrent user 13% Don't know 16% How would you prefer to pay? Per CPU 7% Other 3% Per total employee base 32% Per server 27% Base: 156 IT Executives
Challenges with software pricing models What is the biggest challenge with today s software pricing models? Don't know 9% Other 1% The pricing models are too rigid 14% The pricing models are not in-line with our goals and metrics for measuring the value of the technology 42% The pricing models are too complex and difficult to understand 15% Maintenance costs are too high 19% Base: 156 IT Executives
Software discounts increasing "In general, have you received bigger discounts on software prices during 2002 and 2003 compared to 2001 and earlier?" Don't know 4% No 28% Yes 68% Base: 25 IT decision-makers
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? 68% 68% 60% 16% 12% 8% Free training Free hardware Free software Free services Free other None Base: 25 IT decision-makers
What do firms think about Linux and offshore? "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]) Eliminate shadow IT spending through centralized control of IT Implement a portfolio management model for governing IT investments Look seriously at IT outsourcing alternatives Look seriously at outsourcing business processes outside of IT More IT development or maintenance activities offshore* Move more of our systems onto Linux* 2.04 1.92 1.80 1.71 1.61 1.60 Base: 818 technology decision-makers at North American companies * 528 IT decision-makers at North American companies
Many companies move forward with single sign-on technology "At what stage are you in the adoption of the following technologies?" In production Rolling out or upgrading Piloting Considering No plans or don't know Wireless networking 27% 12% 13% 23% 25% Instant messaging 20% 8% 10% 15% 47% Single sign-on technology 16% 9% 14% 28% 33% Voice over IP 16% 7% 12% 28% 37% Business process management software Open source middleware 15% 6% 14% 5% 11% 4% 13% 19% 49% 64% Server provisioning software RFID 13% 7% 8% 4% 10% 5% 14% 21% 51% 67% Base: 528 IT decision-makers at North American companies
Customers demand security technology "During 2004, will your company purchase the following technologies, including first-time deployments as well as upgrades?" Security technology* 52% Portal server software* 33% Finance application software Business intelligence software Content management software* Enterprise application integration technology* Systems management software* Human resource application software CRM software 27% 26% 25% 24% 24% 24% 24% Supply chain planning and execution software Procurement or sourcing software 18% 18% Base: 818 technology decision-makers at North American companies *528 IT decision-makers at North American companies
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 How much of a discount off the list price will you expect to receive from your vendors? $1B-plus companies Midsize companies 33% 28% 29% 29% 29% 27% 25% 25% 25% 26% 26% 24% 24% 24% New enterprise apps Network hardware Storage hardware Server hardware Apps maintenance renewal General IT services PCs Base: IT decision-makers at North American companies
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 2004 than applications
Thank you Laurie M. Orlov +1 617/613-6086 lorlov@forrester.com www.forrester.com
Appendix
Retailers and tech and telecom companies are optimistic about 2004 Very good year "What's the outlook for your industry in 2004?" (1 [an extremely challenging year] to 4 [a very good year]) Somewhat good year Somewhat challenging year Extremely challenging year Retail 21% 31% 27% 21% Distribution 18% 28% 37% 17% Tech and telecom 16% 38% 30% 16% Services 11% 33% 31% 25% Finance and insurance 9% 39% 33% 19% Manufacturing Chemicals and energy 9% 3% 27% 25% 39% 38% 27% 32% Total 11% 32% 34% 23% Base: 818 technology decision-makers at North American companies
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 telecommunications
Preliminary Estimates Of Future US IT Spending Computers and peripheral equipment Communications equipment Software IT consulting and SI services IT outsourcing IT salary and benefits Overall 2001 $86 $100 $180 $105 $60 $201 $733 IT spending in billions of dollars* 2002 2003 2004 $81 $77 $84 $95 $86 $88 $183 $192 $203 $95 $92 $90 $67 $70 $75 $202 $200 $203 $722 $717 $743 (numbers have been rounded) *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? Slightly less 18% Much more Much less 4% 12% Slightly more 21% The same 44% 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 development or maintenance offshore
Infrastructure buyers demand reliability Which of the following criteria are critical in your evaluation of infrastructure technologies and their vendors? Reliability and availability 97% Compatibility with existing systems Scalability Post-sale service and support Total cost of ownership Ease of implementation or upgrade Purchase price 84% 79% 77% 75% 72% 70% Base: IT decision-makers at North American companies (multiple responses accepted)
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]) 4 [slightly more next year] 5 [much more next year] Average score % of IT budget spent on Consulting Outsourcing Retail Financial services Finished good mfg Tech and telecom Distribution Insurance Chemicals and petroleum Services 14% 4% 15% 17% 5% 26% 26% 5% 5% 26% 3% 7% 34% 41% Utilities Primary production and supply 14% 12% 2.69 2.48 10.4% 7.9% Base: IT decision-makers at North American companies Source: Forrester s Business Technographics November 2003 North American Benchmark Study 3% 2% 3.17 3.05 3.04 3.00 2.90 2.87 2.81 2.72 7.3% 8.7% 7.1% 7.7% 10.6% 9.0% 9.4% 7.3% 11.1% 10.2% 11.7% 14.4% 23.4% 15.8% 15.0% 7.7% 12.7% 13.1%
Outsourcing and offshore plans for 2004 Which of the following initiatives are likely to be one of your IT organization s major themes for 2004? Not on agenda May be on agenda May be a critical priority Look Seriously at IT Outsourcing Alternatives It's a critical priority Chemicals and petroleum 44.7% 23.7% 23.7% 7.9% Technology and telecom 45.5% 21.2% 21.2% 12.1% Consumer services 82.2% 8.2% 4.1% 5.5% Move IT Development or Maintenance Offshore Chemicals and petroleum 34.5% 25% 23.8% 16.7% Technology and telecom 45.3% 30.2% 20.8% 3.8% Consumer services 69.1% 16.5% 10.3% 4.1%
IT Spending 2001 to 2005 IT Budget Categories (Billions) 2001 2002 2003 (F) 2004 (F) 2005 (F) Computers and Peripheral Equipment $86 $81 $77 $85 $96 Communications Equipment $100 $95 $88 $92 $104 Software $180 $183 $193 $204 $210 IT Services $105 $95 $92 $94 $98 IT Outsourcing $60 $67 $70 $74 $80 IT Salary and Benefits $201 $202 $200 $204 $206 Total $733 $722 $720 $752 $795 Percentage Change from Prior Year Computers and Peripheral Equipment -4% -6% -4% 9% 13% Communications Equipment 3% -5% -8% 5% 13% Software 1% 1% 6% 5% 3% IT Services -5% -9% -3% 2% 4% IT Outsourcing 28% 11% 4% 6% 8% IT Salary and Benefits 3% 0% -1% 2% 5% Total 2% -1% 0% 4% 6%