The Roundup: Holding Back on IT Services Spending

Dec 5, 2001

CIN Staff

Moderate Growth in IT Services Spending
Worldwide IT services spending will rise a modest 7.1% in 2001, to $554 billion, as terrorist threats and poor economic conditions hold down spending on IT services and limit growth to the single digits through 2002, according to Dataquest Inc., a unit of Gartner Inc., Stamford, Conn.

"Following 2002, increased confidence in the economy and business will present vendors with an opportunity to drive renewed demand among end users of IT services based on exploiting recent technology innovations," Kathryn Hale, principal analyst for Gartner Dataquest's IT Services worldwide group, said. "Practical applications for mobile and wireless solutions, Web services, computer interface technologies, and communication convergence should prove to be critical."

Development and integration is the largest segment in the IT services industry followed by business process and transaction management (BPTM) services.

Gartner Dataquest says two factors most impact end-user spending for IT services: degree of decision-maker confidence and the pace at which vendors generate demand by implementing technology innovations. It reports, "The second half of the 1990s, a boom time for the IT services marketplace, was a period of regular strides in technology. But with the rush to invest in e-business, vendor focus shifted away from exploiting technology to experimenting with business models. This shift in investment focus combined with a low point in product innovation left customers with fewer reasons to invest in IT during 2000, when the critical U.S. economy began to decline."

Once senior execs can "reasonably predict" how the economy and terrorism situation will play out, they are expected to increase the pace of IT spending.

Corporate Layoffs Spark New Concern
Layoffs are proving to be a double-edged sword for some companies, leading to resignations of key employees and decreased customer loyalty, according to InsightExpress of Stamford, Conn.

The firm conducted a survey and discovered 59% of company executives who recently conducted layoffs say they're worried the cuts will encourage remaining employees to look for new jobs. Also, 62% of company execs say the layoffs would decrease customer loyalty and encourage business customers to seek other suppliers.

"Wall Street views layoffs as good for the bottom line, but not if they cause a loss of future revenue or profits driven by the exodus of key employees," said Lee Smith, COO of InsightExpress. "When faced with company layoffs, employers need to act proactively to employee concerns."

InsightExpress surveyed execs at 500 small to large companies between October 19-24. Of the companies that reduced staff in the past 6 months, 46% have reduced staff in operations; 37% have reduced staff in administration; and 28% have reduced staff in customer service. Thirteen percent (the smallest category) have cut staff in technology/IT.

CRM Crystal Ball
Professional services firm Braun Consulting of Chicago, Ill., recently released a report that looks at the future of customer relationship management. "Top CRM Trends for 2002" outlines Braun's 11 most important elements based on the current economic environment and industry momentum. They include:

  • In a down economy, highly successful companies will invest more in customers, not less
  • Companies will compete for customer share, not market share
  • CRM will evolve to CVM (customer value management)
  • Companies will heighten their focus on data analysis and organization to avoid information roadblocks
  • Companies will realize customer satisfaction doesn't translate to loyalty
  • Companies will focus on "thoughtware," not software
  • Companies will stitch their customer channels together
  • Companies will embrace PRM (partner relationship management) as a means to maximize value to end-customers
  • Companies will create CRM platforms and plug in best-of-breed applications
  • Companies will shift to a long-term focus
  • 2002 will be a year of implementation and follow-up

-From eCRM Guide, an site.

Server market falls with economy
Mirroring a slowdown in the world economy, server sales are fell sharply in the third quarter, according to Gartner Dataquest, Stamford, Conn. The IT research firm estimates in a recent report that worldwide server revenue dropped 23.4% in the third quarter versus the third quarter of 2000, or $10.8 billion versus $14.1 billion. Sales in the United States fell even further, 29.4% compared to the third quarter of 2000.

Major vendors are taking hits both in terms of market share and revenues, according to Dataquest. While Sun Microsystems has a major share of the RISC server space, its share of the total server market fell from 17.3 percent in third quarter of 2000 to 13.7 percent in 2001, and its server revenue went from $2.4 billion to $1.5 billion. Corporate purchases are down, dot-coms aren't buying servers, and Intel-based servers running Windows and Linux are biting off the low end of the server spectrum, as corporations are replacing UNIX-based servers with Windows/Linux servers.

The Intel server market is now almost as large as the UNIX/RISC server market, says Dataquest: The UNIX/RISC market generated $4.6 billion in revenues, compared to $4 billion in sales for Intel servers. While both markets shrank in the third quarter, the Intel market shrunk modestly (down only 3.1%), while the UNIX/RISC market fell 15.5%.

IBM, with a major presence in both the UNIX/RISC and Intel markets, came out smelling like a rose in Dataquest's research. Big Blue gobbled up 30.3% of all server revenue in the third quarter, or $3.3 billion, an increase 7% over the year-earlier quarter.

- With material from ServerWatch, an site.


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