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IT Spending Analysis: Governement, Software, Small Business Point to the Road Ahead

written by: Bruce Tyson•edited by: Simon Hill•updated: 4/25/2010

Forrester Research, a leader in IT spending analysis has raised its projections for U.S. IT spending from 6.6% growth in 2010 to 8.4%, a healthy acceleration across the board. By analyzing spending we can see trends in IT that we would otherwise miss if we only listened to marketing hype.

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    Overview of IT Spending

    The word is out that IT has entered recovery mode. After months of disappointing statistics, spending is growing at a high rate in 2010 across the board, an encouraging sign for those in the industry. Forrester has reported that the second straight quarter of growth in hardware sales, is fueling the positive number. Besides hardware, the hot areas of spending are operating systems and business applications. Good news came from the government as well: the U.S. Bureait spending analysis2 u of Labor and Statistics reports that the first quarter of 2010 saw 26,000 new IT jobs across the country, showing an increasing commitment on the part of businesses to IT. A CompTIA survey reports that the majority of IT vendors have a favorable outlook on sales for the next six months, an indication that the trend toward higher IT spending is on a solid footing.

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    Software Spending Reveals Clues

    IT spending analysis, fueled by the recently published "Enterprise and SMB Software Survey, North America and Europe” report by Forrester research, reveals that over half of IT software spending will go to the maintenance of existing applications and other continuing projects: new software projects will largely be on hold. According to Forrester, the bad economic picture of 2009 prompted companies to put a damper on software development, leaving a laundry list of upgrades and revisions to be completed for existing programs. With the economy looking up, businesses are taking the brakes off of those plans.

    40%-50% of the businesses surveyed, business enterprise spending showed an emphasis of “industry-specific” software, as well as on software for financial, accounting and CRM. In contrast, only about one-fifth of small businesses planned to spend money on those types of software. A number that shows that small businesses are lagging behind in recovery. Although fewer small businesses are planning to spend money on software than their larger counterparts, analysis shows that nearly one-fifth of small businesses are spending money on CRM, a possible indicator of a developing trend.

    Forrester’s analysis also reveals that business' emphasis on cutting costs and increasing efficiency hasn’t prompted them to embrace emerging technologies such as cloud computing. Spending on Infrastructure as a Service (IaaS) has barely budged and - while about 33% of enterprises have subscribed to at least one Software as a Service (SaaS) package – SaaS has failed to gain traction in mission critical settings.

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    Government IT Spending

    With the American federal government growing at unprecedented rates, it’s not surprising that its budget items for 2011 total $79.4 billion, a 7% increase over 2010’s anticipated total. This continues an accelerating trend that already saw IT expenditures increase 4% over 2009. IT spending by the Defense Department will continue to moderate as spending by civilian agencies is expected to continue its unprecedented spike. As in the private sector, investment in new technology trends has fallen flat. For 2010, Government Insights reports that the hyped trends of social media and cloud computing have not been well received on the federal level, but expects to see more money spent on those technologies in 2011. Overall, the federal government is spending almost 70% of its IT dollars on existing legacy systems and services rather than on new initiatives, echoing the current emphasis in the business sector.

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    Other notes on IT Spending

    Outsourcing

    In spite of new hiring in the U.S., American companies are outsourcing IT work at record levels, much of it going overseas, primarily to India where most U.S. software firms conduct development. In all, American companies are expected to spend over $79 billion in 2010 on outsourced IT services.

    Security

    For 2010, almost 40% of businesses report IT spending increases on security of 5% or more over last year’s level, an indication that companies are still skittish in the face of the well publicized security breaches of recent months. Businesses are outsourcing more of their security than ever, with more money being spent on email filtering and vulnerability assessment than in any other category.

    IT Spending on Hardware

    Another IT research group, Gartner, has reported strong hardware sales fueled by mobile and desktop computers, servers, storage, and networking equipment during the first quarter of 2010. This boom in hardware is expected to be followed by a similar wave of software sales that will be used to equip newly purchased hardware.