When I speak to my friends and colleagues, it always strikes me as peculiar how many of us think of the IT industry as bright, shiny and new. It's easy to forget that we are 40 years old! We have outgrown our tag of the adolescent in an adult's world. It used to be said that the IT industry had few executives who had ever seen an economic downturn or a recession within their sector, but few of us would argue this point any longer. Indeed, annual spending on IT products and services has mushroomed to a staggering $2 trillion globally.
It is easy to feel that we are living through a period of unprecedented challenges.
But that's not the case. The IT industry has experienced 40 years of slumps and crashes. Times of great contraction have occurred at least twice before this most recent downturn. Firstly, in the late 1960s and early 70s when spending on mainframe computers crashed, compounded by a stock crash. And secondly, in the great PC crash of 1983 and 1984. There have also been a couple of mini-spending slumps in the recessions of 1975 and 1991. Each one of the major collapses in spending was preceded by an irrational and unsustainable period of growth, triggered by great technological advances. In each one of these periods, there was a huge amount of business innovation and technological experimentation and large numbers of new companies were started, a sizeable speculative bubble was created. When the shakeout came, as it always does, there followed a period of over-correction.
Of course, with every recession we have experienced, we have seen a strong rebound and this cycle is no different. IDC is forecasting a strong worldwide recovery in the next 18 months, averaging a healthy 11 per cent growth per annum in 2003-2005. Long-term exploitation of the new paradigm has already begun, with deployments of technology by business creating real value to their organisations.
So what can we expect in Australia? While conditions in the US, Europe and Japan have been poor, Australia has weathered the storm admirably.
However, will the positive economic environment translate into buoyant local spending on IT? IDC believes that it will. Over the last six months we have conducted surveys that have measured both business confidence and spending plans on IT products and services. From this we have been able to establish an IT spending "ticker". There are strong indications that business confidence is returning rapidly. We surveyed 250 business leaders in both September 2001 and March 2002. Of those, 58 per cent of respondents indicated they were positive about the economy compared to only 35 per cent six months before. This is a very large swing. At the same time, nearly 50 per cent of respondents said they were now planning to increase spending on IT, compared to 38 per cent in September. Unsurprisingly, respondents were aiming to increase productivity as their number one business objective, focusing on maximising the return on their existing investments rather than expanding into new markets and new products. Systems infrastructure will be receiving the largest share of the IT budget. There is also some comfort for the beleaguered hardware sector, with IT hardware spending looking to pick up in the short term, fuelled by spending plans for storage and security as well as upgrading the PC and server infrastructure, bucking the long-term trend towards increasing software and services spending. Overall, IDC expects the Australian IT market to grow by nearly 8 per cent in 2002, to nearly 10 per cent in 2003 and to reach an impressive 11.5 per cent in 2004.
Any recovery is driven by multiple factors, but four "mega-trends" are most likely to provide the underpinnings of the global recovery in IT spending. These are business integration or connectivity, mobility, componentisation and security.
Business is becoming an increasingly complex set of processes and systems. Most recently, a clear trend has emerged towards outsourcing multiple non-core business processes, thereby expanding the network of partners an organisation deals with. Put all these factors together and you have a large requirement for integration of these disparate systems and networks. While nearly all companies have a Web site and around 50 per cent of businesses view their Web site as critical, very few currently link their enterprise applications to the Internet and their wider partner network.
Mobility is our second mega-trend. IDC expects close to one billion people to be on the Internet by 2005, but crucially nearly 90 per cent of these newcomers are expected to have mobile access to the Internet some of the time. This will drive a huge opportunity for new mobile devices, applications and particularly services.
Miniaturisation and componentisation has been a hallmark of the IT industry since its inception, providing momentum for users to upgrade systems to take advantage of the superior performance that the latest round of innovation has provided. Most recently, this characteristic has been evident in the server arena, initially in the guise of rack-mounted servers, a market we expect to double in size in the next three years. Specific application-related software loaded onto configured hardware, known as appliance servers, will be increasingly popular with the user community. IDC expects this particular sector, in an otherwise lacklustre server segment, to triple in the next four years.
The last of our mega-trends is security. IDC's surveys had already identified that security and reliability was the number one concern of the majority of IS managers, before the terrorist attacks of September 11. Since then, these concerns have moved into the boardrooms and onto the agenda of CEOs around the world. Current investments are lagging behind these newly defined needs, creating an investment lag. This lag will drive demand for security products, particularly software and services, with these markets comfortably doubling over the next four years.
The last 18 months has been a tough, punishing time for many channel companies, with the marketplace delivering a sustained, creeping, barrage of challenges, some cyclical and to a certain extent inevitable, some unpredictable and hopefully never to be repeated. The outlook is certainly rosier, and those channel players that are prepared for what they see, as they peek nervously over the top of the barricades, will be best positioned to take advantage of the new landscape before them. Now is the time to make your plans. The IT industry is coming back!
Chris Fell is vice president and managing director of IDC Australia and New Zealand.