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Economy forces CIOs to cut software spending

Businesses this quarter are cutting their software spending. ERP software takes a hit, but virtualization software stays hot.

A general slowdown in business conditions and decreases in capital budgets are forcing midsized businesses to cut software spending, according to a new survey from ChangeWave, a subsidiary of InvestorPlace Media LLC.

Twenty-five percent of the respondents, who took the survey last month, said they are spending less on software this quarter than they did in the first three months of the year. The respondents included CIOs, IT managers and programmers.

ChangeWave researchers haven't seen that number that high in two years. But it reflects a trend that was first noted in January 2007, when 9% of respondents said they were pulling back on software purchases.

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Meanwhile, 12% of those questioned said they will spend more on software this quarter than they did in the early months of the year. That, too, marks a low point, down from 26% in January 2007.

"That really is quite extraordinary," ChangeWave research director Paul Carton said. "That is a miniscule figure. What it means is we're not out of the woods yet on software spending, for sure."

Asked what's affecting software spending decisions, 13% of respondents cited a "general slowdown" in business and budgets. That's an increase from 4% a year ago.

Rockville, Md.-based ChangeWave conducts market surveys to assist investors, and as such the research firm has identified "winning" and "losing" companies based on the survey results.

Winners were companies selling virtualization and security software. Both fields saw a slight uptick in the number of companies increasing spending there. The survey results specifically point to a likely increased market share for VMware Inc. and Citrix Systems Inc. Both companies are showing well in a growing and increasingly competitive server virtualization market.

But large, company-wide software products like ERP and customer relationship management didn't fare so well. SAP AG and Sage Software Inc., which caters specifically to small and midmarket businesses, both came out "losing" this quarter, according to the survey.

"Certainly the rate of decrease has lessened, which is good," Carton said. "When things turn around, what you'll first see is deterioration slows. I think we're in that stage of the process, but we haven't completely hit bottom yet.

"When this quarter's looked back on, it will be looked at as a tough quarter," he added.

As financial analysts and market watchers quibble about whether the country is or isn't in a recession, smaller software companies are thinking hard about where they stand in the IT market.

Astaro Corp., a 160-employee security software company based in Germany and Burlington, Mass., believes now is the time to push its line of all-in-one security solutions to the smaller side of the midmarket.

"We'll lose some business and we'll win some business," Astaro CEO Jan Hichert said. "The business we'll lose is for very small businesses, which might go with a cheaper SonicWall or WatchGuard-type solution."

When this quarter's looked back on, it will be looked at as a tough quarter.
Paul Carton
research directorChangeWave
But Hichert said he hopes to pick up business from midmarket companies looking to save money by abandoning big-name brands like Cisco Systems Inc. and Check Point Software Technologies Ltd.

Astaro's own survey, taken by 352 attendees at the Interop conference in Las Vegas last month, found 55% of respondents believe a recession would affect their IT spending this year.

"They'll take a look at two different alternatives," Hichert said. "They'll continue to look at easy, integrated solutions. I think people will [also] give a good second look at open source alternatives that are out there."

But midmarket CIOs aren't about to abandon the basics just because of tight finances, Hichert said. Storage, backup and security are all fields that can't be ignored, he said.

"That, in a time of recession, is where people will continue to spend the money," Hichert said. "If you're in the part of the industry that allows small and midsized businesses to get their basics right, you're in the right spot, no matter what the economic outlook says."

Let us know what you think about the story; email: Zach Church, News Writer

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