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Global IT spending stagnant amid rising appetite for ITaaS

Global IT spending hits a plateau, says Gartner, but SaaS expenditures are up. What does it mean for CIOs? Also, in Searchlight: Dell-EMC deal in trouble? Microsoft to donate $1B in cloud.

Economic tremors continue to rattle the tech industry. Global IT spending is expected to top off at $3.54 trillion U.S. dollars in 2016, signifying a mere 0.6% increase from the previous year, according to a recent Gartner report. The rising U.S. dollar and economic and political instability in other parts of the world contributed to the marginal increase.

"The 0.6% is very much about how last year's changes are catching up to us this year," said John Lovelock, research vice president at Gartner, in a phone conversation. "Last year, with the rising U.S. dollar, we had price rises pretty much across the world. Technology stuff is normally built in U.S. dollars -- the cost base is U.S. dollars -- so prices in Euros did go up. But this all caused a bit of a shock to start rippling through the markets in 2015. In 2016 we're starting to see the effect of that, in that people are buying fewer PCs and fewer hard things."

Software spending a bright spot

It's no surprise we're still seeing the ramifications of last year's economic shifts; 2015 had the largest IT spending drop in U.S. dollars ever tracked by Gartner -- a record $216 billion less was spent in 2015 than in 2014. While there is "not a lot of good news coming out of any one country or any one piece of the economy," according to Lovelock, Western Europe may get hit the hardest by the global IT spending crunch, with spending actually set to decrease in 2016.

But it's not all doom and gloom. Some IT areas are set to see moderate increases in spending this year, most notably services and software. Software spending is set to total $326 billion, a 5.3% increase over 2015.

"Nothing in IT starts without software," Lovelock said. "But very little else is now still required because of software. A lot of the traditional applications that we're seeing are moving so much more quickly to software as a service and subscription offers. Software is becoming a much better indicator of how much IT activity there is in a country than the overall IT spending."

The 'big switch' and bimodal IT

As for what these figures mean for CIOs and IT executives, Lovelock emphasized the ongoing evolution of global IT spending in the enterprise towards a more service-oriented model.

"What we're seeing a lot of happening is switching," Lovelock said. "Instead of buying a server, buying computer as a service; instead of buying storage, buying storage as a service; instead of buying licensed on-prem software, buying cloud software. The same amount of activity is happening, but the cost structure is changing. It's going from ownership to service."

Indeed, spending on IT services is set to see a 3.1% bump in 2016. But what's at the core of the "switching?" According to Lovelock, it's the adoption of bimodal strategies within the enterprise.

Software is becoming a much better indicator of how much IT activity there is in a country than the overall IT spending.
John Lovelockresearch vice president, Gartner

"In a bimodal environment, CIOs are forced to take an influencer role rather than a control role because spending is ending up more in the hands of the business units that are driving the innovation," Lovelock said. "The budget control the CIO has is starting to reduce in bimodal organizations. They have a less direct role over IT."

In order for IT professionals to succeed in this shifting IT-business climate, they need to adapt, Lovelock says. And that means relinquishing some of the control they once had -- and sooner rather than later.

"These unconvinced and unconverted IT professionals -- including CIOs -- who think that they can survive sticking to controlling budgets, demanding practicality and reliability in IT, and fighting off things like bimodal initiatives, are likely going to find themselves on the unemployment line," Lovelock warned.

CIO news roundup for week of Jan. 18

Here is more technology news from the week:

  • Could the historic Dell-EMC deal fall apart as it enters the homestretch? That's what some are saying given VMware's plummeting stock and the challenge Dell and its Silver Lake backers will face in raising the $40-50 billion in debt necessary to finance the EMC acquisition. The rise in interest rates, concerns of an economic slowdown, and some backlash from EMC and VMware investors may also put the deal in jeopardy, according to BostInno.
  • What broadband providers are doing with user data isn't always apparent, but consumer and privacy organizations are hoping to change that. More than 50 U.S. organizations have co-signed a letter to the FCC calling for stronger rules to protect the privacy of consumers and prevent broadband providers from collecting user data without explicit consent. TechCrunch has more on the letter's demands and the privacy considerations.
  • Tech giants have hearts, too! At least when it's to their benefit. This week, Microsoft's new philanthropic division pledged to donate $1 billion in public cloud services -- including Azure -- to non-profit groups and university researchers over three years in an effort to bridge the digital divide. But, according to Fortune, the move is also a lobbying tactic and an attempt to pull these organizations away from Microsoft's competition.
  • Reinventing yourself is no easy task, as IBM is finding out. This week, the company warned investors that earnings for the coming year will be lower than expected. The announcement follows a revenue decline in the fourth quarter. There's one bright spot: Big Blue's emerging cloud business. The Wall Street Journal examines the company's outlook.

Check out our previous Searchlight roundups on the FTC report on the unethical use of big data and new EU data protection legislation.

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