Major Industry Trends
Information technology (IT) is both a huge industry in itself and the source of dramatic changes in business practices in all other sectors. The term IT covers a number of related disciplines and areas, from semiconductor design and production (also covered in the profile of the Electronics sector), through hardware manufacture (mainframes, servers, PCs, and mobile devices), to software, data storage, backup and retrieval, networking, and, of course, the internet.
On top of this, there has been a convergence between IT and telephony, driven by transforming voice traffic from an analogue signal to a digital packet, indistinguishable from other data packets travelling through a computer network. IT in the leisure sector is already about enabling interaction with video, movies, and TV, and this trend is increasingly carrying over into the business space.
Each of the major sub-areas in IT is itself capable of being divided into its component parts. Storage, for example, breaks down into disk drives, tape drives, and optical drives, and into attached storage and networked storage. PCs break down into utility-business desktop PCs, high-end workstations, and “extreme” gaming PCs for games enthusiasts—the computer and console games industry has already produced “blockbusters” that outsell bestselling film releases from Hollywood.
Software subdivides into numerous specialist areas, from relational database technologies to enterprise applications, to “horizontal” office applications characterized by Microsoft Office, for example.
Somewhat off the main track of IT at present, but very much related to both increases in processor power, and to work in simulation and artificial intelligence, is the field of robotics. This lies outside the scope of this profile, but the linkages between robotics and IT are already transforming both manufacturing and defense.
In addition, the IT arena is characterized by a number of key trends and emerging technologies which, again, have the potential to transform the way businesses currently use IT and carry out their operations. An example of a trend would be the outsourcing of IT services, such as desktop PC support, or whole IT-supported functions, such as accounts processing. An example of a technology trend would be virtualization. This refers to the ability of large servers to be subdivided into a number of virtual machines, which can be either virtual PCs or virtual servers.
Virtualization carries with it a number of benefits, including stopping what, at one stage, looked like an endless proliferation of servers inside companies. Splitting one large server into a number of virtual servers enables the organization to reduce the number of servers it has to manage. Server virtualization should not be confused with another powerful trend: the creation of virtual environments inside the machine. The fact that desktop processors are now powerful enough to mimic real-world physics in computer space is transforming both design and entertainment.
All these trends have enabled the IT industry to continue to generate a strong demand for the next generation of servers, PCs, and laptops. However, in a recession, companies of all sizes generally postpone upgrading their IT systems and implementing major IT projects that are not already in hand. This makes the sector vulnerable to downturns in the economy, and the global downturn from 2008 to 2009 had a major impact on revenues in the sector worldwide.
According to the IT market analysis firm Gartner, worldwide IT spending grew by more than anticipated in 2010, reaching 5.3%, or US$3.4 trillion, as opposed to the predicted growth of 3.2%. Given the fragile state of the economic recovery, coupled with very low growth in many advanced markets, that figure gives some grounds for optimism that corporates are preparing for higher rates of growth than is currently showing up in GDP figures around the world.
In June 2011, Gartner revised its estimate of total spend on IT in 2011 upwards for the second time in the year. It now estimates that global IT spending will grow by 7.1% over 2010’s figure, to US$3.67 trillion.
Gartner sees some slowdown in spending on desktop PCs as big corporates delay refreshing their desktop PC infrastructure, but this is being more than made up for by increased spending on servers, storage, and networks. Even the spend on PCs shows strong growth if one adds in new spending on tablet PCs, a format that is proving extremely popular both with consumers and executives.
Growth in global hardware spending in 2011 is predicted to be 11.7% over the 2010 spend of US$375 billion. This is slightly behind the 12.1% growth achieved in 2010, by comparison with the spend for 2009, but it represents a significant upward revision on Gartner’s earlier prediction of growth of 9.5% for the hardware segment in 2011.
Corporate investment in enterprise software in 2010 was better than originally envisaged, and Gartner has revised its figures up from the prediction of US$237 it made in March 2011, and is now forecasting that the 2010 figure will come in at US$244 billion. In 2011 Gartner expects corporates to increase their spending on enterprise software by a further 9.5%, or up another US$13 billion on the 2010 figure.
One of the big growth areas is computer services. In 2010 the total global spend on services amounted to US$793 billion. Gartner expects this to increase by 6.6% through 2011 to US$846 billion, up two percentage points on the forecast it made in March 2011. Cloud computing continues to be a major factor in corporate spending, which is not surprising when one considers that “the cloud” encompasses servers, storage, networking, and application services. Gartner is predicting that spending on cloud computing in 2011 will increase four times faster than IT spending overall.
Worldwide spending on “public cloud” services was around US$74 billion in 2010, comprising some 2% of overall IT spending. Gartner anticipates this spend rising to US$89 billion in 2011, an increase of 20%. By 2015 this spend will have almost doubled, reaching US$177 billion, Gartner says. This will amount to around 5% of total global IT spend.
One of the big transformations in IT over the last two years, largely on the back of the growth in cloud computing, has been “software delivered as a service” (SaaS). The idea here is that instead of owning the software application and all the hardware required to run it, a corporate simply “rents” the use of the software, which is delivered either over leased lines or via the internet direct to users. Selling software on a “per seat” basis has the huge advantage for IT departments of delivering a known service at a fixed price, with no requirement for huge, upfront capital expenditure. The service provider, on the other hand, is able to spread the cost of its upfront capital expenditure across its entire base of customers. SaaS is also transforming both revenue models for hardware and software providers and the way licensing of software is structured.
In mid-July 2011, Gartner predicted that SaaS will grow from around 10% of corporate IT spending in 2010, or around US$10 billion, to US$21.3 billion by 2015, a 20.7% increase. “After more than a decade of use, adoption of SaaS continues to grow and evolve within the enterprise application market,” commented Tom Eid, research vice president at Gartner. This growth is being fuelled by pressure on IT budgets, which is pointing corporates at what Gartner calls “leaner alternatives,” and is being accelerated as SaaS becomes more commonplace and corporates get used to the idea that they do not have to own the IT infrastructure in order to derive benefits from using IT. The ultimate end point of SaaS would see virtually all IT services delivered as a “commodity purchase” via the cloud, with only highly specialized applications being developed in-house.
Computer gaming is becoming an ever-more-important segment of IT. According to Gartner global spending on gaming will exceed US$74 billion in 2011, up 10.4% from 2010. Of this, software will be worth some US$44.7 billion while the rest is taken up by what Gartner calls “the gaming eco-system,” which comprises high-end gaming PCs and the online environment for online games, which are expected to be a major growth segment to 2015. “Many consumers embrace gaming as a core piece of their entertainment budget and will continue to pay so long as game publishers deliver compelling and fun games,” Gartner says. The gaming industry continues to be one of the primary drivers for increases in performance in desktop PCs and graphics as well as in virtual world modeling.