IT spending to exceed US$3 trillion next year

Despite the rise in oil prices and the U.S. housing slump, companies will pump out more money on hardware, software, services and telecommunications this year, according to Gartner Inc.

The Stamford, Conn.-based market research firm projects total IT spending in 2008 will be US$3.4 trillion worldwide, eight per cent higher than it was last year. The projection was released in a report announced this week, dubbed Dataquest Insight: IT Markets Remain Resilient in 2008 and will Grow Moderately in the Next Three to Five Years.

“Apart from all the doom and gloom talk of rising interest rates, rising energy prices, house prices, falling GDP growth across the world, the IT market overall has been pretty resilient,” said Jim Tully, a Gartner vice-president and distinguished analyst who contributed to the report.

A major driver to growth is software, because the industry is in the midst of a refresh phase, which happens every seven to 12 years, said Joanne Correia, managing vice-president of Gartner’s software market research team.

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“The last time we went through a major refresh was really driven by Y2K and the Internet initiative,” Correia said.

She added previous software refreshes were characterized by changes in computing models, from mainframe to mini-computing to client-server. “The difference between this time and the last time we went through a refresh is we’re not moving from client-server,” she said. “We are extending those systems out to being even more distributed, to PDAs, to wireless devices, but the back-end server technology is not being totally redone.” Worldwide, the software market is scheduled to grow by 10 per cent in 2008 and eight per cent in 2009.

Gartner figures provided by Correia show the total software market in Canada last year was US$5.076 billion, and is projected to increase to $5.5 billion this year and $5.93 billion in 2009.

Overall, IT spending in Canada is projected to grow nine per cent this year, Tulley said.

With the move to cloud computing, some areas of the industry will see high growth while others will shrink, according to the Gartner report.

“As of yet we don’t know what those big growth areas in cloud are going to be,” Tulley said. “We would expect that categories such as servers would be hit from the point of view of ownership inside the enterprises in favour of significant growth by big service providers.”

The move towards software as a service, Web 2.0 technologies, open source and service oriented architecture is “causing huge changes” in the software market, Gartner says.

“Instead of me buying licenses that I can use it into perpetuity, I just pay for the software as I use it or I renew it every year,” Correia said. “It gives the user a lot more flexibility if the software is not doing what it’s supposed to do.”

But she added spending on “perpetual licenses” still constitutes a “majority of the market.”

Another research firm, Toronto-based IDC Canada, has similar figures.

Vinay Nair, IDC Canada’s research manager for Canadian enterprise applications, said software as a service is “still in the early adoption stage,” with fewer than 10 per cent of firms looking at SaaS as a delivery model.

As for the effect of Web 2.0 technologies, Correia said this is changing the way programmers are developing software.

“The search market is gone, basically,” she said. “Instead of building their own search engine or their own mapping system, or their own geo whatever system, they use the web 2.0 technology to build in that functionality instead of building it in themselves.”

Gartner broke software down into 18 macro markets, all of which are projected to grow this year in Canada.

The largest areas of growth in Canada are in data integration, which is projected to grow 19 per cent to $66.5 million this year, from $55.9 million in 2007. Spending on supply chain management, which was &193.8 million this year, and customer relationship management, which was $358.1 million this year, are both projected to grow 11 per cent, to $215.8 million and $398.2 million respectively. All figures for the Canadian market were reported in U.S. funds.

And speaking of the exchange rate, Tulley said the real growth world wide was closer to four per cent because of the depreciation in the U.S. dollar.

The market in services is projected to grow 10 per cent this year, while telecom is expected to grow eight per cent. Much of that growth is driven by third-generation and data services in the developed world, Tulley said.

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