Nothing messes up capital spending like uncertainty, and we've definitely had more than enough of that in the last nine months. The slump in confidence has reduced enterprise spending on technology, and that's hit the equipment vendors solidly. Many have sustained their profits only by cutting expenses, usually including capital technology projects. Often they cut employees, and these can include IT and network professionals.We still can't be sure about the economy, but there are more signs every day that things are at least not getting worse and in some cases getting better. You can't wait till the buyer shows up at your door with money in hand to start your product and sales planning, so most enterprises launched a strategic review this spring to review their second half budgets. They wanted to decide what money to release, and their review included their technology plans. I surveyed our usual base of 277 enterprises to find out what they decided, and the results were interesting to say the least.
We have to do a bit of a level-set here first. Enterprises have always had two funding sources for technology investment-the operating budgets of the IT organizations and the project budgets associated with new business plans that require technology support. The balance of money between these budgets varies somewhat, but in 2009 projects were about 60% of available funding and line budgets about 40%.
Last fall, when the bottom fell out of the world economy, enterprises were hopeful of a quick resolution and thus planned a slight increase in their capital programs for 2009. But because of the uncertainties, they held back on everything but the essentials. In May and June of this year, they opened up a bit. Weighing the survey results to represent the distribution of company size and type of business for the broad market, my research found that about 35% of the operating budgets were either already spent or were released for spending in Q2/Q3. For project budgets, the effect was smaller-only 24% of that money was released.
The companies also said that an additional 3% of operating funds would be released in Q4 and a whopping 18% of project funds. That would mean that by the end of the year about 80% of the budgets allocated to IT and networking would be restored. While that's still a big hit (20% was lost, which means that overall IT and network spending would still fall in 2009 instead of growing slightly), it means the second half will be stronger than the first. In fact, some equipment and software vendors have seen some of the positive impact of the budget decisions in their second quarter numbers.
Networking people were less confident they'd get what they hoped for than was the IT organization, according to enterprises. 59% of IT managers believed their spending plans would be approved as conditions in the economy improve, but only 31% of network managers had that confidence. Further, 72% of network managers said they'd lost influence with top-level executives during 2009; four times as many as had that view in 2008.
One reason why IT people were happier is that the top enterprise priorities for technology spending were things that were clearly part of IT and not clearly associated with networks. Over 90% of enterprises think that virtualization is their top technology priority, and six of every seven enterprises think this is a computing issue. The top network issue is "application networking," cited by 71% of enterprises, but even there two of every three think their needs will be more on the software side than on the network side. Security was the only area where enterprises saw both an increase in spending and planning dominated by network managers and not IT managers. Slightly less than 70% of enterprises said they would be increasing network security spending, even more, possibly, than 2009 budgets had authorized, and 63% said that their spending on security would be shifting more to network tools than to IT tools.
The views of enterprises on unified communications and collaboration were even more interesting. While 61% of enterprises had expected to increase UC/UCC spending in 2009 when they did their budgets last fall, only 21% said that UC/UCC funding would be restored to full levels as a result of their spring review, and 12% said they were actually rethinking their whole UC/UCC strategy. Confusion and doubt are the problems, but not about the economy.
Five of every six enterprises said that UC/UCC strategies from vendors were "not mature." Nine of every ten said that new UC/UCC options were being presented that might change their plans. In 54% of cases, enterprises said their preferred UC/UCC vendor was likely to change. In 39% of enterprises, the UC/UCC project objectives were subject to "significant change." Cisco and Google were cited as "new options being reviewed" by 43% and 35% of enterprises, respectively, even though Cisco UCS and Google Voice/Wave had only been announced shortly before the survey. Microsoft was the vendor seen as most likely to lose UC/UCC traction; 36% said they believed they might look less to Microsoft than they'd previously planned.
A strong undercurrent that influenced everything in enterprise IT was the sense that paradigms were really changing. While 52% of enterprises have said that there was a "significant" paradigm shift in IT and networking on the average between 2005 and 2008, 78% said that was happening in 2009. In prior years, the driver of change was technology, but in 2009 the driver is "business conditions." And 81% of enterprises said that even if the economy recovers fully, their IT programs for 2010 and beyond will change versus 2008-2008. Nearly the same number said that the old patterns of spending would "never return."
That's perhaps the big takeaway. Vendors usually try to instill a sense of change and thus a need for modernization. Enterprises in 2009 say that their vendors are trying to stay the course in technology while they, the buyer, are trying to look at new options. Two of every three enterprises think that the changes they're seeing in their IT and network spending plans are "not understood" by vendors. Almost half of enterprises think that at least one major vendor relationship will lose significance for them in the next two years, which is triple the normal level. Enterprises are seeing a whole new technology world out there, and they think their suppliers are missing that shift. If that's true, then 2010 might bring some very profound changes in the market landscape.
