What commoditization means for IT spending

The numbers are coming out, and it is clear we are moving to a low growth environment for corporate IT spending in terms of dollars spent. Companies spent too much in the 90s and are being cautious about how they spend their hard-earned cash. Total cash and savings for companies in the S&P 500 have doubled since 1999 and is equal to half a trillion dollars which means companies have added almost 300 billion dollars to their balance sheet in the last 5 years. While companies have so much more cash these days versus 5 years ago, they are spending roughly the same amount on IT. What gives? Reports cite how executives are still worried about the economy or terrorism. However, one other interesting aspect to consider is the effect of commoditization on IT spending. Here we are monitoring year over year growth on actual, nominal dollars spent on IT, hoping and waiting for an uptick in spending which will fuel more growth. After all there is a ton of cash out there and corporates have to invest the cash or give it back to shareholders. The funny thing is that the commoditization trend means that companies can do more with less. What that means is that companies can keep the same IT budget and accomplish the same amount or more without increasing their capital expenditures. In addition the competition for the customer's dollars is fierce which means that the customer has complete control these days in terms of pricing. Both of these factors obviously work against significant increases in IT spending. In fact, customers have so much power these days (and rightly so) that companies like GM are forcing vendors like Sun and Microsoft and Cisco and Microsoft to work together, to standardize and integrate with one another.

Here is a quote from Fed Ex's CIO in a recent New York Times article:

The information technology strategy at FedEx, the package delivery service, points to that conclusion. "Technology is coming to us in much smaller bundles that cost a lot less," said Robert B. Carter, the company's chief information officer, whose budget is slightly more than $1 billion. "Our intent is to hold the line on I.T. spending and get more bang for the buck."
The flat spending does not suggest any lack of enthusiasm for technology at FedEx, a sophisticated corporate user of technology. Mr. Carter reels off a series of projects for helping customers use the Web, e-mail alerts and wireless messages to track inbound and outbound packages, trim inventories and fine-tune operations.
"The global interconnectedness and technology services available are growing at an unbelievable pace," he said. "We are at an inflection point in the adoption of these technologies."

This theme of doing more with less continues to echo in my brain as I meet with more and more CIOs and technology arhitects. As I mention in an earlier post, it seems that many in corporate america are going through a fundamental rearchitecture of their systems to a service-oriented model, one that will take a number of years, but one in which startups will have plenty of opportunities to thrive even with flat to limited growth in IT spending. Trust me, it would be great if corporations continue to grow their IT budgets. However, I am not worried as the great news is that new architectures and hardware equals lots of new software opportunities. There will be plenty of chances to make great investments in this environment.

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