IT Spending Landscape Evolving

November 30, 2004

META Group predicts that IT spending will rise by only 4% to 5% in 2005, as organizations remain cautious about their IT spending.

Howard Rubin, senior vice president of META Group, notes that “IT budgets are not simply declining or leveling-off. Rather, they are changing completely. Companies are shifting from a pure cost-cut mode to a model that emphasizes agility and efficiency. They are removing fixed costs in favor of variable costs.” One way to cut fixed costs is to outsource jobs, and META sees enterprises decreasing their spending on IT labor while outsourcing infrastructure and applications maintenance activities.

Spending on IT labor will decrease from 36% of IT spending worldwide in 2004 to 31% in 2005, while spending on IT outsourcing will increase. For example, a recent study by Forrester Research predicts that such spending will reach $99 billion by 2008, up from $76 billion in 2004.

META Group uncovers some surprising findings. For example, IT spending in the EMEA region will grow more than in North America, which is traditionally seen as the stronger market for IT spending (both, however, will trail the Asia-Pacific region). Another surprising finding is that smaller companies will drive the growth of IT spending, not larger companies. Many organizations with revenues greater than $1 billion per year are holding their IT spending levels steady or are decreasing them. This trend is even more pronounced among companies with revenues greater than $10 billion per year. Additionally, sectors like education, insurance and healthcare indicate greater IT spending in 2005, while construction & engineering and transportation industries are set to lower IT investments, a change from recent years.

In general, META Group finds that organizations are finding ways to fine tune their IT spending, using benchmark figures to make specific cuts. As companies digest the lessons of the past few years and apply them to their IT spending decisions, the market will complete its transition to a new “steady state.” For a complete snapshot of IT spending, sign up to be notified when eMarketer’s IT spending report is released in January 2005.

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