ITCandor 2010 Expectations – Cloud, Gaming And Convergence Drives The Recovery

ITC ‘Expectations 2010’ Highlights

1. The World ITC Market Will Grow Zero Percent
2. Asia Pacific Will Lead Regional ITC Growth
3. Cloud Computing Matures To Become A Profitable Delivery Mechanism
4. New Analytic Techniques Will Emerge To Handle The Upsurge In Digital Data
5. Government ITC Spending Will Come Under Greater Pressure
6. Business And Industry Expertise – Not Logistics – Define Third Party Channels
7. The Enterprise Network War Will Intensify
8. Higher Electricity Prices – Not Legislation Or CSR – Will Drive Improvements In Data Centre Efficiency
9. Gaming Applications Will Continue To Out-Perform Other Software Areas
10. The PC Market Will Grow By 1.5%, But Device Diversity And Desktop Virtualisation Continue

On Making Predictions And Expectations

This article has been written with the help of Marcel Warmerdam, Pim Bilderbeek and Carsten Schmidt – like me all ‘Henry Fellows’ and excellent ITC market analysts. The market statistics are drawn exclusively from ITCandor’s ITC Market Model. This information can also be viewed as a presentation.

2010 will be an exciting industry to watch, whether you’re a CIO, end-user or industry executive. There has been a lot of restructuring during the downturn and there are clears signs of recovery. Not all sectors and regions will grow at the same rate.
Declaring ‘expectations’ is fun, but can be problematic. It’s necessary to talk about things that are not obvious to everyone and yet avoid the mistake of making the forecasts too direct. To announce that one company will buy another, for instance, would either be betraying insider knowledge or a complete ‘stab in the dark’. Therefore you won’t find anything like that in this document.

1 The World ITC Market Will Grow Zero Percent In 2010

The ITC market suffered a 10% decline in 2009 – an unprecedented fall, far worse than the downturn in 1992 or 2001. The good news is that the market is already in recovery mode, with an up-tick in sales for most categories starting in Q3 2009. It will be many years before the market size approaches the massive $6.7t it reached in 2008.
The first ‘expectation’ is that the World ITC market will show zero percent growth in 2010 – with total spending for the year remaining at $6.0t. Hardware will lead the recovery, showing 4% growth; followed by IT Service (2%). Both Telecom Service (-1%) and Software (-4%) will fall slightly against 2009 levels.
All of this is much better than 2009 when we saw all categories shrinking significantly. There is still a lot of opportunity for Telecom suppliers to save users costs through ‘dematerialisation’ and travel avoidance. In addition there will undoubtedly be new investments in infrastructure once businesses see revenue growth once more. This will see spending on implementation services, hardware and infrastructure software.

2 Asia Pacific Will Lead Regional ITC Growth In 2010

It’s difficult to be precise about regional ITC market growth, given the massive fluctuation in exchange rate between major currencies over the last few years. Whichever way we look at it Asia Pacific suffered the biggest fall in spending in 2009 (-17% in local, -14% in current $US). Japan continued in recession, while manufacturing industry in China, Taiwan and other low cost countries suffered from the failure of Western consumer and business spending.
Looking out at 2010 our second ‘expectation’ is that Asia Pacific will outgrow both the Americas and EMEA. Total ITC spending will reach $1.8t in 2010. Both consumer and business markets are substantially less saturated than those in other regions and will offer better prospects for suppliers as a result. The two largest emerging markets of India and China will drive growth, especially in the automisation of many hundreds of thousands of business. Their suppliers (typically IT Service and Software in India, Hardware and Telecoms Service in China) will also continue to grow faster than those in more saturated countries. Currently Hardware accounts for 22% of ITC spending in Asia Pacific compared to just 16% in the Americas and 15% in EMEA. In 2010 we are likely to see stronger growth in both IT Service and Software, although Hardware is likely to maintain its high share in the medium term.

3 Cloud Computing Matures In 2010 To Become A Profitable Delivery Mechanism

Cloud Computing has been notoriously difficult to define. Often those people most involved with technology have been least likely to embrace the term. However for consumers the experience of social networking and other free-to-use Internet sites is making it attractive, while for business people it holds the promise of turning Cap Ex into Op Ex where internal applications can be reasonably replaced with Cloud services.
Whether we see Cloud Computing as a new delivery model, a systems architecture, a new type of Outsourcing or just a marketing mantra, our third ‘expectation’ is that it will mature enough for suppliers to get a return on investments made in new data centres during 2009. Traditional CIOs in large organisations will continue to have difficulty (and will need guidance) in mixing legacy and Cloud applications together. For this reason we expect to see the adoption of ‘… as a Service’ applications by small and medium business to dominate the first months of the new year. We also expect a whole slew of new Service Providers and wholesalers to emerge providing ‘horizontal outsourcing’ through in depth industry sector and/or business process skills. Beyond ITC I’ve heard it say that ‘outsourcing begins with the canteen and the car parking’; similarly in 2010 we can expect many companies to outsource non-core business applications such as email and printing to a growing number of ‘… as a Service’ providers.

4 New Analytic Techniques Will Emerge To Handle The Upsurge In Digital Data In 2010

Photography, Telephony, Medical Recording, Transportation Logistics, etc. – every time an analogue process is digitised it produces a mass of new data, most of which needs to be processed and stored. The fourth ‘expectation’ is that advanced analytics (currently used in Pharmaceutical, Seismic, Investment and other specialist high performance computing areas) will begin to be applied in more general business areas to provide better business intelligence in 2010. There will also be a continued improvement in networking, storage and server technology to support these developments. Handling, storing and de-duplicating new (and often unstructured) data will become an increasing challenge, especially for those organisations unprepared for the data consequences of new digitised processes.
Don’t expect the traffic to be all one way in this area, however. Increasing concerns about privacy and security will lead to more meaningful government restrictions on holding and exploiting personal information.

5 Government ITC Spending Will Come Under Greater Pressure In 2010

During the last year the government sector has taken centre stage from a vertical market spending point of view. Our fifth ‘expectation’ is that it will come under increasing pressure in 2010, growing by just 2%. In particular:

• There will be a need to cut costs to match the lower tax collected since the beginning of the downturn
• There are more political reasons to protect employment, which will reduce the number of IT transformation projects in government departments

The reasons for it to continue to show better prospects than other areas are threefold. Firstly there are a large number of re-generation projects underway, many of which include significant ITC elements; secondly Health (which remains a strong vertical market) is part of government in many countries and looks likely to become more so in the USA in the coming year; thirdly there is a mass of citizen applications to develop in order to modernise government services. Ultimately the prospects for government ITC spending will depend on what happens when ‘stimulus’ projects give way to paying off the debt incurred to protect the financial sector in the economic crisis. This will differ strongly from country to country, but is unlikely to have a major negative effect in 2010.

6 Business And Industry Expertise – Not Logistics – Define Third Party Channels In 2010

The significant reduction in profit margin – especially for Hardware products – has made life very difficult for distributors, dealers and resellers in 2009. As in other recessions there has been a shakeout of smaller players. Retailing is now taking a bigger slice of lower priced machines, while suppliers continue to try to balance the preservation of third party operations against their own direct Internet sales.In 2010 a new role is developing for smaller resellers and dealers through the development of Software as a Service and Cloud Computing. Those with detailed knowledge of how an industries practices or business processes will find it easier than ever to deliver their services via the Internet. Our sixth ‘expectation’ is that there will be a mass of ‘… as a Service’ introductions in 2010 turning many distribution channel players into Service Providers. The growth of business process and industry sector skills as ‘value added’ criteria for third party channels is not dependent on the development of Cloud Computing, although it will be accelerated by it.

7 The Enterprise Network War Will Intensify In 2010

Poor market demand, specialised technology and a dominant market leader – all of this makes the enterprise network market exciting to watch. Our 7^th ‘expectation’ is that the war between Cisco and other players will intensify in the coming year. We will see a number of acquisition and joint venture announcements during 2010 between networking companies. In addition those systems and storage vendors with networking expertise will join the hunt for acquisition targets. It is likely that those systems vendors without networking expertise will continue to partner with Cisco and others – perhaps forming strong go-to-market approaches in a way similar to Fujitsu Technology Solutions’ recently announced ‘Tight Alliance’ with NetApp. Systems companies with a strong business in supplying technology to Cloud Computing data centres will want to beef up their networking expertise, but do not yet need to acquire companies to do so.

8 Higher Electricity Prices – Not Legislation Or CSR – Will Drive Improvements In Data Centre Efficiency In 2010

The failure of the Copenhagen Climate Change Summit to agree on legally binding emission targets or funding for emerging countries threatened by Climate events means that we can expect less legislation and taxation of organisational carbon footprints in 2010. The Berlin Summit towards the end of the year will probably bring with it more national legislation and advanced organisations will continue to address the use of resources as part of CSR strategies. However for the most part it will be the cost and restrictions on the maximum amount of electricity organisations can use that will drive data centre transformation strategies in the coming year. Our eighth ‘expectation’ therefore is that it will be the cost of electricity, rather than legislation on CSR that will drive improvements in data centre efficiency in 2010.There are a number of other trends to watch in the data centre area. In particular:

• There will be a continuous focus on consolidation and transformation. CIOs have difficulty in delivering SLAs from most existing sites. They will spend the year reducing the number and simplifying the applications they provide to their customers and organisations. Look at transformation projects such as that at the credit management company Intrum Justitia.
• Many organisations will look for new sites from which to run their operations. High costs in city centre locations will make new hosted sites attractive, especially in well designed with efficiency and connectivity (NGD’s new facility in Newport, Wales for example). Look at local and central governments developing citizen portals in this area.
• Cloud Computing will mature both from an operations and Outsourcing point of view. While it is becoming a new delivery mechanism for users, it is going to raise some fascinating challenges for the CIOs and data centres that provide associated applications and services. Look at what smaller SPs such as Datacenter Online are doing as well as Google, Amazon and the big ISVs.
• There will be significant moves to bracket the co-management of facilities and ITC together. Organisations will look to focus on how computing supports the business, funding new applications from the consolidation of older – less efficient – ones.

9 Gaming Applications Will Continue To Out-Perform Other Software Areas In 2010

Consumers have taken a bigger slice of the ITC market in the last year. While they have spent less on devices, they have enhanced their experiences by buying more software and broadband connectivity. Our ninth ‘expectation’ is that gaming applications will out-perform other software areas in 2010. This software will not be restricted to PCs and gaming consoles, but will be increasingly bought for use on mobile phones, set top boxes and advanced televisions. 2010 will also be a year in which the electronic book comes of age. The advantages of electronic ink for reading – in particular its passive image – will make these devices better replacements for the print on paper.Suppliers such as Apple, Sony and Microsoft will enhance their gaming activities over the next year to meet the needs of customers in this area. The digitising of the music industry will be followed in 2010 by similar activities in the book publishing area and content services (including gaming) will out-grow other IT Services in 2010.

10 The PC Market Will Grow By 1.5% In 2010, But Device Diversity And Desktop Virtualisation Continue

PCs make up the largest single element of the ITC market. The $289b spent in this area in 2009 equates to approximately 5% of the total hardware market and yet the fall of 14% in the year made this one of the main casualties of the downturn. Units continued to grow due to the success of cheaper Netbook form factors based on Intel chips. Towards the end of the year the introduction of new processors from AMD and Intel and the launch of Microsoft’s Windows 7 re-energised the area. While it will take many years (if ever) for market spending to return to the $377b in 2008, there are positive signs for the coming year. Our tenth and last ‘expectation’ is that the PC market will see growth of 1.5% worldwide in 2010, despite the continued diversity if client types and a growing trend towards desktop virtualisation. The increasing distribution of laptop PCs as part of mobile phone contracts underlines the desire of Telecoms companies for ‘customer stickiness’. It also demonstrates the continuous convergence of IT and Communications.
Technology improvements in mobile phones (by far the largest category of client devices), gaming consoles, set top boxes and advanced televisions will limit the spending on PCs. There will be a stronger trend towards desktop virtualisation, the most advanced of which will only present the image of the application executed remotely. However desktop virtualisation will not be the enemy of the PC market, since desktop and laptop computers will still provide the best platform for office-based workers and/or applications which require a wide screen.

Some Conclusions – A Realistic Forecast For ITC Market Recovery

There’s has been a natural reticence among suppliers and analyst firms to identify and talk about how bad this last 18 months has been and therefore it’s also hard for them to be particularly optimistic about the up-tick, recovery and eventual return to growth. On the other hand ITCandor forecasts, which started at the depth of the downturn, have been designed to be realistic of market growth. Their current optimism is based on strong financial analysis of quarterly results.It’s possible that the forecast of zero percent growth in 2010 – that the market spending will be identical to 2009 – is overly optimistic. In particular there could be natural disasters, new wars and/or diseases that could delay the recovery, or even throw the ITC market into a new spiral of decline. If and when such events occur we will all have to make new provisions and forecasts.In the meantime we’re optimistic for the year ahead – for the successful application of ITC by CIOs and end-users and associated financial improvement for smart vendors. Whatever your role in our industry, we wish you the best of luck for 2010.
We’re interested in your feedback and any requests for more detailed information about the data and ideas I’ve posted here. As always please do so by commenting on this report.