Theoretically at least, a flood should lift all boats. But when it comes to IT services, the weight of that boat might make a significant difference.
Buried inside a new report from Gartner that forecasts that worldwide IT spending will grow 2.4 percent to $3.8 trillion in 2015 is some news that may give IT service providers reason to exercise caution. While the 2015 forecast is for a 2.4 percent increase in spending, that growth rate represents a significant drop from the 3.9 percent growth rate that Gartner had previously forecasted.
Worse yet, the outlook for IT services in 2015 has been reduced to 2.5 percent growth, down from the 4.1 percent growth forecast in the previous quarter. Gartner cites global reductions in the amount of software support services being generated, which the research firm says is likely to be a drag on the sector through 2018.
In particular, Gartner notes that while enterprise software spending should reach $335 billion in 2015, a 5.5 percent increase from 2014, price erosion and vendor consolidation is expected to be fierce. According to Gartner's forecast, per seat pricing for sales force automation delivered via the cloud might fall as much as 25 percent through 2018 and much of that will be driven by incumbent vendors discounting their cloud offerings heavily to try to maintain their customer base.
The impact of the cloud
While there are obviously a lot of factors that go into generating those forecasts, one of them is clearly the movement of software into the cloud. When packaged application software gets deployed on premise and then gets customized, it tends to generate a lot of IT service opportunities. Applications that are deployed as a service are generally accessible via an application programming interface (API) that also serves to eliminate a lot of the complexity once associated with application integration. The end result is there is a whole lot less in the way of billable hours surrounding cloud applications than there historically was when those same applications were deployed on premise.
For these reasons, many IT service providers are shifting the weight of the services they provide. There’s a lot more emphasis on business process consulting versus technical integration, which much like the applications themselves is becoming a service in the cloud. Rather than deploying complex middleware software, much of the integration being done today involves making use of a third-party integration service that moves the onus of managing that process into the cloud. In fact, cloud integration services are giving rise to a new breed of “citizen integrators” who are not as willing to spend money on data integration when they can do it themselves for a comparatively nominal monthly service fee.
Put all this together, and the back half of this decade may prove to be especially challenging for IT service providers. In order to succeed, much of the cost of integrating data and applications will need to be buried inside automating one business process or another. The challenge, of course, is going to be first figuring out what business process to automate and then getting the end customer to see the business value in actually spending money to accomplish it.