So Long IT Equipment: Digital Alternatives Are Here to Stay

by Rita E. Garwood November/December 2016

The forecast for worldwide IT spending in 2016 looks grim, but John Lovelock, Gartner’s chief forecaster, says there’s more to the story than the negative number. He shares the reasons behind the decline, a forecast for 2017 spending and discusses IT’s next big achievement — civilization infrastructure.

John Lovelock,
Chief Forecaster,
Gartner

Although technology has become such a vital aspect of life today, Gartner’s Q3/16 Worldwide IT Spending Forecast predicts that overall IT spending in 2016 will decline by 0.3%. John Lovelock, chief forecaster for the IT research and advisory company, says exchange rates have contributed to this result.

“We have to be careful, first and foremost, on the rise of the U.S. dollar,” Lovelock says. “The -0.3% is in U.S. dollars. When you switch to constant currency, there’s actually growth of 0.9%. Every country is growing a little bit. There is more IT activity, but with the change of currency in exchange rates, that is translating into fewer U.S. dollars. It’s still not a good year — 0.9% is nothing to cheer about — but it’s marginally positive as opposed to the -0.3%. If we take the UK out, we actually get to 0.2% growth in U.S. dollars.”

Declining Device Sales

Contributing the largest percentage of the overall 0.3% decline is devices; spending in this category is predicted to decline by 7.5% in 2016. Although Lovelock says that almost 2% of this decline is due to exchange rates, tablet sales — down 13% on the consumer level — are also to blame.

The decline in device sales can also be linked to another surprising factor. “A lot of this comes down to Windows 10, which has actually put off the need to upgrade PCs,” Lovelock says. “So where we normally have a three to five-year replacement cycle on PCs, Windows 10 has added another year almost to PCs. Last year and this year have been extremely bad years for PC replacements and for PC spending, but by 2018, we will be back to a more normal replacement cycle. We still won’t get into the positive growth, but we will only be dropping about 0.2%.”

Looking Ahead to 2017

Although Gartner does not expect the overall decline to continue into next year, worldwide IT spending is expected to grow a nominal 2.9% in 2017. “There’s still a big malaise going on,” Lovelock says. “We still have not shaken the effects of 2009 and 2010, so where revenue expectations used to be much higher than they are now, corporations are looking at moderate growth in their top line, which means moderate growth in IT budgets.”

Despite the lackluster growth, Lovelock says something much more important is happening. “Corporations are in a nearly constant cost optimization mode, trying to decrease their cost of operations, not to return those dollars to the business, but to reinvest in different IT. They’re moving from legacy systems, and their core systems are getting upgraded and modernized.”

This phenomenon explains why the largest source of anticipated growth in 2017 is software, followed by IT services. “These are the things that are actually driving the new digital business initiatives,” Lovelock says.

“They need the software, services and support, so rather than buying things like servers and storage, they’re using software as a service. Rather than putting things on their own network, they’re using cloud computing. They’re going forward with many of these new business initiatives, but they’re doing it using digital business alternatives rather than traditional technology.”

A Civilization Infrastructure Future

In the next decade, Gartner expects IT’s most important achievement will be the creation of a new civilization infrastructure, which will reshape business and how people live. “Every business will be competing as an ecosystem business, which means being able to reach out and take advantage of digital ecosystems that exist in order to bring their product to market and effectively contribute in a collaborative way with other businesses without the need for strict collaboration,” Lovelock says. “Digital business ecosystems are the foundation upon which all of that will occur. In the same way that highway and truck shipping connect businesses, the digital business ecosystems will connect the businesses of the future.”

An example of this new infrastructure can be found in the agriculture industry, where digital tractors that utilize global positing for tracking and programmable seed planters are already for sale. According to Lovelock, the agricultural equipment ecosystem will digitally integrate with the seed ecosystem, which can provide information on the right seed to plant in the right field, given moisture, density and sun exposure factors.

“When those two things start to work together, you can get a planter that gets weather information, satellite positioning, even crop information, so farmers can make better decisions about when and where to plant,” Lovelock says. “Instead of planting the same field with one seed, you can actually plant the same field with different types of seeds, including drought tolerant, water tolerant and sun tolerant varieties. That is all controlled by the combinations of these systems that are coming together.”

According to Lovelock, the early results of this combined technology are showing anywhere between 8% and 12% crop increases, and proponents believe this has the potential to increase up to 25%.

New technology is also playing a vital role in equipment maintenance. “Once the farm equipment can start talking about all of its parts, maintenance and replacement becomes on-need rather than on schedule,” Lovelock says. “As service and parts ecosystems come in touch, these things all become automated, so the farmer ends up with a tractor that has almost zero downtime and livable maintenance costs, which get passed on as savings for everyone.”

Browsing Without a Screen

Another shift in the IT industry is on the horizon. By 2020, Gartner predicts that 30% of web browsing sessions will be done without a screen. “These voice interactive systems that are out today — Siri, Ok Google and Cortana, among others — they’re all going to start having more influence over how we interact with the internet. Rather than going to a screen and saying, ‘What’s the weather?’ You can ask, ‘Do I need an umbrella?’ — which is really what you want to know, not if it’s raining.”

As these avatars of the digital giants start to insert themselves between the consumer and the other participants of the internet, Lovelock says they will become the buying avatars for individuals. “Instead of going to a website and buying tickets for the movies that night, I can ask Siri, Cortana or OK Google to buy me tickets, and it will do that on my behalf,” he says, adding that businesses will need to start selling to these artificial intelligence bots while maintaining a web presence that is still desirable for people.

Digital Alternative Takeover

Overall, Lovelock says the big story in the IT market is the ongoing shift away from traditional equipment. “Digital alternatives are here and they’re viable today,” he says. “Licensed software is being replaced with SaaS software. Servers are being replaced with compute-as-a-service. Phone lines are being replaced with voice-over IP. For every piece of traditional IT equipment that we used to have, we have a digital alternative now that is viable and cost effective, and people are taking it on. As we go forward, the Internet of Things (IoT) is going to start rolling over the top of regular things. Cars are becoming self-driving. Equipment is being fixed on an as-needed basis as opposed to as scheduled.”

Lovelock mentions the efforts of Trenatalia, the primary train operator in Italy, which has been working to reduce its maintenance budget by embedding sensors and other IoT devices on the trains. “They expect it to save them a €1 million ($1.1 million) a day, and they’re already saving about €2 million ($2.2 million) a week.”

Despite the advances in IT, Gartner’s forecast period, which extends to 2020, does not contain a period of economic improvement. “We don’t see us getting to that 8% to 10% growth again,” he says, referring to pre-Great Recession growth levels. “But frankly, if the world hits another recession, it’s likely to surprise us.”

View Latest Digital Edition

Terry Mulreany
Subscriptions: 800 708 9373 x130
tmulreany@monitordaily.com
Frank Battista
Advertising: 800 708 9373 x120
fbattista@monitordaily.com

View Latest Digital Edition

Visit our sister website for news, information, exclusive articles,
deal tables and more on the asset-based lending, factoring,
and restructuring industries.
www.abfjournal.com