Channel to Benefit from Spending Constraints

Solution providers skilled in applications development or managed services will be in greater demand during any economic slowdown. Businesses are growing more serious about outsourcing to lower costs.


You can’t help being a little nervous about the economy with all the nabobs of negativity reciting the litany of reasons why the economy will be off in 2008. Never mind that the economy continued to roar last year, with GNP rising a surprising 4.9% in the third quarter, and that Oracle and Accenture both reported stellar earnings. The past is the past, and the wise solution provider should be considering what is on their customer’s minds today and the near future as companies shift priorities from new initiatives to cost containment.

Computer Economics surveyed 125 IT decision-makers in the third quarter, just as many were laying plans for their 2008 budgets, and found that, indeed, restraint was the order of the day. The median anticipated budget increase for 2008 was 2.5%. Large enterprises, after absorbing a boatload of new technology over the past few years, were the most conservative, forecasting a median budget increase of 2%. That looks pretty tame compared to the last two years when IT budgets rose on the order of 4% and 5%.

For cup half-full people, it should be pointed out that IT managers were not yet slamming on the brakes. The majority were still expecting to spend their 2007 allocations and planning for budget increases. And it remains to be seen how the economy will perform. What it does means, though, is that companies will be more careful about spending on new initiatives that lack strong ROI and are prepared to rein in spending should business fall off.  So where is the upside for the channel?

For one thing, companies are likely to restrain hiring. That means outsourcing could accelerate. Solution providers with a strong applications development, services and managed services offerings should find themselves in demand. There are indications that the skills shortage in network management and app development, the two areas where salaries are rising the fastest, will continue to cause companies to look for outside help to augment their staffs. That goes double for solution providers that can help company’s manage converged voice/data network infrastructures.

The restrained hiring should also benefit solution providers with strong open source and Web development skills. While open source promises to help control rising software licensing expenses, an area that is consuming an increasing portion of most IT budgets, the momentum behind Web 2.0 initiatives is not likely abate anytime soon. 

Another safe bet is that data center, server and application consolidation is likely to continue and even accelerate. Investments in servers, storage and virtualization, along with VoIP technologies, should play right into the sweet spot of the channel’s expertise. For solution providers that are focused on helping clients lower total cost of services and solutions, there are opportunities to seize in any economic climate.


(John Longwell is director of research for Computer Economics, an IT research and advisory firm that has been providing IT spending, staffing and technology  trends data and related metrics to industry and government since 1990.)

TAGS: open source,Oracle,search,services,server,software,management,virtualization,IT,research,Web 2.0,economy,CA,media,voice,VoIP,Storage

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