The icy wind coming off the housing and financial crisis in the United States has blown across other industries, forcing companies to examine their own bottom lines and putting a freeze on expenditures, including IT budgets. Regardless of whether Punxsutawney Phil saw his shadow last month and indicated another six weeks of winter, it's clear that the economic chill will keep an icy hold on IT budgets well into 2009.
So how is IT spending shaking out? And more importantly, what's going on in the IBM i world?
First, the broad strokes. Forrester Research reported in December's "U.S. IT Market Outlook: Q4 2008" that the tech market is down, but it's not as bad as the 2001-2002 tech depression. Still, analysts Andrew Bartels, Ellen Daley, and Madiha Ashour believe that ongoing declines in the economy will push 2009 growth in the purchase of IT goods and services down to a paltry 1.6 percent, down from 4.1 percent growth in 2008. Furthermore, Forrester says Q3 2008 data showed that revenues from large vendors were already down 2 percent.
"Growth is slowing for purchases of network equipment, software purchases, and IT consulting and outsourcing services. Continued declines in purchases are in prospect for computer equipment purchases in Q4 2008 and the first half of 2009, with little or no growth in communications equipment and IT services. Software growth will slow to as little as 2 percent in coming quarters," Bartels wrote, adding just a glimmer of blue sky: "Still, we do not expect to see the 15 percent to 20 percent declines in tech purchases that happened in the 2001 to 2002 tech downturn."
So What Have You Done For Me Lately?
Sure, little growth is better than big declines, but if the U.S. recession is traceable back to late 2007, what's that mean for IT shops whose companies have seen little growth, if any, over multiple quarters? IBM declined to comment on what its IBM i-focused customers do in these troubled times. Granted, IBM rarely shares much in the way of sales detail, and the sharing of any information related to performance prior to IBM's quarterly financial reports is essentially non-existent, even for the little IBM i niche.
So what about a big IBM reseller with a successful history of selling IBM i hardware, software, and services? We have definitely noticed a change in IT spending this year," says Stan Staszak, director of System i/x products for Sirius, an IBM Premier Business Partner.
"I don't think software, storage, and consulting services have been as impacted as hardware sales. Customers' budgets are generally tighter, the sales cycle seems a little longer, and in some cases we are seeing an increase in the number of internal approvals needed for a purchase order. For example, in the past, the CIO may have had authority to sign off on the PO. This year the CFO or CEO may also need to review and approve it," Staszak says. In addition to changing the buying process, customers that would have spent the last few dollars in their IT piggy banks at fiscal year-end—on items such as surplus disk, processor, or memory capacity in anticipation of future growth—are hanging onto anything that's left.
"Customers are being much more conservative and are only investing in technology that is strategic, fulfills shorter term needs or requirements, and/or cuts costs in some way. In some cases, we've seen CFO's reclaim unspent or unallocated IT budgets," Staszak says.
Is 'Critical' the New Buzzword?
For IBM i customers, the plan seems to be all about running lean and mean.
"Currently with the economy, all training and conferences, etc., are done away with, and no new software or hardware upgrades will be considered unless there is a critical system failure. Most large projects have been put on hold indefinitely," explains Tommy Holden, a systems analyst at Thompson Machinery.
And Leslie H. Goldstein, president of information systems consultants SRJ Associates, Inc., says, "All of my clients from large to small have reduced the budgetary allotment to IT for fiscal year 2009. Only critical hardware and software acquisitions are going to be considered unless there is a major uptick in the U.S. and worldwide economy."
Still, the struggles in the U.S. have not frozen budgets worldwide.
"We work as a software distributor for several System i software solutions in the Benelux (Belgium, the Netherlands, and Luxembourg) SMB marketplace. It is our experience that companies are still investing and going to invest in software and hardware solutions—as long as the business case is good and there is a clear return on investment," explains Dennis Wolf, senior sales executive and manager of business continuity for PST Business Solutions.
ROI Now, More Than Ever
While ROI has always been in the selling playbook, it's taking on new importance this year.
"We think the trend will continue to shift toward companies purchasing IT solutions to help their businesses become more productive, efficient, and consequently save money," Staszak says. "In some cases, it isn't enough to propose a sound solution; … we need to back it up with the financial cost-saving data.
"We have been promoting 'IT Optimization' principles like virtualization and server consolidation in recent years, and I think that message is still very relevant," he adds, noting that "our challenge is to try to architect solutions for our customers that will cut costs like maintenance and energy, and improve productivity and efficiency, while at the same time delivering a highly available server."
In this world, IBM's new POWER6-based servers that are capable of combining both AIX and IBM i workloads are starting to gain some traction—though most news here is of the anecdotal, word-on-the-street variety. And besides, a company has to have a perfect storm of underpowered System p and System i servers for a consolidation play to make fiscal sense—and this scenario tends to be even less likely in a stone cold economy that makes activity sluggish. COMMON's upcoming conference in Reno, the first big event after 2008's Power Systems unification announcement by IBM, should help shed some light on what companies with dual AIX and IBM i operating systems are thinking (and doing).
Everyone Has to Demonstrate the Savings
The increased need to show concrete ROI has IBM Business Partners scrambling to clearly illustrate the benefits of new purchases and upgrades.
"Avnet developed a tool called Go4IT for our resellers that enables them to demonstrate not only the cost benefits of server consolidation and virtualization, but the energy savings, too," says Bryan Buckner, director of product marketing for Avnet Technology Solutions' Americas IBM Solutions group.
"Resellers can also use Avnet's OneTech server assessments to provide potential customers with detailed reports based on their current environment. These reports show the reseller's customer they can improve operational efficiencies and reduce costs, and provides them with concrete ROI estimates," Buckner says.
Application development solution provider LANSA also is seeing the time to ROI get compressed to shorter and shorter time frames.
"From an ISV perspective, there is now a very acute need to demonstrate the ROI of a new purchase on a tangible, plausible, and short-term—less than 6 months—basis. For example, a potential new customer should never approve an application modernization project just to get a sexy new UI with only soft benefits. But when they go on reference visits and hear from other clients how they are processing 25 percent more volume with 50 percent less staff, then the business case is overwhelming," says Martin Fincham, general manager of LANSA's EMEA operations.
"I find that businesses will invest in those kind of projects in good times and bad. We are also finding that business process integration is a hot area as companies look to streamline manual processes and shorten their supply chains. Bottom line: companies are aggressively taking labor cost out of their operation, and IT can help achieve that objective through enhanced productivity and lower training and support costs rather than the blunt instrument of layoffs," Fincham adds.
Open Source on the Rise?
Of course, if capital outlays are restricted, might open source solutions get a new jolt?
Longtime RPG expert Jon Paris, a former IBMer who provides mentoring and education consulting, has been spending more time talking about PHP—and he's seeing more interest in the open web scripting language, too.
"When I present at conferences or user groups, there is a lot of frantic note writing going on when I'm discussing options such as SugarCRM or Mantis/400," Paris says.
"I'm personally hoping that it [the economy and interest in open source] will cause some of the 'let's move to Oracle/Windows/etc. because it is cool' idiocy to die down for a while and give the i folks a chance to show what they can do," he adds. "Plus, I've also seen an increase in interest in CGIDEV2, despite IBM completely ignoring it."
The big question is: Will a faltering economy provide the nice slap upside the head—or at least generate the "ah ha" palm to forehead slap of epiphany—necessary to make any IT pro, CIO, CFO, or CEO really appreciate the ongoing ROI delivered by new and previous generations of IBM i?
That's right, the economy may very well prove useful to the IBM i world. IBM i systems have long done well in total cost of ownership, and the features that define an i system may become even more important assets to savvy CIOs and IT managers. Which systems cost the least to maintain and run? Which systems provide the most value? Can we deliver new applications and web-based interfaces with IBM i faster and cheaper than with other methods?
So, while the budget is frozen, might these questions suddenly take on new meaning with i-based answers?
"We expect the downturn to help protect the IBM i installed base because the biggest trend in recent years—switching to an expensive ERP package like SAP or Oracle on another platform—is no longer in vogue or easy to get funded," LANSA's Fincham says.
Meanwhile, just because spending has slowed, it doesn't mean everyone is hibernating.
"We are continuing to see a lot of interest and activity," says Staszak of Sirius.
"I'm very encouraged because our customers still seem to be as loyal to the platform as ever," he adds, noting that he's surprised that customers have been slow to adopt i 6.1, but he also expects enterprise class customers to start adopting more external disk storage-based strategies in the future. And then, of course, customers will have had ample time to consider their new Power Systems moves.
"It should be a very interesting 2009," he says. "I'm looking forward to it."
Sunny Days Ahead
Forrester, by the way, believes the U.S. tech sector will pull away from the recession by the third quarter of 2009. Why? Falling energy prices, lower interest rates, growth in Brazil, Russia, India, and China is still inching up, and the Obama administration will likely introduce a new stimulus package (if it hasn't already).
Chris Maxcer is news editor for System iNetwork. "As I write this, I find it hard to come up with the names of any friends or family members who haven't been affected by the U.S. economy," Chris says. "We've all been affected by frozen salaries, cut benefits, lost investments, a lack of services work, and looming layoffs. Still, most of us remain upbeat. A changing administration and the fact that people are finally talking about the economy may have something to do with it. I think we're all looking forward to spring and warm sunny days."