SOA

IT to return to cheap-cost focus — forever?

The Economist has recently published a story on the impact of the recession on tech, and while we don’t fully agree with the conclusions there are some very important points made. The most significant is that buyer behavior in IT spending is not automatically going to recover—ever.

The article cites a flight to cheapness, a return to a pure cost focus, as major risks to tech. Our own research in this area has long showed the root problem isn’t the downturn, but the timing of the downturn relative to the 2001 slump and the broader cyclical pattern of spending.

We ended a strategic IT cycle with the slump in 2001 and should have launched a new one (based on the SOA/mashup paradigm) shortly after. Instead, IT spending has stayed at a historical low level relative to GDP ever since. We were in a pattern of IT commoditization that the SOA cycle was trying to break, and if the current downturn kills that cycle, it will be years before IT spending growth would recover to historical levels.

IBM earnings point to SOA success

IBM reported exceptionally strong numbers, and so one of our critical data points for the future of tech has been obtained, and in a positive direction. IBM revenue growth accelerated to 13%, EPS grew by 28%, but the US sector was last among the major markets with only an 8% growth rate.

EMEA led with 20% and Asia showed 16% growth. The growth was in software and services (about 17% in each category); computer hardware grew at only 2% overall but systems grew at 10%.  IBM’s branded middleware grew at 21%, and WebSphere by 9%.

We believe the IBM numbers, particularly its service numbers, show that projects on SOA-driven modernization and the mashup process are pulling through software purchasing, thus creating the normal behavior for the IT cycle we believe to be driving the market at the moment.

We note that IBM’s information management tools expanded by 30%, showing that changes in IT directions are also changing the information content of worker experiences. All of this points to a positive data point for recovery of enterprise networking in 2009 and the need to prepare for this immediately. We believe that the strategic management changes by Cisco and Juniper are designed in part to prepare for the coming year’s changes in opportunity.