IT Spending Up…Slightly

Hints of optimism are emerging in the information technology (IT) sector as reports indicate that companies are increasing budget allocations for the coming months. Aberdeen Group found an average 3.7 increase in the budgets of surveyed senior IT executives over the next six to 12 months, and considering that this same survey group expected to decrease spending by 1.4 percent in February 2002, the slight gain is significant.

Aberdeen senior vice president Hugh Bishop attributed the expected budget increase to be indicative of a nascent resurgence in IT spending. “We expect IT purchasing to recover gradually, however, and are not forecasting a return to the hyper-growth of the late 1990s.”

Aberdeen’s survey also examined hardware spending expectations and found that with the exception of mainframes and handheld devices, users continued to expect to slightly increase spending in hardware during 2002, with growth rates ranging from 2 percent to 2.5 percent. Unlike previous results, which showed across the board increases as high as 10.2 percent, the updated figures are much more conservative, as would be expected given the economic difficulties in the world economy.

In terms of buying intentions for technology infrastructure, Aberdeen’s survey found: 72 percent indicated they intend to purchase network and system management applications; 60 percent indicated they intend to purchase security gateways and services; 52 percent indicated they intend to purchase storage management solutions; 52 percent indicated they intend to purchase application development tools; and 48 percent indicated they intend to purchase backup and recovery software.

“User organizations continue to be most concerned with protecting and preserving their existing IT investments and are less concerned with building additional integration points,” said Bishop. “Whereas the events of September 11th were a likely catalyst for this trend earlier in the year, the continued importance of these infrastructure purchases point to sustained economic uncertainty and the need to maximize the return on assets.”

In addition to overall spending, the survey examined buying intentions and priorities for 35 application software categories and 11 technology infrastructure sectors. Among the survey’s buying intention findings for the application category were: 48 percent said they intend to purchase sales force automation applications; 45.2 percent said they intend to purchase query, reporting and analysis tools; 44.9 percent said they intend to purchase help desk and field service applications; 44.7 percent said they intend to purchase finance and accounting systems; and 44.2 percent said they intend to purchase data mining applications.

“Applications with proven track records and definitive ROI [return on investment] will win in the short term and technology suppliers that fail to demonstrate a short payback period for their solutions are likely to find their proposals put on hold until economic conditions improve,” Bishop noted.

Findings from Datamonitor support technology budget increases, particularly in the call center and workforce optimization segments. The firm found that in 2001 companies globally spent US $550 million on technologies designed to improve their call center workforce. Over the next five years this figure will grow to near grand total of US $6.3 billion as companies invest in solutions that improve agent performance in the call center.

Additionally, many advertisers are turning to technology to save money and to track their campaigns, according to a new report by Forrester Research and the Association of National Advertisers.

A recent survey by Forrester of the New York-based ANA’s membership – who represent the major U.S. advertisers – indicated that 47 percent plan to spend more than $750,000 this year on developing, licensing or subscribing to marketing applications, including email, CRM, campaign management and online ad serving.

The biggest expected spenders include companies in the technology, healthcare, and travel industries, Cambridge, Mass.-based Forrester said.

The reasons for the advertising industry’s increased interest in technology that automates and tracks marketing stem from the growing demands placed on marketers to quantify results eked out with shrinking budgets. The survey revealed that 83 percent of ANA members found it difficult to measure the effectiveness of campaigns across different media – but 81 percent also agreed that technology could be useful in solving the problem.

“In this competitive environment, marketers want to improve the efficiency of their advertising,” said ANA Senior Vice President Barbara Bacci Mirque. “Our survey revealed that more companies will increase spending on marketing technology than plan to increase their advertising budgets next year.”

Indeed, about 52 percent of ANA members surveyed said they plan to spend more on marketing technology during 2002 than they did a year ago, while only 45 percent say the same for general advertising expenditures.

Approximately 19 percent of the participants, however, said they planned to reduce marketing technology investments, while 35 percent said the same for advertising expenditures.

Forrester also said that most of the ANA members surveyed favored licensing software to handle many of their marketing technology needs, as opposed to outsourcing to their ad agencies or to ASPs. That was especially true for email, in which 43 percent of respondents said they favored using software over ASPs (20 percent) or agencies (14 percent). An additional 15 percent said they developed software themselves instead of licensing or outsourcing.

The survey underscores the reasons that many online and cross-channel marketing technology vendors have been deploying new tools to calculate return on investment. Ad serving plays including DoubleClick and Avenue A’s Atlas DMT have signed partnerships and begun offering tools to track campaign ROI, while site analytics players like WebSideStory, Coremetrics, NetIQ and Keylime have all rolled out enhancements to their products designed to similarly capitalize on the growing demand.

“More data, processing power, and analytical tools have emerged that allow marketers to monitor actual consumer behavior, not just attitudes,” said Forrester Senior Analyst Jim Nail, the chief author of the study. “These tools also enable marketers to track effectiveness of media, promotion, and advertising programs, and stick only to initiatives with proven results.”

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