Capital spending on server hardware and virtualization software will grow more slowly in 2012 than in previous years, as spending on cloud computing rises. This is just one of the many budgeting trends revealed in CIO Insight's 2012 IT Investment Patterns Study. Managed services expenses also seem to be losing steam. But these dollars aren't going directly to cloud computing. Instead, they are being used in 2012 to increase budgets for mobility and infrastructure support areas.
In fact, the 2011 spending trend we detected six months ago in our midyear budgeting report ("Infrastructure Back in the Mix," CIO Insight, May 2011) looks likely to continue in 2012. Organizations are showing greater interest in their investments in infrastructure, after several years of cost-mitigation efforts brought on by the Great Recession. While infrastructure spending for 2011 was mostly about hardware, our latest research shows that 2012 will be about operations software as well.
At the same time, a good deal of spending is shifting to mobility. Large enterprises are rapidly pushing applications out to mobile users. They're doing this with mobile app development, the single hottest budget area by far (see chart, this page), and by building out their wireless networks. Midrange enterprises tend to lag somewhat in new market development and so are still in the mobile device deployment stage, while also rolling out certain business applications such as ERP and CRM.
CIO Insight's 2012 IT Investment Patterns Study was fielded Nov. 1 to Dec. 8, 2011, and was designed by CIO Insight in conjunction with the research division of the publication's parent company, Ziff Davis Enterprise. A random selection from the company's lists of readers and site visitors was invited by email to participate. The study was conducted online. The survey was completed by 329 respondents in organizations with 50 or more employees who are familiar with their organization's budgetary and spending levels. (To view a PDF version of the full report, with charts and graphics, click here.)
IT security is another active 2012 investment area. More firms than ever are adding security budget areas, such as identity and rights management (see Finding 1 on page 25). Overall, fewer organizations are planning to budget in 2012 for most of the 75 investment areas we examined than they planned in 2011. But, in IT security specifically, more organizations are budgeting for most budget lines.
What we're seeing here is the effect of three separate broad trends: innovation, integration and reversion.
Innovation: Here's where mobility and cloud-related investments grow. The rise of the former has been so strong that it's one of the leaders--at least in popularity (number of organizations budgeting), if not always in strength (average amount invested).
Integration: Innovative areas don't squeeze out established ones: infrastructure hardware or software. After all, server, storage and virtualization spending continues to grow. But these are large budget areas and tend to be well-integrated (or, in the case of virtualization it seems, newly integrated) into ongoing deployment and investment. So all that happens is that some of their dynamism gets lost to the newcomers.
Reversion. This is where a previously integrated investment area might have been neglected, usually for economic reasons, even as the need for it continued to grow. Security spending patterns revealed in this year's study are a perfect example of this. Threats and risks have hardly fallen over the years; on the contrary, mobility, cloud computing and even virtualization all have revealed new and not fully addressed security landscapes. After some neglect, these are being dealt with in 2012 with new investment activity. (We've experienced a similar "reversion" trend in hardware investment over the past two years, when a pent-up need for refreshes and upgrades caused increased spending levels that now, as noted earlier, look as if they will return to more normal levels in 2012.)
For IT strategists, there is also something of an object lesson to be found in how spending gets transferred rather than savings realized. When low-cost alternatives to established technologies arise, such as virtualization and cloud computing, they don't tend to reduce overall IT spending, even though that's how they're sold to the finance masters. Looking at infrastructure hardware, for example, we see that growth rates are losing steam going into 2012. For example, on average, firms are growing server budgets by only 4.2 percent, which is slower growth than 54 of the 75 budget lines in the study. And it's not just capital outlays: Managed services, a popular expense-based alternative, is entering a similar funk, with average budget growth of only 1.4 percent. Even growth in virtualization software spending is down from previous years.
Various cloud computing approaches are likely taking the place of these technologies, but only on the margins for now. That's because, overall, cloud-related budgets aren't taking up all the growth. As IT infrastructure managers know, development of the cloud, while rapid, has hardly made it anywhere near as common as even virtualization, let alone traditional on-premises hardware approaches.
Plus, in spending terms, the cloud is cheaper than other IT budget lines. For example, the cost per employee is lower for private clouds than it is for servers or virtualization. And, in large organizations at least, the cost per employee for cloud services compares even more favorably against other spending areas. It's worth noting, though, that some of that cloud spending occurs outside of dedicated cloud budgets. Large organizations, in particular, are spending significant shares of their enterprise applications budgets on cloud-based applications (see Finding 2.1 on page 27).
What spending areas are growing? IT infrastructure operations, for one. This is much needed as the technology environment becomes more distributed and more mobile. Average growth of desktop management budgets will be 13.6 percent in 2012, and application management and governance systems aren't far behind, with average increases of 11.8 percent and 10.8 percent, respectively.
Probably the biggest budget-taker is mobility. In large companies, this also encompasses spending on wireless infrastructure. Both budgets show accelerating growth rates going into 2012. Not only are the vast majority of organizations (91 percent) expecting to spend on mobile devices in 2012, but the average year-on-year budget increase for mobile devices in these firms is 14.6 percent, greater than all but three of the 75 budget areas in our study. And wireless equipment expenditures are increasing to match, with average year-on-year budget growth of 14.4 percent.
The next wave in this development, which we see clearly in large organizations, is mobile-based software. Mobile apps account for an average of 9 percent of business-application spending in large enterprises (Finding 2.1), and midrange organizations are not far behind.
In IT security, more organizations are spending in two specific areas in 2012 compared with 2011:
rights management, where the share of firms spending increased 14.2 points, from 47 to 61 percent;
identity management, with a share increase of 12.2 points, from 65 to 78 percent.
Other hotbeds of security spending include cloud- and mobile-related areas such as encryption (up 11.1 points in share, from 70 percent in 2011 to 81 percent in 2012) and authentication (up 10.1 points, from 65 to 75 percent). Some of this spending is shifting out of more-established IT security areas, such as security management, where the share of organizations budgeting has gone down by 7.1 points (from 89 percent share in 2011 to 82 percent in 2012), and antivirus, down by 6.8 points (95 to 88 percent).
We'd also like to make a special mention of business intelligence, which has become one of the most popular areas of IT investment. Nearly nine in 10 organizations are budgeting BI for 2012. The rise in investment should astound anyone: More organizations will spend on BI in 2012 than on any other kind of application. By comparison, 84 percent are budgeting for traditional desktop productivity applications, 83 percent for project management and an equal number for collaboration solutions, and 82 percent for human resources apps. Across all 75 budget areas, BI will be the seventh most common in 2012.
Elsewhere in enterprise applications, collaboration, and content and project management are rapidly gaining popularity, which makes sense given the new mobile opportunities for these categories. Collaboration and content management are seeing increases in 2012 over 2011 of roughly 10 percentage points in the number of organizations budgeting; and among those that already were spending in these areas, budget growths are averaging 14.6 percent and 7.3 percent, respectively--both significantly higher than 2011's growth.
Veteran IT hands will see much that is familiar in this report. Sure, virtualization has made IT infrastructures strikingly more efficient. But by now, virtualization has simply been incorporated into the fundamental IT tool box. Virtualization, while one of the most important IT tools available, is not quite the wave it was promised to be. The expectation was that it would fundamentally rewrite the rules of computing architecture in the space of a few years. Its future is bright, but it should not obscure the truly revolutionary technologies that will reshape IT.
We can say the same about cloud computing--and eventually, we suspect, mobility. If there's anything to be learned from the hardware infrastructure investment we've seen in the past two years--and the security investment we're expecting in the year to come--it's that phases and fads energize an entire market. It's only the short-term timing of investments that can fool us: That's when we're justifying and implementing new technologies when we haven't fully seen how they stimulate the old ones.
About the Author
Guy Currier is senior editor/research for CIO Insight. He can be reached at Guy.Currier@cioinsight.com.