infoTECH Spotlight Magazine

CHANNELS

Subscribe to the InfoTech eNewsletter
infoTECH Magazine

January 01, 2011

The Year of the Bull? Disruptive Forces Transcend Year of Recovery

This article originally appeared in the Jan. 2011 issue of InfoTECH SPOTLIGHT

By all accounts, 2010 was the year of economic recovery and it seems safe to say it looks like the worst (knock on wood) is behind us. In fact, according to industry analysts and senior-level decision makers, the U.S. economy will begin to show signs of improvement in 2011 with a little help from a sector known as IT. Disruptive forces including emerging devices such as the media tablet as well as cloud computing, virtualization and social media will continue to drive industry growth in the New Year.

First, consider that spending on public IT cloud services is expected to grow at more than five times the rate of the IT industry in 2011, up 30 percent from 2010, as organizations move a wider range of business applications into the cloud, according to researcher International Data Corp. 

Small and medium-sized business cloud use will surge in 2011, with adoption of some cloud resources topping 33 percent among U.S. midsize firms by the end of 2010, the research predicts. Meanwhile, the more nascent private cloud model will continue to evolve as well.

“In 2011, we expect to see these transformative technologies make the critical transition from early adopter status to early mainstream adoption,” says Frank Gens, IDC (News - Alert) senior vice president and chief analyst. “As a result, we’ll see the IT industry revolving more and more around the build-out and adoption of this next dominant platform, characterized by mobility, cloud-based application and service delivery, and value-generating overlays of social business and pervasive analytics.”

Growing confidence in the economy is also more abundant and is having a positive effect on cash flow for many IT companies.

Infosys (News - Alert) Technologies Ltd. Chief Executive S. Gopalakrishnan told the Wall Street Journal in November the company is seeing a strong order pipeline as clients increase their information technology spending due to growing confidence about the global economic recovery.

“(Our clients) are seeing improvement in their margins, their cash flow positions are better, their balance sheets are becoming stronger,” the executive told Dow Jones Newswires in an interview on the sidelines of a Group of 20 nations business summit. “They’re now looking at the future; they’re trying to spend and create opportunities for growth, and we’re benefiting from that.”

Even venture capital spending was flowing more freely in 2010 – according to National Venture Capital Association Vice President Emily Mendell, venture capitalists poured $1.75 billion into emerging Silicon Valley companies last quarter, down 42 percent from the previous quarter’s $3 billion and 26 percent from the third quarter of last year.

As we move into 2011, CIOs are expected to pursue scalable technologies that leverage tools such as automation, social media and mobility while limiting capital investment, making workforces more agile while shrinking footprints, experts tell InfoTech Spotlight.

According to Greg Buoncontri, CIO of hardware, software and services provider Pitney Bowes, cloud computing and managed services stand to gain investors in 2011 for many of those reasons.

Despite security concerns, cloud computing has become an IT buzzword because the technology “avoids large capital investment and offers a subscription-based model,” Buoncontri tells InfoTech Spotlight. “Companies also can bring it online quickly. It’s extending into a whole lot of areas. Security is a concern, but version two or three will help eliminate that. The technology is very right for this (economy).”

And while many companies maintained the status quo in 2010, Silicon Valley-based Astreya is a shining example of a company that has grown exponentially despite a recession that crippled so many other value-added resellers (VARs) in the industry.

The Santa Clara, Calif.-based company has achieved growth during such a volatile economic period due to its consultative approach that helps companies maximize their IT investments, according to Jim Illson, chief operating officer, Astreya Partners, Inc.

“First, we believe the use of IT consulting and staffing support by companies looking to augment their own resources is a long-term trend, not just a tactic companies employ during softer economic periods. Many of our clients are Fortune 500 enterprises – in both technology as well as other fields,” Illson explains.

“Second, other clients are newer enterprises who are in growth mode; our ability to provide qualified professionals helps them be more competitive by reducing the time it takes them to execute on key IT initiatives to support the growth of their businesses,” he continues. “Finally, we have made substantial investments to ensure that we find, train, develop and place top IT talent. This rigorous focus on quality – as well as our dedication to execution – has enabled us to be a key technology consulting and staffing partner to our clients.”

Illson told InfoTech Spotlight he sees two IT trends that are most greatly impacting the bottom line for businesses.

“There are two major trends which we see having a positive bottom line impact on business. First, leveraging cloud computing and its varied applications: The ability to utilize a wide range of applications via the Internet is having a profound impact on the ways in which businesses can operate,” says Illson. “What started several years ago with silo-focused programs in areas such as sales and opportunity management has since expanded across a wide range of applications in farther reaching areas such as financial and ERP systems, HR functions, supply chain management and customer relationship management (CRM).

By leveraging cloud computing for these kinds of applications, companies can significantly reduce the time and cost from system design through implementation. Meanwhile, smaller enterprises can utilize applications for a broader range of capabilities that may have been too expensive or distracting in resources in the past. By doing this, they can significantly narrow business gaps that exist with larger competitors, according to Illson.

“The other major trend that we see impacting the bottom line is virtualization. While this complements cloud computing, it is also a stand-alone technical strategy,” he continues. “The ability for companies to significantly increase the efficiency of their server, storage and network resources provides enormous potential to significantly reduce costs, as well as gain increases in productivity from improved utilization of a company's IT infrastructure. IT environments which implement effective virtualization capabilities can also realize improvements in backup and disaster recovery.”

Media Tablets on the Rise, PC Shipments Dropping

Another glimmer of hope for a more bullish 2011 is found in growing user interest in media tablets such as the iPad. However, this likely means fewer PC shipments globally. Growing demand for media tablets and a still-uncertain economy are the primary drivers for an expected decrease in worldwide PC shipments, as forecasted by global technology research firm Gartner (News - Alert).

However, worldwide PC shipments are on pace to total 352.4 million units in 2010, a 14.3 percent increase from 2009, according to the latest preliminary forecast by Gartner. Still, these projections are down from Gartner’s previous PC shipment forecast in September 2010 of 17.9 percent growth.

Ranjit Atwal, a research director at Gartner, explained that the results reflect “marked” reductions in expected near-term unit growth based on expectations of weaker consumer demand, due in no small part to growing user interest in media tablets such as the iPad.

“Over the longer term, media tablets are expected to displace around 10 percent of PC units by 2014,” Atwal says.

In addition, 2011 worldwide PC shipments are forecast to reach 409 million units, a 15.9 percent increase from 2010. This is down from Gartner’s earlier estimate of 18.1 percent growth for 2011.

Analysts also noted five key “disruptive forces” that, if you put them all together, could weaken the PC market moving forward.  

“PC market growth will be impacted by devices that enable better on-the-go content consumption such as media tablets and next-generation smartphones,” said Raphael Vasquez, research analyst at Gartner. “These devices will be increasing embraced as complements if not substitutes for PCs where voice and light data consumption are desired. It is likely that desk-based PCs will be adversely impacted over the long-term by the adoption of hosted virtual desktops, which can readily use other devices like thin clients.”

George Shiffler, research director at Gartner, said that while PCs are still seen as necessities, the PC industry’s inability to “significantly innovate and its overreliance on a business model predicated on driving volume through price declines are finally impacting the industry’s ability to induce new replacement cycles.’

“As the PC market slows, vendors that differentiate themselves through services and technology innovation rather than unit volume and price will dictate the future. Even then, leading vendors will be challenged to keep PCs from losing the device ‘limelight’ to more innovative products that offer better dedicated compute capabilities,” Shiffler said.

According to the Gartner analysts, the five dynamics that are challenging the PC industry are:

Emerging Markets Continue to Drive Growth

While Gartner expects a continued upside in its emerging market forecast, leading to emerging markets gaining more than 50 percent of the total worldwide PC market by the end of 2011, mature markets will face mounting challenges.

Consumer Wallet Continues to Shrink

Home mobile PCs have suffered the steepest downgrade with shipments in mature markets expected to be significantly weaker. Consumers in the U.S. and Western Europe continue to postpone purchases in the face of financial and economic uncertainty. However, Gartner said that the bigger issue for PCs in the home market is consumers temporarily, if not permanently, forgoing PC purchases in favor of media tablets. 

Emerging Devices

Media tablet capabilities are expected to become more PC-like in the coming years, luring consumers away from PCs and displacing a significant volume of PC shipments, especially mini-notebooks.

Extended Life Cycle Impact

The growth of emerging devices will have an important indirect impact on PCs – the extension of average PC lifecycles, according to Gartner analysts.

Uptake of Thin Clients

Hosted virtual desktops (HVDs) are not expected to earnestly impact mature professional markets until 2012, at the earliest, Gartner analysts said. Longer term, users that adopt HVDs to access their compute capabilities will do so predominantly by using refurbished PCs and thin clients. These alternative devices will displace new PC units, reducing expected future desk-based shipment growth.

The Road Ahead

A 6 percent uptick in worldwide IT spending to $1.6 trillion in 2011 will fuel “meteoric growth” in mobile computing, cloud services and social networking so as to push these new technologies more into the IT mainstream, according to IDC research.

The researcher said that IT spending surges in mobile applications, cloud services and social business software will generate a frenzy of activity that frames a new market and opens up a plethora of industry-specific solutions.

IDC expects major software vendors will buy social software providers in greater numbers in 2011, either to kick start or boost their presence in the social business segment.

“What really distinguishes the year ahead is that these disruptive technologies are finally being integrated with each other, cloud with mobile, mobile with social networking, social networking with ‘big data’ and real-time analytics,” says Gens.

“As a result, these once-emerging technologies can no longer be invested in, or managed, as sandbox efforts around the edges of the market,” he adds. “Instead, they are rapidly becoming the market itself and must be addressed accordingly.”

Astreya’s Illson says he expects additional growth for the firm, in 2011, but likely at slower rates of growth than experienced last year.

“In 2010, it appeared that companies spent money on IT refresh and other projects where there was the need to catch up from prior periods of tighter spending. Given the level of spending and growth we saw in 2010, we believe there will be more focused spending in 2011; we also believe growth companies in a variety of industries will need to add to their IT infrastructure to support their growth initiatives,” he says.

Tight management and control of IT spending fits well with Astreya’s business strategy, Illson adds. 

“We can help our clients rapidly execute on IT strategies and help them do this more flexibly. This can ultimately help them be more responsive to business needs, while reducing the need to fully commit to longer-term fixed costs when projects end or needs change.”


Erin Harrison is Executive Editor, Strategic Initiatives, for TMC, where she oversees the company's strategic editorial initiatives, including the launch of several new print and online initiatives. She plays an active role in the print publications and TMCnet, covering IP communications, information technology and other related topics. To read more of Erin's articles, please visit her columnist page.

Edited by Stefania Viscusi