IT Spending Shift

Writes Economist: “Companies are not only spending much less on IT now, but they are also spending differently. Software vendors, in particular, can no longer depend on quick multi-million-dollar deals, but must work harder to win contracts that tend to be much smaller. More importantly, customer priorities have changed. Rather than buying e-business software or new computers, companies want gear that helps to cut costs, improve security and integrate existing software applications.”

The article goes on:

Being forced to do more with less, IT managers are coming to like Linux, the free operating system. Linux and the universe of open-source businesses that surround it are one of the few areas of the technology business that is actually growing. Almost a fifth of server computers sold by Dell now have Linux installed rather than Windows. Sun Microsystems has begun offering Linux servers, and might soon add a Linux PC to its product line.

If this trend towards openness continues, the IT industry will probably have to live with lower profit margins than in the past. Either way, argues Steven Milunovich, an analyst with Merrill Lynch, profits will shift away from hardware, which is becoming more and more commoditised, to software, services and consulting. IBM forecasts that these last three will account for 58% of industry profits in 2005, up from 42% in 2000.

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Rajesh Jain

An Entrepreneur based in Mumbai, India.