Changing Face of IT

The Economist writes about how the world of infotech is changing:

Steven Milunovich, an analyst at Merrill Lynch, thinks that the tech industry evolves through waves lasting 10-15 years, as innovation leads to a burst of spending on new technologies, then to a less exciting period of assimilation. In the 1970s and early 1980s, for instance, firms stocked up on the new thing at the time, mainframe computers. IT spending soared from less than 2% of GDP to about 3%. It then stayed at that level for almost a decade, as firms worked out how to get the most out of their machines. In the 1990s, they started investing again, this time in the new technology of client-server systems. By 2000, tech spending was almost 5% of GDP.

Since then, it has fallen back to about 4% of GDP as IT managers have repented of their bubble sins. Their penance is now pretty much done. Even so, reckons Mr Milunovich, firms have now entered a phase of assimilation, with the emphasis on making tangible returns on their technology investments, past and present. As a result, he says, IT spending is likely to grow only as fast as GDP for a few years.

Pip Coburn, an analyst at UBS, calls this environment cold techin contrast to the bubble era, when tech was hot. Firms now spend on different things, such as software to make their expensive bubble-era systems work together. Antivirus software and firewalls are other big items. Some companies are moving their IT functions to cheaper places such as India.

The hottest cold technology is Linux, an operating system that comes free, except for maintenance costs. In March, Forrester, an IT consultancy, found that 72% of corporate IT managers were intending to move their server-computers to Linux from Microsoft and Unix software.

What is missed out in these calculations is the potential for small- and medium-sized enterprises from emerging markets to spend on IT. But they need simpler, affordable solutions, along with education on how computers and the Internet can make a direct, tangible impact on their productivity and business. This is a market which exists but is not being seen by most of the IT companies, who are too focused on (a) the top of the pyramid, and (b) the developed markets.

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Rajesh Jain

An Entrepreneur based in Mumbai, India.