Where Will IT Spending Growth Be In '07?
Yet, even though there is broad agreement as to the general IT trends that will spur technology spending, solution providers may find that sussing out the growth areas in their markets will prove to be a moving target.
According to CRN research, there appear to be some interesting areas of disconnect between what businesses said they plan to spend their IT dollars on as the new year gets under way and what VARs expect to be their best-selling solutions.
Of course, security is still hot, especially among small-business IT buyers, where it remains the top IT spending priority. And that does sync up with what VARs tell us—they expect security to be the No. 1 fastest-growing revenue generator in the first six months of 2007.
But that certainly doesn't mean any VAR with a couple of security certifications is going to rake in the bucks this year. Research and interviews suggest that VARs will find they're going to have to fine-tune their messages around specific solutions like network access control or encryption if they want to get companies to open up their wallets.
What's more, even in the security-conscious small-business market, there are hints that IT buyers also will be casting their gazes—and spending some of their money—elsewhere. Over the past year, Web services and network printers have seen greater year-over-year increases than security in the percentage of IT spending decision makers citing them as a priority.
Also, among midsize and large companies, where security remains the No. 1 and No. 2 spending priority, respectively, CRM and Linux have also had greater year-over-year increases than security.
In general, VARs tell us they are bullish on 2007. When we asked about sales expectations for the first half of the coming year, more than half said they believe sales will accelerate. Many of those also believe they won't be helped along by a wind of larger economic trends at their back, but will succeed by their own efforts.
NEXT: More VAR outlook, business spending forecast When we asked VARs about where they thought sales growth would be the fastest in the first half of the year, they named wireless and VoIP solutions along with security as the top three categories. And the top three trends they believed would affect their businesses were dual-core/multiprocessors, mobile computing and Software-as a-Service.
Vendor marketing and strategy executives CRN spoke with said the most important trends this year include server virtualization, unified communications, the expansion of Linux into the data center, the mainstreaming of service-oriented architecture and businesses taking a multipronged approach to security.
Other things the vendor marketers and strategists expect are also in line with VAR expectations: Managed services will continue to grow this year, security and storage products offer the highest gross margins, and financial services and health care are poised to bring the largest absolute growth in spending on IT products and services.
So it seems, overall, VARs' expectations seem pretty well-grounded in reality.
As Jimmy Lee, business development manager at Tallahassee, Fla.-based IBM Premier Business Partner Mainline, said, "It's all about persistence. If you've got the right solution and you're going to market with the right message, it's a lot easier sell than going in and saying, 'So, what do you want to do with your IT budget?' "
BUSINESS SPENDING PROJECTIONS
Small Companies
• Almost half (47 percent) expect their IT budgets to increase.
• Of those, almost half (43 percent) expect their budgets to grow by more than 20 percent.
• The top three technology spending priorities in order from the top: security, Web services and wireless.
Midsize Companies
• Half (50 percent) expect their IT budgets to increase.
• Of those, about a third (37 percent) expect their IT budgets to increase by more than 20 percent.
• The top three technology spending priorities in order from the top: security, wireless and Web services.
Large Companies
• Almost three-quarters (70 percent) expect their IT budgets to increase.
• Of those, almost three-quarters (70 percent) expect their IT budgets to increase by more than 20 percent.
• The top three technology spending priorities in order from the top: desktop PCs, security and PC servers.
Source: 4Q 2006 CRN Business Spending Survey
NEXT: Vendor spending forecast VENDOR SPENDING PROJECTIONS
Here are the consensus IT spending projections of a panel of six vendor executive market watchers*:
• The U.S. IT market will grow at a similar pace as in 2006, regardless of the performance of the general economy.
• As server virtualization takes off, server hardware vendors in 2007 or beyond will change their pricing models to minimize the impact of reduced sales, rather than suffer losses from decreased hardware sales. One vendor representative predicts hardware vendors will come out with models optimized for virtualization to gain back revenue.
• Remote managed services in 2007 and beyond will continue to grow, becoming the preferred model for IT delivery among SMBs. One vendor representative agrees these services will continue growing, but doesn't believe they'll become the preferred model.
• The NASDAQ Composite will not return to 2500 or above until the second half of 2007, even though it has been skirting this mark for months already.
• The Federal Reserve was wise to leave the federal funds rate unchanged at the most recent FOMC meeting.
• Financial services is the industry that will bring the largest absolute growth of spending on IT products and services in 2007. Health care will be close behind.
• Operations is the business functional area that will bring the largest absolute growth of spending on IT products and services in 2007. The marketing and sales organization will be a close second.
• The highest gross margins will come from security products. SAN and other storage products will be tied for second place.
• The most services revenue will come from ERP and server virtualization.
• The biggest increase in sales will come from server virtualization, with security and Web services close behind.
*Executives surveyed: Vivek Pathela, vice president product marketing, Netgear; Toffer Winslow, vice president product management and marketing, RSA; Peter Armstrong, corporate strategist, BMC; Joe Vignaly, senior director of market intelligence, Symantec; John Dragoon, senior vice president and chief marketing officer, Novell; Carl Bothner, vice president of strategy for Xerox Office Group, Xerox.
Additional reporting by JEANETTE BOYNE
