Where Is Artificial Intelligence In Forrester's Tech Market Numbers? It's Hiding

I have gotten some inquiries about where spending on artificial intelligence and cognitive technologies occur in our tech market numbers (see, for example, "US Tech Market Outlook For 2017 And 2018: Mostly Sunny, With Clouds And Chance Of Rain").  The short answer is that we include them in our data on business intelligence and analytics, though so far  spending on these technologies is still small -- probably than a billion dollars for 2017.

But even as artificial intelligence spending grows, it is likely to remain small in terms of visibility.  That's because artificial intelligence solutions are likely to be functions in existing software products, and not something that firms buy directly.  Put another way, the biggest buyers of AI will probably be software, services, and hardware vendors, who use AI to help their products and services work better.

There is precedence for this pattern in the BI and analytics market.  My Forrester colleague Boris Evelson has been collecting data from the leading BI vendors as to the percentage of their revenues that they get from end customers versus from OEMs (original equipment manufacturers).  On average, about 10% of these vendors' revenues come from sales to OEMs.  And that could well be understated, because vendors like IBM, Microsoft, Oracle, or SAP don't provide data on the explicit (or more likely implicit) value of their analytics products that are used in their applications.

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C-Level Business Executives Are Playing A Bigger Role In Tech Spending, But CIOs Still Remain Dominant

Tech buying in business and governments is clearly shifting from the sole or primary control of the CIO and the tech management organization and into the hands of business leaders.  But how much is this happening? Anecdotal comments and surveys – including Forrester’s own Business Technographics surveys – suggest that most tech purchases are now controlled by business executives.  However, in our just-published report, “C-Suite Tech Purchasing Patterns,” Forrester’s analysis shows that the shift of tech buying from the CIO to business executives is much less dramatic, with just 5% of all new tech purchases fully controlled by business by 2018.  Moreover, this shift varies dramatically by C-level executive. CMOs and eCommerce heads have the highest proportion of new project spending under their control, but CFOs, COOs, supply chain heads, and heads of customer service are much less likely to go it on their own.

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Forrester Projects US Tech Market Will Grow By Around 5% In 2017 And 2018

Forrester has just published our updated forecast for the US tech market for 2017-2018 (see “US Tech Market Outlook For 2017 And 2018: Mostly Sunny, With Clouds And Chance Of Rain”). We are forecasting growth of 4.8% in 2017 and 5.2% in 2018 for US business and government spending on tech goods, services, and staff. This forecast assumes moderate US economic growth (2% to 2.5% real GDP growth, 4% to 4.5% nominal GDP growth). Considering  this economic outlook, our updated 2017 forecast is slightly less positive than our December forecast (4.8% vs. 5.1%) for US budget growth in 2017, with our new 2018 forecast pointing to a modest improvement next year.

Three main themes define our updated forecast:

1.    Steady US real economic growth will support moderate growth for US business and government spending. Despite the weak 0.7% real GDP growth in the first quarter of 2017, economic forecasts have slightly improved since our post-election update, bolstered by renewed US business confidence. US consumer spending remains strong, as a result of reduced energy costs and low unemployment. We now think it unlikely that the Trump Administration's tax and spending policies in practice will lead to higher growth rates, nor that its actual trade policies will lead to lower growth. However, clouds in the economic outlook could emerge as the effects of rising interest rates, US housing vulnerability, weak US exports from the strong dollar, and anticipated cutting of US government spending take place.

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Slow 3% To 4% Growth In Global Tech Market In 2017 And 2018 Due To Cloud Transition And Political Uncertainties

In our just-published forecast for the global market for business and government purchases of technology goods and services (The Global Tech Market Outlook For 2017-2018: 3% to 4% Growth As Forces Of Disruption Battle With Forces Of Continuity), Forrester is projecting modest growth of 3.2% in 2017 and 3.9% in 2018 measured in constant currencies.  With the US dollar strengthening against most currencies in 2017 but likely to lose ground in 2018, global tech market growth in US dollars will be 2.8% in 2017 and 4.7% in 2018.

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US Tech Market Poised For Another Year Of Moderate 4% to 5% Growth If Election Results Don't Interfere

Forrester has just published our fall forecast update for the US tech market ("2017 US Tech Budgets: The Outlook For Tech Spending Overall And By Industry"), and we are now projecting 5.1% growth for business and government spending on tech goods, services, and staff in 2017. That's a modest improvement from the 4.4% growth we are forecasting for 2016.  That 2017 forecast assumes a continuation of the economic policies now in place under the Obama administration and the Republican Congress, and thus a Hilary Clinton election along with Republican control of at least the House of Representatives.  Should Donald Trump win the election or alternatively the Democrats take control of both the House and the Senate, our forecast for the US tech market in 2017 would be quite different.

The three main forces driving this forecast are the moderate pace of real economic growth at around 2%, the strong demand for the Business Technologies (BT) that help firms win, serve, and retain customers, and the transition to cloud.  

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Brexit Vote Means Weaker UK And European Tech Market In 2016 And 2017

As soon as the news of the Brexit vote in the UK came out, the Forrester team began revising our UK and European tech market forecast to take into account the economic implications and uncertainties of the voters’decision that the UK should leave the EU. Based on this revised analysis, we predict the UK tech market will grow by just 1% (pounds sterling) in 2016 with zero growth in 2017, compared with our prior forecast of 5% in both years.

Europe as a whole, will post no growth in 2016 (euros), and just 1% growth in 2017  two percentage points slower than our earlier forecast. With the plummeting pound and enervated euro, European tech market measured in US dollars will be similarly weak with 0.2% growth in 2016 and 1.1% in 2017.

The slowing of UK and European tech market growth results from multiple uncertainties created by the Brexit vote coming on top of what was already a weak and shaky European economy. As a result:

  • The UK economy, which had been outperforming most of the Eurozone countries, will take a hit. The Belgian, Dutch, French, German, Italian, and Swiss economies, which are growing by 1-1/2% or less, are vulnerable to declines, with Italy especially exposed due to a looming banking crisis.
  • Greece and Portugal are struggling once again, with threats of renewed recessions leading to declines in tech spending.
  • The only countries with decent economic growth and above average tech market growth are Ireland and Spain in the Eurozone, and Sweden, Poland, and other Central European countries outside it.
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Global Tech Market Will Continue To Grow At 4%-5% Rates In 2016 And 2017

Forrester has just published our global tech market report for 2016 and 2017 (see “The Global Tech Market Outlook For 2016 To 2017- The Five Themes That Will Define Tech Spending In The Next Two Years”). For the first time, our January 2016 global forecast includes telecommunication services (voice and data, wireline and wireless), which increases the overall size of the global market for tech purchases by business and government by $625 billion to a total of $2.9 trillion in 2016. However, even the addition of telecomm services cannot pull the global tech market out of the 4%-5% growth track, with growth at 4.5% in 2016 and 4.7% in 2017 when measured in exchange-rate-adjusted US dollars.

The five main themes that define the global tech market over the next two years are:

1.       Moderate overall growth remaining below 5%. The global tech market in constant currency terms will continue to grow modestly throughout 2016 and 2017 at 4.5% and 4.7%, respectively. The strong US dollar will persist in 2016, resulting in lower dollar-denominated growth rates. However, we expect the dollar to lose some steam by 2017, so we project 4.9% growth in US dollar terms.

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Global Tech Market Looking Better For 2015, At Least In The US

We have just published Forrester's semi-annual global tech market outlook report for 2015 and 2016 (see "The Global Tech Market Outlook For 2015 To 2016 -- Five Themes That Will Define The Tech Market").  In this report, we are projecting growth of 4.1% in 2015 and 6.3% in 2016 business and government purchases of computer and communications equipment, software, and tech consulting and outsourcing services measured in US dollars.  These growth rates are distinct improvements over the 2.3%  growth in 2014.  The strong dollar is a key negative factor in these forecasts; measured in local currency terms, the growth track for the global tech market is higher with a gentler upward slope, from 3.3% in 2014 to 5.3% in 2015 and 5.9% in 2016.

Our global tech market outlook can be defined with five main themes:

  1. Moderate 5% to 6% rates in 2015 and 2016 in local currency terms. While a stronger-than-expected US dollar has resulted in lower dollar-denominated growth rates for 2014 and 2015 than in our August 2014 projections, though a stronger-than-expected US dollar both years caused a downward revision in these growth rates.
     
  2. The US tech market will set the pace for the rest of the world in 2015 and 2016. Not only does the US have the largest country-level tech market by far, it will have one of the fastest growth rates at 6.3% in 2015 and 6.1% in 2016. US businesses and governments are also leaders in adopting new mobile, cloud, and analytics technologies. Among other large tech markets, China, India, Sweden, and Israel will also have strong tech market growth, while Brazil, Mexico, Japan, and especially Russia will lag.
     
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US Tech Market Will Rise By Around 6% In 2014 And 2015, Led By Software And Services In Support Of The BT Agenda

"Business Technology" Spending In The US Will Grow Faster Three To Four Times Faster Than Classic "Information Technology"

In our research over the past two years or so, Forrester has drawn a distinction between "business technology" and "information technology".  Information technology or IT represents the spending on technology goods and services that businesses and governments have been making over the past six decades to run their operations more efficiently and lower business costs.  Business technology or BT in contrast is the technology spending to grow revenues by winning, serving, and retaining customers.  In earlier reports, we identified the leading technologies that are part of what Forrester has called the BT Agenda (see "Top Technologies For Your BT Agenda").  Today, we have published our report that sizes US spending on BT (see "Sizing The US CIO's Business Technology Agenda -- Business Technologies Will Grow Faster Than Information Technologies And Will Exceed Half of New Project Spending").

Here are our key findings from this exercise:

  • BT technologies are more than just the front-office systems for sales and marketing.  They also include software and services for developing new products, handling and fulfilling orders, serving customers, and acquiring the human and partner resources for doing this effectively.  
  • IT technologies will continue to be over 70% of total tech spending through 2017.  Spending on information technology over decades has created a legacy of tech maintenance and operations spending, and firms still need to keep these core systems running. 
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