Over the past few years, IBM has certainly copped its fair share of criticism in the Asian media, particularly in Australia. Whether this criticism is deserved or not is beside the point. Perception is reality — and it’s led some companies and governments to exclude IBM from project bids and longer-term sourcing deals. On top of this, the firm’s recent earnings in Asia Pacific have disappointed.
But I’ve had the chance to spend some quality time with IBM at analyst events across Asia Pacific over the past 12 months, and it’s clear that the company does some things well — in fact, IBM is sometimes years ahead of the pack. For this reason, I advise clients that it would be detrimental to exclude IBM from a deal that may play to one of these strengths.
IBM’s value lies in the innovation and global best practices it can bring to deals; the capabilities coming out of IBM Labs and the resulting products, services, and capabilities continue to lead the industry. IBM is one of the few IT vendors whose R&D has struck the right balance between shorter-term business returns and longer-term big bets.
My colleagues at Forrester and I have been puzzling over the discrepancy between the wealth of attractive new mobile, cloud, and smart computing technologies in the market, and the relatively weak record of actual growth in tech spending that our tech market forecasting numbers show. Certainly, the recessions in Europe and weak economies in the US, Japan, China, India, Brazil and other emerging markets explain part of the weakness in tech buying. In addition, cloud computing’s impact on the timing of tech spending (reducing initial upfront capital purchases of owned hardware and software while increasing future subscription payments for use of these resources) means that spending that in the past would have occurred in current years has now been pushed into the future. Lastly, as a recent Economist article pointed out, business investment in general has been low compared to GDP and to cash distributed to shareholders this decade, as CEOs with stock option compensation have focused on meeting quarterly earnings-per-share targets instead of investing for the longer term (see Buttonwood, “The Profits Prophet,” The Economist, October 5, 2013). Still, even taking these factors into account, tech investment has been growing more slowly relative to economic activity than in past cycles of tech innovation and growth.
At the half mark through 2013, both the global and the European tech markets have pockets of strength and other pockets of weakness, both by product and by geography. Forrester's mid-2013 global tech market update (July 12, 2013, “A Mixed Outlook For The Global Tech Market In 2013 And 2014 –The US Market And Software Buying Will Be The Drivers Of 2.3% Growth This Year And 5.4% Growth Next Year”) shows the US market for business and government purchases of information technology goods and services doing relatively well, along with tech markets in Latin America and Eastern Europe/Middle East/Africa and parts of Asia Pacific. However, the tech market in Western and Central Europe will post negative growth and those in Japan, Canada, Australia, and India will grow at a moderate pace. Measured in US dollars, growth will be subdued at 2.3% in 2013, thanks to the strong dollar, and revenues of US tech vendors will suffer as a result. However, in local currency terms, growth will more respectable, at 4.6%. Software -- especially for analytical and collaborative applications and for software-as-a-service products -- continue to be a bright spot, with 3.3% dollar growth and 5.7% in local currency-terms. Apart from enterprise purchases of tablets, hardware -- both computer equipment and communications equipment -- will be weak. IT services will be mixed, with slightly stronger demand for IT consulting and systems integration services than for IT outsourcing and hardware maintenance.
The 2013 New Year has begun with the removal from the global tech market outlook of one risk, that of the US economy going over the fiscal cliff. On New Year's day, the US House of Representatives followed the lead of the US Senate and passed a bill that extends existing tax rates for households with $450,000 or less in income, extends unemployment insurance benefits for 2 million Americans, and renews tax credits for child care, college tuition, and renewable energy production, as well as delaying for two months the automatic spending cuts. While it also allowed Social Security payroll taxes to rise by 2 percentage points — thereby raising the tax burden on poor and middle class people — and did not increase the federal debt ceiling or address entitlement spending, the last-minute compromise does mean that the US tech market no longer has to worry, for now, about big increases in taxes and cuts in spending pushing the US economy into recession.
In 2009, my research team here at Forrester published a report on what we called "smart computing," a new generation of hardware, software, and networks that connects physical infrastructure with analytic computing systems.
Next month we will publish an update to that research, outlining why we continue to think that smart is the next wave of IT industry growth, likely to outstrip cloud and mobile computing in its eventual impact.
We believe that smart computing -- sensors, M2M networks, and analytics, along with collaboration tools -- will be as transformative of business in the coming decade as the Internet and Web browsers were during the 1990s.
Why is smart still the next big thing? Consider:
Improving transactional processes is yesterday's story. The back-office challenges of preparing financial statements, fulfilling customer orders, or tracking inventory are well addressed by enterprise and personal productivity software. These traditional workloads are migrating to cloud computing resources in some cases, but are not creating incremental technology investments nor opportunities to transform how a business operates.
We have just published Forrester's current forecast for the global market for information technology goods and services purchased by businesses and governments (see January 6, 2011, "Global Tech Market Outlook For 2012 And 2013"), and it shows growth of 5.4% in 2012 in US dollars and 5.3% in local currency terms. Those growth rates are a bit lower than our prior forecast in September 2011 (see September 16, 2011, “Global Tech Market Outlook For 2011 And 2012 — Economic And Financial Turmoil Dims 2012 Prospects"), where we projected 2012 growth of 5.5% in US dollars and 6.5% in local currency terms. I would note that these numbers include business and government purchases of computer and communications equipment, software, and IT consulting and outsourcing services equal to $2.1 trillion in 2012, but do not include telecommunications services.
Over the past few weeks, computing giants HP and IBM have made significant new thrusts into the market for sustainability software and services. At first look, both companies are strengthening their commitment to "IT for sustainability (ITfS)" -- the use of information technology to help their customers meet their sustainability goals.
Both are prominently featuring "energy" in their messaging in keeping with the current customer focus on that side of the consumption/emissions coupling. And both are emphasizing a combination of software products and consulting services, the two segments of the market that we at Forrester have been tracking for some time now, as regular readers of this blog know by now.
But under the surface there are more differences than similarities in the approach that these two suppliers are taking to ITfS; differences that illuminate divergent strategies, philosophies, and experiences between them. Let's take a closer look.
HP is going broad; IBM is narrowing its focus. With its initial "Energy and Sustainability Management Services" entry, HP is leveraging its data center design and implementation expertise into buildings and other assets across the enterprise. It is stressing a holistic, top-down approach, starting with assessment workshops and other methods to help customers get their arms around the size and shape of the energy/carbon/resource issues.
Like many connected with IBM as an employee, a customer, or an analyst, I watched IBM's Watson beat two smart humans in three games of Jeopardy. However, I was able to do so under more privileged conditions than sitting on my couch. Along with my colleague John Rymer, I attended an IBM event in San Francisco, in which two of the IBM scientists who had developed Watson provided background on Watson prior to, during commercial breaks in, and after the broadcast of the third and final Jeopardy game. We learned a lot about the time, effort, and approaches that went into making Watson competitive in Jeopardy (including, in answer to John's question, that its code base was a combination of Java and C++). This background information made clear how impressive Watson is as a milestone in the development of artificial intelligence. But it also made clear how much work still needs to be done to take the Watson technology and deploy it against the IBM-identified business problems in healthcare, customer service and call centers, or security.
The IBM scientists showed a scattergram of the percentage of Jeopardy questions that winning human contestants got right vs. the percentage of questions that they answered, which showed that these winners generally got 80% or more of the answers right for 60% to 70% of the questions. They then showed line charts of how Watson did against the same variables over time, with Watson well below this zone at the beginning, but then month by month moving higher and higher, until by the time of the contest it was winning over two-thirds of the test contests against past Jeopardy winners. But what I noted was how long the training process took before Watson became competitive -- not to mention the amount of computing and human resources IBM put behind the project.
At first glance, our forecast that the global IT market will expand by 7.1% in 2011 is right in line with the 7.2% growth we are estimating occurred in 2010 (see our January 11, 2011, "2010-2012 Global Tech Industry Outlook" report). In fact, there are many points of similarity between the two years besides the overall growth rates, such as comparable growth rates in communications equipment purchases both years, or the US and Asia Pacific growing at similar rates of growth in 2010 and 2011.
However, there are three important points of difference that I think make our projected growth for 2011 more impressive than the almost identical rate of growth that occurred last year:
Minimal rebound effects in 2011. 2010 was the year when IT capital investment bounced back from recession-depressed levels in 2009, especially in computer equipment and to a lesser degree in software. Companies had been cutting back on purchases of servers, personal computers, storage devices, and peripherals like printers and monitors since 2007. That meant a build-up of a lot of deferred demand for replacement equipment, which was unleashed in 2010, helping to drive 11% growth in this category last year. Licensed software also felt some of these effects, with freezes on capital investment pushing purchases from 2009 into 2010. Thus, in both cases, 2010 growth rates were measured off of low bases in 2009. In contrast, the 2011 growth will reflect new demand for IT goods and services, not pent-up demand for prior years. And the 2011 growth rates will be measured off a stronger base that reflects that fact.
Thirteen months ago, I introduced the concept of “Smart Computing,” which I predicted would drive the next big wave of technology innovation and growth in the 2008 to 2016 period (see December 4, 2009, "Smart Computing Drives The New Era of IT Growth"). Smart Computing involves the addition of new awareness technologies like RFID, sensors, and image recognition and new real-time analysis technologies, along with adoption of foundation technologies like service-oriented architectures, unified communications, virtualization, and cloud computing. Since then, I have been tracking the tech market for evidence that this is in fact happening.
One key indicator I am watching is how many vendors have started to incorporate “Smart Computing” terms and language into their marketing, sales, and brand material. This matters, because tech vendors will be the ones that translate the concepts embedded in Smart Computing into actual sales of solutions and products to clients, thereby generating the revenue growth that will cause the tech market to grow twice as fast as the economy as we expect. In fact, that kind of tech market growth has been occurring, at least in the US (December 14, 2010, “US Tech Industry Outlook For 2011 -- 2011 Likely To Replay 2010's 8% Overall Domestic Growth Rate”). But we want to see whether that strong growth is due to adoption of Smart Computing solutions, or other factors.