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 our February 13, 2012, “Mobile Is The New Face Of Engagement” report, we talked about the important link between smart products and mobile apps. A key to that link is creating a smart product application programming interface (API) that allows third parties to easily write apps that tap into the data feeds from the connected offerings, extending the value of that product with an “app ecosystem.”
As a precursor to an upcoming report that will lay out the smart connected product landscape and the unique combination of IT and product development skills required to build them, Forrester interviewed Cédric Hutchings, the general manager of Withings, a leader in the connected medical device segment.
The highlights of the discussion with Cédric included:
Company vision. The company seeks to improve the value of everyday devices through connectivity and apps.
Role of API. An API enables different services that could not be built in-house; it makes it easy for third parties to get data flow and integrate it into app. As a result, Withings has an ecosystem of more than 40 third-party apps that integrate with its Wi-Fi-connected bathroom scale.
Cloud value proposition. A personal wellness data dashboard allows consumers to manage health across a range of devices and inputs/apps from Withings and other companies.
Smart product skill requirements. These requirements include a mix of user experience, embedded software/product development talent, traditional IT web, database and middleware competencies, and partner management liaison capabilities.
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.
My analyst duties took me to a number of industry and tech-vendor events this fall; in fact, looking back at my calendar, I have been out of my home area in Boston for nine of the last 12 weeks. The upside of all that time in airplane seats is that I get to meet and interact with leaders across the technology industry, including supplier companies, large and small, and their customers and partners.
In the first 10 days of December I spent time with five important technology suppliers, each of which has very different views on the opportunity in the broad arena of IT-for-sustainability (i.e., how information technology products and services help corporations achieve their sustainability goals).
This past weekend, my wife wanted desperately to attend Jon Stewart’s “Rally to Restore Sanity and/or Fear,” to support the message of civility and moderation. An injured foot and problems with travel logistics kept her from attending, but we watched it on the Comedy Central network. It was, of course, a counterpoint to the “Restoring Honor” rally that Fox News’ Glen Beck held in August. However, there were two striking commonalities about the two rallies:
First, the ability of cable program show hosts to gather hundreds of thousands of people (estimates seem to be around 100,000 for the Beck rally and 200,000 for the Stewart rally) to travel to Washington for a rally. We’re not talking about rallies organized by a major political leader like President Obama or a media giant like Walter Cronkite with a TV audience of tens of millions of people. Instead, the TV personalities who hosted these events have cable audiences that on a good night may reach 3 to 5 million people.
Second, the absence of attention to substantive economic issues facing this country, such as persistent high unemployment, economic recovery strategies, education and competitiveness, global warming, or budget deficits and priorities. Instead, the rallies focused on culture, tone, and attitudes, with the Beck rally resembling a college homecoming event where the returning alumni complain about how the place has gone downhill since they left, while current seniors crack jokes and make fun of the old geezers wandering around the campus.