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Pricing pressure means buyers are now getting a better deal from IT suppliers, according to analyst company Gartner.
The analyst firm's latest forecast of IT spending has found that suppliers are coming under pressure from increased competition and lower-cost cloud-based alternatives to traditional enterprise software.
Traditional enterprise software suppliers are not differentiating products enough to justify a premium, while systems integrators are losing out because cloud products are generally easier to deploy.
Gartner's Worldwide IT Spending Forecast found that price pressure based on increased competition, lack of product differentiation and cloud computing was driving down prices among IT suppliers.
Richard Gordon, managing vice-president at Gartner, said commoditisation was driving down the price of IT. "Last quarter we had marginal growth, but zero growth this quarter. There is a lot of price pressure, so suppliers are not charging as much," he said.
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"We are seeing alternatives such as cloud becoming increasingly popular. There is pressure on existing business models and there is also saturation in the device market."
The market for devices – including PCs, ultramobiles, mobile phones, tablets and printers – is expected to reach $685bn in 2014, a 1.2% increase from 2013, according to Gartner.
This is due to lower price points expected across mobile phones and tablets, said the Gartner analysts.
Gordon said cloud computing was having a huge impact. "Cloud products are more generally sold off the shelf rather than custom built, which means there is no need for buyers to spend extra on system integration," he said.
Buyers are also benefiting from pay-per use licensing, Gordon added..
Due to the price pressure, he said suppliers will have to look at ways to create value from their products.
Worldwide IT spending forecast
|2014 spending||2014 growth||2015 spending||2015 growth|
Source: Gartner (June 2014)
Cloud drives datacentre consolidation
Gartner predicted that datacentre systems spending will reach $140bn in 2014, a 0.4% increase on 2013. Growth is low due to consolidation. Gartner noted that the server market was showing weakness as organisations migrate away from high-cost platforms towards lower-cost alternatives.
The hyperscale area of the market, primarily driven by consumer-oriented services, does provide some positive drivers to the market, albeit for very low-cost platforms, which further affects overall spending levels on datacentre systems, according to Gartner.
"There is a consolidation of datacentre compute storage – there are fewer and much larger datacentres," said Gordon. At the same time, cloud providers are using these larger facilities to provide services, which are being built using relatively low-cost x86 hardware.
In the enterprise software market, Gartner expected spending to total $321bn in 2014, a 6.9% increase on 2013. Slightly increased growth expectations for infrastructure software are balanced out by slightly lower growth expected for applications software, it said.
"Big data and analytics are driving the software market," said Gordon. "The digital business era means we have a lot more data around, which needs to be analysed and stored, so there is greater emphasis on database management systems."
Slower growth is expected in the applications market, specifically office suites and digital content creation (DCC), which is being affected by slow PC sales and the rapid move to cloud-based offerings by many organisations and professionals, Gartner noted.
Lower value IT outsourcing contracts
In the IT services market, Garter predicted a modest improvement in spending in 2014, compared with last year.
"In terms of implementation services, buyers are still risk adverse. There are much smaller projects – buyers are not going for mega-deals. This is having an impact on the big suppliers," said Gordon.
There is a lot of price pressure, so suppliers are not charging as much
Richard Gordon, Gartner
These findings are in line with other studies, as Computer Weekly has previously reported. Outsourcing advisory service ISG reported that in the fourth quarter of 2013 there were 39 large contracts valued at €400m awarded in Europe, the Middle East and Africa, down both year on year and quarter on quarter.
Outsourcing is also being affected by cloud services. IT outsourcing is growing more slowly than expected, according to Gartner. The largest suppliers are reducing their pricing, which it said has affected the cloud storage market.
When Google launched its Google Cloud Platform earlier this year, the supplier decreased the price of persistent disk block storage by 60%. Amazon responded in January by cutting Elastic Block Store pricing by 50%, and Microsoft Azure committed to match Amazon Web Services (AWS) prices for commodity services such as compute, storage and bandwidth, Computer Weekly's sister title SearchCloudStorage reported.
While Gartner and other analysts have predicted the rise of digital business and chief digital officers (CDOs), driven by the need for businesses to find new growth opportunities, Gordon does not believe existing services companies are best placed to support this.
He said IT services and outsourcing had evolved to automate traditional back-office functions: "Digital business is a very different way of thinking. It involves technology being utilised across business." Generally, Gordon said this is not usually driven by the CIO, but by the CEO or CDO.
In the telecoms market, Gartner predicted voice average revenue per user (ARPU) will decline by about 10% annually through 2018 because of a decline in consumer use of voice services, particularly among prepaid users. Overall, Gartner predicted that the telco market will grow by 0.7% in 2014 to $1.64bn.