Big five suppliers map out service-based future for IT

Disparities in the wealth and power of nations have been thrown into the spotlight at the Johannesburg Earth Summit. A few rich...

Disparities in the wealth and power of nations have been thrown into the spotlight at the Johannesburg Earth Summit. A few rich international superpowers were calling the shots and mapping out the future for the rest.

The same is happening in the IT industry where the gang-of-five - Microsoft, Oracle, Sun, Hewlett-Packard and IBM - are mustering their forces to engineer the next wave of IT investment. And the powder in their kegs? Services.

IT is preparing for a metamorphosis from being a product-based industry to being service-based.

Global internal spend on IT is estimated to be somewhere between $2tn and $3tn - money that is spent on IT personnel, training, offices, and other facilities.

IT suppliers saw rapid growth during the 1990s, which has now started to level off, but if they are to achieve future growth they must divert some of this internal spend into their own coffers. To this end, the big guns are positioning themselves as service companies, and over the next few years we will see the majority of organisations using external services.

The means of externalising the huge amounts of money corporations spend on managing and running their IT will be based on the emerging technologies of Web services and grid computing.

Web services are a set of standards with wide industry support, which will enable process-to-process collaboration over the Internet. In conjunction with grid computing, which allows IT resources to be defined and called upon as a service, these technologies will be the drivers of change over the coming years.

It will take time for these technologies to grow and converge but by the end of the decade we will see a conversion of about 7% of internal spend to external spend.

In revenue terms this is about $140bn (£93bn). By 2020, this figure will be nearer $500bn. This is the substantial prize that the big guns are chasing.

In the short term, the IT industry is in the doldrums, where it will wallow until 2004. This is quite natural because the industry, like many others, is cyclical. Investment in IT comes in waves.

In the heady days of 1995 the average corporation was spending half its profits on IT, but if the growth of the late 1990s were extrapolated for another five years, the average corporation would now be spending more than its total profits on IT.

The only bright spots in the short term will be in areas connected to knowledge and information management.

For the past 30 years we have obsessed over the management of data, gathering it, storing it and retrieving it. Yet the highest value information, rather than data, has been neglected, despite the fact that about 60% of the value of corporations is associated with knowledge capital.

This is where we will see some investment between now and 2004, with content management suppliers benefiting.

Although the frenzy of the 1990s has eased, the technology wave continues, and there are more large corporations deploying Internet-based projects today than there were two years ago. So it is inevitable that investment will increase again and, led by the gang of five, we will see a transition to an IT industry that is principally service-based.

Martin Butler is president of analyst firm the Butler Group
This was last published in September 2002

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