U.S. business expected to spend big on tech in 2018
U.S. corporate and government technology budgets are expected to grow as much as six percent in 2018, to a total of $1.5 trillion, well ahead of the overall economy. And spending on software and services is projected to rise even faster—up to 9 percent year-to-year.
Leading the way will be demand for cloud-based, software-as-a-service subscriptions, especially for those applications that enable businesses to retain and attract new customers, according to Andrew Bartels, the Forrester Research analyst responsible for the projections. Applications including CRM, e-commerce, customer analytics, customer experience, mobile apps and related services will reach $539 billion in 2018, or 34 percent of total tech spending, per the Forrester forecast.
Core financial, HR and industry transaction systems, meanwhile, along with middleware, most hardware, telecom and outsourcing services, will grow by a relatively sedate 3.1 percent to just over $1 trillion.
Forrester anticipates that spending on new projects will increase by 6.9 percent next year, outstripping overall tech budget growth, as CIOs and their business partners take advantage of favorable economic conditions to expand their application portfolio. To keep pace with the workload, Bartels also expects that CIOs will expand their staffs by around 3 percent, and that the salaries and benefits for these positions will also rise by 3 percent.
“There has historically been a strong correlation between nominal GDP and U.S. tech spending. That correlation was particularly close in 2014 and 2015,” Bartels notes, “but starting in 2016, tech budgets started to grow a percentage point or so faster than nominal GDP.” A similar pattern, he says, has occurred before, when new technologies have spurred tech buying to exceed economic growth. “Today,” he points out, “cloud-based services are starting to play that role, following several years during which the transition from on-premise technologies to the cloud caused technology spending to lag.”
Fulfilling wish lists
Budget increases will allow CIOs to expand their project portfolios to include many of the items on their wish lists. Bartels says the growing range of cloud options with low initial costs will encourage CIOs to “let the dogs out” and focus intensively on projects that promote customer satisfaction, improve the customer experience and allow for innovative new offerings.
But along with its inherent advantages, there are also downsides to the cloud, and Bartels warns that CIOs need to balance their cloud adoption with alternatives. Among their many benefits, cloud platforms and applications provide access to the latest software, improved security, lower operating costs and more flexible systems. On the other hand, cloud vendors’ security and operations can be compromised; natural disasters could knock out internet connections to those services (as happened in Puerto Rico) and costs could spiral upward.
Diversification and hedging, Bartels admonishes, should be part of any tech resiliency strategy. Businesses, he strongly advises, should back up their data, whether it resides on its own systems or the systems of a cloud service provider, and maintain “a reserve of on-premised systems” that would allow it to continue to operate, if its cloud service provider becomes inaccessible.
Bartels also recommends using different cloud service providers for different tasks to maintain flexibility. “Any firm,” he says, “that puts all its tech eggs in one cloud vendor’s basket is asking for trouble.”