What effect has the cooling economy and the subsequent tightening of many IT budgets had on the data warehousing and business intelligence (BI) sector? With the data warehousing and BI market maturing at the same time as the economy has slowed, is spending declining on these solutions?
The market has experienced healthy growth over a number of years annual growth rates have hovered in the mid-to-high double digits. However, while 1999 was spectacular for many data warehousing and BI vendors, the year 2000 proved much more difficult. This year hasn't started off much better. Poor financial results, dramatic stock price drops and/or management upheavals have plagued a number of vendors in the market.
The combination of an economic slowdown and a maturing market is starting to be reflected in spending patterns. Indications are that while there won't be a wholesale retreat on spending, IT budgets are definitely under pressure. How will IT organizations spread their precious dollars around?
Putting the Squeeze on Spending
According to Survey.com's latest assessment of the overall state of the data warehousing and BI market, spending on data warehousing and BI solutions is starting to moderate even as the number of solutions continues to grow. This is particularly evident in the amount of up-front investment being made. Preliminary survey results show that for an initial implementation, excluding the time investment of end users, respondents are spending, on average, slightly over $1 million. This is a dramatic drop from 1999 spending for initial solutions which survey respondents reported was more than $2 million.
IT organizations do expect to increase spending over the next three years, but not at the rate they did in 1999. Annual spending on maintenance, upgrades and enhancements to keep solutions in shape is currently estimated at an average of $410K. That is expected to rise to close to $760K by 2003. The increase of just over 85 percent in annual spending in three years is not bad for a market under pressure; but, again, it's about half of the growth rate respondents predicted in 1999.
How budgets for data warehousing and BI solutions are allocated between spending on systems, storage, packaged software, internal services and external services components has not changed substantially from year to year. While current survey respondents allocate slightly more of their budget to systems and packaged software, they allocate slightly less about three percent to outside services than they did in 1999. The proportion of budgets used for the other components remains relatively unchanged.
Where Spending Will Grow?
If customers are tightening their belts, which segments of the market stand to lose and which stand to gain? The outlook for future spending remains the brightest for storage and in- house services. There should be a net spending increase in both of these categories by 2003, as illustrated in Figure 1. It may be that the positive outlook for in-house spending is, in part, due to the squeezing of IT budgets. The increase may also reflect the experience customers have gained with data warehousing and BI solutions, thereby decreasing the need to hire outside expertise.
Figure 1: Data Warehousing/BI Budget Expenditure Changes in 2003
All indications show that storage spending will continue to increase over the next several years. The average amount of useful data in fully operational warehousing and BI solutions is creeping toward one terabyte. Respondents expect that the usable storage capacity will increase an estimated 140 percent in the next three years. These results are obviously good news for storage vendors and should be advantageous for customers. The fierce competition in the storage market between EMC, IBM, Sun Microsystems, Hewlett-Packard and others should benefit customers with decreased cost per gigabyte.
Spending on outside services is expected to grow slowly; only five percent more respondents indicated they would increase spending compared to the respondents that will decrease spending. Vendors providing professional services for development, installation, technical support and training will be in high demand. On the other hand, IT organizations are least likely to seek outside assistance for development of the initial business case for their data warehousing or BI solutions.
A Mixed Outlook
It is evident that the recent economic woes have affected the data warehousing and business intelligence market. The shrinking of initial spending on solutions may foretell continued dreary prospects for some vendors, but there are still many reasons to be optimistic about overall growth. The decline in up-front spending should be countered by IT organizations' intended increases in annual spending.
The maturing of the market will put additional pressure on vendors to improve their results. This maturing also offers more benefits to customers. Capabilities, performance and deployment time have all improved considerably even as warehouses have grown in size and the complexity of BI applications has increased. There is no doubt that growth will be moderate. However, the degree of moderation depends heavily on vendors' ability to increase capability, expand demand and continue to incorporate innovations such as the Internet and wireless technology.
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