ITCandor 2011 Expectations – A Big Year For Cloud, BRIC, High Definition And Water

ITCandor 2011 Expectation Highlights

1. World ITC spending grows to $6.7 Trillion – no double dip recession
2. Asia Pacific outgrows other regions – rather BRIC than PIGS
3. ITC distribution moves strongly to vendors via the Internet and distributors
4. Retail overtakes Manufacturing as the largest vertical market
5. Consumers take 48% of ITC – growing in IT while business takes more of Communications
6. Cloud Computing gets real – grows 17% to $1.7 Trillion
7. Customers get locked-in by vendor vertical integration
8. Increased digitisation and higher resolution help physical beat virtual offerings
9. Corporate and Social Responsibility shifts focus from carbon to water
10. Social media stumbles in the clash between freedom and responsibility

Welcome to ITCandor’s predictions for the ITC world in 2011. As you’ll see there’s lots of data and ideas to keep you busy over the holiday. We’ve made strong progress in expanding our coverage to cover multiple countries, offerings, company sizes and vertical markets to add to our analysis of themes such as Cloud Computing, Matrix Integration, Corporate and Social Responsibility and Corporate Client Refresh.
As always we’ve also had some great help from many independent analysts and industry execs whose ideas we have gathered to help with the task. Our sizing and forecasting is available in minute detail to help with you business planning, so don’t forget to contact us if you have questions or comments.
Following last year’s Expectation document (with an accompanying slide set), we have self-assessed of those predictions, published summary of what happened in 2010 and assessed the top 10 ITC vendor performances – all of which are available here. This is all-important background for what we’re going to cover here.

1.         World Spending Grows To $6.7 Trillion – No Double Dip Recession

The world ITC market in 2010 grew by 4.7% to a staggering $6.4 Trillion. In 2011 we expect to grow another 4.5% to reach $4.7 trillion, which becomes our first ‘Expectation’. Of the four large categories Telecom Service will remain the biggest sector with the most sluggish growth (repeating the 0% of this year): IT Service will account for 25% of all ITC spending, growing by 6%; hardware will grow by 8.6% (much less than the 13.5% growth in 2010); software will have the strongest growth in spending – 12.0% allowing it to catch up with the other categories somewhat.
The two largest Offerings will be Fixed Line and Wireless Telecom Services, which between them will account for around 38% of all ITC spending in the year: although they will be challenged for growth, giving a rise of 0% and 2% respectively. Deregulation will continue apace, with the overall market losing more to lower prices than it gains from Cloud Computing, Smart Phones and associated application sales. The other big winners in terms of Offering are Applications themselves (growing 12%), Converged Devices (which include all mobile handsets and will show the strongest growth at 23%). Outsourcing (which includes Managed Services) will be next, followed by PCs, which are set to grow by 5% – much less than the 12% in 2010. A view of our forecast by Category and Offering for 2011 is shown in Figure 1.

Not all Offerings will grow at the same rate, although in our view only Wireless Telecom Service will show a decline. The top growth will be in those classes most associated with Cloud Computing – Converged Devices, SaaS, Infrastructure Software and Applications. We expect less than average growth in Outsourcing, Peripherals, Hardware Maintenance and others. Figure 2 shows our spending growth forecast by offering.

2.         Asia Pacific Outgrows Other Regions – Rather BRIC Than PIGS

Asia Pacific had a strong recovery in 2010 and looks likely to continue to outgrow the other two regions in 2011, which makes up half of our second ‘Expectation’. We forecast a 12% growth, compared with 4% for the Americas and a decline of 2% for EMEA. A view of the regions contribution to world ITC spending is shown in on the left hand side of Figure 3, while a picture of growth is shown in Figure 4.
The USA will continue to account for a disproportionate amount of the value (26%) of the market, spending $1.7 Trillion in 2011; despite an expected decline of 2%, Germany will remain the second largest market, followed by Japan (+4%), the UK (-5%) and France (-4%); despite a spending growth of 15% China lags behind these other major market, accounting for 3% of the world ITC market.

As for the second part of the prediction –  ‘rather BRIC than PIGS’ refers to the usual, but rather awkward, grouping of similar countries by class. BRIC of course stands for Brasil, Russia, India and China – a disparate list, but all countries with low ITC penetration and large populations; hardly surprisingly we expect them to be the strongest growing markets in 2011. We expect spending on ITC to grow by 16% in BRIC countries in 2011.
A less kindly named grouping of countries takes the acronym ‘PIGS’, which here includes Portugal, Ireland, Greece and Spain – an alternative used by others is to include Italy rather than Ireland in the mix. These are the European countries using the Euro as their currency which have been hardest hit by the credit crunch. They have large sovereign debt from bailing out their financial institutions, have made severe cuts in government spending and have had to secure loans from larger EU nations. These factors will contribute to an overall decline in ITC spending in 2011. As a group the PIGS are expected to show a decline in ITC spending of 6% in the year. For an extensive list of forecast growth by a number of the countries we cover, see Figure 5.

3.         ITC Distribution Moves Strongly To Vendors Via The Internet And Distributors

Our third ‘Expectation’ is that there will be a dramatic, two-fold shift in channels of distribution: in particular that sales of ITC offerings will move towards two tier indirect and direct Internet styles. We expect the former to overtake direct outbound sales and the latter to overhaul single tier indirect channels in 2012 (see Figure 5).
In terms of the shifting qualities of the channel ‘value add’, we expect there to be a continued need for technical, business and industry expertise – although location will become more important as issues of data governance are addressed. In addition as suppliers become more vertically integrated – offering solutions rather than component parts – so we will see new groupings of partners. Apple’s iPhone and iPad and IBM’s increasing focus on ‘workload optimised systems’ and Smarter Planet initiatives require teams of interconnected partners. 2011 will be the year of the Aggregator and Trusted Partnership.

4.         Retail Overtakes Manufacturing As The Largest Vertical Market

Our fourth ‘Expectation’ is about Vertical Markets – in particular that Retail/Wholesale as a sector will overtake Manufacturing as the biggest spender on ITC. In a sense their destinies are intertwined of course, because as manufacturing moves to cheaper countries and businesses with vast economies of scale, it places a challenge on the Retailers to ship products in larger volumes. In comparison to the manufacturers, we believe Retail will need a richer set of investments, not least on building Web presences. If added together Government (Central and Local) accounts for a larger proportion of both Retail and Manufacturing (20%). We expect there to be no significant growth in spending overall, with government led expansion in countries such as China being offset by austerity budgets in Western economies. A picture of 2011 spending by vertical market and the growth of each sector by year is shown in Figure 7.

5.            Consumers Take 48% of ITC, Growing In IT While Business Takes More Of Communications

Despite the mass adoption of smart phones and social media by consumers, they are not running away with the ITC market. The recovery from the recession was strong, with businesses of all sizes investing in ITC in 2010 – in fact for the first time since 2004 we their growth was slightly higher. In 2011 we expect users to take the upper hand once more, which leads us to our fifth ‘Expectation’ – consumer spending will grow by just over 5% and their share of the ITC market spending will be 48%.
Of course consumers take a larger share of the communications market than they do of IT: we believe the differences in rations will get less over time – in other words, that business will take an increasing share of Telecoms and consumer will do the same in IT.
Within the business market large business spending will grow 5% (up from 10% in 2010), medium, up by 4% (from 8%) and small by 3% (from 1%). Many of the investments by larger companies are for applications which will be used by consumers – just think about Google supplying free apps to consumers paid for by big business advertising dollars.
It’s not clear that suppliers fully understand the consequences of the converged market, with many concentrating on meeting the needs of one particular type or size of customer. They will need to try harder to cross the chasm in 2011 – linking corporate applications to smart phones, integrating citizens into government process via the Internet and Cloud Computing, getting customers to help support products and services through social CRM are the types of activity they need to expand.

6.         Cloud Computing Gets Real – Grows 17% To $1.7 Trillion

Our sixth ‘Expectation’ concerns the most important trend in the ITC market – that spending on Cloud Computing will grow significantly (17%), reaching $1.7 Trillion. This represents 17% of all ITC spending (up from 15% in 2010).
The two largest components of spending will be Internet Service and Broadband, both of which are 100% Cloud in ITCandor definitions.
The provision of Cloud Computing via Wireless and Fixed Line Telecom (often part of Unified Communications) will be the next largest sectors, followed by the classes most easily recognised as Cloud – Infrastructure Software, Implementation Service, Converged Devices and SaaS. Of these only SaaS is counted exclusively as a Cloud Computing offering by us. Figure 9 shows a forecasted break down of the major Cloud Computing offerings in 2011 and a trend analysis of the spending on Cloud and Traditional ITC spending by year.
Please see our blog for more detailed definitions, sizing and forecasting of Cloud Computing.

7.            Customers Get Locked-In by Vendor Vertical Integration

There has been an undeniable shift in the way vendors sell ITC to customers since the recession. There has been an increasing focus on solutions, with major suppliers integrating multiple offerings together in simplified proposals and services. This leads us to our seventh ‘Expectation’ – that during 2011 a number of important large users will become angry and frustrated by vendor lock-in.
Suppliers with poor strategies will forget that users fought hard over the years to disaggregate solutions into parts to be able to pick the best and/or most cost-effective components for their ITC implementations. They will fail to address the need to build solutions within existing standards, or prevent an easy exit strategy at the end of the service period.
Open Systems have taken a back seat in the last few years, partially because there is little money in supplying them (Sun’s strategy of giving software away in order to make money later from services was abruptly halted by its acquisition by Oracle for instance). 2011 will be a year in which the standards created will need to be positioned in new ways as part of larger commercial solutions.
Suppliers with good foresight will work hard to avoid the perils of vertical integration. Please read our analysis of ‘Matrix Integration’ to learn more of our thoughts on this subject.

8.            Increased Digitisation And Higher Resolution Help Physical Beat Virtual Offerings

2010 was a year in which the physical aspects of the ITC industry overtook the rush to virtualisation – at least if the growth of hardware (14%) as opposed to software (10%) was concerned, which leads is to our eighth ‘Expectation’ – that hardware products handling high definition graphics will continue to hold back the drive to virtualise computing in 2011.
Every process of digitisation involves technical development and break thorough in order to replace an analogue process. Think about photography – it used to be a minor pastime, people used to take their cameras out on holiday and then wait for a week for the film to be processed. The early days of digital photography were fun – I remember being given a camera at an HP meeting in the US in the early 2000s. It was great to be able to take pictures and see them immediately, to delete any that didn’t come out properly and manage the photos on my PC. However many resisted the early versions of digital photography because the resolution wasn’t adequate. It wasn’t until we got to about 8 megapixels that it took off. Photography is now part of everyday life, not least because most of the mobile handsets sold have cameras incorporated – and last year one fifth of the people on the planet got a mobile phone.
Resolution is relevant in many aspects of the ITC industry. In 2011 we’ll see some startling advances in graphics on PCs, especially from AMD which has already delivered Direct X 10 functionality and is building combined CPU and GPU chips. A number of data centre managers we’ve spoken to report a great increase in graphical processing in the last year as well. The ability to show high definition images and videos will give physical PCs, smart tablets and smart phones strong differentiation, persuading users to purchase and restoring a lead over virtual approaches.
VDI stumbled in 2010 – it didn’t live up to the expectations of the industry, but was helped by the stability and performance of Apple’s Macintosh OS and Microsoft’s Windows 7. 2011 will be a year in which we learn that we need great hardware to run virtualised sessions – it will be a time of streaming apps rather than operating systems.
Of course digitisation will also increase the mass of unstructured data being handled by IT managers and stored on storage systems. Unstructured data will be captured by metering and monitoring of traffic flow, sewerage systems, water, electricity and location information, much of which will be pushed around communications networks and all of which will push up the spending on ITC as a result.

9.            Corporate And Social Responsibility Focus Shifts From Carbon To Water

The main topic for CSR over the last few years has been the environment and the likely effects of pollution. The early consensus that carbon emissions should be cut to help lower global warming suffered a set back when world governments failed to set new emission targets at the Copenhagen summit in December 2009. We believe that the results would place a stronger emphasis on companies, rather than governments, to take the lead as a result. However Green strategies have been damp squibs in 2010 – most companies realise that real changes in carbon emissions require long-term investment in alternative electricity production and that this has to be the responsibility of governments. As a result we believe there will be a shift in emphasis in 2011, which leads us on to our ninth ‘Expectation’ – that water supply will become a better focus of many organisations’ CSR strategies.
Clean drinking water is a reasonable expectation for the world’s population and, unlike alternative electricity, there are many practical things a single company can do to improve supply. As always, strategies will depend on identifying stakeholders (in this case most probably communities in new countries in which ITC suppliers are entering). Working with organisations such as the UN, as HP does is a good way to build credibility. We also believe that those suppliers which build strong CSR programmes will be the ones best able to address the changing purchasing behaviour of user companies brought about by the influx of new ‘generation Y’ employees, who are different because they have been ‘born into’, rather than ‘learnt’ technology.

10.         Social Media Stumbles In The Clash Between Freedom And Responsibility

Social media has had a massive effect on the ITC industry and the everyday lives of the connected consumer. It is allowing voices to be heard unrestricted by traditional political and media gatekeepers. However 2010 saw a number of important cases in which the large social media suppliers clashed with governments. In particular RIM fell foul of the Saudi government for processing encrypted information in Canada and the USA and Google has had its knuckles rapped for collecting IP addresses and photographing districts as part of its Street View activities. Facebook has also been criticised for allowing private photographs to be openly distributed to all. This leads us on to our tenth ‘Expectation’ – that there will be some major events in which the balance between the freedom of social media users will clash with the responsibilities they have as citizens. Already we see the denial of service attacks launched by the supporters of Wikileaks against organisation which reacted negatively to their latest revelations. In our opinion it won’t take much for big Web sites to fail, or for large Internet communities to make parts of the Internet unworkable in protest campaigns. For suppliers it’s important to think about privacy and data governance issues. For those who deliberately flout them, 2011 may be a year in which they get their comeuppances.

We Make Predictions To Help Planning ITC Business

I’ve been making predictions about the industry every year for the last decade. When successful they help business planners think about new issues, or old ones in new ways. This involves knowledge and creativity on our part rather than clairvoyance. On the whole I try to avoid making specific headline predictions, unlike my friend Pim Bilderbeek who suggests ‘Facebook will buy Skype’ and ‘Salesforce.com will change its name to Force.com’. In the event he’ll get more fame than me if he’s right.

Some Conclusions – Enjoy The ITC Market In 2011

In 2010 we came through the worst downturn in the ITC industry in the last twenty years to reach a stable market and a good 4.7% growth. In 2011 we expect to see continued development towards Cloud Computing and the devices, applications and services being built around mobile communications: to see a shift in business towards the East and BRIC countries, an increasing importance of consumers as customers in IT and business in Communications, a strong growth in ITC purchasing by the Retail sector and industry challenges coming from vertical integration, digitisation and social media.
If we’re right it will because our research has accurately captured the important trends, measured, forecasted and reported them back in data and information of use to business planners. If we’re wrong, we’ll tell you why and readjust.
We’re looking forward to helping many new customers in the New Year as part of our activities. Whether our predictions prove right or wrong, our overall message is that the industry in 2011 will be complex and interesting and one to enjoy participating in.
As always we’re interested in your feedback – please do so by commenting on this article.

ITCandor Acronym Buster

BRIC – Brasil, Russia, India and China
CSR – Corporate and Social Responsibility
Generation Y – the latest generation entering the workforce (born into a technological world, rather than learning it as it develops)
PIGS – Portugal, Ireland, Greece and Spain (in this case not Italy)
SaaS – Software as a Service
VDI – Virtual Desktop Infrastructure