2006: A Gut-Check for IT Vendors

As industry convergence and realignment continues, new companies and business models will force IT vendors to think more creatively, according to IDC's Predictions 2006 report. These new players, innovations, and delivery models will force vendors to think "outside the box" about new products and service offerings to overcome the moderate 5.5 percent IT growth rate IDC predicts for 2006, according to the report. Continued moderate growth, a shift from products to services, and the rise of Google, are among key changes IDC identifies as reasons for vendors to evaluate their products and strategy. Overall, IDC expects IT worldwide spending to increase 5.5 percent in 2006, down from the 6 percent growth in 2005. In addition, increasing momentum in software, services, and new solutions will not fully compensate for the moderation in spending. Concerns over energy costs, interest rates, and inflation will keep business confidence in check throughout much of the world, even as product upgrades gives way to an increased focus on project-based spending. "It will be important for industry leaders to think creatively about new product and service offerings, new business models, and new types of industry relationships and communities," says Frank Gens, senior vice president, research at IDC. Those vendors that stay too close to their comfort zone are most likely to get swamped by the industry's changing dynamics. The IT market will continue to shift from products to services. The market in general is witnessing the growing delivery of IT as a service, such as the implementation of service orientated architecture and SaaS. Gens says this will reach a tipping point in 2006. "You'll see the announcement of next-generation versions of online application delivery from one or more of the market leaders, such as SAP, Oracle, Microsoft, and IBM, to better respond to Salesforce.com, NetSuite, Salesnet, and the specter of Google." That said, players competing in the IT space will need to keep an eye on Google for three reasons. First, the fastest way to unify access to both data and content is to implement a search engine that can federate access to multiple repositories. Second, the growing development community around Google means that Google's search platform is growing richer in functionality, and thirdly, companies like Google have powerful adoption leverage through their broad presence and attractive pricing. This fundamental shift to new business and delivery models drove dozens of mergers and acquisitions in 2005. According to the report, vendors aren't finished reshaping themselves yet. The continued drive to increase management software footprint laterally (across IT product silos) and vertically (increased application and process awareness) has driven many of the mergers and acquisitions seen in the last 18 months. "The goal remains to build a 'services-oriented infrastructure,'" Gens says. "Along with IBM, Mercury, Symantec, HP, Sun, Microsoft, and others snatching up Web services oriented specialists, look for at least one multibillion-dollar deal in 2006." Finally, as open-source technology continues to gain momentum, the IT market will be forced to respond. For the same reasons that many companies are shifting to an on-demand services model, many companies will begin to make the switch to an open source model. For vendors, this 2006 trend will be about taking advantage of the network effect to accelerate innovation productivity. Related articles: The Year in (P)review Forrester Looks Into Online Retail's Future