Every quarter, ETR releases a short brief discussing near-term and long-term IT trends. Last week, we released part 1 of our 2H'20 macro trends; here's part 2:
Let's quickly discuss a statement we brought up last week, ‘IT budgets don’t appear at further risk’, and attempt to use additional data points we’ve captured since May to explain the recent euphoria we’ve seen across tech … and whether it will last.
[a] When we say IT budgets don’t appear at further risk, what we mean is that companies are prioritizing employee productivity vs minimizing costs. Organizations are making the necessary investments to support remote workforces and understand the need to accelerate digital transformation projects to remain competitive within their industry. These priorities have created ‘a floor’ for IT budget declines. In other words, part of the euphoria can certainly be attributed to a lack of downside risk in tech (more on this next week).
[b] In May, we polled CIOs as to whether the changes occurring in technology stacks (selection of security vendors, reduction in MPLS spend, etc.), due to the uptick in remote work, would be the “new normal.” 92% of CIOs agreed.
What about the other 8%? Many of the states that allowed their stay-at-home orders to lapse in April and May are currently experiencing all-time highs in daily COVID-19 cases. Further, many of these states are halting plans to reopen certain businesses (and in many cases, shutting them back down). It’s probably fair to say that those 8% of respondents who disagreed are no longer on the fence.
The bigger takeaway? If there was any doubt whether current tech stacks would be the “new normal”, that can likely be put to rest. It’s becoming more and more clear that states cannot fully reopen in the near-term without a vaccine (else they risk reaching the capacity of their healthcare system). The byproduct of this is that people will continue working from home, which means organizations will need to continue spending on technology vendors to help support remote workers. This is likely another factor contributing to the overall tech sentiment.
[c] Finally, in mid-June, we reported that 62% of CIOs indicated that none of their technology providers allowed them to delay payments, with another 16% of CIOs indicating ‘10% or less’ of their providers allowed them to delay payments. In other words, nearly 80% of organizations indicated that 10% or less of their technology vendors provided payment flexibility.
From a CIO perspective, it’s easy to understand why this could be frustrating. On the flip side, you can make the argument that technology providers, in large part, didn’t give up much ground the last few months. With organizations needing to further digitize, the data is very much indicating a situation where vendors effectively said: ‘you need us, more than we need you’.
[d] So … on one hand, organizations are indicating notable budget declines for 2020, and on the other, an acceleration in digitization to support remote workers and stay competitive. That makes for quite the juxtaposition. The most likely explanation is that the pie (IT budgets) is indeed shrinking, but the distribution of that pie is vastly different now vs. pre-pandemic.
With that likely being the case, the current undistinguished euphoria in tech is likely coming to an end. 2H’20 will be remembered for its contrast between winners and losers. Best-of-breed, Cloud and SaaS vendors will be the runaway winners (their distribution of the pie has grown significantly). While legacy, on-prem, select pure plays, and even less needed SaaS vendors, will see significant declines in wallet and market share.
... part 3 coming next week.