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http://www.rediff.com/money/2003/may/23it.htm
Innovations to see tech growth stutter
Anusha Subramanian in Mumbai | May 23, 2003 12:25 IST
Technology refinement and digestion of networking computing innovations would result in a slow growth in the infotech sector and lower prices through 2008, according to a study.
The first decade of 2000 will be of refinement of the technological innovations of 1990s, Giga Research, a unit of Forrester Research, says in its findings.
The report by research analyst Andrew Bartels states that during this period, the ratio of IT investment to the gross domestic product is likely to remain flat at best since it has already dropped sharply in 2001 and 2002.
This means, on an average, IT investment will grow at about the same rate of the overall economy that is about five to six per cent, given the current low inflation rates and prospects for real GDP growth.
"Since IT investment has dropped sharply during the past two years while GDP continued to grow modestly, there is potential for IT investment to grow more rapidly than the overall economy in the next five to six years. However, the potential is limited given the overhang of past IT investment and innovations like Linux, blade servers and web services that are sharply reducing technology costs," said the study.
Data for the last 50 years shows that the compounded annual growth rate of IT investment to the GDP ratio was 6.4 per cent during 1957-1966 and it declined to 4.3 per cent during 1993-2000.
According to the research, several factors point to lower tech prices for the next few years.
First, demand is weak and likely to stay so even when IT spending is expected to be picking up after the Iraq war and a more solid economic recovery takes shape Second, major tech trends, such as blade servers, advanced server management, Linux, J2EE and .NET, and Web Services are all forces for tech price deflation.
"Forces resisting price deflation still remain. However, they are weakening around the margins. Without major new technology products that create new, strong customer demand, the forces of tech price deflation are likely to run strong for the next three to four years", said the research paper.
He added companies are still in the refinement and digestion phase of network computing, therefore they should spend less time worrying about the next big thing, and more time focused on understanding incremental improvements and changing business processes to take advantage of networked computing.
He suggests that companies look for prolonged periods of IT price deflation and also be careful while outsourcing.
On outsourcing, the research says companies should not lock themselves into contracts based on current IT costs.
Instead, the should build in a downward escalator to share lower IT infrastructure costs that the outsourcer will enjoy.
For IT buyers, delays in buying can bring better bargains. However, since delays in buying mean delayed benefits, the best strategy is to spread out purchases over time to ride the price curve down, says the study.
Innovations to see tech growth stutter
Anusha Subramanian in Mumbai | May 23, 2003 12:25 IST
Technology refinement and digestion of networking computing innovations would result in a slow growth in the infotech sector and lower prices through 2008, according to a study.
The first decade of 2000 will be of refinement of the technological innovations of 1990s, Giga Research, a unit of Forrester Research, says in its findings.
The report by research analyst Andrew Bartels states that during this period, the ratio of IT investment to the gross domestic product is likely to remain flat at best since it has already dropped sharply in 2001 and 2002.
This means, on an average, IT investment will grow at about the same rate of the overall economy that is about five to six per cent, given the current low inflation rates and prospects for real GDP growth.
"Since IT investment has dropped sharply during the past two years while GDP continued to grow modestly, there is potential for IT investment to grow more rapidly than the overall economy in the next five to six years. However, the potential is limited given the overhang of past IT investment and innovations like Linux, blade servers and web services that are sharply reducing technology costs," said the study.
Data for the last 50 years shows that the compounded annual growth rate of IT investment to the GDP ratio was 6.4 per cent during 1957-1966 and it declined to 4.3 per cent during 1993-2000.
According to the research, several factors point to lower tech prices for the next few years.
First, demand is weak and likely to stay so even when IT spending is expected to be picking up after the Iraq war and a more solid economic recovery takes shape Second, major tech trends, such as blade servers, advanced server management, Linux, J2EE and .NET, and Web Services are all forces for tech price deflation.
"Forces resisting price deflation still remain. However, they are weakening around the margins. Without major new technology products that create new, strong customer demand, the forces of tech price deflation are likely to run strong for the next three to four years", said the research paper.
He added companies are still in the refinement and digestion phase of network computing, therefore they should spend less time worrying about the next big thing, and more time focused on understanding incremental improvements and changing business processes to take advantage of networked computing.
He suggests that companies look for prolonged periods of IT price deflation and also be careful while outsourcing.
On outsourcing, the research says companies should not lock themselves into contracts based on current IT costs.
Instead, the should build in a downward escalator to share lower IT infrastructure costs that the outsourcer will enjoy.
For IT buyers, delays in buying can bring better bargains. However, since delays in buying mean delayed benefits, the best strategy is to spread out purchases over time to ride the price curve down, says the study.
