The big chill

Enterprise spending: What's hot, what's not

Budgets have frozen. Businesses have had a global run of financial bad news, leaving resellers wondering if IT spending in the enterprise will ever heat up. 'A lot have their budgets approved, but they're not jumping in with both feet,' says Mick Gallagher, CEO of US reseller LS Technologies. It's a similar story here in Australia.

A lot has to do with the economy and whether it is an election year. And there's also more focus on foreign policy right now than is often the case. Nevertheless, channel hopes are still high.

Rodney Thorne, business manager at distributor Ingram Micro, says Australian enterprises are definitely buying, but cautiously, with a clear focus. 'They're buying technology that allows them to preserve their existing environment or enhance it in some way,' he says.

Thorne is seeing spending in his speciality – storage, networking and security (SNS). 'Backup products are very important as well,' he says.

A thaw appears in sight. But even though the economy does not seem in doubt, growth rates may stay below expectations unless energy prices fall. Large companies may keep purse strings tight until the picture clarifies.

Switches and routers are still strong, Thorne adds, but not as strong as last year. 'From our perspective, SNS has grown 50 percent in the year to date and that's fantastic but you've got to include in that new vendors and everything else,' Thorne says.

Molly Baker, at Express Data, sees rapid growth in thin client hardware too. 'Our [thin client] terminal sales have gone up 165 percent – that brings it back to the whole mobile technology thing as well,' she says.

Baker would add certain UPS products, backup and VoIP to her list. 'There are opportunities in certain areas, if you have the expertise,' she says.

Michael dal Maso, integration and information business solutions manager at reseller Alphawest, has also seen a light through the end of the tunnel. 'Yes, we've seen it. Some growth. But not as much as everyone else seems to be saying,' he says.

Is there a thaw in enterprise IT spend? 'Yeah, definitely,' dal Maso says. 'But in some areas it's quite flat and in others not quite so flat ... It's nowhere near 20 percent but it's definitely over 5 percent. And it's steady growth. There's no killer application.'

Bob Hayward, vice-president at research firm Gartner, agrees enterprise spend is on the up, albeit only up 5 to 10 percent this year. 'The total IT spend across Australia in 2004, we are putting just shy of US$39.5 billion,' he says. 'Telecommunications, which includes equipment and services, is US$17.5 billion of that.'

While that US$39.5 billion includes small businesses, the vast majority is larger enterprises. Australian companies have been sitting on their hands for three, four or even five years. Now, their business IT is getting old. Meanwhile, the economy has improved and the stock market is at an all-time high, he says. 'The last three years were flat to subtly negative,' Hayward says. 'And we think next year might be even a little bit better again.'

What's hot: VoIP ringing the change

VoIP – indeed IP telephony of all kinds – is gaining momentum in both the US and Australia as the technology matures and moves into the mainstream.

Resellers point to toll bypass and easier administration as driving forces behind IP telephony adoption. Productivity gains achieved through features such as one-number dialling, unified messaging and presence are also encouraging enterprises to take a serious look at VoIP.

Growth in VoIP is part of a giant telecommunications refresh only beginning to take hold across Australia. Gartner's Hayward says VoIP is a key contributor to the rise in telecommunications spend in the enterprise. 'VoIP is doing quite well,' he says. And that's something.

Craig Neil, managing director at communications integrator NSC, says IP telephony-related offerings today account for 60 percent of the integrator's growth. Two years ago, IP telephony hardly existed as a market.

Neil reckons that it will take 10 to 15 years before all the old switching is replaced, he says.

Landry Fevre, telecommunications research director at IDC, says the market research firm recently researched some 300 Australian companies' IP telephony plans.

Fevre found that one in seven medium and large companies deploy IP telephony in some form. Importantly, another 47 percent are expected to take it on in the next three years. 'That's about $1 billion up for grabs for equipment and services resellers,' he says.

It will not be easy, though. 'Overlap and friction between carriers, equipment vendors and system integrators are likely to occur around VoIP as competition intensifies with more players and products entering the market this year,' Fevre says.

Prices are expected to fall steeply in the next year, especially as IP handset subsidies increase, Fevre added.

Alphawest's dal Maso says Alphawest has seen a steady lift in VoIP deployment, but the trend is more pronounced in smaller firms than in the enterprise. Companies are keen to use VoIP across networks of branch offices though, he adds. 'It's becoming hot,' dal Maso says. 'People are about to make a decision to buy it, but not doing a big, large deployment.'

 
Anti-spam message is clear

A never-ending battle to stop spam, preferably before it enters a company's email system or clogs inboxes, has evolved into a cat-and-mouse game between spammers and top spam fighters such as Brightmail (now part of Symantec), Postini, SurfControl, CipherTrust and others.

In the US, it has not helped that the CAN-SPAM Act has not seemed to stem the tide of unsolicited email. And the jury is out when it comes to Australia's anti-spam act, which came into force this year. Anecdotal evidence suggests it is not yet having much effect.

However, US financial services firms are required by new US regulations to archive email that is 'accepted' by their mail systems. As stricter reporting rules come into play globally, something similar could also happen here.

Some people are certainly making money out of anti-spam. Some US estimates claim that worldwide revenue from anti-spam products will hit the US$979 million mark this year, up 15 percent to US$1.7 billion in 2007.

Gartner's Hayward says security spend is definitely still a big part of what's hot. But that includes the whole array of IT security offerings, antivirus, appliances, services – not just anti-spam, he suggests.

Other Australian players agree. Warren Chaisatien, senior mobile and wireless analyst at IDC, agrees mobility spurs security issues and therefore sales. 'CIOs are faced with a massive challenge. Mobility is happening, whether they like it or not, so now they have to assess how they can manage it,' he says.

Mobile and wireless can lift the bottom line, Chaisatien points out, but not if using them promotes a security leak.

Alphawest's dal Maso says the reseller's security practice is doing well, and that trend should continue. 'There are a lot of wireless prototypes going on, so people are reviewing at security,' he says. 'People are doing single sign-on. People are getting four different applications, getting architectures in different environments and saying “let's sort that out”.'

Interest in content filtering is also intensifying, especially as more enterprises open up a VPN and more staff work remotely, dal Maso points out.

BTO: IT serving business needs
 

Business technology optimisation – it's old news in Australia, but in the US BTO is a whole new concept complete with its own acronym. US companies have realised it is time to make technology work for them, instead of the other way around. But in Australia, it is a continuing, overarching theme.

Strong US sales are being experienced for products such as IBM's Tivoli and SingleStep's Unity. Vendors large and small are encouraging the channel to equip their customers with the means to deploy and manage not just point products, but business IT platforms.

The same is true here. The result can save customers money by optimising infrastructure. And then there is more money to spend elsewhere, perhaps even – dare we say it? – on more IT.

Alphawest's dal Maso tends to agree. 'We've seen a bit of an increase in some plumbing frameworks, architectures and application integration.'

Also, printing and printer consolidation – including a drive towards multi-function devices – is also playing a role in making sense of it all. 'I guess it's a lot of standard infrastructure things,' he says.

All sorts of things could help business technology optimisation (BTO) along. Business reporting and corporate governance issues already writ large in the US are going to increase in importance here and Australian customers will soon want more product that can help them lift their game. 'That includes document management and business intelligence as well,' Gartner's Hayward says.

What's not: Utility computing: off or on?
 

Pay-for-use sounds attractive to customers but, unsurprisingly, there's still a lack of proven solutions. Until actual products provide a clear line from concept to deployment, not much will happen.

Nick van der Zweep, director of virtualisation and utility computing for HP in the US, thinks that the ability to partition new Itanium chips may further utility computing in the market. HP's Virtual Server Environment introduced this year will help that along, van der Zweep claims.

'Previously, the smallest partition I could make would have one CPU dedicated to it. With virtual machines, you can take a quarter or a tenth or a twentieth of a CPU and create a partition. That means a four- or eight-CPU box could have 10, 20 or 30 virtual machines running on it at the same time,' he says.

Van der Zweep says customers are taking baby steps. 'To move resources from one partition to another and then only pay for what you use is a big step forward. Is it all the way to the vision of utility computing? No, it will take us five or 10 years to get all the way there.'

Gartner's Hayward agrees. A lot of talk about utility computing does not an increased enterprise spend make. At least not yet, he says.

However, some Australian players beg to differ, taking a more holistic view of the concept. Ingram's Thorne believes utility computing is really starting to catch on here despite the hype. He points to his customers' increasing interest in Veritas gear as proof.

'Anything enabling utility computing is very strong in the market. [Vendors] have been talking about it for 18 months but now it's really starting to catch on and that's about providing better and more reliable services to customers,' Thorne says.

 
64-bit no so chipper
 

For IT to work well in the enterprise, hardware and software need to move in step as if dancing a waltz. But when Intel and AMD brought 64-bit hardware to the enterprise ball, their dates did not show up.

US resellers suggest a lack of good software exploiting 64-bit might be holding back mainstream adoption. 'Maybe it's a software issue,' says David Chang, president of US system builder Agama Systems. 'Maybe people don't see all the benefits of 64-bit computing yet. We still sell those systems. But do we sell a lot? No.'

AMD has had two consecutive quarters in which it beat analyst expectations for profitability as sales continued to grow. Intel executives have said all along that the company did not seek to build a new market with its 64-bit Itanium processors.

Rather, it merely wanted to take a chunk of the existing-and profitable-RISC server space that has been dominated by chips from rivals such as Sun, HP and IBM. Yet unit shipment numbers are not available from either vendor.

John Samborski, vice-president of US system builder Ace Computer, says AMD Opteron-based workstations or clusters are selling but many will run 32-bit software while customers await 64-bit applications.

'But for the regular desktop [and server] it's like, “Who cares?”' Samborski says. 'With the server, the problem is there's not a significant server product shipping from Microsoft that's working with AMD or Intel 64.'

CRM on shaky ground
 

Few customer relationship management pioneers remain standing. 'We have seen a lot of that business go away,' says Chris Gryskiewicz, executive vice-president of Siebel reseller Templeton & Company.

'I think there's been a saturation at the upper end with regard to Siebel, and [the software] doesn't scale down to the mid-market really well. There are only so many big projects to do around, and mid-size companies aren't willing to spend the dollars needed.'

However, SAP – which does not even specialise in CRM – grew its share to hold 6.7 percent of the worldwide market.

Ingram's Thorne says CRM sales in Australia seem slow too. However, now that Microsoft has laid down the gauntlet, things could change, he says.

'We don't have a huge business in CRM,' Thorne says. 'But, once again, it's an enabling technology. It gives business a better relationship with its customers.'

Alphawest's dal Maso says CRM is growing in popularity. Larger enterprises can definitely see potential gains across their complex networks and infrastructures, he points out. Express Data's Baker agrees. 'People are beginning to invest in areas of CRM,' she says.

Maybe, for CRM, it's just a matter of time.

 
Roughing out SOAs
 

Resellers are not seeing customers trample each other to deploy either web services or services oriented architectures (SOAs).

In an SOA, functions are broken down into low-level actions reused across the enterprise. Called 'services' because they lie ready for any application that invokes them, they can be combined into more complex functions. Such components of repeatable business processes provide the utility behind an SOA, removing IT redundancies to promote business flexibility.

Resellers say most companies have a hodgepodge of systems set up to serve widely disparate business needs. Before a reseller can build an SOA, those business operations have to be understood, standardised and turned into services.

Web services uses XML to define, send and secure common business processes, thus helping SOAs along. But tying together a bunch of web services does not an SOA make, says Jeff Mitchell, managing director of integration services at Bearing Point.

Developing a true SOA is still a complex task only a small percentage of customers are willing to tackle.

A slow rate of adoption will not stop vendors such as IBM, Microsoft and BEA Systems from seeking to offer the best software for building SOAs. But it will take many years before SOAs live up to their potential.

Gartner's Hayward says Australia is still a little bit behind the US even, on web services and SOAs. 'A lot are talking about it, but in reality there are very few deals,' Hayward says.

 
Mobility a mixed bag
 

While many resellers are still selling plenty of notebooks, much of the mobile and wireless portfolio still seems to hold more attraction for SMBs than for larger organisations.

'These products haven't been adopted by the enterprise, and by mobility we're talking about wireless, wireless VPN for the data centre, mobile data cards and those sorts of things,' says Ingram's Thorne.

Although 'thousands' of mobile devices have entered the Australian market, large companies still find them too costly, he says.

Enterprises want to see a real benefit and genuine applications for the products before they buy. And although costs are coming down, companies everywhere have a new pragmatism which means it takes more than cost savings to talk their wallets open.

Further, as Express Data's Baker points out, as spend goes up prices can come down. That contributes to margin erosion. So benefits for resellers from any recovery in spend might be expected to lag behind.

'Make sure you partner with the right vendors,' she adds.

There are always more technologies than there is room in the market. And there are always plenty of good ideas whose time has not yet come.

Look at RFID. It's not a new technology, but many potential applications are still a long way from fruition and thus significant sales. As Gartner's Hayward says: 'The industry gets pretty animated about a few things, but on the ground the money isn't spent. We do see some RFID projects and some are quite interesting. But is it en masse? No.'