Dive Brief:
- Enterprise IT spending in the U.S. will increase in 2023, but the growth rate will slow to 5.4%, down from 7.4% in 2022, according to a new Forrester report.
- Interest rate hikes, low GDP growth, high inflation and energy costs made companies more cost-conscious, seeking productivity gains from tech investments, according to the analyst firm.
- Software is a primary driver of tech spending growth, increasing by 8.3% this year, the report said.
Dive Insight:
Software is expected to dominate enterprise IT spending through 2027, growing to 42% of total tech spend, up from 34% last year, according to Forrester.
Inflation has helped accelerate the shift from on-premises software to “as a Service” cloud computing.
Three-quarters of software is sold using subscription models, according to Forrester. This allows companies to pay only for the storage and compute they use, shifting cost from upfront capital expenditures to monthly operational spending.
As the economy strengthens, incremental spending can increase. When conditions deteriorate, spending slows, as companies prioritize savings.
The big three hyperscalers — AWS, Microsoft and Google Cloud — reported revenue growth slumps for the quarter ending Dec. 31, due largely to customers optimizing spend.
AWS, the leader in public cloud infrastructure with 33% of the market, committed to helping customers reduce costs during a quarterly earnings call.
“Most enterprises right now are acting cautiously,” Andy Jassey, CEO of AWS’ parent company Amazon, said during the call. “When you are being cautious, you look for ways that you can find to spend less money.”
Companies that regularly analyzed 90-day loads of data when the economic conditions were more favorable, can reduce costs by temporarily running just two weeks’ worth of data, Jassey said.
Last month, analyst firm Gartner dialed back its 2023 worldwide IT spending forecast to $4.5 trillion, down from its previous estimate of $4.6 trillion.
Global tech spending growth will slow to 4.7%, according to Forrester’s new forecast. That will push worldwide spending to $4.4 trillion, 100 basis point lower than the analyst firm forecasted a year ago.
