I had a chance to review a Wall Street research report citing CIO views on 2024 and 2025 IT spending, and while I think it’s not outlandish, I think there are points that it misses. CIOs tell me many of the same thing, but add in views and qualifications that I think are helpful in assessing the state of enterprise IT. We surely need to do that, given the pressure we see on IT spending and vendor revenues and profits.
The report cites CIO spending increase expectations for 2024 to be 3.2%, up slightly from the early-year expectations, and next year’s spending to be up 3.8%. This is roughly what I’ve heard, but with an important comment, which was that this represents a spending dip in constant dollars. CIOs have said for two years that their budget increases aren’t keeping pace with pricing, and this year is no exception.
CIOs also admitted that their expected budgets for the coming year are their own submissions (and hopes) but that for five years or more this number had been cut. That means that the next-year spending predictions are what CIOs hope they can get or perhaps start with as a negotiating position, and represent what they think is needed or desirable rather than what they think they’ll get. The interesting thing to me is that of 231 CIO comments on their spending I received, only 16 reflected an expected increase of over 10%, 29 predicted a reduction, and 182 fell between 3% and 4%.
The reason this is interesting goes back to a point I’ve made before, which is that the “budget” component of IT spending is there for routine modernization. That amount tends to grow only slightly per year, and any big changes come from new projects that present new benefits, justifying higher spending. Few CIOs indicated they had any sense of new-project funding for next year, but they tell me that in most cases, project spending is likely to get approval only during the current year, so they’d rarely have visibility into what next year might bring unless an earlier project had spending gains spread over several years.
Another chart in the report identifies the focus areas for projects involving outsourced professional services, in which 7 broad areas are represented. Security and cost management lead the pack, and strategy and business model transformation are last. CIOs tell me that you can’t transform your business model without a clear idea of what that would require, and they don’t know what that next big thing will be.
All this means that IT spending overall continues to stagnate because of a lack of new benefits to make new business cases that justify higher spending.
The report talks about changes in vendor influence too, at least in an indirect way, and here I find that their comments break from my own experience with enterprises. In a fair number of categories, they show a loss of influence and deals for some major traditional incumbents like IBM, and a gain by lesser players. I didn’t see any significant sign of this. Of the 231 enterprises, only 39 had made any change in suppliers of major tech elements that were “strategic” choices for them. Where the report said that IBM had lost professional services deals, my enterprises said IBM had gained. I think the issue here may be the survey process; if you contact a number of companies needed to get a specific survey base size, you probably don’t get the same companies all the time. My base of contacts tends to be fairly steady; my contact base has changed only 8% over time.
One interesting point in the survey is that of the companies most likely to be engaged for outsourcing/consulting, IBM is the only real IT vendor represented. This aligns with my finding that IBM has the largest strategic influence overall.
In the software area, the hot spot continues to be security, which less than a fifth of the CIOs expected to be flat or down, the best of the category. However, while 2024 expectations are good, the recent surveys do show a decline in security software spending, and that’s consistent with what I hear. CIOs tell me they believe that security is starting to look like a pit they’re expected to toss money into, and that whatever they spend is never enough to satisfy vendors. It’s also interesting to note that the report shows the largest gains in security spending to be in the area of security event analytics, which CIOs tell me is an attempt to better leverage the specific tools already in play.
AI doesn’t fare well, with the majority of CIOs in the survey saying that AI is less than 5% of total spending, and that the share has declined over the last three semiannual surveys. From the data on the AI model in use (which is dominated by Microsoft/OpenAI, it seems clear to me that the spending focuses on AI service tools rather than self-hosting of AI, and that corresponds with what I hear. Enterprises acknowledge their line organizations are adopting personal-productivity AI, but that they’re still struggling with the “right” kind of AI, the self-hosted business-analytics stuff.
In the cloud space, the most interesting thing in the report is the fact that the things that CIOs intend to repatriate the most relate to storage and databases, which almost 40% intend to pull back at least somewhat. However, the report says that the percentage of IT spending going to public cloud services has increased every year from 2022 onward, and on the average went up 5% each year (15% to 25%). The former data point matches what I hear; data in the cloud is the most problematic area. The latter, not so much. Enterprises tell me that their public cloud spending growth rate has declined over that period, and only 94 of 231 said that they expected 5% or more growth (and that means, keep in mind, additional five percent of total IT spending, not 1.05 times the prior level) in cloud spending in 2024/2025.
I think that this report, what I’m hearing from CIOs, and my own views based on experience, are generally in alignment at the high level. The IT situation isn’t dire, but it’s far from rosy. Street research favors views that create stock winners, CIOs (or anyone being surveyed) rarely offer the objective truth, and it takes technical knowledge to survey on technical topics. Given all that, this is still a confirming data point to my thesis that IT needs some new benefits to get out of the doldrums.
