Silver lining in a down economy
There were some interesting data points in the last week concerning the economy and its impact on the technology sector.
Phil Fersht, a fellow blogger and AMR Research Director, just finished a web survey of spending in the US financial services market. In their findings, AMR concluded that:
“The financial services industry is finally ready for that change, and our recent study of financial institutions and outsourcing services providers, taken over the last two weeks since the U.S. government’s bailout package, confirms this. Our survey of financial institutions shows the following: _ Only 16% have actively sought to pull-back their outsourcing expenditure plans. _ 39% are now looking to increase expenditure in light of recent events. _ 45% have not made any changes to their planned outsourcing expenditure on ITO and BPO services.”
A few days ago at a PSVillage event in Chicago, several software executives were polled as to their current sales pipeline. What emerged from that discussion were two interesting conclusions: - Vendors selling SaaS (software as a service) software solutions reported growing pipelines and very strong interest in SaaS offerings - Vendors selling on-premise solutions reported good numbers for this quarter but were concerned what will happen to 2009 capital budgets after January 1.
Both data points indicate that material shifts in buying activity may be underway. Businesses will likely find their cost of capital to be materially higher soon and the availability of capital to be more constrained. In that environment, solutions that permit firms to stretch their limited, expensive capital further will persevere over more capital intensive solutions. If that logic is correct, SaaS and outsourcing will definitely gain market share while on-premise solutions (e.g., traditional software license and implementation solutions) will contract.
Last week, I heard two software buyers express interest in vendor managed services (or managed services outsourcing) for application software maintenance. Their businesses aren’t interested in adding headcount or hardware for new application purchases.
Different economics dictate different technology sales preferences will win out.