IT firms ramp up prices to drive post-pandemic revenue

The latest IT spending forecast from analyst Gartner points to a 4.3% increase in worldwide IT spending in 2023 compared with 2022. Gartner’s figures project spending on IT to total $4.7tn this year, driven by the need for CIOs to invest in automation and technologies that improve efficiencies with fewer staff.

Discussing the forecast, John-David Lovelock, distinguished vice-president analyst at Gartner, said: “IT projects are shifting from a focus on external facing deliverables such as revenue and customer experience, to more inward-facing efforts focused on optimisation.”

Gartner’s forecast puts spending on software at $911bn in 2023, a 13% increase, and will grow a further 14% in 2024. This is largely being driven by price increases, but CIOs are also looking to modernise older enterprise systems. “Revenue growth was everything during 2020-2021,” Lovelock added.

Gartner recalculated storage revenue. However, this growth was not, according to Lovelock, driven by demand for new applications such as artificial intelligence (AI). He said: “We were right about the amount of units and storage that was being purchased. The volume of storage hasn’t exploded.” Instead, he said the storage providers increased their margins, which meant they were charging customers more for the same products.

Spending on datacentre equipment is forecast to drop slightly in 2023 by 1.5% to $223bn, but will grow 8% in 2024 to $236bn. IT services is set for 8.8% growth in 2023 and 11.6% in 2024.

While the overall outlook for enterprise IT spending is positive, devices spending will decline 8.6% in 2023 due to the ongoing impact of inflation on consumer purchasing power.

Artificial intelligence is among the most talked about technologies of 2023, particularly the opportunity generative AI offers.

Lovelock believes that AI will fundamentally change the business of IT. He said: “Usually when you get something like cloud or blockchain, IT infrastructure or IoT, there are the companies that create the technology and then other companies make use of it. AI is the first technology where technology companies will change what they do and how they do it.”

He said AI will also change the way business outsourcing is done and how IT consultancies deliver code. “It will change mobile phone, PCs, tablets, laptops, servers and networking,” he said. “AI is an extinction-level event for software companies. If they don’t wrap their heads around it and get it into their product, they could go out of business and this could happen faster than they think.”

While generative AI is expected to be a key focus for business and IT leaders, its impact on IT spending is not significant at present. Lovelock said that it it is likely that generative AI functionality will be incorporated into existing tools through upgrades and add-ons. As an example, he said: “There will be companies selling generative AI wrappers for CRM products and they will make money from that, but the reality is that Salesforce has Einstein, which is AI and it’s free.”