The End of IT Growth
With little demonstrable return and less stomach for the new new thing, columnist Eric Nee writes, U.S. business may have lost its appetite for massive IT investments.During the past two years, business has dramatically cut back on information technology spending, and next year is shaping up to be nearly as bad. Considering the dismal state of the economy and the exorbitant IT spending that immediately preceded the slump, that should come as no surprise. No one expects IT spending to go through a boom like it did during the late 1990s. But what may come as a surprise is this: Even when IT spending turns around, its prospects dont look so good. Spending over the long haul will likely grow at just half the rate it did during the last four decades. Consider the numbers: For 40 years, from 1960 to 2000, IT spending in the U.S. grew an average of 13 percent a year, peaking in 2000 when it jumped 23 percent, according to Morgan Stanley Dean Witter. Since then, its been downhill. In 2001, IT spending dropped 10 percent, according to the U.S. Department of Commerce. This year spending is expected to drop another 2 percent, and in 2003 spending will probably be flat, according to Goldman Sachs. (And dont be surprised to see 2003 spending go into the negative if the economy continues its current slide.)
Thats bad enough, but heres the rub: "In the long term, IT spending will grow about 6 percent to 7 percent a year," says Laura Conigliaro, an analyst with Goldman Sachshalf the rate it grew from 1960 to 2000. And even that may be optimistic: "Demand will be up maybe 3 percent a year," says Howard Anderson, senior managing director of YankeeTek Ventures. "The old days are over."