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In this current era of cloud/server computing, few will be shocked to see a chart
that illustrates the growing proportion of IT budgets that goes toward business appli-
cations. Perhaps less obvious to some is the pace of this shift.
Consider, for example, that in 2007, business applications accounted for about
11 percent of the typical IT operational budget, according to figures from Computer
Economics. By 2014, that percentage rose to 23 percent for the average organiza-
tion. In other words, IT spending on business applications more than doubled as a
percentage of the IT operational budget since the start of the Great Recession, and
it’s possible the ebbs and flows of the recent recession accelerated the trend, says
Computer Economics.
One might surmise
this is simply due to
desires to delay or avoid
capital expenditures on
hardware during lean or
uncertain times. “How-
ever, in this case, the
rising portion of IT re-
sources being consumed
by software in the ap-
plication layer is not tied
to declining hardware
costs,” says the research
firm. “Rather, it appears
to be tied to declining
labor costs, which suf-
fered the most during
the downturn.”
What’s more, spend-
ing on applications as a percentage of the IT budget rises when the economy turns
down and rises again when the economy turns up.
As the recession hit, organizations pulled back on all types of spending, including
application investment, show Computer Economics figures. “However, we see spending
on applications fared better than spending in other areas and, as a result, jumped as
a percentage of overall IT operational spending from 11 percent in 2007 to 17 percent
by 2009,” says the research firm. “The large amount of depreciation in the application
expense category partly explains the rise.”
The trend line flattens for a few years as the recession ends and the recovery strug-
gles to gain footing. After a false start in 2011, IT operational budgets began to grow
in 2012, and along with the growth came renewed growth in spending on applications,
this time including a strong uptick in SaaS spending.
“This would indicate the growth in application spending as a percentage of the IT
operational budget is a secular rather than a cyclical trend,” says Computer Economics.
“Now that IT budgets have begun to recover from the Great Recession, it is important
to consider how the world has changed.”
Applications, Recessions
& IT Dollars
Alternate
Views
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r service when purchasing online
11%
15%
17% 17%
18%
20% 19%
23%
6%
53%
44%
50%
38%39%
30% 32%
Source: Computer Economics
Applications as a Percentage of IT Operational Budget
0%
10%
20%
30%
2007 2008 2009 2010 2011 2012 2013 2014
Source: Pew Research Center
Percent of working internet users who say each
is “very important” to doi g their job ...
The int rn t
Landline phone
Cell or smartphone
Social networking sites
like Twitter, Facebook
or Linkedin
61%
54%
35%
24%
4%
ritain
U.S.
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May - June 2015