I just read a great overview on “The Tech Fallout from the Wall Street Crisis” posted by Rich Miller at the Data Center Knowledge site. Here are four of the six key points Rich makes:
- North American financial companies will slash their IT spending 27.3 percent to $17.6 billion next year, down from $24.2 billion in 2007, according to updated projectionsfrom the Tabb Group, which tracks technology on Wall Street. The vast majority of that decline will be spending reductions due to the failures of Bear Stearns and Lehman Brothers and the sale of Merrill
Lynch, Tabb predicted. - HPC Wire last week raised the possibility that the crisis could spark additional investment in high performance computing (HPC), particularly for number-crunching in risk management. “Given the likelihood of regulatory changes for the financial services market, along with the obvious need for better risk assessment and management, higher productivity, greater cost-efficiency and more advanced global economic modeling, it seems all of the right drivers are there,” writes Diane Lieberman.
- Earlier this year in our Crunch Time series we reported anecdotal evidence that the trend noted by HPC Wire might be developing. : The troubles on Wall Street could actually boost demand in one key area: risk management. Firms that were surprised by larger than expected losses in their subprime mortgage holdings appear to be increasing the computing power dedicated to analyzing the relationships between complex financial instruments. “There has also been demand from Wall Street firms that are looking to expand their risk management computational capability in this environment,” said Digital Realty CEO Michael Foust. “That’s driving need for more space on the data center side.”
- An alternate view is offered by Geva Perry from GigaSpaces, who argues that existing HPC-driven risk analysis models either didn’t work or were ignored. Geva argues that cloud computing should be the beneficiary of the Wall Street crisis, as tighter budgets shift apps from in-house HPC installations to the cloud. I’m already on record with my skepticism that this shift will happen soon.
I think we can extrapolate many of these points to other large IT enterprises, and we can also make some projections about IT spending in the federal government. Some thoughts:
- For those enterprises who’s IT is “good enough” or for enterprises where IT does not provide a competitive difference, don’t expect any IT spending in 2009. Increasingly, the trends and projections forecast by Nicholas Carr in articles like “IT Doesn’t Matter” and “The End of Corporate Computing” are coming true. The wastefulness of the current, fragmented model of IT supply will be under significant pressure. As waste is eliminated IT will be outsourced along the same model that electricity is outsourced. The big factory-owned powerplants that used to supply electricity are gone. Electricity is a utility. Increasingly enterprises will totally outsource their computational power.
- For some that will mean turning to large integrators to outsource an entire department. For some companies that may mean turning to Google or others to provide outsourced apps and collaboration tools (that’s they way my tiny business does it, and from what I understand many much larger firms are running towards Google apps– I think this trend will accelerate).
- Enterprises that decide they must keep IT as an in-house asset will likely look to enhance their competitiveness and may modernize to take advantage of new capabilities to deliver increasing competitive advantage. In these enterprises, IT spending may be up. The benefit of this spending will be on delivering business results, but also in saving power and energy.
- For government at all levels, expect all IT budgets to be under significant downward pressure. The only new starts to be funded in IT will likely be associated with mandated moves (like the BRAC-directed moves) or will be projects that can clearly show they will save power and money or can clearly show they provide significant battlefield advantage for our military or intelligence community.
- Another driver of change will likely be the need for enhanced security, in the broadest sense of the term. Systems dependent on the grid must have high degrees of reliability and low risk in areas like confidentiality, integrity and availability.
- The pace of wireless comm improvement will continue or possibly even accelerate.
So, stand by for heavy seas. Brace yourself for rapid change in exciting organizations and big change in grid/cloud/utility computing.
And for technology professionals whose careers, livelihood and lives have been impacted by this crisis, my hope is the disruption for you will be temporary. IT departments will be changing, and many processes will be totally automated so many lives will change. I believe there will be a bright future for technologists who continue to learn and adapt, and if I had to make recommendations on what to learn as a technologist I think it would be the art and science of grid/utility/cloud computing (as for me, I’ve been diving into the Google Apps Engine).
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