2010 Networking Spending Trends

© 2010 Enterprise Strategy Group, Inc. All Rights Reserved.

Networking Spending Up in 2010

ESG’s 2010 IT Spending Intentions Survey finds relatively good news for the networking industry in 2010, compared to 2009.1 Overall, 52% of midmarket (i.e., 100 to 999 employees) and enterprise (i.e., 1,000 or more employees) organizations will increase IT spending in 2010 as opposed to only 43% in 2009. Specific spending on networking equipment also looks relatively promising as 49% or organizations surveyed will increase their spending on network hardware this year (see Figure 1), up from just 32% in 2009.

Figure 1. Network Hardware Spending in 2010

Source: Enterprise Strategy Group, 2010.

Spending Segmentation

While network hardware spending intentions have improved year-over-year, overall spending trends remain subdued: ultimately, less than half of organizations are increasing network hardware spending this year. Given this reality, networking equipment vendors should maintain a disciplined and targeted sales and marketing approach throughout 2010.

Where should networking vendors focus their attention? Further analysis of ESG’s 2010 IT spending data pinpoints a number of interesting trends. From a vertical industry perspective, for example, financial services, health care, and federal government organizations are the most likely to increase network hardware spending in 2010. On the other hand, less than 50% of the organizations surveyed in other industries—such as manufacturing, state and local government, and education—plan on networking spending increases this year (see Table 1).

1 Source: ESG Research Report, 2010 IT Spending Intentions Survey, January 2010.

Increase, 49%

Stay flat, 35%

Decrease , 16%

To what extent will your organization's spending on network hardware change in 2010? (Percentage of respondents, N = 264)

ESG Research Brief

2010 Networking Spending Trends

Date: February 2010 Author: Jon Oltsik, Principal Analyst

Abstract: In general terms, spending on networking equipment will be better than last year but not nearly as fruitful as earlier this decade. In this type of climate, networking vendors must be extremely careful with their marketing dollars and invest in the right market segments. Data from ESG’s 2010 IT Spending Intentions Survey—including network hardware spending analysis by industry and by customer psychographics—will help networking vendors make the right bets in 2010.

ESG Research Brief: 2010 Networking Spending Trends 2


Table 1. 2010 Network Hardware Spending Increase, by Industry

Financial Services

Health Care

Government (Federal)

Manufacturing Government

(State and Local)

Education

Percentage of respondents reporting that their organization will increase network hardware spending in 2010

82% 56% 50% 45% 38% 38%

Source: Enterprise Strategy Group, 2010

Changes in an organization’s overall 2010 IT spending profile can also serve as a barometer for network hardware purchasing plans. As shown in Table 2, organizations still focused primarily on cutting IT costs are unlikely to increase network hardware spending while those in “growth mode” will be far more active buyers.

Table 2. 2010 Network Hardware Spending Increase, by Current IT Spending Mode

Which of the following best characterizes your organization’s change in IT spending from 2009 to 2010?

“We are in major cost reduction mode” “We are in growth mode”

Percentage of respondents reporting that their organization will increase network hardware spending in 2010

30% 76%


ESG also analyzed network hardware purchasing plans by company psychographic profiles and found a number of interesting trends. For example, organizations that consider upper management as “risk takers” are more far more likely to increase their network hardware spending than are those whose management teams are more risk averse (see Table 3).

Table 3. Network Hardware Spending Increase, by Management Risk Tolerance Profile

In general, how would you describe your organization’s management team?

Takes many risks and tends to invest in new high-risk/high-reward products and services

Takes some risks but generally only invests in new products/services

that have a high probability of success

Takes very little risk and generally invests only in new products/services

that they are almost sure will succeed

Percentage of respondents reporting that

their organization will increase network

hardware spending in 2010

67% 54% 39%




Not surprisingly, how an organization typically purchases IT products and services is also a predictor of increased network hardware spending. Respondents classifying their organizations as “leading-edge” consumers of IT products and services are far more likely to increase network hardware spending in 2010 that those with more conservative IT purchasing habits (see Table 4).

Table 4. Network Hardware Spending Increase, by IT Purchasing Behavior

Generally speaking, how would you describe your organization’s purchasing patterns for IT products and services?

Leading-edge consumers – we stay on top of the most current technology trends

and purchase related products as soon as they are

available

Average consumers – we stay on top of technology

trends but generally wait to purchase related products

until they have proven acceptance in the market

Laggard consumers – we don’t really stay on top of

technology trends and tend make investments only after

those technologies have been widely accepted in the

market

Percentage of respondents

reporting that their organization

will increase network hardware

spending in 2010

73% 49% 27%


Which Networking Products Will Sell in 2010?

ESG also asked respondents which networking technologies they planned to buy in 2010. The top three categories were network security, wireless LAN, and IP telephony (see Figure 2).

Figure 2. Top Areas for Networking Investments in 2010

Source: Enterprise Strategy Group, 2010.

6%

16%

19%

24%

27%

32%

42%

48%

0% 10% 20% 30% 40% 50% 60%

Application delivery controllers

Unified communications

Upgrade core data center network to 10-Gigabit Ethernet

Remote meeting solutions (e.g., Web meeting, telepresence, etc.)

WAN optimization / acceleration

Voice over IP (VoIP)

Wireless LAN

Network security

With regards to specific spending plans for networking, in which of the following areas will your organization make the most significant investments over the next 12-18

months? (Percent of respondents, N=264, up to three responses accepted)



ESG analyzed this data by vertical industry and found a number of interesting correlations. For example, federal government, state/local government, and health care will be the biggest network security buyers while educational institutions and state/local government are poised to purchase a lot of WLAN equipment—so much so that it skews the overall averages. Other patterns also emerge for networking technologies like VOIP, WAN optimization, and 10Gb Ethernet equipment (see Table 5).

Table 5. Top Areas for Networking Investments in 2010, by Industry

Financial Services

Health Care


Manufacturing Government (State and

Local) Education

Network security 44% 52% 64% 32% 55% 38%

Wireless LAN 35% 26% 29% 30% 52% 70%

Voice over IP 26% 41% 36% 36% 38% 35%

WAN optimization 24% 30% 57% 39% 24% 14%

10Gb Core Network Upgrade

18% 26% 14% 23% 14% 22%


Research Implications

This data can help networking vendors in several ways. For example, the psychographic data presented above could be used to separate strong from weak prospects. How? Smart companies will sort through leads and use the ESG data as the basis of a few qualifying questions. For example, telemarketing staff could call prospects and ask them:

1. “Is your organization in cost containment or growth mode?” Growth mode prospects should be highlighted as they

are probably increasing their network hardware spending.

2. “Would you characterize your organization’s management style as risk-taking or risk-averse?” Risk takers should

obviously be prioritized.

3. “Would you consider your organization to be a ‘leading edge’ IT consumer?” If yes, this prospect probably has

significant network purchasing plans for 2010.

In addition to these qualifying questions, ESG’s data also provides a blueprint for vertical industry sales and marketing strategies since the data indicates which industries are buying network hardware and the specific technologies they plan to purchase (see Table 6). If used in this way, ESG’s 2010 IT spending data can help networking firms fine tune marketing budgets, guide marketing plans, and steer investments in marketing programs and sales tactics.



Table 6. Vertical Industry Sales and Marketing Blueprint for Networking Vendors

Industry ESG recommendation for IT vendor marketing budget

allocation Comments (based on ESG research)

Financial Services

Increase marketing budget for 2010

Average buyer of all networking equipment

Heavy focus on business process improvement

Market networking as business solution

Health Care Increase marketing budget for 2010

Focus on VOIP and network security

Business focus on security and compliance

Market networking as an enabler of secure business processes


Increase or maintain marketing budget in 2010 depending upon Federal penetration and focus areas

Big consumer of network security and WAN optimization

A lot of focus on IT governance (i.e. COBIT, ITIL, NIST-800)

IT skills weaker than other industries

Sell secure network solutions that support IT governance best practices and compliance requirements

Support product sales with services

Manufacturing Decrease or maintain marketing budget in 2010 depending upon focus areas

Above average opportunity is in WAN optimization, all others average

Lots of data center consolidation and server virtualization activities point toward 10Gb aggregation and top-of-rack sales

More apt to buy “green” products

In cost reduction mode

Focus on data center and branch office solutions while emphasizing lower operating costs and green benefits

Government (State and Local)

Decrease marketing budget

Focus on WLAN and network security

Slightly more likely to buy mobile workforce enablement solutions and upgrade core networks

In significant cost containment mode

Data center consolidation

Focus on data center and branch office solutions while emphasizing lower operating costs and network security

Education Decrease marketing budget

Most likely industry to buy WLAN but also strong interest in VOIP and unified communications

Most aggressive industry in terms of server virtualization implementation

Focus on networking support for server virtualization, 802.11n, integrated wired/wireless network management, and network applications for collaboration/communication


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2010 Networking Spending Trends