IDC Predicts That Moderate Spending Growth Will Push IT Vendors Toward Disruptive Business Models

FRAMINGHAM, MA – December 1, 2005 – In its annual look at the year ahead, IDC predicts that moderate IT spending growth will force many information technology vendors to rethink their product and service offerings, merger and acquisition opportunities, innovation strategies, delivery models, and the competitive landscape.

"The IT and telecom industry convergence, consolidation, and realignment of the past two years will continue in full stride in 2006," said Frank Gens, senior vice president of Research at IDC. "A critical new ingredient we'll see is the acceleration of disruptive business models – 'open innovation' in IT product and service development (the open source effect) and online delivery of IT as a service (the Google effect). These disruptive shifts will force most vendors to perform a strategic gut check as they enter the year."

The following are the key themes that IDC predicts will shape the IT industry in 2006:

— Continuing moderate IT growth – 5.5% worldwide, a drop from 6% in 2005 – will create the pressure that drives IT suppliers to think outside the box. Growth-oriented IT industry leaders will be thinking creatively about new product and service offerings, new business models, and new types of industry relationships and communities.

— Geographically, IT industry expansion will be driven by continuing double-digit growth in emerging markets: China, India, Central and Eastern Europe, and the Middle East and Africa.

— The shift to more modular, efficient, and business-responsive IT (what IDC calls "Dynamic IT") drove dozens of mergers and acquisitions in 2005. However, in the IT infrastructure, information, applications, communications, and services segments, vendors aren't nearly finished reshaping themselves and their offerings. Look for a continuing flurry of IT and telecom mergers in 2006 – particularly in infrastructure software, data and content management, IT services, and telecom.

— Most of the big market share leaders in IT (e.g., Microsoft, IBM, Oracle, SAP) got that way by keeping tight control over their own product development. The go it alone model of innovation is an endangered species in the IT industry, and incorporating a community-based innovation model (e.g., open source) is quickly becoming an important ingredient for market leadership. In 2006, IDC believes that building more open innovation communities will be a big focus for IT leaders – including Microsoft.

— IT delivery has been shifting from products to services over the past several years. But in 2006, IDC expects this model shift to accelerate. The most obvious evidence of this shift reaching a tipping point will be the announcement in 2006 of next-generation versions of applications delivered as an online service (e.g., from one or more of the packaged application leaders (SAP, Microsoft, Oracle).

— The "Google effect" will spur traditional players to hasten their move to disruptive models. In 2006, Google will increase its presence as a disrupter in the information, application, and services segments of the IT industry. While much of this disruption will be years in the making, and will be over-hyped in 2006, the more important impact of "Google as a disrupter" will be as a spur for traditional suppliers to disrupt themselves before competitors do. This will be evident in enterprise applications, information management and IT services.

— In the consumer space, 2006 will see IPTV get off the ground, but altitude will still be low with only one million telco subscribers (vs. 70 million cable in the U.S.). Sony's Blu-ray will crowned as the winner in the next-generation DVD format war. And online music subscribers will generate over $1.4 billion for the embattled music industry in the coming year.

"The companies that can quickly adapt their business models, product and service offerings, and industry relationships to meet the industry's changing dynamics will be the ones to succeed in the long run," noted Gens. "And with all these changes taking place, the companies that stay too close to their comfort zone will most likely get swamped by the innovators."

IDC's annual Predictions are designed to identify and highlight key trends and pivotal choices facing the IT industry in the year ahead. The predictions draw upon existing IDC research and are vetted through a global review process involving more than 800 IDC analysts from every region of the world.

More information about Predictions 2006, including a copy of Frank Gen's report, IDC Predictions 2006: It's Gut-Check Time, As Disruptive Business Models Gain Traction (IDC #34482), and additional IDC research documents and events focusing on the year ahead, is available at

About IDC

IDC is the premier global market intelligence and advisory firm in the information technology and telecommunications industries. We analyze and predict technology trends so that our clients can make strategic, fact-based decisions on IT purchases and business strategy. Over 700 IDC analysts in 50 countries provide local expertise and insights on technology markets. Business executives and IT managers have relied for 40 years on our advice to make decisions that contribute to the success of their organizations.

IDC is a subsidiary of IDG, the world's leading technology media, research, and events company. Additional information can be found at

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