Where are we, really?

One of the things analysts frequently are asked is: What’s worth paying attention to in the industry? The question almost invariably causes a moment of pause – as we try to sum up hundreds of ideas that seem worth mentioning at any given point in time.

So rather than pretending there’s an especially elegant way to sum up “where we are” right now, I thought I’d share with you a few random thoughts.

This week we’ll look at overall business uptake, and next week at some of the catalysts behind that uptake.

In spending and growth, both numbers and mood are showing a more upbeat trend than even six months ago. At the time of writing this column, software valuations are up about 38% since January – well ahead of the Dow Jones Industrial Average, but interestingly, slightly behind the NASDAQ average. It is also interesting that many of the stocks so devastated in the last few years – such as network hardware and Internet-related stocks – have grown faster than software this year. This may be good for software in the end, and management software in particular, as it means that investment in hardware infrastructure may drive further acceleration in products for managing that infrastructure.

IT spending has moved into more positive territory as well, but plans for growth are still in the very low single digits. One thing that seems clear is that confidence in committing to long-term spending is weak. Real investment in IT software and hardware are almost always exceeding projected estimates.

Trying to get underneath this psychology would suggest the following mindset: “I know I need to make investments to stay competitive, and it looks like the downturn may be slowing. There’s more activity, more of a need to accelerate projects. But I don’t know how long this uptake will last. Near term, I’m going to be more aggressive in stepping up to this accelerated pace than I will commit to in the long term, just in case this proves to be another bubble or mini-bubble.”

This is a natural, and arguably reasonable mindset. As 2004 unfolds, we will either see a gradual stabilization and confidence building – my prediction as well as my hope – or another downslide or set of downslides that will result in very cautionary investment for quite some time.

Investment in management software is up about 50% and security is up about 30%, while there has been somewhat higher growth in business intelligence and significantly lower growth in PC software. Once again, this makes sense at a general level – management and control, and the measurements that can enable IT efficiency, ought to be top of mind for many IT buyers. On the other hand, once you get one or two layers underneath this generalization, the real catalysts and reasons to invest are far from obvious.

Next week we’ll look at just what some of those catalysts might be – and what’s still missing.