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IT budgets under pressure spur tool consolidation

As the tech industry suffers layoffs and slowing growth, IT organizations such as Boeing are handing some of their IT vendors pink slips of their own.

Against the backdrop of a possible recession, IT budgets aren't expected to grow as much this year as they did in 2022, and IT buyers are rethinking the number of vendor suppliers on their payroll.

Concerns about the global economy and its effect on the tech industry began in mid-2022 with a stock sell-off, and market volatility continued throughout the year. So far in 2023, tech vendors including Google, Amazon and Microsoft have announced major layoffs, while the World Bank made a major cut to its world economic growth outlook for 2023 on Jan 10.

In the meantime, market research on enterprise IT indicates spending growth in 2023 will slow compared to last year. Overall, 52% of IT organizations surveyed by Enterprise Strategy Group (ESG), a division of TechTarget, for its 2023 Technology Spending Intentions report anticipated an increase in spending for the new year, compared with 62% going in to 2022. More organizations, 18% for 2023 compared with 3% last year, said they plan to decrease IT spending. This is the first time since 2014 that more than 10% of organizations surveyed expected a decrease in spending, according to the ESG report, which was published in November.

Enterprises plan to keep spending under control this year by renegotiating IT vendor contracts, cited by 32% of 742 survey respondents, and reducing the number of vendors they work with, cited by 27%.

"The sprawl of SaaS tools over the last few years has been tremendous. … Most companies only use 10% to 20% of the tools they purchase, and there's a lot of overlap between vendors," said William Dougherty, chief information security officer at Omada Health, a digital healthcare provider in San Francisco. "We'll take a hard look at the cost/benefit of each tool and figure out how to maximize our investments."

Omada Health, Boeing cull observability, DevOps platform tools

The specific categories in which enterprise organizations plan to consolidate tools varies. But the cybersecurity, AI and public cloud services tool categories will retain the most spending growth in 2023, according to the ESG report.

The key idea is to go deeper with the tools we like, even if they aren't perfect on every feature, rather than continue the sprawl.
William DoughertyChief information security officer, Omada Health

For Omada Health, the consolidation focus has begun with observability tools, where the organization has reduced the number of vendors it works with from eight to two, with what Dougherty called "some additional cleanup" expected over the next three months.

"This allows our engineering teams and security teams to have a unified tool base for logs, performance, security and incident response," he said. "The key idea is to go deeper with the tools we like, even if they aren't perfect on every feature, rather than continue the sprawl."

Omada will also evaluate whether it can reduce two identity management vendors to one and move incident response and incident management to one of its remaining observability vendors.

Ricardo Torres, chief engineer of open source and technical fellow, BoeingRicardo Torres

A similar move to consolidate onto a single DevOps platform vendor is afoot at aerospace manufacturer Boeing. It will soon choose a primary vendor for this initiative, according to Ricardo Torres, chief engineer of open source and cloud native and associate technical fellow at Boeing.

"For us, and every software engineering organization, people's time is one of our greatest costs," he said. "We're trying to create a single shared experience for all of our software developers … [to] decrease friction for our engineers having to learn a new tool every time they go somewhere else [within the company]."

In addition to reducing toil and context switching between different tools, consolidation will increase Boeing's influence over its chosen vendors, he said.

"It's easier for us to negotiate with vendors and suppliers and just have better relationships when we're negotiating as an entire enterprise – a Fortune 100 company – as compared to every product line having to go and do it alone," Torres said.

Long-term forecast calls for M&A as IT budgets refocus

The shifting global economy and tighter IT budgets will also prompt at least some further consolidation on the vendor side, experts predicted. Companies also plan to curb costs with IT hiring freezes, cited by 33% of ESG survey respondents, which will leave less time and fewer skills to integrate tools from multiple vendors, according to one analyst.

"Buying [multiple tools] increases implementation complexity, and with a lack of skills, it becomes a luxury that few companies can continue to afford," said Larry Carvalho, an independent analyst at RobustCloud. "As enterprises look for a one-stop shop that public cloud providers are strong at, DevOps companies are forced to strengthen the overall portfolio."

One DevOps vendor looking to capitalize on the consolidation trend is Harness, which rolled out a new module for its CI/CD platform this week based on its acquisition of startup Propelo in December 2022. The new product, Software Engineering Insights (SEI), reports on the efficiency of software delivery based on DevOps metrics, such as lead time to deploy updates, time to repair issues and change failure rates.

While some smaller companies will be forced to seek buyers due to the slowing economy, the effect of a general decline in venture capital funding for startups that began last year will take time to show up, according to experts.

Dave Zilberman, general partner, Norwest Venture PartnersDave Zilberman

"In prior recessions, it took six to nine months for the [effect on] private companies to catch up to the public," said Dave Zilberman, general partner at Norwest Venture Partners -- an investor in Harness -- in an interview prior to the company's acquisition announcement. "This time, companies raised much, much larger sums of capital, which gives them more time to adjust before they have to raise more."

Eventually, however, there will be a reckoning of sorts, Zilberman predicted.

"The question is whether these companies can rebound to 2021 levels of revenue by the time that capital runs out," he said. "I don't know, but I don't think so."

Carvalho also predicted a delayed effect on startups from a slowdown this year. But there will be some startups that feel the pinch sooner than others, he said.

"Startups that obtained funding early in 2022 are in good shape to weather out 2023. However, startups without enough funding to build a differentiating product and gain a revenue stream are being forced to close shop or get acquired," Carvalho said. "This is a good time for companies like Harness to go shopping and fill gaps in the product portfolio."

Harness does anticipate more acquisitions in its future, especially ones that add to its security and resilience features, according to company officials this week. The Harness SEI module is generally available now, starting at $25,000 per year for 50 contributors.

Beth Pariseau, senior news writer at TechTarget, is an award-winning veteran of IT journalism. She can be reached at [email protected] or on Twitter @PariseauTT.

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