Office 365 arrives to flat IT spending

Overall IT spending barely rises above last year

Microsoft is pitching its cloud-based Office 365 as a less costly alternative for IT budgets, assuming IT managers can find money in their budgets for a migration.

Private sector IT spending is flat year over year in the U.S., but the rate of growth in public sector tech spending is declining, according to two separate studies.

IDC this week reported that it expects IT spending, including the private and public sector in the U.S., to increase 5.6% this year over last year's 5.5% increase. But the rate of growth in public sector IT spending is declining. Last year, public sector spending increased 5.46% but this year it is forecast to rise only 3.8%, said Ted Dangson, an analyst at IDC.

Microsoft detailed its Office 365 as a cost-saving alternative at a time when public sector IT managers, in particular, are showing a willingness to move to the cloud .

Google has seized on this, recently winning business for its apps in Wyoming . State officials say they will save more than a $1 million a year for its 10,000 users.

Microsoft said it expects its Office 365 adopters to save anywhere from 50% to 200% in costs depending on a wide range of factors, that include the cost of a data center versus tapping into the vendor's cloud.

But limited budgets may still make the move hard.

"The challenge is going to be that moving to the cloud does require some upfront money," said Susie Adams, the CTO of Microsoft federal, whis focused on the company's government business. "You've got to migrate off existing systems into the cloud to realize those cost savings," she said.

The public sector accounts for a sizable share of overall U.S. IT spending. In 2010, the private sector accounted for nearly $391 billion in IT spending, and the public sector, about $91 billion.

Computer Economics, in its annual IT Spending and Staffing Benchmark study, is expecting public sector IT operation spending, which doesn't include capital spending, to decline by 3% this year, the only sector to do so. IT spending in the insurance industry, by contrast, is expected to grow by 5%.

Government is not cutting edge when it comes to IT, "but they are certainly a big chunk of the economy, and they are laying off workers and reducing their capital and operational spending," said John Longwell, vice president of research at Computer Economics.

Patrick Thibodeau covers SaaS and enterprise applications, outsourcing, government IT policies, data centers and IT workforce issues for Computerworld. Follow Patrick on Twitter at @DCgov or subscribe to Patrick's RSS feed . His e-mail address is pthibodeau@computerworld.com .

Read more about it in government in Computerworld's IT in Government Topic Center.

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Patrick Thibodeau

Computerworld (US)
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