What impact does overall economic uncertainty have on network buyers? That’s quickly becoming a burning question as we navigate through almost-unprecedented inflation, volatile stocks, and a lot of unfavorable stories in the media. The answer, as you might expect, is pretty complicated.
My own work with enterprises suggests that very few are cutting spending for 2022, though some are slow-rolling some projects, particularly where a lot of the spending will slop over into 2023. Network budgets were up this year over last by roughly 1%, IT overall was up roughly 4% (primarily software followed by the cloud), and as many enterprises say they’re expecting to spend slightly more on IT overall as are suggesting they’re cutting back. Networking is looking a bit more problematic; even though few say they’re cutting network budgets for this year, there is a distinct air of conservatism emerging.
One solid example of this is that enterprises are telling me that their spending on networking in 2023 is likely to be slightly down versus this year. Slightly, according to enterprises, means less than 2% and likely more in the area of 1%. More significantly, the majority of enterprises say they expect to see their network spending back-loaded next year, with as much as 60% spent in Q3/Q4.
The reason for concern isn’t a return of COVID or a new and major economic or social problem, but rather a continuation of what they see as “economic stagnation”. Nothing is really bad, but nothing seems to be getting any better. This is uncharted waters for enterprises as much as it is for markets overall, including Wall Street, and that sort of thing makes companies reluctant to commit to anything really expensive or disruptive.
One example of this is that in August, about 80% of enterprises said their primary strategy for capital cost management on network equipment in 2023 would be “hammering vendors for discounts.” In April, that number was only 54%, and the 26% shift was largely due to backing off strategies to use white box switches, virtual routers, and other new technologies. Again, it’s not that enterprises are throwing in the towel on these things, but rather that they’re pushing the projects off until the second half of 2023. Why? The short answer is that in uncertain times, the devil you know doesn’t look quite as evil.
This particular shift manifests itself in the “Private 5G” story. Frankly, I never saw the rampant interest in private 5G that the media seemed to be uncovering. The majority of the interest came from companies who had been considering or were already using private LTE. What’s now happening is that the few projects I’ve heard about seem to getting pushed back, again to that magical 2H23 period. Might that be why Amazon seems to have rushed out a private 5G offering that many say isn’t really ready? A little delay here could mean a long delay.
Even security seems to be under pressure. At the end of 2021, enterprises believed, by a margin of almost 3:1, that they would likely elect to spend more on a new security technology that “advanced” their confidence in security. Now, I’m finding that enterprises want to see “significant improvements” in security before increasing their spending, and one in five enterprises say that even then they’d have to do an artful justification to get management approval. You’ve probably read pieces lamenting the slow adoption of things like DevSecOps; this is likely why. People aren’t pulling out their checkbooks just because a salesperson says “security”.
The network salespeople I chat with are, like all salespeople, natural optimists, but they admit to seeing some issues. Every one thinks they’ll “certainly” or “likely” make their numbers in Q3 and Q4 of this year, but that’s been true in years when almost nobody ended up doing that, so it doesn’t prove much. They’re even more optimistic about 2023, and that again is hardly unusual, even before a bad year. What’s a bit unusual is that in 2021, almost two-thirds of salespeople said that “the great majority” of their peers would be making their numbers in the year ahead, and as of now, only a third are confident that will be the case for 2023. It shows that salespeople, when the question of future sales is depersonalized, are a bit more concerned.
Another related metric is that at the end of last year, almost three-quarters of salespeople agreed that “a new technology would justify my calling on prospects to explain it”, and now that number is well below 50%. “I can show my prospect how to save money” is the top justification for a call, but salespeople agree that they rely less now on being able to promote a call and more on being called in or offered an RFI/RFP. Push-selling isn’t as likely to be successful as it was in the recent past.
One question this all raises is whether this is a temporary issue, or whether current uncertainty has just raised the profile of an earlier and more systemic problem. Networking has been finding it more difficult to make a business case for additional spending for almost a decade. There was a time when IT created a lot of insight that, if delivered to users, would raise productivity. The network was the bottleneck, and that resulted in a surge in investment there. Then security issues came along, and there was renewed focus on network spending to relieve them. Now, enterprises are wondering if they’ve spent enough in both connection empowerment and security, and thus it’s time to apply traditional ROI constraints.
Enterprises are still on the fence on this issue. Even at the CxO level, the majority of enterprises believe that there is still additional value to be obtained by improving networking and enhancing security. Not as much as before, perhaps, but value nevertheless. They are also eager to believe that additional business justifications for network investment can and will be found. They’re largely staying the course on 2022 budgets, and most even say that they’ll likely complete most budgeted projects for the year. Those who do any sort of technology planning even seem to be holding to their 2023 preliminary plans.
The uncertainty remains, though. Fear of a recession, fear of the flood of unusual happenings in their markets, and in general fear of the unknown has shaken enterprises perhaps more than COVID did. Yes, they felt impacted by the virus, but they believed that the problems would pass, and they did. They’re less sure about current challenges, and so they’re just starting to question a “business as usual” strategy. A lot will depend on just how much they question that going forward.