Splunk Inc.

11/15/2023 | News release | Distributed by Public on 11/15/2023 15:43

IT Spending & Budgets: Trends & Forecasts 2024

Share:
By Stephen Watts November 15, 2023

As we step into 2024, the landscape of IT spending is evolving rapidly, influenced by a range of factors from global economic conditions and political instability to technological advancements. This article consolidates insights from a wide range of sources, including Gartner, IDC, Canalys, Vanta, CIO.com, Endava, ANS Research and Artico Search, and many others to provide a comprehensive overview of the IT spending trends expected in 2024.

Be sure to bookmark this comprehensive research roundup, as we continue to update it with fresh data as it becomes available from additional sources. If you have a survey or report you'd like to see included, be sure to contact the author at [email protected] for consideration.

In this article we'll cover:

Summary & 2023 Changes

Despite early 2023 expectations of a slowdown in IT investment, 2023 and into 2024 are turning into major growth years for spending and budgets. An IDC report found that despite economic pressures, IT spending remains resilient, especially in servers, storage, software, and services. PC spending is below peak levels, but other IT sectors are growing, albeit at a slower pace than last year.

Major trends driving 2024 growth include:

  • Cloud Spending Surge: The software and IT services segments will experience double-digit growth in 2024, largely due to cloud spending. Public cloud services spending is expected to grow by 20.4% in 2024, with the growth coming from both cloud vendors' price increases and increased utilization.
  • Cybersecurity Investments: Cybersecurity is another significant driver of growth in the software segment. Around 80% of CIOs plan to increase their spending on cyber/information security in 2024.
  • Other Investment Areas: Investments in data center systems, communications, and IT services will also see growth, although at a single-digit rate.
  • Generative AI (GenAI) Impact: While generative AI is currently a hot topic in the industry, it has not yet significantly impacted IT spending. However, broader investment in AI is supporting overall IT spending growth. Organizations are investing in AI and automation to improve operational efficiency and address IT talent gaps. Gartner anticipates that GenAI will start impacting IT budgets in 2025.
  • AI Security Concerns: AI, particularly GenAI, is raising security concerns. Gartner projects double-digit growth across all segments of enterprise security spending for 2024. Risks associated with GenAI, such as undesirable outputs and insecure code, are major concerns, with 57% of respondents in Gartner surveys expressing worry about these issues.

Global IT Spending Forecast 2024

Gartner's forecast for worldwide IT spending in 2024 projects a substantial growth of 8%, reaching a total of $5.1 trillion. This increase is driven by investments in cloud, cybersecurity, AI and automation, which are seen as critical for enhancing operational efficiency and bridging IT talent gaps. Although generative AI (GenAI) hasn't significantly impacted IT spending yet, it's expected to become a part of IT budgets starting from 2025.

In 2024, the software and IT services segments are anticipated to experience double-digit growth, fueled mainly by cloud spending. Public cloud services spending is forecasted to rise by 20.4%. The increase in cloud vendor prices and higher utilization rates are the primary drivers of this growth.

Cybersecurity spending is another significant contributor to the growth in the software segment. According to the 2024 Gartner CIO and Technology Executive Survey, 80% of CIOs plan to increase their investment in cybersecurity, making it the top category for increased investment. This is in response to new security concerns raised by AI technologies.

Interestingly, CIOs are reportedly experiencing change fatigue, leading to a hesitation in investing in new projects and initiatives. This trend is resulting in a delay of some IT spending from 2023 into 2024, with a continued emphasis on cost control, efficiencies, and automation, while longer ROI IT initiatives are being curtailed.

Europe IT Spending Forecast 2024

Gartner's forecast for IT spending in Europe in 2024 projects a significant growth of 9.3%, totaling $1.1 trillion. This growth is notable despite economic challenges, with IT spending proving to be recession-proof. European CIOs, who previously focused on growth, are now prioritizing cost control, efficiencies, and automation, reducing investment in projects with longer returns on investment.

Key areas of increased spending include cloud computing and cybersecurity within the cloud sector. Investment in cloud services, including Infrastructure as a Service (IaaS), is expected to grow by 27%. Security and risk management spending is forecasted to reach $56 billion, a 16% increase from 2023.

The growth in IT services partly stems from talent shortages in IT departments, leading to a shift of IT skills towards technology and service providers. While there's an anticipated increase in spending on devices, it's not expected to return to 2021 levels until 2027, with Austria, Ireland, and Finland projected to have the most significant bounce back in consumer spending.

The distribution of IT spending varies across Europe. The U.K., Germany, and France are expected to account for 51% of Europe's total IT spending in 2024, with a combined expenditure of $588 billion. Contrastingly, in developing countries like Hungary and Poland, IT spending is estimated at $32.3 billion. Cloud investment is a key differentiator between mature and developing countries, with the latter facing barriers such as a lack of cloud-specific skills and resources.

Australia IT Spending Forecast 2024

Gartner forecasts that IT spending in Australia will grow by 7.8% in 2024, exceeding AU$133 billion. This growth is driven by a 12.8% increase in software spending. Andy Rowsell-Jones of Gartner notes that despite the projected growth and anticipated inflation rate decline, Australian CIOs are focusing on optimizing infrastructure, operational costs, and efficiencies, primarily through investments in cloud and digital enablement.

Key investment areas for 2024 include cybersecurity, cloud platforms, data and analytics, and application modernization, with cybersecurity being a top priority due to recent data breaches. Over 62% of Australian CIOs plan to increase cloud investments while reducing spending in their own data centers.

Data center systems spending, which declined by 6.4% in 2023, is forecasted to rebound with 5.1% growth in 2024, driven by investments in Secure Access Service Edge (SASE) technologies and generative AI. IT services, driven by consulting services and Infrastructure as a Service (IaaS), remain the largest spending category, projected to reach over $48.8 billion in 2024, an 8.2% increase from 2023.

Gartner also highlights the growing interest in generative AI technologies, particularly for software development and code generation. This shift to digital will see generative AI primarily incorporated into enterprises through existing spending in software, hardware, and services.

Middle East and North Africa (MENA) IT Spending Forecast 2024

According to Gartner's forecast, IT spending in the Middle East and North Africa (MENA) region is expected to grow by 4% in 2024, reaching a total of $183.8 billion, up from $176.8 billion in 2023. This increase is attributed to organizations, especially in the Gulf Cooperation Council (GCC) region, focusing on digitalizing their IT infrastructure. This digitalization supports regional governments' initiatives for economic diversification, public-private collaboration, and sustainability efforts towards net-zero targets.

Software and IT services in MENA are projected to experience significant growth, with software spending expected to grow by 12.3% and IT services by 11.1% in 2024. This growth will be driven by investments in cloud migration, automation, IoT capabilities, compliance enforcement, embedding AI into strategic business and IT planning, improving data management for greater monetization, and strengthening cybersecurity and risk management.

The devices segment is also forecasted to see an upturn in 2024, with a projected increase of 0.6%, recovering from a 9.9% decline in 2023. Factors contributing to this growth include the rising desire of consumers to own smartphones, aggressive marketing by premium brands, the shift towards 5G technology, more accessible financing options like buy now pay later (BNPL), and an increase in digital payment methods through smartphones.

Moreover, Gartner predicts that by 2024, 40% of enterprise applications in the MENA region will have embedded conversational AI, a significant increase from less than 5% in 2020. Business executives in the MENA region are investing in generative AI (GenAI) to enhance customer experiences, with a focus on agile methodologies, quick testing, and refinement of AI initiatives, and the elimination of low-impact use cases. Organizations are exploring the potential of GenAI for generative value messaging and coding assistance, with a cautious yet deliberate integration of GenAI expected in the future.

Cloud Computing Growth in 2024

Contrary to early 2023 predictions of a potential 'cloud slowdown,' global public cloud spending is expected to surge significantly in 2024. Software as a Service (SaaS) spending in 2023 reached $205 billion, surpassing the $174 billion in 2022. IaaS spending also exceeded expectations, reaching $143 billion compared to $120.3 billion the previous year.

Gartner forecasts a significant increase in worldwide public cloud end-user spending, expecting it to grow by 20.4% to reach approximately $678.8 billion in 2024, up from $563.6 billion in 2023. This growth is driven by business needs and the emergence of technologies like generative AI (GenAI). Sid Nag, a Vice President Analyst at Gartner, emphasizes the indispensability of cloud services and notes that business outcomes are now shaping cloud models rather than the other way around.

Organizations deploying GenAI services are likely to rely on public cloud due to the scale of infrastructure required. However, cloud providers need to address non-technical issues such as cost, economics, sovereignty, privacy, and sustainability to effectively deploy GenAI. Hyperscalers addressing these needs can capture new revenue opportunities as GenAI adoption increases.

All cloud market segments are expected to grow in 2024, with Infrastructure-as-a-Service (IaaS) leading at a projected end-user spending growth of 26.6%, followed by Platform-as-a-Service (PaaS) at 21.5%. The forecast includes spending across various cloud services categories like PaaS, Software-as-a-Service (SaaS), Business Process as a Service (BPaaS), Desktop-as-a-Service (DaaS), and IaaS.

A key trend is the rise of industry cloud platforms, which combine SaaS, PaaS, and IaaS services into comprehensive offerings with composable capabilities. Gartner predicts that by 2027, over 70% of enterprises will use industry cloud platforms to accelerate business initiatives, a significant increase from less than 15% in 2023. The adoption of GenAI will support this growth, particularly in industry cloud platforms, as GenAI models applicable across diverse industries might require customization, affecting scalability and cost-effectiveness. Public cloud providers can thus position themselves as partners in the responsible and tailored adoption of GenAI, building on approaches applied to industry, sovereign, and distributed clouds.

Worldwide Public Cloud Services End-User Spending Forecast (Millions of U.S. Dollars)

2022

2023

2024

Cloud Application Infrastructure Services (PaaS)

119,579

145,320

176,493

Cloud Application Services (SaaS)

174,416

205,221

243,991

Cloud Business Process Services (BPaaS)

61,557

66,339

72,923

Cloud Desktop-as-a-Service (DaaS)

2,430

2,784

3,161

Cloud System Infrastructure Services (IaaS)

120,333

143,927

182,222

Total Market

478,315

563,592

678,790

BPaaS = business process as a service; IaaS = infrastructure as a service; PaaS = platform as a service; SaaS = software as a service
Note: Totals may not add up due to rounding.
Source: Gartner (November 2023)

Cybersecurity and Risk Management Growth in 2024

Gartner's forecast for global security and risk management spending in 2024 projects a notable increase of 14.3%, totaling $215 billion, up from $188.1 billion in 2023. This growth is driven by several factors, including the continuous adoption of cloud technologies, the ongoing presence of a hybrid workforce, the rapid emergence of generative AI (GenAI), and evolving regulatory environments. These factors are compelling security and risk management (SRM) leaders to enhance their spending in this area while adopting technical security capabilities that offer greater visibility and responsiveness across an organization's digital ecosystem. This approach aims to restructure security operations to ensure agility without compromising security.

Particularly, spending on data privacy and cloud security is expected to record the highest growth rates in 2024, with each segment increasing more than 24% year-over-year. Privacy remains a top organizational priority as new regulations emerge, particularly those affecting the processing of personal data and the use of AI. It is predicted that by 2025, 75% of the world's population will have their personal data covered by modern privacy regulations.

The growth of public cloud services is also bolstering spending on cloud security tools. The combined spending on cloud access security brokers software (CASB) and cloud workload protection platforms (CWPP) is projected to total $7 billion in 2024, marking a 24.7% increase from 2023. Additionally, there is an expected increase in demand for cloud-based detection and response solutions, such as endpoint detection and response (EDR) and managed detection and response (MDR).

Furthermore, the security services segment, which includes consulting, IT outsourcing, implementation, and hardware support, is forecasted to total $90 billion in 2024, an increase of 11% from 2023. This segment is expected to represent 42% of total security and risk management end-user spending in 2024, remaining the largest area of spending within this sector.

Security Budget Benchmark Report by IANS Research and Artico Search

The "2023 Security Budget Benchmark Report" by IANS Research and Artico Search, based on data from 550 Chief Information Security Officers (CISOs) and other security executives, shows several key trends in cybersecurity budgets for the 2022-2023 cycle:

  • Budget Increase: Cybersecurity budgets have continued to rise, with an average increase of 6%. This rate, however, is lower than in previous years, representing a 65% reduction in growth compared to the previous cycle. Technology firms saw a significant drop in growth rate, with more than a third of organizations either freezing or cutting cybersecurity budgets.
  • Proportional Increase in IT Budgets: Security budgets, as a share of overall IT budgets, are trending upwards, having increased from 8.6% to 11.6% since 2020. Technology firms reported the largest proportional spending at 19%.
  • Industry Variations: The tech and retail sectors experienced the largest share of declining security budgets. In contrast, over three-fourths of companies in the business services sector reported increased budgets.
  • Budget Increase Reasons: 63% of respondents received a budget increase, with routine annual adjustments accounting for 20% of cases. Increased risk and digital transformation were new reasons cited for budget increases this year.
  • Staffing and Compensation: Cloud-based architectures tend to outspend on-premise designs regarding staff costs. Staff and compensation remain the largest budget category, constituting 38% of the security budget. Companies fully in the cloud allocate a higher percentage for staff compared to fully on-premise companies.

Source: IANS 2023 Security Budget Benchmark Report

Vanta's State of Trust Report

As of a November 8 report from Vanta, based on a survey of 2,500 UK business leaders, 60% of surveyed entities have reduced or plan to reduce their security budgets. On average, companies allocate only 9% of their IT budget to security. Despite this, 67% of respondents recognize the need to improve security and compliance measures. The main barriers to effective security programs are staffing shortages and insufficient automation. This current state of cybersecurity spending reflects a complex scenario where despite the increasing need for robust security measures, budgets are not keeping pace.

Notably, the distribution within cybersecurity budgets is also skewed. Of the 9% of IT budgets dedicated to cybersecurity, only 6% is allocated to awareness training. This is significant because a large proportion of breaches result from untrained personnel. Experts suggest increasing security budgets to 10-15% of the total IT budget to cover comprehensive security programs, compliance, and business continuity. The emphasis is shifting towards a more proactive security approach, integrating threat intelligence, robust automation, and collaboration.

Canalys' Cybersecurity Market Pulse

According to a recent report from Canalys, in Q2 2023, the global cybersecurity technology market experienced a growth of 11.6% year-on-year, reaching a total of US$19.0 billion. This growth occurred despite macroeconomic uncertainty and constrained IT budgets, underlining the prioritization of cyber-resilience by organizations in response to rising threat levels. The increase in cybersecurity spending is largely attributed to unprecedented threat levels, including a significant rise in publicly reported ransomware attacks and breached data records.

Five Major Markets for IT Spending

Breaking down the spending into five major market areas, CRN notes:

  • Data center systems spending is expected to grow from $237 billion in 2023 to $260 billion in 2024.
  • The devices market is projected to reach $722 billion in 2024.
  • Software spending is anticipated to increase significantly from $916 billion in 2023 to $1.04 trillion in 2024.
  • Communications services market is predicted to grow modestly to $1.5 trillion in 2024.
  • IT services are forecasted to be the largest tech market, with spending expected to reach approximately $1.55 trillion in 2024.

Worldwide IT Spending Forecast (Millions of U.S. Dollars)

2022 Spending

2022 Growth (%)

2023 Spending

2023 Growth (%)

2024 Spending

2024 Growth (%)

Data Center Systems

227,021

19.7

237,703

4.7

260,221

9.5

Devices

766,279

-6.3

689,288

-10.0

722,472

4.8

Software

811,314

10.7

916,240

12.9

1,042,386

13.8

IT Services

1,305,699

7.5

1,401,038

7.3

1,547,349

10.4

Communications Services

1,423,128

-1.9

1,449,286

1.8

1,497,345

3.3

Overall IT

4,533,441

2.9

4,693,556

3.5

5,069,773

8.0

Source: Gartner (October 2023)

AI, Emerging Technologies, & Innovation Growth in 2024

According to research by Endava, organizations worldwide are increasing their IT and innovation budgets, signaling growth and a shift in focus from operational stability to innovation. This rise in IT spending is driven by a growing interest in emerging technologies, with AI being a top priority for 80% of respondents. Other key technologies include big data, predictive analytics, 5G, digital ecosystems, composability, and microservices. Despite various challenges like geopolitical conflicts and fluctuating economic cycles, the majority of businesses are optimistic about the future direction of technology. The report also highlights a growing awareness and prioritization of composable architecture, indicating a strategic shift towards more flexible and efficient technological investments.

One of the most important findings from the Endava survey of nearly 1,000 organizational leaders and decision makers across North America and Western Europe was around economic sentiment. Despite the pandemic, rising interest rates and inflation, supply chain concerns, and global political instability, the survey respondents were overwhelmingly positive for our economic future.

Source: Endava: Technology Acceleration: Adapting to Thrive in an Era of Change, 2023

Digital Transformation Driving Growth in 2024

The International Data Corporation (IDC) forecasts that worldwide spending on digital transformation (DX) will reach nearly $3.9 trillion by 2027, with a compound annual growth rate (CAGR) of 16.1% from 2023 to 2027. This growth reflects the global priority of digital transformation as organizations strive to evolve into digital businesses, where value creation is increasingly based on the use of technologies across various processes, products, services, and experiences.

Geographically, DX spending is distributed with the United States accounting for 35.8% of worldwide spending in 2023, closely followed by the Asia/Pacific region (including Japan and China) at 33.5%, and the Europe, Middle East, and Africa (EMEA) region contributing 26.8%. In Europe, DX spending is growing rapidly, with a CAGR of 16% expected between 2023 and 2027. The fastest growth in Europe is projected in the Nordics, particularly in Financial Services and Telecom/Media sectors, with more than 20% growth across the forecast period. Notably, in France, Machine Learning-Driven Predictive Analytics in the Healthcare Provider industry is expected to grow by 32% by 2027.

In the Asia/Pacific region, digital transformation has become central to enterprises, with a focus on enhancing customer experience, innovation, and efficiency. This region's rapid shift from traditional business models is driven by a young, tech-savvy population and rapid urbanization, fueling demand for digital products and services. The integration of technologies like cloud computing and artificial intelligence is expected to continue driving investments across various industries.

The largest DX use cases globally are focused on improving operational efficiency. The top use case, "Innovate, Scale, and Operate," covers large-scale operations such as supply chain management, engineering, design and research, operations, and manufacturing plant floor operations. The second-largest use case, "Back-Office Support and Infrastructure," includes core functions like accounting, finance, billing, human resources, legal, security, risk, and enterprise IT. Together, these two areas will account for more than 35% of all DX spending in 2023.

Customer Experience is another significant area for DX investment, encompassing all customer-related functions and technologies supported by DX, including customer services, marketing, and sales. Related to this is the use case of 360 Degree Customer and Client Management, focused on enhancing engagement and experience throughout the customer journey. These two use cases combined will represent over 10% of all DX spending in 2023.

Among the more than 300 DX use cases identified by IDC, the fastest-growing include Mining Operations Assistance, Robotic Process Automation-Based Claims Processing, and Digital Twins, with five-year CAGRs of 32.6%, 30.6%, and 28.5%, respectively.

The industry with the largest DX spending is Discrete Manufacturing, accounting for about 18% of all global investments. Key use cases in this sector include Robotic Manufacturing, Autonomic Operations, Inventory Intelligence, and Smart Warehousing. Following Discrete Manufacturing, the largest industries in terms of DX spending are Professional Services, focusing on operational efficiency, and Process Manufacturing. The Securities and Investment Services industry is projected to experience the fastest growth in DX spending, with a five-year CAGR of 21.1%, followed by Banking and Insurance with CAGRs of 20.0% and 19.2% respectively.

CIO Priorities Driving Spending Changes

The 2023 State of the CIO survey, which included 837 IT leaders and 201 line-of-business participants, identified the top 15 enterprise needs influencing IT spending:

  1. Increasing operational efficiency (45%)
  2. Increasing cybersecurity protections (44%)
  3. Transforming existing business processes (38%)
  4. Improving customer experience (36%)
  5. Improving profitability (27%)
  6. Increasing employee productivity (25%)
  7. New product development (22%)
  8. Increasing topline revenue (20%)
  9. Developing new digital revenue streams (19%)
  10. Improving/optimizing employee experience (19%)
  11. Enhancing hybrid work technologies (18%)
  12. Improving talent acquisition/retention (17%)
  13. Meeting compliance requirements (16%)
  14. Monetizing company data (14%)
  15. Adhering to environmental, social, and governance (ESG) standards (11%)

The shifts in priorities indicate a move from a focus on protection and pandemic-driven employee productivity to revamping business processes and enhancing efficiency, with an emphasis on profitability in the face of economic challenges.

According to CIO.com, Chief Information Officers are dealing with rising IT costs amidst persistent inflation and price pressures. Key areas of concern include:

  • IT Budget Challenges: Inflation has continued to impose challenges on IT budgets, particularly in countries with high inflation rates. Despite inflation moderating in the US, technology talent gaps and rising costs in SaaS and cloud services are inflating IT budgets.
  • Strategies for Managing Costs: CIOs are exploring various strategies to manage costs, including staff cuts, downgrading service level agreements, and increasing productivity. However, they emphasize the need to protect strategically important digital transformations.
  • Software and Cloud Costs: Companies like Ameritas Life Insurance have seen significant increases in software costs, particularly for SaaS and PaaS services. While infrastructure costs have remained stable, software costs have risen substantially, sometimes forcing companies to transition to more expensive SaaS options.
  • Talent Costs: The cost of tech talent has been a major challenge, with substantial inflation in the sector. Strategies like outsourcing, recruiting more senior talent, or adjusting salary structures are being used to manage these costs.
  • Adapting to Cost Increases: Flexibility, efficiency, and strategic planning are key to adapting to cost increases. CIOs emphasize the importance of collaboration with CEOs, strategic investments, and leveraging project management offices to manage inflation pressures.

Wrapping Up

The IT spending landscape in 2024 is marked by a focus on cloud computing, cybersecurity, AI, and digital transformation. These trends reflect the growing importance of technology in driving operational efficiency and innovation across various sectors. As businesses continue to navigate through dynamic economic conditions, strategic investments in IT are poised to play a crucial role in maintaining competitiveness and fostering growth.

What is Splunk?

 

This posting does not necessarily represent Splunk's position, strategies or opinion.