Unlocking IT budgets

How new IT financing models are opening corporate wallets


The giants of IT have always hoarded cash on a vast scale. They generally don't touch that cash, it just sits there as a statement of their unimpeachable solvency. In an era when capital markets have dried up and banks are reluctant to lend unless absolutely necessary, many businesses are struggling to fund initiatives that will grow, automate or bring greater productivity to their operations. Indeed with cash in short supply, CIOs and IT directors are often struggling to find the resources to maintain business-critical services let alone fund vital new projects. And in this situation, they must look on these IT giants and their cash mountains with a great deal of bemusement, envy and frustration.

IT vendors are acutely aware of this situation. Even when their customers are keen to commit to new projects and services that will inevitably save them money, the budget is simply not there.

Recognising this, many IT vendors are coming up with a raft of new short-term IT financing models in an effort to defrost budgets. For example suppliers as diverse as Microsoft, SAP, Avaya, Dell and Hewlett-Packard are putting forward innovative offers designed to get their cash-strapped customers spending again. The most conspicuous of these is the zero percent financing deals on new purchases, where systems or software are paid off without interest in monthly instalments over as much as three years. Such deals - common for selling cars, white goods and household products but almost unseen in the in the IT Industry - are just the extreme, recession-induced example of the raft of financing options proving increasingly attractive to IT buyers.

But although the recession has made all businesses re-evaluate their spending habits and rethink what they look for in a deal, it has also exacerbated a major trend that was already under way: the move from paying for IT with large chunks of capital, towards monthly instalments financed out of the operational budget. The wider trend is that the Credit Crunch will eventually reshape the way organisations buy IT, with software-as-a-service, managed and hosted services, virtualisation and cloud computing as good examples of this. There is evidence in recent months that shows that companies of all sizes are putting pressure on their suppliers to switch to on-demand, pay-as-you-go subscription, leasing or other models.

Today, it is still not clear whether this groundswell will turn into a permanent long-term change, where vendors will be able to switch from a front-loaded licensing deal to drip feed monthly payments. This New World Order, where all the rules of the game have shifted quite drastically, means that anything is possible and savvy customers are approaching their vendors to see what finance options are on offer.

There is no doubt that the Credit Crunch will mark a turning point in how IT is delivered and paid for. We have entered an era of bartering in the business world - the likes of which we have never seen. As cash becomes scarcer, its buying power increases. The more organisations that opt to pay for their IT using financing deals the greater the bargaining power of those that can still afford to put up the cash.

Extracts taken from the article: 'Unlocking IT Budgets' written by DAV's Enigma sponsoring partner, Information Age in the February 2009 issue of the publication. Or read it online at www.information-age.com.