Forrester: What's Hot In 2004

Linux in the data center, offshore outsourcing, and RFID are among the top trends to watch in 2004. So says Forrester Research, which interviewed more than 500 IT managers to compile its list of prognostications for the upcoming year. That list, released Friday, includes technology adoption trends, as well as growth patterns and changes predicted for the new year.

Linux will cement its position in the data center in 2004, Forrester says, thanks to a maturation in the operating system's distribution that's aimed at large companies. By year's end, say the IT managers surveyed, close to 10% of Global 2000 companies will have moved from Windows-based servers to Linux for their basic network infrastructure.

On the offshore outsourcing front, a sore point with many American technology workers who view the shift overseas as contributing to a decline in domestic jobs, Forrester sees only a continued uptick. "Outsourcing will continue to have a huge impact on economies both here and overseas," says Forrester VP Merv Adrian. The Indian IT services market alone will grow by 30% in 2004. "But for the first time, we're seeing a breakout of the monolithic model of outsourcing," he adds. "Some things work better than others."

Among those that haven't yet really worked out, Adrian says, are offshore help desks and contact centers. Some companies, in fact, are stressing the fact that they don't outsource such chores to foreign companies. To combat complaints from users about the technical and language skills of overseas help desks, foreign service suppliers will have to put more emphasis on boosting the English language proficiency of their workers and conduct more thorough training, Adrian says.

Forrester says customer-relationship management revenue, down significantly in 2003, will remain relatively flat through 2005, with growth in the single-digit range. And 2004 will be the last year, according to Forrester's interviews with IT managers, in which businesses will be in a strong negotiating position with telecom providers. After that, the improving global economy and higher revenue among telecom suppliers will begin to turn the tables and make communications a seller's market. Businesses should take advantage of this shift no later than the third quarter of 2004, and at that time consider inking one- or two-year contract extensions to lock in the lower prices.

Some vertical markets will be better bets than others for vendors in 2004, Forrester says. Health care will remain a hot target for IT providers this year, according to Forrester's data and the opinions of the IT decision makers it interviewed. Although health care will be forced to pare expenses to stay competitive in a world where costs continue to skyrocket, IT will be spared the worst of the ax.

Wal-Mart, which is aggressively pushing radio-frequency identification technology on its suppliers, will be the gorilla that calls the tune in 2004 in the consumer packaged-goods technology arena. "Wal-Mart will get what it wants with RFID," Adrian says. Outside of Wal-Mart's universe, however, RFID will find a rougher road. Widespread adoption of RFID by business needs something it doesn't yet have: a solid return on investment.

PC prices will continue to drop in 2004--good news for buyers, bad news for sellers. To make up the difference, the research firm's survey results noted that IT managers expect major PC makers, including Dell, Gateway, and Hewlett-Packard, to continue their efforts to make inroads in the consumer electronics market. That shift is definitely in vogue in Las Vegas at the Consumer Electronics Show, where major IT vendors--Dell, HP and Microsoft included--are touting new moves into consumer electronics.

But the overarching prediction from Adrian really isn't so much a prediction-- the numbers aren't yet in--but an observation. "We have what I call an attention deficit disorder in IT," he says. "It's now becoming clear that the macro economy is starting to thaw, but the real question for 2004 will be where enterprises spend their IT budgets."

That, he concludes, is still unclear, for as more money is freed up by management, it's not always the next item on last year's list that will, or should, be funded. "Trying to predict spending based on IT managers' wish lists is like predicting the toy market from kids' letters to Santa," he says.

Instead, it will take time for increasing spending trends to sort themselves out, as companies take a fresh look at last year's wish list of unfunded projects, revamp those lists, and come up with new projects necessary to take advantage of the heating economy.

"Business plans change," he says. And that's something not even Forrester can predict.