Spending on the rise

A growing reliance on e-business is pushing nearly half of large companies to invest more heavily in their network this coming year, according to the 2001 Network World Spending Survey.

Despite reports of an increasingly softening economy, the survey respondents say the average network budget will ring in around US$550,000, up 9.9 percent from 2000. So, while a slowing economy may be making IT managers more cautious about taking on new projects or making major purchases, it's not fully applying the brakes to much of anything.

We conducted the annual survey to find out how much you plan to spend on network products and services this year. Working with research firm STAT Resources, we e-mailed a random sample of Network World readers in late November and asked them to participate in an online survey hosted in a private area of Fusion.

The results show that 2001 will be an active year in terms of network spending, at least for the bigger companies. A detailed analysis found that nearly half of companies with the largest budgets - $500,000 and up -- predict they'll spend at least 11 percent more than they spent in 2000, and almost one-quarter of them expect to spend an additional 25 percent. And the budget increases aren't just confined to major corporations: 40 percent of firms with midsize budgets are predicting an 11 percent increase.

Not everyone will realize such impressive gains, however. Almost half the respondents predicted either no change or modest increases of 10 percent or less in 2001.

Still, the network budget picture is slightly better overall than it was last year. Spending increased 9.5 percent from 1999 to 2000, and now it's climbing again by a similar amount.

"This is really good news," says Richard L. Ptak, vice president of e-business infrastructure strategies at Hurwitz Group Inc., a high-tech analyst firm in Framingham, Mass. "It shows a bit of a turnaround from what was happening in Q3 of 2000 when there was a lot of uncertainty about the money companies were going to be committing to [spending]. There was a lot of talk of companies sitting pat for 2001."

Companies with the biggest budgets are looking to invest in capital equipment and projects such as e-commerce, video conferencing and security. Meanwhile, firms with small and midsize budgets are sticking to the basics, targeting their spending on network hardware such as hubs, routers, firewalls and servers.

Almost half the respondents, or 46 percent, say their budget is about right for accomplishing the tasks on their plate. Close to one-third (32 percent) call their budgets somewhat inadequate, while only 4 percent say their budgets are more than adequate.

With companies planning to spend more this year coming as a pleasant surprise for Ptak, he's not surprised that the extra funding is earmarked for network equipment and services.

"There is a real focus on the complexity of the solutions involved in e-business,'' Ptak says. What is being sent over the Internet, what business is being done over the Internet has all changed dramatically in just the past few years. But [companies] haven't been investing in making the network as strong, bulletproof, reliable and powerful as it should be.''

Edward Sikorski, systems manager for Imageworx, a small packaging company in Philadelphia, says his 2001 IT budget will take a big jump above 2000 because he plans on spending more than eight times as much on network equipment. He says the increase is designed to keep up with the business' growing online work, along with the increasing size of the files they are sending and receiving over the Internet.

"The files that are coming in are getting larger so network storage has to move files faster, larger files faster, and still do backups. I want to have a server running Gigabit Ethernet," says Sikorski, who wants to add network hardware and upgrade some 3-year-old Bay Network Inc. switches that are suffering from bandwidth restrictions.

Sikorski also adds that the increase in his IS budget will help him do some system clean up.

"The thing with a small company ... it's almost trial by fire. There's no definitive book on how to set up servers and a network for a small industry. We're finding there were some mistakes and that gives us the opportunity to ask for a bigger budget and get some of that fixed up," he says.

Ronald Wells, specialist programmer at American General Finance, a $13 billion credit and financing company in Evansville, Ind., is looking to boost his budget by $3 million to $4 million this year for a six-month project to replace about 40 Windows NT servers with an IBM Corp. Freeway G7 mainframe to simplify, stabilize, and speed up his network.

"Windows is not stable. Too many servers make a kluge of the network," says Wells, who adds that the new mainframe should increase security and solve incompatibility and blackout problems that they've been having with NT. He also says he expects his 2002 budget -- without the weight of this year's big mainframe expenditure -- to drop back down to the 2000 level while saving 35 percent in labor and maintenance costs in the next five years.

Wells also says the recent reports of a softening economy may make him more cautious, but it's nothing that he's afraid of.

"You have to scrutinize a little bit more as to what your plans will be, what projects you need to do," says Wells, who expects some pressure from upper management to economize. "The softening is only, what, three months old. I don't get excited about it, personally. For me, that's an opportunity. When people are scared, that drives the prices down and that's good for me."

While companies gear up for bigger network budgets, the survey results indicate that spending will break down into three main categories: about 52 percent of total spending will go to capital equipment; 34 percent is dedicated to labor costs; and 14 percent will fund outsourcing and services.

The survey also shows that there is a natural grouping to the expenditures. For instance, a company that plans to allocate more money for capital equipment is more likely to also be putting more money toward labor costs for people to run the added hardware or software. Conversely, companies that are spending more money on outsourcing are spending less on major purchases or hiring.

For Rich Medica, LAN manager for Linden Motor Freight, a Linden, N.J., company with about 500 employees, the capital investment flows naturally with his hiring trends because the more equipment he gets, the more hands he needs to keep it operating.

The small company's three-person IS team is adding one more worker, along with one more server to Linden Motor Freight's seven-server lineup. They're also adding two Intel routers.

"I guess they've been hit over the head enough to know they're spreading it thin ... They just figured it would be cheaper to work the hell out of me," Medica says. "It's not working for me. I'll tell you that ... Every year is a busy year for us."

While every year is a busy year for John Toth, systems engineer at Weber-Stephen Products, network spending seems to have hit an apex. The Palatine, Ill., maker of the Weber Grill, a $250 million company, is seeing a leveling out of its 2001 budget despite a major project rolling down the pike.

"Our budget is staying pretty even," says Toth, who notes that they are looking to add a new customer service center with T-1 lines, a new NT server and various hardware and software to serve 70 to 90 people. "There are no major swap outs happening. When I started seven years ago, there really was no networking. Now we have a 300-node network in the main building ... We're built up to the point where we really don't need much."

With no major projects on the horizon, the economy's ebbs and tides aren't playing much into Toth's plans.

"I don't think [the economy] will really hit us," Toth says. "It's not like when people have to decide if they should buy a new car or a washing machine. You're talking about an $80 or $90 grill. People eat whether the economy's good, bad or indifferent. Actually, instead of going out, they'll have some steaks on the grill."

Jed Proujansky, director of IS at Pioneer Management Systems, a third-party health care administrator in Holyoke, Mass., says his IS team is bucking the numbers and plans to play it safe for 2001. "We're more cautious than we were six months ago," Proujansky says. "I want to continue to develop what we've been working on but I don't want to initiate projects that might not be able to be fully funded. We're a Cadillac health plan, not a Chevy health plan. We cost a little bit more and that's one place where companies could cut expenses."

Pioneer Management has been busy over the past few years building its internal Web applications and networking business partners into that in-house system. Now that the system is basically in place, they can wind down a notch and focus on upkeep and natural development.

This story, "Spending on the rise" was originally published by Network World.

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