Inflation is forcing tech leaders to make difficult choices in 2023. CIO’s and their teams must choose between delaying some technology investments to keep budgets under control or increasing budgets more than required based purely on business growth or transformation. The second choice is even less palatable today, as most IT leaders anticipate a recession in the coming year that may force even more aggressive cuts.

Inflation and Currency Fluctuations Alter IT Budget Decisions

IT leaders around the world faced many disruptive challenges in 2022, from IT supply chain issues to continued difficulties securing skilled people required to support new digital business initiatives. IDC tracked how all of these “storms of disruption” were influencing organization’s IT spending plans in our monthly Future Enterprise Resiliency & Spending surveys of   ̴850 IT decision makers around the world. Top concerns changed over time, but at the end of last year, concerns about the rising cost of technology due to inflation and “extra cost bumps” due to currency fluctuations topped the list for organizations across regions.

In challenging economic times, Chief Information Officers (CIOs) and Chief Financial Officers (CFOs) tend to scrutinize the largest and fastest growing parts of their budgets in anticipation of a need to pare spending. The technology investment areas where surveyed IT leaders most expect inflation/currency fluctuations to affect budget decisions were SaaS, infrastructure hardware/software, IaaS, PaaS. All, however, are also important investment areas to support ongoing digital business transformation. They are at the core of enterprises’ automation and data analytics projects that can improve a business’s ability to navigate economic disruptions.

Aligning IT Spending with Business Conditions in an Inflationary Environment

When working with CIOs on their technology investment plans for 2023 and 2024, IDC recommends that organizations adopt a two-track approach.

Sustain momentum in technology projects that help the overall business navigate and even take advantage of this period of economic instability.
Adopt cloud optimization (FinOps) practices and processes that eliminate waste in current cloud investments while also resetting long term cloud cost metrics (Cloud Economics).

In both tracks, it’s also important to adopt a phased approach that delivers short term savings, mid-term gains that protect the business if conditions worsen more than expected, and long-term architectural choices that ensure sustainably lower operating costs as business conditions improve.

Adopt a Tech Project Prioritization Strategy that Aligns with the Strengths of Cloud

Cloud Services, as well as the growing number of as-a-Service solutions for infrastructure hardware and software, deliver several benefits.

The broad portfolio of cloud services offered by leading providers makes it possible to use the optimum cost/performance service without increasing administrative costs or business risk.
SaaS solutions provide the earliest access to innovation in collaborative applications, customer experience, AI/automation, data integration, and security that can be directly tied to critical business priorities.
The increasingly intelligent governance capabilities in cloud platforms make it possible to observe and automate reactions to actual changes in compute, storage, data, and process resource requirements in near real time as business conditions change.

All these benefits are about “speed”. Less upfront costs. More flexibility. Pay only for what you need when you need it. Companies that prioritize application modernization and data augmentation technology projects can quickly realize reduction in budget pressure. Businesses should gravitate towards those technologies that can deliver meaningful short term (in 2023) business benefits through greater use of cloud capabilities.

IDC also advises that CIOs adopt a mid-term strategy that reallocates funds from “run” projects that mostly just push out the elimination of technical debt. We recommend companies focus on “new” projects that can boost revenue or productivity by early 2024. This approach ensures the organization can recover faster if conditions improve or respond more quickly if conditions worsen.

It’s also important to start thinking early about priorities for 2024 and beyond. Regardless of how inflation and currency conditions change, IT organizations will remain sensitive to potential future cost shocks associated with people and processes. Technology suppliers are embedding more automation and AI into all their products and services. 2024 will be the year that forward thinking businesses identify and execute the right IT automation mix to deliver long term operational improvements. IDC finds that IT Automation projects can yield consistent paybacks in less than 12 months based on post-implementation reviews.

Adopt a FinOps and Cloud Economics Strategy to Minimize the Risks of Cloud

While “speed is a Cloud benefit which can contribute to lower costs for many workloads, speed also creates new risks. After numerous conversations with CIOs and surveys of IT leaders in 2022, it became clear to IDC that many technology leaders feel their companies are overspending on cloud resources.

To achieve the full benefits of a cloud-centric project prioritization strategy, CIOs must ensure that they are reducing current ” waste” in cloud and other IT resources. In the short-term, they must empower existing vendor/product procurement and service management teams to more aggressively pursue cost optimization strategies. These include:

Scrutinizing duplicate SaaS contracts
Assessing actual usage of existing service levels, particularly for SaaS applications that use graduated per user pricing.
Leveraging and maximizing volume-based discounts with leading cloud providers by selecting complimentary products/services from within their marketplaces.

In the mid-term, cloud operations teams need to adopt a wide range of standard processes that continually prune spending on unused resources. These teams also need to identify and accelerate adoption of new, lower cost options (e.g., new compute instances, storage tiers, tiered per-user pricing) as they become available. One significant opportunity to consider use of an emerging group of SaaS optimization solutions that provide greater visibility into actual SaaS use across the company. IDC has heard from IT leaders who noted that use of these solutions allowed them to get a clearer picture of current SaaS use and make changes that delivered major (up to 50%) reductions in recurring spend very quickly.

Both the of these short and mid-term efforts fall under what is commonly referred to as FinOps, today. While many CIO’s note that they already have staff dedicated to these tasks, what many lack is a unified view of actual cloud usage that is critical for achieving sustained rather than just one-time cost savings. Finding the right partner that can help create the visibility required to achieve this as well as establish sustainable processes can show paybacks tied to less over-provisioning in just a few months.

In the long-term, CIOs must also start laying a foundation for long term governance and cost optimization guardrails in their organizations’ future cloud use. The end goal of FinOps is to enable sustained assessment, reassessment, and future projection of cloud operating costs. IDC calls this Cloud Economics.

Businesses around the world are building entirely new business models based on smart connected things, AI-enhanced operations, and continuous customer engagement.  As a result, the effective use of cloud services will require timely and accurate implementation, scale out, and long-term costs forecasts for vital digital business systems and will be less focused on simply cutting the cost of running back-end business systems.

What If Everyone is Overreacting?

As 2023 progresses, industry observers quickly began asking IDC if this is all an overreaction. In some countries, inflation showed signs of cooling down in early 2023, and the US dollar lost some of its strength. Others wonder if we may all be calling this the “GODOT recession of 2023” next year. Is all this “cost optimization” and “project prioritization” wasted energy?

The simple answer is, “No!”

Regardless of where the shifting winds of the economics take global businesses over the next 12 months, the factors that triggered technology cost concerns are already locked in. They include the long-term price increases that many SaaS providers initiated in 2022. They also include the reset in energy prices that corporate datacenters, colocation operators, and cloud providers will be grappling with thorough 2023 and 2024 at a minimum. SaaS providers that run their own infrastructure or leverage IaaS from leading cloud providers will be dealing with cost increases, forcing them to weigh the costs of expansion/innovation against profit margins. CIO’s need to keep a close eye on how this develops.

In the long term, focusing on prudent and methodical cost optimization after several years of accelerated technology investment driven by radical, pandemic-driven disruptions is the right strategy no matter how the economic situation evolves in 2023. Tech investment is no longer about supporting the business. Tech is at the core of competing as a digital business. Using Cloud Economics to invest wisely and ensure maximum returns on those technology investments is the key to long term success.

In a recent webinar, we presented an entirely new marketing and sales approach to replace the well-known funnel. Based on extensive research, IDC’s new Adaptive Customer Experience (ACE) model is a circular and evolving framework and not linear at all, like it’s predecessor. This is because engagement with tech buyers is no longer linear. B2B buyers have B2C experience expectations today.  They expect you, as a vendor, to understand and provide solutions for their challenges, jobs to done and business outcomes. ACE is a customer-centric framework to evolve how you go to market.  

“Marketing is the conductor of orchestrated journey engagement, with data, automation and analytics to make this all work.”

– Laurie Buczek, Research VP, CMO Advisory Practices

And perhaps most importantly, to fully engage with a buyer, marketing and sales need to play on the same field. Put another way, no longer should the two functional groups be looked at as if they are running a relay race, where marketing passes a baton onto sales to finish the race. it is, instead, a customer experience journey, more like an orchestra, where all the instruments work together to make one beautiful masterpiece. And if marketing does a good job as conductor of the orchestra, the sounds become music that buyers want to sit and listen to, rather than just noise that they walk away from.

“More activity doesn’t bring more success” in “random acts of marketing”

– Jason Cunliffe, GVP Content Marketing Services

The webinar introduces this new framework and covers all of the elements in depth. From new analytics to content considerations. If you did not have an opportunity to attend, you can listen to the on-demand version. We received fantastic questions that we think will help you get started in a new marketing and selling approach.

Q1: Is the customer data platform (CDP) available in marketing and sales automation solutions?

 CDP is a very large category right now. You’re seeing niche players, but also established CRM or marketing automation vendors that are baking CDP into their platform experience. For more information, you can read IDC’s Marketscape:  Worldwide Customer Data Platforms Focused on Front-Office Users 2021-2022 Vendor Assessment.

Q2: Do you recommend building bespoke analytic platforms or are most off-the-shelf platforms good enough?

We are seeing that commercially available CPD and analytic capabilities can deliver functionality faster, more economically and with scale than home grown solutions.   Use the 80/20 rule to start – 80% off the shelf with the option for light customization for 20% of capability.

Q3: On the customer data platforms and analytics, can you talk about where you would typically see these functions reside in an organization? 

IDC recommends that customer data platforms (CDPs) are implemented as enterprise capabilities versus an overlay of a functional data silo.  ACE hinges on democratizing customer data rather than it being a departmental resource only.  Data and analytics are the only enterprise resource that enable the adaptive engagement more real-time.  To implement for success, it requires a collaborative effort between customer facing business functions and IT.  For more information refer to The Data Pardox Reshaping the CIO and CMO Relationship

Q4: Do you assume the tech stack and data scientists are in place to implement ACE? If not how does one start?

It is important to approach this holistically and as a system. Often, companies buy the tech first.  Let’s learn from the historical missteps of buying technology and thinking it will magically change the way you operate. It’s like buying a Ferrari but not having anyone who knows how to drive it. You must start by thinking about the skillset that you need. Marketing leaders are building marketing data operations competencies in-house, which include people who understand the business and how to use the data on a sophisticated level to be able to extract insights from the data to inform marketing action. Then couple this with people who really know how to create content that tells a connected story and supports the buying decision journeys rather than creating content in silos.

Q5: Can you expand on the type of effective content that moves the needle?

Content that is highly measurable outperforms content that cannot be measured. So, the more content you can create that is interactive and provides a deeper, richer experience is more engaging and also highly measurable. It’s through testing that you can adjust content until it delivers the outcomes you want. You also should consider all of the other elements that are working together. Examine what efforts are coming before the content launches and what came after. Think about the entire customer experience with the content.

In addition, IDC Research finds that B2B buyers expect more interactive, immersive and omnichannel content across their engagement stages.  It is a mixology of content mediums that lines up to how buyers want to receive specific types of information.   Content creativity has been noted as most important for marketing effectiveness.

Q6: What are some examples of interactive content?

This is important to start to define. What does this look like? It can be calculators or business value assessment tools on your website where users can calculate how their business outcomes can be achieved (or the ROI) with your solution, without having to speak immediately to a human. Some buyers still want long form content pieces such as PDF’s, but significantly more want shorter content formats such as ebooks with embedded video, that provides options to read the content in smaller digestible pieces, if they need to. Also consider mobile applications and augmented reality that provide a realistic overlay of what your solutions can look like in a buyer’s environment.

Introducing a new lead generation service! To make it easier for marketers to gain the most value of their IDC MarketScape and truly drive qualified leads, we have worked with Foundry to create an enticing lead generation package leveraging their media brands that capture proven customer engagements.

After surviving a year that brought us supply chain issues, record inflation, labor shortages, and massive layoffs, we are now faced with a tumbling stock market, a hike in interest rates, and an emerging recession.  

But as we have seen in the past, an economic downturn can be an opportunity instead of a threat. After all, companies like Microsoft, Instagram, and Air BnB were formed during or just after a recession. 

Companies that will win in this climate are the ones who diligently use data to maintain and improve their strategies and services, and who master the balance between cutting costs to survive today and investing in growing tomorrow. 

And there are tools and actions available that will help you successfully navigate an economic slowdown.  

Create a Data-Driven, Agile Strategy 

In challenging times, building a strategy should neither rely on gut instinct alone nor should it repurpose what worked in the past. Situations can change very quickly during a decline in economic activity, and new factors impact even the best-researched plans. Make sure you use independent, reliable, up-to-date data to be able to reflect all kinds of economic scenarios and make informed decisions about factors like forecasting your total accessible market, pricing models, growth performance, and financial models. 

Working with an industry analyst can fast-track the development of a successful strategy by delivering third-party insight, feedback, and ideas. 

Understand your Buyer 

In times of economic downturn, it’s more important than ever to understand your customers and their changing buying habits. The right data will give you insights into your users’ experiences, expectations, and motivations, and will ensure that actions involved in acquiring new and serving existing customers are tailored to your buyers’ needs. 

Read the latest research on tech buyers’ behaviors in our recent worksheet. 

Use Data to Forecast – Carefully 

Forecasting is a vital part of any company’s success strategy, regardless of the economic climate. Now more than ever it’s essential to equip your sales team with the right data and analytics that enable them to plan and take the decisions needed to succeed. 

When planning a forecast during a recession it’s important not to be overly optimistic. Use timely intelligence and “from the field” market insights to forecast thoughtfully. Also remember that planning in difficult times calls for accounting for best-case scenarios, realistic scenarios, and worst-case outcomes. 

Enrich Data to Remain Competitive 

While there is no doubt that the first-party data that you collect gives you invaluable insights into your performance, you will soon fall behind your competitors if you fail to enrich it with external data sources. 

Enriching your data will fill in any gaps and add new information. This will give you the insight you need to stay relevant to your current clientele and fine-tune your products and services to reach new audiences. 

Tools like IDC’s Black Book can enrich your data and define your customer target to align your sales strategy to the latest market opportunities and plan for future market expansion. 

Keep Investing – But Wisely 

According to research by Harvard Business Review, the companies that don’t only survive a recession but flourish after aren’t the ones who drastically cut costs. It’s the companies who master the balance between cutting costs to survive today and investing in growing tomorrow. 

A data-driven approach will help you identify which parts to cut, and where to invest for future growth. Wise investments during a recession can make the difference between surviving or flourishing during and after the economic downturn. Programs like IDC’s Emerging Vendor Solutions will help you to increase market awareness, find prospective clients, and stay top of mind to changes in the industry. 

As of January 23^rd 2023, Oracle has replaced Oracle Java SE Subscriptions commonly purchased by customers with a new Oracle Java SE Universal Subscription.

Whilst the previous Subscription was licensed in effectively two different ways depending on whether the software was utilized on a Server or Desktop (Personal Computer) the new Universal Subscription has new ‘Employee’ terms. Note that these terms differ slightly to previous Oracle “Employee” terms, and are as follows;

Employee for Java SE Universal Subscription: is defined as (i) all of Your full-time, part-time, temporary employees, and (ii) all of the full-time employees, part-time employees and temporary employees of Your agents, contractors, outsourcers, and consultants that support Your internal business operations. The quantity of the licenses required is determined by the number of Employees and not just the actual number of employees that use the Programs. For these Java SE Universal Subscription licenses, the licensed quantity purchased must, at a minimum, be equal to the number of Employees as of the effective date of Your order. Under this Employee metric for Java SE Universal Subscription Programs(s), You may only install and/or run the Java SE Universal Subscription Program(s) on up to 50,000 Processors, If Your use exceeds 50,000 Processors, exclusive of Processors installed and/or running on desktop and laptop computers, You must obtain an additional license from Oracle.

Source – https://www.oracle.com/us/corporate/pricing/price-lists/java-se-subscription-pricelist-5028356.pdf

Effectively, the new terms require customers to now purchase sufficient subscriptions in line with the Total Number of Customer Employees, regardless of whether they utilize/leverage the software directly, indirectly or not at all.  A customer with a small number of installs and a high number of employees, could see bills in the $Millions per annum.

As an example, a customer with 20,000 employees utilizing JAVA SE in any capacity under the new subscription terms would need to purchase JAVA SE Universal Subscriptions for all 20,000 Employees, at a monthly rate of $6.75, total $1.62M per annum.

Furthermore, there is a requirement to license Employees, Agents, Contractors, and temporary workers from third parties that support internal business operations of the customers, which will require further consideration and perhaps increase counts considerably.

For new customers this latest model will apply immediately and for existing customers this model might apply at next renewal. Whilst Oracle may signal that existing customers might be able to renew under the previous terms, this shouldn’t be considered a guarantee. Initial published costs for the model are as follows:

When considering server deployments, the requirements to count Processors (Oracle Defined Processors) is still required although perhaps less emphasized, as by licensing all Employees, customers receive a grant of up to 50,000 Processor installations without extra charge (a further charge will apply to customers with higher Processor requirements). Those previous customer concerns around Virtualized Environments could likely still apply to customers when counting to that limit, noting the 50,000 Processor grant is still governed and defined by the same terms and definitions which have proved challenging to some customers previously.

Further information on pricing, full terms and further details can be found here:

Price list

Subscription FAQ

What should customers do?

Overall, costs for many customers could be higher than those previously, therefore customers might choose to consider the impact of these changes on future renewals, gathering overall employee and partner counts, along with assessing Processor requirements in line with Oracle terms and definitions, to estimate any potential future requirements.

Furthermore, customers may wish to establish, or re-establish, assessments of third-party alternatives to Oracle JAVA that might fulfill their requirements, including both paid for and open-source options, in order to avoid potential costs.

Where assessments have been made to requirements with both the current and the revised model, IDC Pricing Evaluation customers can seek to benchmark pricing and obtain further advice on commercial optimization and strategy.

Finally, for customers that do not use Oracle JAVA, consideration might still be made, noting that Oracle terms are accepted on the download of the software and that Oracle monitors downloads from the JAVA website, therefore controls on the permission, access, download, and installation of Oracle JAVA might be seen as key to ensure large liabilities are not generated.

IDC’s Sourcing Advisory Services (SAS) provides you with the industry’s most-recognized price benchmarks, analyst advice and IT optimization insight. Learn more.

The current economic downturn has had a significant impact on businesses across industries. Digital native businesses (DNBs) are no exception. IDC defines DNBs as companies built based on modern, cloud-native technologies, leveraging data and AI across all aspects of their operations, from logistics to business models to customer engagement. All core value or revenue-generating processes are dependent on digital technology. A DNB leverages its ecosystem of stakeholders (i.e., customers, partners, suppliers, and the community) to drive community-led innovation, dynamically evolve, and co-create offerings.

Related reading: How to Engage with Digital Natives

Market growth for DNBs is heavily influenced by VC funding cycles. And these have seen drastic change over the past 24 months. Comparing deal activity to 2021, each quarter in 2022 showed an increasing decline.  Late-stage deal activity is low, and there is a significant lack of exit activity. This has an impact on valuations and results in portfolio triaging from venture capitalists. VCs have warned their portfolio companies to buckle up and ‘prepare for the worst’.

The last two years, however, create the basis for some tough comparisons (due to the pandemic driven spike in VC investments for digital native businesses). To put it into context, it is interesting to note that when compared to pre-pandemic levels (prior to 2020) overall VC investments have actually stayed on par or even showed growth (depending on the segment). Fundraising remained resilient, with most of the funds raised by larger, more experienced funds. Available cumulative dry powder is at an all-time high, just short of $300B, leaving enough money on the table to invest.

When looking at future market developments, it is important to note though that there is a difference in DNB business models and DNB company size. IDC distinguishes three DNB business models:

Tech-oriented DNBs, who focus primarily on selling a tech solution
B2B DNBs who offer tech-enabled digital services to the B2B market
B2C DNBs, who offer tech-enabled digital services to the B2C market.

The graphic below shows that tech-oriented DNBs are least likely to be affected by the economic downturn. B2B DNBs, in many cases, are vertical-oriented, and not all sectors are hit equally by current market conditions. The B2C market, appears to be hit the hardest. The consumer tech sector showed the largest decline in deals in 2022. In this consumer-driven recession, many of the larger B2C-oriented DNBs have been forced to look at their business model. The adage of profits over revenue and value over speed to market has become dominant in the B2C segment.

The same holds true for the various size classes that we distinguish in the DNB market. Not all size classes are affected to the same extent.

Up until this point, angel and seed deal activity appeared to be resilient to the economic downturn; however, this may change as the drop over the recent quarters has been significant. Deal value did increase, implying that start-ups in this segment are applying for larger funds to extend their runway. Early-stage deal activity also declined compared to 2021, but increased compared to pre-pandemic levels. Valuations remained on par, however, looking at a quarterly trend, they are declining as well.

The more mature digital natives are the most susceptible to economic conditions and public market pressure. Unicorns and mature, publicly listed DNBs face tough public market conditions and many of them have announced layoffs. Those planning an initial public offering are postponing their plans, making it more difficult for investors to cash in on their investments. This creates a hurdle in the venture capital investment cadence and in turn, makes it harder for start-ups and scale-ups to secure additional funding.

While the downturn may present challenges, it also presents opportunities. One area where start-ups and scale-ups can find opportunities is in recession-resilient tech areas such as cybersecurity, AI/ML, robotics and supply chain solutions. Additionally, focusing on industry-specific growth opportunities in the B2B DNB category, such as Fintech, Healthtech, and ClimateTech, remains beneficial.

Looking back, the pandemic has led to an abundance of funds available and the emergence of new business models in various sectors. The following economic downturn increases the need for sophisticated and innovative IT solutions. DNBs who depend on a digital business model are therefore expected to continue to increase their market share. IDC’s latest survey results show that DNBs are not inclined to cut back on their IT expenses*. This survey, of over 1200 DNBs globally further showed that this segment continues to invest more than average in IT and that the majority plans to increase these investments over the next 12 months. Overall IDC expects the worldwide digital native business tech spending to grow with a CAGR of 20.9% to become a $500 Billion Market in 2026.

Related reading: Worldwide Digital-Native Business Tech Spending Opportunity Forecast, 2022–2026: A $500 Billion Market in 2026.

In conclusion, the economic downturn will have its challenges for start-ups, scale-ups and unicorns, but still sees opportunity for growth, especially for the tech sector. By focusing on recession-resilient tech sectors and industry-specific growth opportunities, digital native businesses can navigate the current economic environment and secure the funding they need to grow their businesses.

If you want to learn more about this survey: please reach out to our Digital Native Business Team.