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What would a recession mean for IT spending?

Will there be any winners in a recession?

Normally IT gets walloped in a recession, with new projects put on hold until the economy thaws. Take the 2001 recession, for example, which saw IT budgets that had been growing 12.9% per year shrink to a 2.8% growth. In such circumstances, enterprises have traditionally placed existing projects on life support while cutting off the air supply to new projects.

But as the New York Times reports, this time around IT spending may not get hit as hard, at least, not everyone will get equally hard:

"You only want to start projects you are dead-serious about," ...said [Pitney Bowes' CIO]. "A downturn really heightens that discipline."

To make room for spending on new things, managers must make cuts in the spending for basic operations. The preferred way to do that is to trim the budget for routine things like replacing personal computers, issuing employees mobile devices like BlackBerrys and putting off upgrades to new desktop software like Microsoft's Windows Vista operating system or Office 2007 programs.

IDC surveyed 300 IT executives and found that computers, gadgets, and office productivity software will be hardest hit. To me, this suggests that the market believes we've largely tapped out the value in these things. The real innovation is happening elsewhere. That "elsewhere" should still see investment in a downturn.

However, is it overly optimistic to believe that somehow this recession will be different? The Times suggests that "Companies are likely to find that it is smart to make new investments as long as their overall technology spending is under control," and implies that as an industry we've become much smarter about how we spend money on IT.

It's a tragic conceit of the technology world (and, indeed, of the world generally) to overestimate how much we've learned from the past. If the bottom drops out of the economy, I suspect spending will dry up. I do believe we'll see more and more IT spending shift to open source, for example, because it allows companies to invest in new projects or to streamline old projects while actually diverting money from bloated maintenance contracts with proprietary vendors. Save money while getting more IT. But even open-source vendors will get squeezed.

Importantly, open source also frees up more money to save jobs. The cost differential between SugarCRM and Siebel is so great that an enterprise could chop its Siebel spending, buy SugarCRM licenses, hire more developers, and still come out ahead.

Even so, nothing about a recession is going to be easy. It will separate the wheat from the chaff. I expect some, though not all, of the open-source vendors to come through a recession stronger than ever. The same will be true of the proprietary vendors. Capitalistic Darwinism at its best.