It is crucial to keep the cycles short
Shorter replacement times for new technology is good for the channel. Howard Dudley looks at the importance of ensuring buyers get the finance to keep upgrading
Shorter replacement times for new technology is good for the channel. Howard Dudley looks at the importance of ensuring buyers get the finance to keep upgrading
European IT investment went through a major downturn after the year 2000 problem. The bubble of dot-com spending burst and many suppliers of web-based software solutions and telecoms technology disappeared.
The general economic effect suppressed IT spending, whether in countries where consumer spending cushioned the recessionary threat (UK), or in those that suffered the full blast of an economic downturn (Germany and, to a lesser extent, France). Technology spending, and IT spending in particular, may now be regarded as fairly sensitive barometers of a nation’s economic buoyancy. It is therefore heartening to review what actually happened to IT spending in 2004, and what the predictions are for 2005 and 2006.
According to recent European IT Observatory reports, the Western Europe IT market passed its nadir of 2003 (minor or negative growth) to record a healthy 2.7 per cent upturn in 2004, with 4.3 per cent increases projected for 2005 and 2006. Of the three major economies in the region, the UK remains the strongest.
Siemens recently examined the state of play regarding replacement cycles across various IT categories in medium-sized companies across Germany, France, the UK and the US. The research also asked whether these replacement cycles would increase, decrease or stay the same.
We found that IT replacement cycles are longest in the US and France, and shortest in the UK and Germany. Also, Germany and the UK expect equipment replacement cycles to shorten over the next five years, especially for laptops, notebooks and PDAs, where the average replacement cycle is only two years and 11 months. The extraordinary success story of hand-held devices over the last 12 to 18 months confirms the logic of increased churn in the next few years, comparable to what happened in the mobile phone market.
On the other hand, servers are expected to last longest in the US and the UK, and the US predicts replacement cycles will shorten to the same degree as Germany. Only in the UK are software replacement cycles expected to shorten further.
We believe that the increasing ease of finance availability is a significant factor fuelling this technology turnover in which two elements are at work: first, the ease with which the buyer can obtain finance; second, the ease with which vendors and resellers can offer that finance.
Yet the key question to the channel is the sustainability of these shortening cycles. The answer rests with how frequently buyers are prepared to upgrade their IT position, which is ultimately linked with affordability. Our study showed that financing methods such as all-embracing service contracts and leasing deals are being used to finance these shortening IT replacement cycles. Indeed, the use of leasing across all geographies is now more than double standard bank borrowing for IT investment.
It would seem that in an effort to stay ahead of the technology curve, mid-sized firms are becoming increasingly comfortable with alternative methods of finance.
The lesson for the channel therefore is to ensure that you make these alternative finance options available to your prospects if you want to maximise the sales opportunity and keep technology replacement cycles as short as possible.