Network Spending Increases

Companies aren't just talking about IT being absolutely central to their business; they're backing up that sentiment with money - and lots of it. Network spending jumped 10 percent last year, according to the results of the 1999 Network World Spending Survey. By comparison, network spending increased 7 percent in 1998.

We conducted the survey to learn how much you spent on LAN, WAN, Internet and intranet products and services last year. Moreover, we wanted to see which technologies garnered the largest investments. We compared actual 1999 spending with 1998 figures and decided not to ask about Year 2000 spending because those figures are only estimates at this point.

Working with market researcher STAT Resources of Boston, we e-mailed a random sample of Network World readers and invited them to participate in an online survey hosted on a private area of Network World Fusion. The results are based on 1,330 responses.

The survey found that 78 percent of respondents received bigger budgets last year. In fact, more than one-fourth were fortunate enough to boost their network expenditures more than 20 percent.

One thing is clear: Company size has a big impact on spending. The companies that have the largest network budgets also reaped the highest percentage increases in their budgets - an average of almost 14 percent in 1999, up from 8.6 percent in 1998.

Smaller network budgets also grew in 1999. Respondents who spent less than $100,000 on their networks said their budgets had risen 6 percent last year, up from a 1998 increase of 4.5 percent.

While most of you experienced an influx of funding, 12 percent of respondents had to run their networks with less money in 1999. For example, one manager from a large financial institution complained, "Our IS budget has been raped of funds this year."

However, some who saw their network budgets go down last year may not have suffered. As one reader noted in the survey, declining equipment costs let him provide greater performance for less money. This in turn bought him a lot of support from upper management.

Another respondent pointed out that well-established networks only require moderate upgrades rather than large capital investments. "Network upgrades are no longer a strategic item, but cyclic," according to an educator who supports a 3,000-user network.

Faring neither better nor worse were the 10 percent of respondents who received the same amount of money to work with in 1999 as they did the previous year.

Respondents allocated just under half of their budgets to capital equipment, 37 percent to internal labor and the remaining 15 percent to outsourcing costs (see graphic, page 66). These proportions remain fairly constant across companies of different sizes, although there is a slight tendency for the bigger spenders to rely a bit more on outsourcing. Overall, spending on outsourcing increased 10 percent in 1999.

Readers Digest, for example, recently outsourced remote access to reduce its support costs. "People cost more than hardware, particularly with remote access, where there's an assumption on the users' part that when you're home at 8 p.m., there's someone there to help you," says Robert Kuron, associate director of desktop integration services for the Pleasantville, N.Y., publication. "We don't want to add a second or third shift."

Moreover, Readers Digest has outsourced all of its Internet hosting, for similar cost control reasons. "You start hosting your own Web servers, you need someone there all the time," says Kuron.

Given the demand for high-tech talent and the need to retain workers, it's no surprise that the average respondent shelled out 16 percent more on staffing in 1999. Nearly half of you expanded your regular IT staff and 25 percent increased your reliance on contract and temporary workers. As you might expect, the companies that spent more than $500,000 on their networks were hit the hardest by increasing labor costs.

But the budget area where spending increased the most was capital equipment, which rose an average of 26 percent. Two-thirds of you implemented major network projects last year, including more than half of the companies that invested less than $100,000 in their networks and almost 80 percent of those that spent more than $500,000. LAN, WAN and Internet/intranet upgrades were fairly common, but only 13 percent of you began building a converged voice/data network.

Chee Lee, network designer at Nassau College in Garden City, N.Y., says convergence will be a big budget item but not before 2001. "We're a public institution and have to go through the state government and explain to them why this will save a lot of money," he says. "There's a lot of lobbying going on right now."

Then there are companies like Readers Digest that still have to do some major depreciation before seriously looking at moving voice onto IP networks. The company spent $700,000 to replace its PBX two years ago. "To replace that right away with IP phones at $500 each would be pretty expensive. Besides, I'd be shocked if an NT box would be as reliable," Kuron says. He won't seriously consider investing in the new technology for three to five years, he adds.

Several respondents cited enterprise resource planning (ERP) systems as major drivers for network upgrades. Northeast Georgia Health System, for example, is migrating from a mainframe-based financial and human resources system to an AIX-based ERP system that will automate several manual processes. The move is expected to save about $500,000 the first year, says Griff Law, network manager for the health care provider in Gainesville, Ga.

And last year, the medical center rolled out a wireless network that lets administrators perform bedside patient registration and move people in and out of the emergency room much faster and more efficiently.

Brian Tomasiewicz, a former software engineer for a major global insurance firm, says the company made a slew of upgrades as part of an ERP rollout. The project required upgrading servers and workstations, moving to Category 5 wiring, migrating to switched Ethernet and upgrading hubs.

At the same time, many of you had to delay upgrades and other major initiatives. It follows reason that the more a company invested in its networks in 1999, the less likely it was that it needed to postpone projects.

Popular purchases

Whether companies overhauled their net-

works or simply replaced equipment as needed, the majority of respondents

purchased hubs, routers, network operating systems, network management tools,

Web servers and firewalls in 1999. Layer 2, Layer 3 and Gigabit Ethernet switches were common purchases, but ATM and token-ring switches neared the bottom of the shopping list (see graphic, page 67).

While 31 percent of respondents invested in virtual private networks (VPN) last year, that doesn't necessarily mean they've gone into full-throttle rollout.

Nassau College implemented a VPN in 1998, but the project wasn't a big budget item. "It's still in the testing phase," Lee says.

However, Northeast Georgia Health System has big plans for VPNs. "VPNs are a definite for us, we're halfway there," Law says. The organization is in the trial stages of a VPN-based service called Physician Link, which will allow doctors to dial in for patient records and results. "It's not necessarily a big ticket item, but it will change the way doctors and clinicians work."

Only 11 percent of you spent money on directories in 1999, indicating that many are waiting for Windows 2000 to ship in February.

Nassau College plans to implement Active Directory this year and migrate everything to Win 2000, Lee says.

Not everyone will jump on Win 2000 out of the box, either. Readers Digest is looking at moving to either Win 2000 or NT in 2001. "We have some antiquated applications we have to do work on first," Kuron says.

And Northeast Georgia Health intends to wait for Version 1.1 of Win 2000, according to Law. "We're an NDS shop, and we see no reason to move to Active Directory and go through the same growing pains we went through moving to NetWare 4," he says. The firm will likely begin moving to Win 2000 Professional desktops in November.

Money-saving measures

Relative to the tasks you needed to accomplish in 1999, the majority of you regarded your resources as at least as good as those you used the year before.

But this doesn't necessarily mean that funding was satisfactory.

Despite receiving an average budget increase of 10 percent last year, more than half of the respondents described their financial resources as inadequate. One reason could be that in 1999 respondents gained additional sites and end users to support thanks to corporate growth, mergers and acquisitions.

However, a fortunate 4 percent admitted to having more resources than needed to do the job. Here's a tip: it's probably best not to share this with your boss or company stockholders.

Whether your budget was ample or paltry, almost all of you employed spending strategies to get the most bang for your buck (see graphic, this page). The most popular step involved timing purchases, which more than half of all respondents reported doing. Next came server consolidation, particularly for the companies with larger budgets. Naturally, companies with more extensive networks are substantially more likely to invest in remote software and remote management.

Just over a quarter of the network executives surveyed are moving functions to the Web to save money. Reseller Dynamic Solutions International of Englewood, Colo., is taking that idea one step further.

The company is looking to sell one of its product lines via the existing Web infrastructures of vendor partners. That way, "we don't have to allocate large amounts of money or budget for large expenditures," says Marshall Clark, one of the firm's regional sales managers who has input into network purchases.

Since there's no telling what the next year will bring, it doesn't hurt to save IT money anywhere you can. Take Northeast Georgia Health System, for example.

After a few growth years, the health care industry is seeing some belt tightening due to Medicare cutbacks and HMO-related trimming. Law's IT department has been trying to build up cash reserves for future lean times and expected changes in the health care industry.

One big change for the health care provider is the need to implement high levels of encryption within the next 24 to 36 months, as specified by the Health Care Insurance Supportability and Accountability Act. "We're trying to validate necessity more closely than in the past, fine-tuning applications when we used to just throw in new hardware," Law says.

Ellerin is president of market researcher STAT Resources in Chestnut Hill, Mass. She can be reached at ellerin@stat-resources.com. Elisabeth Horwitt, a freelance writer based in Waban, Mass., also contributed to this article.

Horwitt can be reached at ehorwitt@world.std.com.

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