10 Reasons IT Prices Will Drop in 2017
There will be no letup in the reduction of prices for IT products, technical services, and network services in 2017.
The contraction of deal prices will be evident in equipment, including switches, routers, security, unified communications and servers. Cloud services will feel the downward effect. And network services, including SIP trunking, will continue their slide. Technical services are a panoply of things that account for 20-50 percent of vendors’ revenue, and their prices are moving as well.
There are 10 reasons 2017 price will decline, all of which benefit customers.
Globalization – The US consumes 40% of the world’s information technology production. Vendors from all countries, but notably Asia and Western Europe, do not ignore this opportunity to expand their addressable market.
Distribution – Distribution of products and services is improving. We are observing 20 distinct sales channels for information technology products and services. More than five hundred thousand channel partners compete for sales, and low prices are a key to sales. Vendors are also getter better at adding sales channels.
Professional Services – These have yet to catch-up. Managed services, as well as those for planning, design, implementing and operating often elude equipment companies and service providers. Less than maximum sales of professional services puts pressure on vendors to price-down their offers.
Churn – Bundling, ecosystem partners, and contracts, keep many prospective customers out of the market. This reduces the total addressable market for all vendors; and it translates to less churn. Additionally high quality products, with less spinning media, reduce the failure and replacement rate.
Shrinking IT Budgets – All 19 vertical industry markets followed by Eastern Management Group are under pressure to hold-down expenses for 2017.
Earnings Pressure – Quarterly earnings pressure on vendors has never been so great. The technology industry’s increase in private equity ownership, and stockholder pressure on quarterly sales increases the emphasis on getting stuff out the back door. Reductions in R&D spending, again due to earning’s pressure, can quickly reduce the competitiveness of a vendor’s products. Reducing prices is an instrument for keeping sales moving.
Newcomers – The ability of newcomers, vendors with better or alternative approaches to technology, can sell-for-less. Disrupted, established, vendors are pressured to cut prices in order to keep-up.
Margins – Technology company gross margins of more than 60% are common. So are dealer discounts of 42-45%. Information technology margins have a lot of wiggle-room for customer negotiation.
Deal Prices – Vendors’ partners have more discounts they can pass-on to customers, to close sales. Terms like list and street price will have less meaning this year, with the rise in front-end and back-end rebates, dealer registration, SPIFs, co-op funds, and special promotions, in an ever growing list of customer discounts. What will matter to customers, and vendors, are competitors’ deal prices since they reflect the involvement of multiple tiers of rebates.
Competition – As products and services are less differentiated, as barriers to entry are lowered, more competitors will be in the 2017 market. This is partly why all markets have become commoditized.
Eastern Management Group tracks prices and discounts on more than 3 million technology services and products, through our Monitor database. We would be glad to discuss your needs and how we may be of assistance. Here is how you can contact us