Planning a development project? Bring your wallet

Companies are spending ever more of their IT budgets on software development, but are they really making progress or just padding vendors' bottom lines?

Good news for developers! According to a new report from Forrester, titled "The State of Application Development in Enterprises and SMBs," North American and European companies are more likely to maintain or increase their level of spending on software development in the coming year than to decrease it. Also, software development will account for a larger portion of companies' IT budgets in 2011 than in recent years.

Does this mean we've turned the corner? Has the long-promised economic recovery finally reached the IT sector? Not so fast.

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The last time Forrester conducted a survey of this kind was in 2007. At that time, new software projects accounted for 33 percent of companies' IT budgets, up 5 percent from the previous year. This year, the figure is 50 percent. Forrester isn't alone in its assessments; in a separate survey conducted by SoftServe, 26 percent of respondents said their software development budgets had increased by more than 10 percent from 2008 to 2009 alone. If we plot the data points, we start to see that Forrester's results aren't indicative of any real change in 2011. Rather, they're merely further evidence of a continued upward trend in software development spending.

But wait a minute -- I seem to recall some sort of economic recession during those same years. If companies were cutting costs everywhere else, why did software development expenditures increase on a steady trajectory? Has software really become that essential to modern business?

Maybe. Or maybe the truth isn't as rosy as Forrester and others would like to paint it. Maybe software development isn't really a bigger priority for companies today than in previous years. Maybe it just costs more.

Out with the old, in with the new
One part of the story is that software development expenditures are being channeled not from other business areas but from other line items of the IT budget. Even as expenditures for new initiatives has increased, spending on "ongoing operations and maintenance" is down 20 percent since 2007, both for enterprises and small to midsized businesses.

Forrester credits these cost cuts to process automation, productivity enhancements, infrastructure consolidation, and open source tools. But is that all there is to it? One thing that seems clear is that existing installations aren't growing. New software license purchases now account for just 25 percent of overall expenditures, which makes sense in a down economy.

Some areas are even showing significant decline: Use of IBM's zSeries and iSeries (nee AS/400) platforms -- traditional enterprise stalwarts, both -- has declined by nearly 50 percent since 2007. It seems logical to assume that some of the "new initiatives and projects" Forrester cites include efforts to transition applications from these legacy platforms to more modern ones.

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