This is not just a single year phenomenon but the result of strong upward trends in IT investment by the Information Services industry since at least 2000.

The information services industry

The industry classification system used by the US government largely changed in 1997.  As a result of NAFTA, Canada, Mexico and the US collaborated on a new classification system called the North American Industrial Classification System (NAICS) (the US was previously using the Standard Industrial Classification (SIC) system).   Many sub-industries were reorganized in the new system.  And a new “industry” was created representing sub-industries involved in some way with providing  “information” services.

Although there are officially six, 3-digit NAICS Information Services sub-industries, the US Bureau of Economic Analysis (BEA) collapses these into four:  Broadcasting & Telecommunications, Information & Data Processing, Motion Picture & Sound Recording and Publishing.  Since our investment data come from the BEA, we will focus on these four sub-industries here.

Software investment

One of the IT investment themes in recent years has been the transition to “cloud-based” solutions.  In the case of software, Software as a Service (SaaS) is supplanting software installed on local computers (aka “packaged software”).   The BEA does not break out SaaS spending from other types of software investment.  So, unfortunately, we cannot tell whether SaaS is simply cannibalizing packaged software or whether it is contributing to net growth.

However, we can see that there has been strong growth in software investment in the Information Services industry since 2000.  As the interactive dashboard below shows, software investment grew by 9.8% per year per worker (measured in 2009 $) between 2000 and 2015, the most current year for which BEA data are available.  This is higher than the national average rate of growth in software investment of 7.9%.

As you read our analysis below, we invite you to follow along by making changes to the dashboard to show the trends we are discussing.  Changes are made in the “filters“ “Select industry”, “Select years” and “Select investment type” found at the top of the dashboard.  Also selecting “Select sub-industry to highlight” will bring the selected sub-industries to the forefront in the bottom two line charts.

There is wide variation, however, within the Information Services industry.  Software investment by the Information & Data Processing sub-industry has been growing by a whopping 15.9% per year per worker since 2000.  However, this has moderated some in recent years (8.0% per year over the 2010 to 2015 period).  In 2015, the Information & Data Processing sub-industry invested over $65,000 per worker in software (2009 $).

At the other end of the scale, Broadcasting & Telecommunications has been investing at only a 3.5% annual rate since 2000 (5.1% since 2010).  In 2015, this sub-industry was investing over $12,000 per worker in software.

Storage investment

Another but related IT investment theme has been the transition away from physical storage to virtual or cloud-based storage…think DropBox.  As we saw in a previous article, according to BEA data, total investment in physical storage (in 2009 $) began to decline in the US private sector in 2000.

However, not all industries (and sub-industries) have shown the same effect.  In the Information Services industry, physical storage investment per worker has declined by 1.4% per year since 2000 (3.8% since 2010).  Use the “Select investment type” filter to affect this change in the dashboard.

The Information & Data Processing sub-industry continued to invest in physical storage at a 6.7% annual rate since 2000.  It was the disinvestment by the Broadcasting & Telecommunications sub-industry (-7.3% per year) that is reflected in the overall Information Services industry negative growth of 1.4% per year.

However, in recent years, since 2010, the annual rate of change in storage investment has been negative across the entire Information Services industry, with Motion Picture & Sound Recording sub-industry leading the charge at -19.1% per year.

Other stories

There are many more stories the data can tell.  And we invite you to play with this dashboard to uncover them.

For example, a previous article discussed investment trends in the Healthcare industry.  Does using investment per worker (the above dashboard) change any of our conclusions in that article?

Drop us a line and let us know what you find.

The post Information Technology Investment in the US Information Services Industry appeared first on KDD Analytics.

Why does information technology investment per worker matter?

While information technology (IT) investment per worker has grown over time across all industries, there clearly are industries that use IT more intensively in their production of goods and services.  Knowing how this intensity varies across industries can inform public policy decisions.  For example, the demand for labor may be impacted by the amount of IT workers have to work with.  Thus any policy (e.g. tax) targeting business investment decisions can have a differential effect on labor markets depending on the intensity with which IT is used.

Knowing how IT intensity varies across industries is also useful from a micro perspective.  How much ABC Corp located at 100 Main Street, Any Town USA spends on IT is probably unknown to B2B marketers.  However, knowing in which industry ABC Corp plays and how many employees work at the 100 Main Street location can yield a ball park estimate of how much ABC Corp can potentially spend on IT.

Such information would be quite useful for IT vendors selling into ABC Corp.

Where does one find data on IT intensity?

The big IT market research houses, such as Forrester and IDC, provide industry-level estimates of IT spending.  But usually at an aggregated industry-level (e.g. 2-digit NAICS or 1-digit SIC).  And they are unlikely to provide employee counts.

Fortunately, the US Bureau of Economic Analysis (BEA) provides estimates of investment in IT “equipment” (computers, software and communications).  While they do not provide estimates of spending on IT services (e.g. IT consulting, system integration and outsourcing), the BEA data provide insights into how much businesses are spending on the three other main components of IT.

Moreover, the BEA provides these data at the sub-industry, 3-digit NAICS level; they provide estimates of employment at this same level of disaggregation; and they provide these data every year.

What more could a data junkie want?

Information technology investment per worker (IT intensity)

IT intensity is defined as gross investment in hardware, software and communication equipment per worker.  In 2015 (the last year for which data are available), IT intensity averaged about $3,100 per US private sector worker (in 2009 $).  This is 3 times what it was in 1998.

However, this national average hides the dramatic variation across industries.  Below is an interactive dashboard which shows IT intensity expressed as an index (industry intensity/average intensity) for 2015.  Not surprisingly, the Information Services industry invested over 8 times the national average; the Agriculture industry just .03 times.

Drilling down into the Information Services industry (click on the bar chart) shows that it is the Data Processing and Broadcast and Telecommunications sub-industries that account for the lion’s share of Information Services industry investment (see the bottom chart).  Again, not too surprising.

The dashboard allows one to select the type of IT investment.  Selecting “Communications” reveals the intensity of investment in communications equipment (phone systems, internet and networking equipment).  Again, the Information Services industry leads the pack as a result of heavy investment in the Broadcast and Telecommunications sub-industries.

However, the bottom chart shows the ranking of all sub-industries (3-digit NAICS).  Interestingly, the Water Transport and Pipeline Transport industries are relatively intensive users of communications equipment.

If anyone knows why, drop us a line, we would like to know!

Other interesting findings…selecting “HW – Servers” reveals the intensity of investment in physical servers.  The top three sub-industries are Federal Reserve Banks, Rental and Leasing and Credit Intermediation.  At the 2-digit NAICS level, it is the Finance industry that is the top investor in servers, followed by the Wholesale industry.

We will leave it to the reader to play with the dashboard and uncover other interesting stories (e.g. in the Manufacturing industry, which sub-industry invests the most in storage equipment? in printers?).

Takeaway

Our takeaway is that although the “usual suspects” appear as high intensive users of IT, at the sub-industry (3-digit NAICS) level, there is wide and not always predictable variation.  Especially when drilling into the different categories of IT investment.

What is your takeaway?

In a future article, we will take up this subject again and examine in more detail how information technology investment per worker (IT intensity) has changed over time.

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