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.

Interactive investment dashboard

The interactive dashboard below shows IT investment for a group (1 or more) of user-selected, 3-digit NAICS industries (blue).  The rest of the US market is shown in gray.  The default selections are the 3 healthcare sub-industries of Hospitals, Ambulatory Care and Nursing Facilities (see “Select industry” in the dashboard).  The top chart shows investment over time in 2009 $; the bottom chart shows CAGR over time.

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.

Healthcare information technology investment

In 2015 (the last year for which BEA data are available), the Healthcare industry invested $10.6 billion (2009 $) in computers, software and communications equipment (e.g. phone systems, internet and networking equipment).  62% of this was invested by Hospitals, 32% by Ambulatory Care providers and 6% by Nursing Facilities.

Note that Healthcare industry spending on information technology consists of more than equipment and software.  A sizable share is spent on IT services (such as system integration and consulting) and IT outsourcing.  Forrester estimates that the Healthcare industry spent over 3.5 times what it did on equipment on IT services and outsourcing in 2016.  Over 70% of this additional spending is on outsourcing alone.  The BEA data only cover “fixed asset gross investment”.

Of the three “equipment” components of Healthcare information technology investment, software has exhibited the strongest growth (see “Select investment type” in the dashboard).  Since 2000, software investment has grown by a compound annual rate of 7.6%, mirroring the growth seen by rest of the US market (7.9%).

Pop quiz: Using the dashboard above, of the three healthcare sub-industries, which one had the highest rate of growth in software investment over the 2000 to 2015 period? It may not be what you first suspect.

As of 2015, Healthcare investment in communications equipment has grown by 4.0% per year while computer (hardware) investment has grown by 3.6% per year.  Nursing Facilities exhibited the strongest growth in hardware investment at 5.7% per year.

Note that this is total investment which can rise due to higher demand at each facility and/or an increase in the number of facilities over time.

Computer hardware investment

Digging deeper into computer (hardware) equipment investment reveals some startling trends.

Both PC and server investment have been growing at 6.7% and 4.3% per year since 2000.  However, the annual rate of change in PC investment has been negative since about 2007.

Also, the annual rate of change in physical server investment has been essentially flat since about 2005.  This latter trend is consistent with movement towards virtual and cloud-based servers.

The real standout is investment in physical storage equipment.

Physical storage investment by the Healthcare industry has actually declined by 1.6% per year since 2000.  The most likely reason for this trend is again the movement towards “cloud” storage solutions.  Physical storage investment peaked in 2007 in the Healthcare industry.  Selecting “Select years” in the dashboard to show “1980 to 2015” and the “Select industry” to display to “All” reveals that the peak in physical storage equipment investment in the total, private US market occurred 7 years earlier in 2000.

Printers have also apparently lost their luster.  Healthcare investment in printers has declined by an annual rate of 1.7% since 2000.  Again, looking over the entire 1980 to 2015 time frame, printer investment peaked in 2002 and has been in a downward trend every since.

Healthcare investment in displays increased by 3.0% per year since 2000.  However, since 2004, the trend in annual investment has been flat.  Nursing Facilities exhibited the strongest growth in display investment at 5.3% per year over the 2000 to 2015 period.

What have been the IT investment trends in other industries?

We invite you to play with this dashboard to conduct a similar analysis for any one (or multiples) of 60+ industries.  The limitation, as alluded to above, is that the investment shown is total or aggregate investment.  On a per business or employee basis, trends may be quite different.  We will pick this up in a future article.

The post Healthcare Information Technology Investment Trends appeared first on KDD Analytics.