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Software pros start to feel effects of recession

Though software and IT services companies were relatively cushioned at first, they are starting to feel the impact of the tumultuous economy.

The roller coaster of bailouts, jobs reports and yo-yoing gas prices that has defined the 2008 recession has even...

many experts saying they don't know what will happen in the long term. To get a sense of how software developers and the IT industry at large are being affected by the recession, we talked to a few software pros in the trenches. While they're starting to feel the pain, there are a few bright spots.

Lawrence Oliva, a senior consultant and program manager with CH2M HILL, a global engineering and program management company based in Englewood, Colo., said his firm was just beginning to experience some delays in software development project starts and extensions of work into next year, primarily on the commercial side of the company's client base. Federal government projects have not really been affected, he said.

However, some work for cities and municipalities has been deferred, he said, such as "metrics data -- tracking data for cities on various projects," and "some database work, SAP and Oracle, has slowed or stopped," he added.

I haven't seen any major initiative toward research-oriented projects. It's more about cost-saving and keeping the motors running.
John Scarpino,

John Scarpino, director of quality assurance at a large U.S. financial institution and a university instructor, said his firm is trying to acquire another large financial institution, so project work remains steady. "We are trying to hire more younger IT staff to fill in some open and new roles. The largest projects we've been seeing have been around Web-based application projects; e-banking is booming."

However, he expects the drive to reduce costs to have an impact internally, from "trying to reduce individuals with higher pay, and triple-tasking instead of double-tasking, and outsourcing."

Interactions Inc. in Carmel, Ind. -- a developer of voice hybrid technology for call centers as a service that is funded on venture capital (VC) -- has been somewhat insulated from the effects of the recession thus far, according to Mike Kelly, director of testing and quality assurance. "We can sell the product two ways: We help you make more money, but we can also sell to help the bottom line, by outsourcing, cutting resources, etc. So we can position well in both a good and not-so-good economy. As an organization we're still actively hiring developers to meet demand."

Kelly acknowledged that being VC-funded "insulates you a little, but clients are still knocking on the door, which is good news. Other startups in this area are kind of a mix; a couple are hiring and a couple are letting some go."

However, he added that he "suspected there would be a delay before we felt it in IT, and about six months from now I suspect to feel it."

Indeed, in its September report on the third quarter of 2008, Forrester Research wrote: "Software and IT services vendors will start to feel the pain. Sales of these products and services have so far avoided much slowdown in 2008. However, they will be hard hit in the next three quarters. Still, 'hard hit' is relative -- vendors in these categories will have on average 3% to 5% growth instead of the 9% to 12% growth they've seen earlier in 2008."

That forecast, according to Forrester, assumed two to three quarters of negative real growth ending in Q2 2009. But Forrester published an alternative view in October; "The most likely alternative economic prospect is for a longer and deeper recession that lasts into 2010. In that scenario, U.S. IT market growth in 2009 would slip to 2% to 3% in annual growth, with several quarters of declining purchases, instead of our current projection of 6% for 2009. Global IT market growth would have a similar deceleration, moving from 7% to 8% that we currently project for 2009, to much slower growth of 3% to 4%."

Data from Boston-based IT project consultancy The Standish Group's annual survey on investment plans found that in the area of application development services, 22% of respondents plan to spend more in 2009, 50% the same and 28% plan to spend less. This contrasts with last year's survey, in which 23% of respondents planned to spend more in 2008, 69% the same and 8% planned to spend less.

"We're seeing a downturn in the overall IT industry of 10% to 20%," said Jim Johnson, chairman of The Standish Group. "The only thing that's up is security; everything else is showing a downward trend."

So far, Kelly said the recession hasn't affected staffing at his company, but he said his software pro peers at other companies are nervous. "I run workshops in Indianapolis on software testing. There are a number of people I know in software testing who are sending resumes or looking because their company might be downsizing in the future. I think more people are looking around for work or nervous about jobs they're at now."

Oliva said there has been no impact to his company's IT consulting staff to date, and so far clients have been able "to weather the storm."

"There's been a small reduction, but extraordinarily small," Oliva said. "Right now IT departments are working on a backlog of activities and trying to maximize the productivity of the workforce they support. But given the high ratio of users to support staff, which is now probably 100-to-1 or higher, it's going to be hard to cut that to zero."

In terms of software product investments, both Oliva and Scarpino said the focus will be on the bottom line. "Tools that will not give [clients] more than 5% to 20% productivity increases will probably not be purchased," Oliva said. "For example, automated code generators are big, automatic software configuration tools, firewall tools, some data mining tools. Those are probably the biggest investment areas."

The bottom line for companies is, how does this project affect us right now, Scarpino said. "I haven't seen, in my company or previous company, any major initiative toward research-oriented projects. It's more about cost-saving and keeping the motors running."

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