Speaker 1: You're listening to Bloomberg BusinessWeek with Carol Messer and Tim
Speaker 1: Stenebek on Bloomberg Radio.
Speaker 2: So Carol, well, pretty much through earning season and like
Speaker 2: last quarter one theme has been clear. It was clear
Speaker 2: today HEFN with Mango TB's results. Right, Companies of all
Speaker 2: stripes are embracing AI, and for good reason. Take Wall
Speaker 2: Street for example, Banks using generitive AI tools could boost
Speaker 2: their earnings by as much as three hundred and forty
Speaker 2: billion dollars annually through increased productivity. It's a nine to
Speaker 2: fifteen percent increase in operating profits. That's according We should
Speaker 2: note to a McKinsey Global Institute report that was published today.
Speaker 2: We know they kind of want you to use AI. Kris,
Speaker 2: then you'll hire them consult me ya, you.
Speaker 1: Can look back to ou AI. All right, We've got
Speaker 1: a great guest to give us an idea though, of
Speaker 1: where companies are going to be spending money when it
Speaker 1: comes to it in the new year. Crawfordal Prett back
Speaker 1: with us President the global market intelligence firm IDC International
Speaker 1: Data Corporation, also known as he joins us here in
Speaker 1: our Bloomberg Interactive Broker Studio at Bloomberg Headquarters. Hello, Hello,
Speaker 1: almost happy new year.
Speaker 3: So great to see you guys, So.
Speaker 1: Great to have you here. How are you thinking about
Speaker 1: twenty twenty four?
Speaker 3: So when we think about twenty twenty four, it's it's
Speaker 3: it's a year of transition for tech. Twenty twenty three
Speaker 3: was a year that people were extremely concerned about inflation.
Speaker 3: They were extremely concerned about about the impact of inflation
Speaker 3: on tech. And at the end of the day, we'll
Speaker 3: see tech spending around about five percent, which continues the
Speaker 3: trend that tech is just so core to what companies
Speaker 3: do for next year. This five percent for twenty twenty three.
Speaker 2: When you say tech spending, what is the umbrella that
Speaker 2: that covers.
Speaker 3: So think about information technology spending, So everything from devices
Speaker 3: like personal compute devices, all the way through application software,
Speaker 3: all the ways of the hardware, software, all of it,
Speaker 3: and services.
Speaker 2: What about cybersecurity.
Speaker 3: Services, securities in there, any any it and professionals And
Speaker 3: this is across is across the world, it's across it's
Speaker 3: across all regions.
Speaker 2: I would think it'd be higher five percent a lot.
Speaker 3: Yeah, So five percent we've seen we saw it ramp
Speaker 3: up to double that during COVID when we saw things accelerate,
Speaker 3: but you know, we've seen it bounce in that five
Speaker 3: to eight percent range for it's been pretty range bound
Speaker 3: for quite some time. If you take out sort of
Speaker 3: the two thousand and eight downturn, if you take out
Speaker 3: the craziness that happened during COVID.
Speaker 1: What kind of growth were we seeing prior to the
Speaker 1: pandemic the year before.
Speaker 3: So, prior to the pandemic, like I said, you know
Speaker 3: we saw that in those years it was about seven percent. Yeah,
Speaker 3: so it was kind of in that range.
Speaker 2: Okay, why why isn't it higher? Why hasn't it grown?
Speaker 2: As we've become more reliant on tech.
Speaker 3: Every company, the tech you think about is hot, the
Speaker 3: new hot thing it's and that stuff is growing, right,
Speaker 3: So application software ten percent, and we've seen you know,
Speaker 3: you think you think about the cloud thirty percent growth
Speaker 3: now cooling.
Speaker 2: To so companies are spending less on let's say a
Speaker 2: PC for every person because they've come down in price.
Speaker 2: These are commodities, and they're spending more on the cybersecurity
Speaker 2: stuff that keeps there.
Speaker 3: So it's actually worse than that. If you look at
Speaker 3: something like twenty twenty three, it spending growth in PCs
Speaker 3: got shalacked. It was down fifteen to fourteen percent. It
Speaker 3: was down dramatically. Now, PCs are actually a thing that
Speaker 3: moved the needle because every man, woman and child needs
Speaker 3: a PC who's needs to be connected to the internet,
Speaker 3: and they spend somewhere between eight to twelve hundred dollars
Speaker 3: on a PC. So as PCs start to come back,
Speaker 3: which we think that they will next year, they actually
Speaker 3: move the needle on it demand. It's not uncommon to
Speaker 3: see them move the needle a couple percentage points.
Speaker 1: Why are they coming back next year.
Speaker 3: They're coming back next year because there's because we saw
Speaker 3: this huge increase during the pandemic, and they start to
Speaker 3: get old and they start to age and they break
Speaker 3: and people need to start replacing them as well. There'll
Speaker 3: be a Windows eleven upgrade cycle next year and we'll
Speaker 3: start to see new PCs that actually bring wait for it,
Speaker 3: AI out to the edge. So you see a coprocessor
Speaker 3: which will be able to run the AI workloads, and
Speaker 3: we think that will start to fuel by the middle
Speaker 3: of next year another upgrade cycle.
Speaker 2: It's just like it's like what's old is new again,
Speaker 2: except for what's not old AI that's I'm just really
Speaker 2: surprised that we're not seeing the spend as a bigger
Speaker 2: portion of revenue right now, partly because our jobs everywhere
Speaker 2: have become so much more reliant on tech. Tech is
Speaker 2: no longer you know, a segment. It's this layer that
Speaker 2: sort of every company needs it.
Speaker 3: And that's and that's why it used to be that
Speaker 3: when GDP got the sniffles, tech would get pneumonia, tech
Speaker 3: would collapse, everyone would pull over. That's no longer happening now.
Speaker 3: So even though we've seen pullbacks, even in COVID where
Speaker 3: we saw GDP go negative, it never went negative. It
Speaker 3: went down to about one percent growth. So again it's
Speaker 3: that it's that point him that people still have to
Speaker 3: invest in it. And for the technologies that are in
Speaker 3: this part of the central nervous system of an organization,
Speaker 3: like application software, you're not going to get it out.
Speaker 3: You might cut down the number of users with access
Speaker 3: to it, but you're not going to get it out
Speaker 3: of the organize.
Speaker 1: How much uncertainty is there among companies the global corporate
Speaker 1: community when it comes to the it it spend and
Speaker 1: like pulling the button and saying we're going to make
Speaker 1: the spend are they just nervous about kind of what's
Speaker 1: to happen.
Speaker 3: So the spend falls into a couple of categories. There
Speaker 3: are definitely areas where you can pump the brakes, you
Speaker 3: know what, push that server a little bit longer, don't, don't,
Speaker 3: don't replace it. Maybe we don't. We don't, we don't
Speaker 3: run that program to add a new application, so our
Speaker 3: cloud spend doesn't go up. But when you get into
Speaker 3: the core stuff that's running a business, not a lot
Speaker 3: companies need to continue to invest.
Speaker 1: I guess what I was trying to get to Crawford
Speaker 1: is this whole idea of just all the geopolitical uncertainty,
Speaker 1: and it just feels like when we get through kind
Speaker 1: of one phase, something new comes. And obviously you know,
Speaker 1: whether it's Russia, Ukraine, whether it's right now Israel, Hamas
Speaker 1: continued tensions. Even though some things fee a little bit
Speaker 1: better between US and China, they're still there. So I'm
Speaker 1: just wondering how much of the geopolitical, if at all,
Speaker 1: impacts the IT spend.
Speaker 3: It does impact I spend. Things like energy prices are
Speaker 3: definitely a headwind, and we see that in certain regions
Speaker 3: inflation can be a significant headwind. I mean a company
Speaker 3: is dealing with a bag of money that they have
Speaker 3: to spend, so they definitely will pull back in inflationary times.
Speaker 3: And that was a lot of the trepidation that we
Speaker 3: saw this year where we thought at the beginning of
Speaker 3: the year, boy, this we could really see the market
Speaker 3: pull back in an inflationary environment.
Speaker 1: So backs off in twenty twenty four.
Speaker 3: So I think when you look at twenty twenty four,
Speaker 3: you'll actually see more of a recovery. Our expectation is
Speaker 3: back to Tim's point, we'll see a little stronger growth
Speaker 3: and that'll be fueled by PC upgrade cycle, a moderation
Speaker 3: of the pullback and the cloud again. Cloud went from
Speaker 3: three infrastructure as the service went from thirty percent spending
Speaker 3: this year down to about eighteen percent spending. So that'll
Speaker 3: come back and be over twenty next year. And we
Speaker 3: heard a lot about that pull back with things like Azure,
Speaker 3: pullback with things like AWS. We're going to see that
Speaker 3: start to moderate as companies. To your point, Carol, need
Speaker 3: to start investing again.
Speaker 2: But don't some of these clouds service providers, don't you
Speaker 2: increase usage of them when business increases, Like if you're Netflix,
Speaker 2: and you're using a cloud service provider as a CDN
Speaker 2: right or you know, to help you with your CDN
Speaker 2: and deliver content everywhere. The more people who are signed
Speaker 2: up for Netflix means the more people are streaming content,
Speaker 2: which means your bills with the cloud provider are going
Speaker 2: to go up. So not necessarily a choice you have
Speaker 2: whether you're going to invest or not.
Speaker 3: That's right. And so that's a business that is born
Speaker 3: on the cloud, and everything about their business is associated
Speaker 3: with the cloud. So as they've ramped their business up,
Speaker 3: they've been all in on the cloud. But if you
Speaker 3: take a company and again making this up, but if
Speaker 3: you take a company like an American Express, they might decide,
Speaker 3: in tough times, you know what, we're not going to
Speaker 3: invest in that incremental program in the cloud. We're going
Speaker 3: to just stay where we're going to close to stay
Speaker 3: where we are, and therefore that incremental dollar doesn't necessarily
Speaker 3: get spent. So you really have to think about companies
Speaker 3: in multiple categories. Yes, there are companies like Netflix that
Speaker 3: were born on the cloud. Everything they do is there
Speaker 3: are other companies that are continuing to move to the cloud,
Speaker 3: and they may choose to move a little slower as.
Speaker 1: You think about next year, are you more optimistic or
Speaker 1: less optimistic?
Speaker 3: Oh? Absolutely, we are a little bit more optimistic. We
Speaker 3: feel like every day the lane associated with this off
Speaker 3: landing gets a little bit wider. We see companies getting
Speaker 3: more confident in their spending and that's why we're confident
Speaker 3: that we'll probably see again a couple more percentage points
Speaker 3: growth next year and recovery in some key categories. We'll
Speaker 3: see stability in software, we'll see recovery and devices, and
Speaker 3: we'll likely see areas that have been infrastructure bound, like
Speaker 3: server and storage be fairly study.
Speaker 1: So when people talk about recession, are you like, based
Speaker 1: on what I'm seeing in terms of the expected it spend, you.
Speaker 3: Say, yeah, we see that as there's definitely downside scenario
Speaker 3: associated with it, but we see it as a lower
Speaker 3: probability at this.
Speaker 1: Time but spend, but just our lower probability in terms
Speaker 1: of recession.
Speaker 3: In lower probability in terms of a negative impact on
Speaker 3: it stated.
Speaker 1: Recession, all right, We're going to continue. I feel like
Speaker 1: there's more that we want to talk about in terms
Speaker 1: of AI and I'm just curious. You know, also, as
Speaker 1: you talk to a lot of the clients and customers
Speaker 1: out there, just kind of some of the things that
Speaker 1: are top of mind for them. So we're going to
Speaker 1: come back with Crawford del Preett. He's president at IDC
Speaker 1: International Data Corporation here in our Bloomberg Interactive Broker Studio
Speaker 1: because I'm thinking about Tim. We're just coming off of
Speaker 1: all of the software, the application software companies, you know,
Speaker 1: We've been going through their earnings reports. These many of
Speaker 1: these names have been on fire this year.
Speaker 2: Yeah, they have. But there's also some startups that have
Speaker 2: been struggling in the space too, which I find really interesting,
Speaker 2: and they've been doing layoffs and have trouble raising money
Speaker 2: as well.
Speaker 1: Crawford del Prett still with us, president at id C
Speaker 1: Global Market Intelligence Firm, and he is still with us
Speaker 1: here in our Bloomberg Interactive Broker Studio.
Speaker 2: Can we talk AI? Yeah, but I want to ask Okay, sorry,
Speaker 2: that's what I want to talk about it.
Speaker 1: I do care about spend, but I also I am
Speaker 1: curious because you guys consult you talk with clients. What's
Speaker 1: the constructive conversation to be having around AI right now?
Speaker 1: What are you hearing from those clients?
Speaker 3: I think what customers are starting to get into now
Speaker 3: are what is we're sort of beyond kind of the
Speaker 3: big mind art of the possible, and we're now getting
Speaker 3: into how can I actually apply AI to my business
Speaker 3: and what are the barriers associated with AI. So a
Speaker 3: lot of the axioms that have always applied to tech
Speaker 3: apply here, which is, you know, things like garbage in,
Speaker 3: garbage out. You've got to get your data organized. You've
Speaker 3: got to understand how to structure your data in order
Speaker 3: to make sense and in order to be able to
Speaker 3: synthesize your data in order to make better decisions with
Speaker 3: your data. And so we're spending a lot of time
Speaker 3: talking with customers around the choices they make around their data,
Speaker 3: how they invest in their data, and how they can
Speaker 3: really think about structuring it for a world where they're
Speaker 3: going to be making decisions that they're potentially synthesizing and
Speaker 3: getting output from AI.
Speaker 2: You know, Carol knows this. I've been completely obsessed with
Speaker 2: the sort of two different schools of thought when it
Speaker 2: comes to development of artificial general intelligence AGI, especially in
Speaker 2: the wake of everything that happened at Open AI. Sam Wellman,
Speaker 2: you came on and spokes during that crisis. I don't
Speaker 2: know if I could call it a crisis. Actually during
Speaker 2: the drama, let's call it drama the thing, Yeah, are
Speaker 2: you you spend you know, you're in this day in
Speaker 2: and day out. Is there any sort of reality to
Speaker 2: the idea that artificial general intelligence is something we as
Speaker 2: a human species should be concerned about.
Speaker 3: Oh, absolutely there is. It's going to take a while
Speaker 3: for us to get to that point. And I think
Speaker 3: that seeing companies start to come together and have a
Speaker 3: discussion around the responsibility and not necessarily doing it after
Speaker 3: the horses have left the proverbial barn is very very important.
Speaker 3: I think we're starting to be able to elevate that
Speaker 3: but that that discussion. But I definitely believe that the
Speaker 3: ability to do harm and the ability to spin people
Speaker 3: up with misinformation, those are things you can just start
Speaker 3: to see on the horizon where we really have to
Speaker 3: think about what is the provenance of that decision or
Speaker 3: of that data. And I think we're going to see
Speaker 3: a lot of that. I think we're going to see
Speaker 3: governments start to require Okay, you've you've been told something,
Speaker 3: but what was the source of that? Where did that
Speaker 3: information come from?
Speaker 1: So like jurialism a little bit, Well, no, I mean
Speaker 1: a lot of it. Like I used to think about
Speaker 1: when I started, you know, this idea, you had to
Speaker 1: know what the source of the material was, right, and
Speaker 1: whether it was a perspective or point of view, so
Speaker 1: subjective versus objective or data points who supplied it. So
Speaker 1: it's kind of interesting to hear you say that, But
Speaker 1: I do wonder what's a to take Crawford. Are we
Speaker 1: going to be kind of chasing just like we were
Speaker 1: in social media? Like social media? Right, where's the yes?
Speaker 3: Sadly think I think companies are going to try to
Speaker 3: get ahead of this. I think governments are going to
Speaker 3: try to get ahead of it, but we are going
Speaker 3: to be chasing it for a long time. I mean,
Speaker 3: what happens when someone can apply AI to social engineering
Speaker 3: piece of ransomware that works really really well, and I'd
Speaker 3: like to have thirty by tomorrow morning. What happens when
Speaker 3: someone can say, oh, you know what, if I alter
Speaker 3: the code of that genome, I can create a new
Speaker 3: kind of a virus and I'd like ten thousand by tomorrow.
Speaker 3: These are the really horrible things that people could do
Speaker 3: with generative AI. To really think about setting loose a
Speaker 3: new generation of malware in a way, we're not really
Speaker 3: thinking about chasing.
Speaker 2: But each example that you bring up has a person
Speaker 2: behind it making a decision to actually do that. Yeah,
Speaker 2: what about that science fiction scenario where literally the robots
Speaker 2: become more powerful than us because they can think, because
Speaker 2: they can reason.
Speaker 3: So when you start to get to broad agi, if
Speaker 3: you will, that is a risk where when you're dealing
Speaker 3: with massive amounts of information and the machine starts deciding
Speaker 3: what's right and what's wrong, then you're into that zone
Speaker 3: and you're into that zone of wait, wait a minute,
Speaker 3: what do you mean my credentials don't work because now
Speaker 3: I've been decided that I'm a person who shouldn't be
Speaker 3: included in this place, in the airport, on the plane,
Speaker 3: in some safe place. Make up your science fiction scenario.
Speaker 3: But when you start dealing with huge volumes information and instantane,
Speaker 3: instantaneously making those kinds of decisions, things get a little
Speaker 3: bit dodgy.
Speaker 1: Isn't it kind of sort of the problem with self
Speaker 1: driving cars? Right, dog on the right, woman with a
Speaker 1: stroller on the left. Actually, how does it and someone
Speaker 1: it's going to hit something?
Speaker 3: Right?
Speaker 1: How does it make that decision? Right?
Speaker 3: And so someone has to write that code and get
Speaker 3: to a point where that decision can be made. But
Speaker 3: eventually there's a set of parameters and rules associated with
Speaker 3: decisions like that, and the machine has to decide.
Speaker 1: Are you worried because of warfare? I'm sorry military warfare.
Speaker 3: Of course? Yeah, I mean absolutely. I mean these are
Speaker 3: the kinds of things that bad actors can capitalize on,
Speaker 3: and bad actors sometimes get aggregated and becomes a bad nation.
Speaker 1: Think of the Jones story that we did.
Speaker 2: I know, and you know, I go back to the
Speaker 2: Elon Musk conversation that he had at the deal Book
Speaker 2: summit at the New York Times last week. He said that,
Speaker 2: you know, the government doesn't allow you to build a
Speaker 2: nuclear weapon in your backyard. There are guard rules and
Speaker 2: rules and regulations. He thinks this is more dangerous than
Speaker 2: a nuclear weapon.
Speaker 3: Yeah, and I think he's jumping ahead a number of steps.
Speaker 3: But I think if you walk back from that putting
Speaker 3: the bullets in one hand and the gun in the other,
Speaker 3: and being able to say, Okay, I'm going to give
Speaker 3: you the tools to load those together and and eventually
Speaker 3: start shooting, he's not completely wrong in terms of where
Speaker 3: you can draw the line to, and so I agree
Speaker 3: that we have to be really mindful as governments to
Speaker 3: think about not letting these circumstances happen. And unfortunately, Carol,
Speaker 3: I'll take the conversation back to something that you asked,
Speaker 3: which is are we going to be playing catch up?
Speaker 1: And I think the.
Speaker 3: Answer is, more often than not, we are going to
Speaker 3: be playing catch up because the number of situations and
Speaker 3: the number of instances is just so vast and we
Speaker 3: just don't know how why that spectrum can get.
Speaker 1: That's all sobering. Do you think the good will outweigh
Speaker 1: the concern? Okay, and just got about thirty seconds.
Speaker 3: Yeah, So I believe we are going to go through
Speaker 3: a very very difficult period where work and jobs get
Speaker 3: redefined and there are a lot of roles and a
Speaker 3: lot of jobs that are going to be threatened by AI.
Speaker 3: Think about the legal profession, think about paralegals, think about accountants,
Speaker 3: think about those kinds of areas. We will then invent
Speaker 3: new jobs that can stand on the shoulders of AI,
Speaker 3: and people will be reskilled and we will that will
Speaker 3: be a great time.
Speaker 1: Who created way as or co founder? He was kind
Speaker 1: of saying as very similar.
Speaker 3: Absolutely if there's going to be a period of pain
Speaker 3: associated with AI that will I think lead to a
Speaker 3: period of tremendous growth.
Speaker 1: But there's also responsibility that comes along with any technology.
Speaker 1: Happy New Year, be well, CRAWFORDIL Pratt I DC, Thank you,
Speaker 1: thank you,