Last year, we saw a massive boost in digital platforms – from streaming services to CRM technology to video games and especially video conferencing. For many businesses, there was tremendous growth in information technology (IT) spending to support the demand for these services, particularly around the cloud. We started to witness the shift from IT being something that supports the business, to IT being the business.
Driven by this new era of device-led remote and hybrid working, customers have come to expect digital solutions that streamline how they consume products and services. These solutions go beyond just being convenient tools – they have transformed to completely become the vehicle for doing business. Companies that have shifted to digitize their value proposition began recognizing more sales, therefore investing more into the technology supporting that shift.
A clear example of this is The Walt Disney Company. In 2020, the legendary theme park and movie giant executed a tectonic shift in focus and business model. They acquired Twentieth Century Fox, amassed a greater ownership stake in Hulu and launched Disney+, a streaming service to rival Netflix. Their selling, general, & administrative costs increased to $4.2 billion—an increase of $2 billion, with an expectation of another $600 million in capital expenditures for 2021. Disney’s FY 2020 annual report shows lower investments at their traditional theme parks and greater spend on technology to drive the transformation. Disney’s business shift will require ongoing investments in technology as more families use streaming services, and the revenue shift continues.
This shift brings a change in where the funding dollars originate. Traditionally, this budget would come from the CIO domain. It was a fixed overhead expense that would be monitored and sometimes cut. But, as new digital solutions become the value proposition, that budget shifts away from the IT department.
According to an April 2021 press release from Gartner, “The source of funds for new digital business initiatives will more frequently come from business departments outside IT and charged as a cost of revenue or cost of goods sold (COGS).” In the new digital way of working, IT becomes much more variable. Rather than a fixed expense, it becomes a percentage of sales. This propels IT from a back-office role to the front of business where it drives revenue.
As the IT spend shifts to a cost of goods sold, it unlocks an opportunity for technology sellers to offer an additional channel with potential customers. When IT becomes a revenue-generating source, it can open more flexible options. Rather than a fixed expense that doesn’t generate a return, when IT becomes the value proposition it enables customers to pay for it over time as it generates revenue.
To learn more about how IT can drive revenue for businesses, and payment solutions that support that shift, please contact us.