Market Report: IT and Digital Arts Revolutionizing Tech, Attracting Investment
Information technology (IT) and digital arts are continuing to push the envelope with cloud computing advances and aggressive investment strategies.
Jennifer LeClaire  (March 2011)

After some ups and downs in 2010, many industry watchers are bullish on a tech-industry recovery in 2011. The momentum that started to build in the second half of 2010 should continue this year as corporations and consumers alike loosen the purse strings.

Based on the information KPMG has received from U.S technology executives, Gary Matuszak, KPMG global chair for the Information, Communications and Entertainment practice, is optimistic. In KPMG's most recent survey of tech executives, the firm found that business leaders expect significant improvement in 2011. "Almost nine out of 10 executives said they expect business conditions in the technology sector to improve in 2011, including stronger revenue," Matuszak says. "About half the respondents believe the growth rate for both cloud computing and mobile applications could exceed 10 percent over the next two years."

The Cloud Computing Revolution
Cloud computing* represents a shift in the relationship between the providers and consumers of information-technology (IT)-based solutions. According to Gartner, a global information technology research and advisory firm, the cloud represents a new opportunity to shape the relationship between those who use IT services and those who sell them. Gartner predicts worldwide cloud services revenue - including public and private services - will reach $148.8 billion in 2014. What's more, the firm predicts all Global 2000 companies will use public cloud services by 2016.

The forecast for cloud computing across key U.S. cities calls for new lines of business, more need for IT services, and potential job growth, according to a January 2011 survey from Microsoft. IT decision-makers in financial services, manufacturing, professional services, and the retail and hospitality sectors see cloud computing as an opportunity to grow their business, drive innovation and strategy, and efficiently collaborate across geographies.

Which are the most "cloud-friendly" cities? Boston; New York; Dallas; San Francisco; Atlanta; Washington, D.C.; Philadelphia; Los Angeles/ Orange County; Chicago; and Detroit. Although Detroit ranks near the bottom of Microsoft's top-10 rankings for cloud-friendly cities for large organizations, nearly half of IT decision-makers in Detroit, Michigan, see the cloud as an avenue for creating business advancements, saying the cloud is an engine of innovation.

Investing in IT
So it seems Michigan isn't just betting on cars any more. The Venture Michigan II Fund has $120 million to invest in early-stage Michigan companies in high-growth, emerging industries such as information technology.

And other Midwest states are showing growth in the IT sector. Missouri is carving out an information technology cluster that includes the likes of DST Systems, Cerner Corp., and Unisys. Evanston, Illinois, is making a name for itself with the Technology Innovation Center (TIC), which recently ranked on Forbes' list of "10 technology incubators that are changing the world." The TIC is home to 38 companies and has helped 350 tech firms in the last 24 years.

Meanwhile, Dayton, Ohio, is making inroads with the world's first RFID (radio frequency identification) technology incubator for communications equipment. The Dayton RFID Convergence Center is spurring the advancement of commercial application of RFID and related technologies common in many products.

On the software front, San Diego is a traditional cluster, but Portland is gaining momentum. It's not a new cluster - Microsoft is in the region - but software startups are finding a welcome home there. Mayor Sam Adams recently unveiled a plan to grow the region's software industry.

"This area is home to some of the most innovative and exciting software companies in the industry," says Matt Nees, president of the Software Association of Oregon (SAO). "We are now seeing a rise in the software development component of the high-tech sector and.Portland [will] greatly benefit from this growth."

Most important, skyrocketing demand for wireless data is a key growth driver for the ICT industry in 2011 and beyond, according to the Telecommunications Industry Association. In fact, President Obama recently launched the National Wireless Initiative to provide 98 percent of Americans access to next-generation wireless services.

The Digital Arts Umbrella
The growth in IT services is also being fostered by continuous innovations in digital arts. The International Digital Media and Arts Association (iDMAa) has created a directory of academic programs that focus on digital arts. And that directory offers clues as to where new clusters may emerge.

One of the most interesting developments is in Indiana, where Eli Lilly and Co. has invested nearly $40 million over the last decade into digital media development at Ball State University.

"Ball State University's focus on digital arts has seen businesses spring up from Muncie to Indianapolis," says Ray Steele, executive director of the iDMAa. "But there are clusters springing up all over the United States. It's not just Los Angeles and New York anymore."

In the Southeast, Steele points to Orlando, Florida, and Savannah and Athens, Georgia, while Philadelphia is emerging as a digital arts hotspot in the Northeast. In the middle of the country, Chicago and Denver have strong production talent. Of course, California still dominates the digital arts industry, but it's getting competition from across the country, with more than 700 universities nationwide offering digital media programs.

Buoyed by a 25 percent tax credit for production expenditures and a 35 percent tax credit for resident labor expenditures for gaming, web applications, and next-generation interactive content, Louisiana is a standout among emerging U.S. digital arts clusters. The state has attracted the likes of video game giant Electronic Arts (EA) to Baton Rouge. EA has a quality assurance center there to test its sports titles, such as Madden NFL, FIFA Soccer, and NBA Live.

"The digital arts industry is starting up hill again after the recession," Steele says. "Investors are beginning to take more risks again and digital media rendering is everywhere. Companies will locate in the areas that offer tax breaks, the talent, and the physical space they need to manufacture in the digital world. The bottom line is everybody wants to be entertained and that's what the digital arts industry supports."

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