Analyst group IDC has released its predictions for 2006 and forecasts trying times for the IT industry.

The group predicts IT spending growth will drop slightly from six per cent to 5.5 per cent as the industry looks to spend less, but use what money it has got on innovation rather than mature technologies. Meanwhile spending in the emerging markets of China, India and the Middle East and Africa will stay in double digits.

Merger activity will continue to be strong as the industry continues to reshape itself from a product driven sales model to a more service driven economy. This move will accelerate over the coming year.

"The IT and telecoms industry convergence, consolidation, and realignment of the past two years will continue in full stride in 2006," said Frank Gens, senior vice president of research at IDC.

"A critical new ingredient we'll see is the acceleration of disruptive business models – 'open innovation' in IT product and service development (the open source effect), and online delivery of IT as a service (the Google effect). These disruptive shifts will force most vendors to perform a strategic gut check as they enter the year."

IDC suggests the Google effect will continue to be overhyped in 2006, but the example of the company will force more established players to rethink their business models and reorganise around new applications.

On demand vendors like Salesforce.com will also be successful in 2006. IDC expects on demand applications to come from SAP, Microsoft or Oracle in 2006.