Long-term spending on enterprise application software will be driven primarily by modernisation, functional expansion and digital transformation, according to Gartner’s latest forecast.
Worldwide spending will grow 7.5 per cent in 2015 to $149.9 billion, with global spend predicted to increase to more than $201 billion in 2019.
“The majority of spending is going towards modernising, functionally expanding or substituting long-standing business and office applications with cloud-based software-as-a-service,” said Bianca Granetto, research director at Gartner.
“Projects have been approved and budgeted for, often over a multiyear period, meaning the pace of spending and adoption isn’t subject to any impending urgency.”
In a recent Gartner survey, 45 per cent of respondents indicated that one of the top five IT project priorities is “application modernisation of installed on-premise core enterprise applications”, and a further 41 per cent indicated that “extending capabilities of core enterprise applications” is a top five priority.
With Software-as-a-Service accounting for a growing proportion of IT spend by organisations, revenue patterns will also change. Gartner research also found that alternative consumption models (including SaaS, hosted license, on-premise subscriptions and open source) are accounting for more than 50 per cent of new software implementations.
Other market dynamics driving increased spending is the need for businesses to compete successfully in the digital economy, and a higher proportion of human capital management solutions shifting from on-premise into SaaS models – with Gartner predicting an inflection point in adoption over the next five years.
Perhaps a surprising trend is that by 2020, Gartner expects 75 per cent of application purchases supporting digital businesses to be ‘build’, not ‘buy’.
“Gartner’s research shows that many organisations already favour a new kind of ‘build’ that does not include out-of-the-box solutions, but instead is a combination of application components that are differentiated, innovative and not standard software or software with professional services (for customisation and integration requirements), or solutions that are increasingly sourced from startups, disrupters or specialised local providers,” a statement on the report said.
By market subsegment, marketing, e-commerce and advanced analytics software are expected to show the highest growth during the period to 2019. By 2020, Gartner predicts more than 75 per cent of organisations will deploy advanced analytics as part of a platform or analytics application to improve business decision-making.
More detailed analysis is available in Gartner’s report, ‘Forecast Analysis: Enterprise Application Software, Worldwide, 2Q15 Update’.