A growing demand for cloud and analytics services will fuel an increase in spending on business software this year, according to Gartner.
Based on estimates by the technology analyst firm, worldwide spending on enterprise software will grow 7.5 per cent to reach US$149.9 billion in 2015, before increasing to over US$201 billion in 2019.
Bianca Granetto, research director at Gartner, said the majority of this will be spent on improving or replacing legacy business apps, including office productivity software, with cloud-based services.
“Projects have been approved and budgeted for, often over a multi-year period, meaning the pace of spending and adoption isn’t subject to any impending urgency,” he said.
Gartner also singled out a number of key trends in the business software market that will be good news to the likes of Salesforce.com, SAP, Microsoft and Tableau.
For starters, 45 per cent of respondents in a recent Gartner survey indicated that one of the current top five IT priorities is “application modernisation of installed on-premises core enterprise applications”.
A further 41 per cent indicated that “extending capabilities of core enterprise applications” is a one of the top priorities.
And in doing so, they prefer subscription-based consumption models over traditional on-premises licences. In fact, software-as-a-service (SaaS), hosted licences and on-premise subscriptions are already accounting for over 50 per cent of new software implementations, according to a recent Gartner survey.
The preference for SaaS offerings extends beyond the customer relationship management (CRM) stronghold to HR systems.
Gartner predicts that by 2019, about 28 per cent of HR systems will be cloud-based, up from 13 percent in 2014. This will be led by organisations in North America, where penetration of cloud-based HR systems will grow from 19 per cent in 2014 to 34 per cent in 2019.
Interestingly, Gartner expects more organisations to build, and not buy their business software. Its research shows that many organisations favour a new kind of “build” that does not include out-of-the-box software, but instead is a combination of differentiated and innovative software components.
Not surprisingly, adoption of cloud-based office productivity software is slated to grow to around 60 per cent by 2020. Garter noted that from a revenue growth perspective, the widespread move from on-premise to cloud-based office suites will disrupt the traditional revenue flow, as more organisations pay smaller increments over a longer period of time.
The demand for analytics applications will continue to soar, with over 75 per cent of organisations deploying advanced analytics to improve business decision-making by 2020.
Finally, while cloud-based CRM software has become commonplace in North America, its adoption in emerging regions is still hampered by network and data centre infrastructure, regulations on cross-border data transfers and a lack of local-language cloud offerings.
This is set to change in 2020, when investments in data centres and local-language support by vendors will start to bear fruit. By then, Gartner expects about a quarter of organisations in emerging regions to run their core CRM systems in the cloud, up from around 10 per cent in 2012.
