Gartner Nips Half-Point Off Enterprise App Spending Forecast

Published: June 25, 2012

by Jenny Thomas

Trying to tell the future is a tricky business. When you're right, you're a hero, and when you're wrong, well, you just try, try again.

The analysts at Gartner have a reputation for having a pretty clear eye for the future of IT. But they may have been a tad overly optimistic about the economy in Europe and therefore spending on enterprise application software, as they have recently released a new report that downgrades their original prediction for by one half of one percent in 2012.

(Coming within a half percent is some impressive prognosticating. But I guess when you're talking in the hundreds of billions of dollars, that five-tenths of a point adds up to some serious dough.)

With only limited signs of improvement in the near term, Gartner has adjusted its growth projection for 2012 downward from 5 percent, with analysts now guessing worldwide spending on enterprise application software will total $120.4 billion in 2012, a 4.5 percent increase from the 2011 spending total of $115.2 billion.

Gartner analysts pointed to conflicting and contrasting economic news reports for the global marketplace as the reason for reducing the outlook on enterprise app software spending, noting the full impact of the economic uncertainty on the enterprise software markets may not be revealed until the end of the first half of 2012.

So where is the money going? Analysts believe software customers recognize they have more options then ever before to choose from and the need for cost optimization and shifts in spending from "megasuites" to the automation of processes will continue to benefit alternative software acquisition models as organizations look for ways to shift spending from capital expenditure to operating expenditure. Gartner expects buyers to focus spending on industry applications, SaaS projects that replace or augment existing systems, as well as "upgrades to established, mission-critical software.

Gartner is betting on SaaS options as being where many organizations will turn when looking to shift upfront capital expenses to operational expenses. SaaS revenues are predicted to account for 16 percent of application revenue by 2015, compared to 11 percent in 2010.

An increasing number of organizations are demanding software functionality as a service or via cloud-based services rather than on-premises, according to Gartner. As a result, vendors are offering more subscription-based solutions and "pay as you go" offerings, to position them as more cost-effective and as a way to counter the effects of economic belt tightening. SaaS and cloud-based services help vendors to expand revenue growth by making it easier for end users to test and evaluate new types of software, provision new users to current technologies, and migrate users off older software to shiny new bits.

"After more than a decade of SaaS and cloud service use, adoption continues to grow and evolve within the enterprise application markets. This is occurring as tighter capital budgets demand leaner alternatives, popularity and familiarity with the model increase, and interest in SaaS and cloud computing grows," said Tom Eid, research vice president at Gartner. "Adoption varies between and within markets. Although use is expanding to a wider range of applications and solutions, the most widespread use is still characterized by horizontal applications with common processes, among distributed virtual workforce teams and within Web 2.0 initiatives."

The key enterprise application software market segments defined by Gartner in 2012 include business intelligence; content, communications, and collaboration; customer relationship management; digital content creation; enterprise resource planning; office suites and personal productivity; project and portfolio management; and supply chain management. ERP is the largest enterprise application software market with revenue projected to reach $24.9 billion in 2012, followed by office suites at $16.5 billion. BI revenue is forecast to reach $13 billion, and CRM is on pace to exceed $13 billion this year.

Gartner's special report Forecast: Enterprise Software Markets, Worldwide, 2011-2016, 2Q12 Update, is available here on Gartner's website.

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