What Are Your Application Priorities?
March 25, 2019 Timothy Prickett Morgan
Money is a proxy for intent, but the amount that companies budget for any particular application, whether it is homegrown or bought off the shelf, is not necessarily a good indicator of the value that they will ultimately derive from that investment. Still, every IT budget is a reflection of both necessity and hope. Some things you simply have to do to even be in business, and other things you do to improve the business. Most of the time it works, sometimes it ends up being a sunk cost with very little benefit.
The analysts at Gartner were kind enough to give us some insight recently about enterprise application software spending, which is a pretty major part of the overall IT budget, and is in fact almost as large as spending on datacenter systems. If you add up all enterprise software, summing up operating systems, middleware, databases, and management software to the application software, then enterprise software spending, at $397 billion, was almost twice as large as datacenter systems spending, at $202 billion, for all of 2018. Enterprise application software accounted for $192.6 billion of that, according to the figures that Gartner shared with us, and between 2016 and 2022 this is a market that is growing at around 10 percent per year, with more growth in the earlier years of the forecast and less growth at the tail end. Here is what the market for enterprise application software looked like from 2016 through 2018, with the forecast running out to 2022:
Yes, this is the most boring chart I have ever made. It is damned near a perfectly straight line, running from $152.7 billion in 2016 to $276.9 billion in 2022.
This is a good gauge of intent, although it does not take into account those companies worldwide that are paying programmers – low tens of millions of them in total – to write applications. We can’t easily estimate the cost of that homegrown software, so we have to assume the budgets for homegrown software have a similar shape as to that of those who buy third party applications. (As we all know, many shops do a mix of the two, and some even customized third party software. So the lines can get a bit blurry here.)
Suffice it to say, while ERP is a core capability at just about every company, regardless of industry, the big spending is on other areas at this point in the history of the IT market. Take a look at the distribution of enterprise application software spending for 2018:
Depending on the year in the forecast, ERP software accounts for somewhere between 16 percent and 19 percent of total enterprise application software spending worldwide, according to Gartner. Customer experience and relationship management software is the biggest ticket item, with analytics and business intelligence hovering around 10 percent of the market, office suites around 9 percent, and supply chain management being about 7 percent or so. (There is some wiggle here and there, but not much.)
As an exercise, you might want to look at your own budget and see how it stacks up to these averages, including licensing costs per year for the software you buy and people costs for the year for the software you build. To stay competitive, you need to invest like a competitive company, and that probably means less maintenance on old stuff and more focus on new stuff and more focus on things that generate business as opposed to things that just keep track of it. This distribution of software spending by Gartner certainly reflects this, although we must admit that there is awfully large Other Application Software category. Some data into what is included here might provide some forward-looking insight. It’s hard to say for sure.
Squeeze Your ERP A Little Harder Before Ditching It