The fourth quarter of 2008 will mark the first of several challenging quarters for the enterprise software markets, according to Gartner, Inc. A combination of economic, technical and regional forces has caused Gartner to revise downward its enterprise software spending forecast for 2008 through 2012.
Worldwide enterprise software is on pace to total $229.2 billion in 2008, a 13.9 per cent increase from 2007. These projections are slightly down from the September forecast of $231.2 billion in 2008, a 14.9 per cent increase. The market is forecast to reach $244.3 billion in 2009, a 6.6 per cent increase from 2008 revenue. This is down from Gartner's September projection of 2009 revenue totalling $253.1 billion, up 9.5 per cent from 2008.
"The business case for many application and infrastructure initiatives are now aligning to cost reduction and risk management as opposed to fostering revenue growth," said Fabrizio Biscotti, research director at Gartner. "This important shift, coupled with the recent financial and credit markets crisis has led us to reduce our software spending forecasts through 2012."
Mr Biscotti said that this revised forecast takes into account a number of factors that have emerged in recent months, including: confirmed recessions in several key countries; new revised GDP predictions released in November; early warnings from vendors in October and November on their sales expectations for the fourth quarter of 2008 and 2009, and fluctuations in currency exchange rates which are causing British sterling and the Euro to lose value against the dollar.
According to Gartner, all geographies will feel the impact of the slowdown in software spending by some degree in the fourth quarter of 2008 through 2009. Many mature countries will feel the greatest impact while emerging regions will experience slower growth rates. All markets and vendors are expected to be impacted across the board.
"For the near term, software vendors will continue to face tough product life cycle decisions and short-term pressure on price and margins, which will put the ability to be innovative at risk," said Joanne Correia, managing vice-president at Gartner. "The fundamental changes that are occurring in how software technology is deployed and used mean that no software market or vendor will remain untouched."
Gartner analysts cited eight major technology forces that are being shaped by current market conditions:
- Networked, pervasive computing - The use of portable PC and intelligent non-PC devices (such as cellular phones and PDAs) will slow following the adverse economic conditions. Opportunities related to developing applications that enable and use pervasively networked computing will pose significant challenges for software vendors in the midterm despite the good potential for these technologies over the long term.
- Business process transformation - In the current market conditions, organisations will look to streamline processes even further, utilising products such as business process management (BPM), data integration, data quality, master data management (MDM), compliance and risk solutions and corporate performance management.
- SOA and Web services - The economic downturn will cause cancellations and delays of service-oriented architecture (SOA) projects in the short term. In the long term, recovery of SOA projects will be slow. This trend will primarily impact the application integration management (AIM) and application development (AD) markets and the packaged application markets such as customer relationship management (CRM), enterprise content management (ECM),enterprise resource planning (ERP), and supply chain management (SCM) that are moving in this direction.
- Technology convergence - As software technologies and markets mature, there occurs a broadening and overlap of functionality once delivered as a point offering. This convergence will be accelerated by the economic downturn as the weakest vendors go out of business or are acquired. Larger suite and platform vendors will strengthen primarily with maintenance revenue. Many best-of-breed vendors will survive with partnerships and strategic alliances playing key roles.
- Rationalisation of product portfolios - As mergers and even bankruptcies of software companies increase through 2009, Gartner expects end-user organisations to increase their efforts to consolidate their existing product portfolio. In doing so, they will become more assertive and demanding which is likely to impact vendors' selling power.
- Linux and open-source software (OSS) - OSS will be chosen more as a possible alternative to expensive proprietary software. The economic downturn will push the OSS adoption up and harm sales in several segments; notably OS and office suites.
- Virtualisation - PC, server and storage virtualisation is growing in use and will be fostered by the tough economy where organisations will try to make the most of the spare capacity they have in-house. Storage technology, server operating systems and IT operations management (ITOM) will be among the segments that will benefit from the virtualisation fever.
- Collaboration, unified communications and voice over IP - The economic downturn will hit business travel in the midterm and therefore Gartner expects unified communications and collaboration to thrive. Also, unified messaging (voice mail, e-mail and fax integration) to include alternative collaboration services, such as instant messaging, teamware and voice/Web/videoconferencing, will assume more importance
Worldwide enterprise software is on pace to total $229.2 billion in 2008, a 13.9 per cent increase from 2007. These projections are slightly down from the September forecast of $231.2 billion in 2008, a 14.9 per cent increase. The market is forecast to reach $244.3 billion in 2009, a 6.6 per cent increase from 2008 revenue. This is down from Gartner's September projection of 2009 revenue totalling $253.1 billion, up 9.5 per cent from 2008.
"The business case for many application and infrastructure initiatives are now aligning to cost reduction and risk management as opposed to fostering revenue growth," said Fabrizio Biscotti, research director at Gartner. "This important shift, coupled with the recent financial and credit markets crisis has led us to reduce our software spending forecasts through 2012."
Mr Biscotti said that this revised forecast takes into account a number of factors that have emerged in recent months, including: confirmed recessions in several key countries; new revised GDP predictions released in November; early warnings from vendors in October and November on their sales expectations for the fourth quarter of 2008 and 2009, and fluctuations in currency exchange rates which are causing British sterling and the Euro to lose value against the dollar.
According to Gartner, all geographies will feel the impact of the slowdown in software spending by some degree in the fourth quarter of 2008 through 2009. Many mature countries will feel the greatest impact while emerging regions will experience slower growth rates. All markets and vendors are expected to be impacted across the board.
"For the near term, software vendors will continue to face tough product life cycle decisions and short-term pressure on price and margins, which will put the ability to be innovative at risk," said Joanne Correia, managing vice-president at Gartner. "The fundamental changes that are occurring in how software technology is deployed and used mean that no software market or vendor will remain untouched."
Gartner analysts cited eight major technology forces that are being shaped by current market conditions:
- Networked, pervasive computing - The use of portable PC and intelligent non-PC devices (such as cellular phones and PDAs) will slow following the adverse economic conditions. Opportunities related to developing applications that enable and use pervasively networked computing will pose significant challenges for software vendors in the midterm despite the good potential for these technologies over the long term.
- Business process transformation - In the current market conditions, organisations will look to streamline processes even further, utilising products such as business process management (BPM), data integration, data quality, master data management (MDM), compliance and risk solutions and corporate performance management.
- SOA and Web services - The economic downturn will cause cancellations and delays of service-oriented architecture (SOA) projects in the short term. In the long term, recovery of SOA projects will be slow. This trend will primarily impact the application integration management (AIM) and application development (AD) markets and the packaged application markets such as customer relationship management (CRM), enterprise content management (ECM),enterprise resource planning (ERP), and supply chain management (SCM) that are moving in this direction.
- Technology convergence - As software technologies and markets mature, there occurs a broadening and overlap of functionality once delivered as a point offering. This convergence will be accelerated by the economic downturn as the weakest vendors go out of business or are acquired. Larger suite and platform vendors will strengthen primarily with maintenance revenue. Many best-of-breed vendors will survive with partnerships and strategic alliances playing key roles.
- Rationalisation of product portfolios - As mergers and even bankruptcies of software companies increase through 2009, Gartner expects end-user organisations to increase their efforts to consolidate their existing product portfolio. In doing so, they will become more assertive and demanding which is likely to impact vendors' selling power.
- Linux and open-source software (OSS) - OSS will be chosen more as a possible alternative to expensive proprietary software. The economic downturn will push the OSS adoption up and harm sales in several segments; notably OS and office suites.
- Virtualisation - PC, server and storage virtualisation is growing in use and will be fostered by the tough economy where organisations will try to make the most of the spare capacity they have in-house. Storage technology, server operating systems and IT operations management (ITOM) will be among the segments that will benefit from the virtualisation fever.
- Collaboration, unified communications and voice over IP - The economic downturn will hit business travel in the midterm and therefore Gartner expects unified communications and collaboration to thrive. Also, unified messaging (voice mail, e-mail and fax integration) to include alternative collaboration services, such as instant messaging, teamware and voice/Web/videoconferencing, will assume more importance
