Modernization projects to drive spending on enterprise application software

Worldwide spending on enterprise application software will grow 7.5 percent to reach $149.9 billion in 2015, increasing to more than $201 billion in 2019, according to the latest forecast from Gartner, Inc. Analysts said that long-term growth in spending will be driven primarily by modernization, functional expansion and digital transformation projects.

“The majority of spending is going towards modernizing, 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.”

The market subsegments showing the highest growth during the forecast period of 2014 through 2019 will be marketing, e-commerce and advanced analytics software.

Gartner has identified a number of key trends in the application software market that affect the spending forecast.

Modernization of Core Enterprise Applications

In a recent Gartner survey, 45 percent of respondents with knowledge of their organization’s software strategy indicated that one of the current top five IT project priorities is “application modernization of installed on-premises core enterprise applications” and a further 41 percent indicated that “extending capabilities of core enterprise applications” is a top five priority.

Transitioning to New Consumption Models

As subscription-based alternatives and particularly software as a service (SaaS) are being adopted by organizations, a more predictable revenue pattern will emerge.

A recent Gartner survey shows that alternative consumption models to traditional on-premises licenses are accounting for more than 50 percent of new software implementations; these include SaaS, hosted license, on-premises subscriptions and open source.

The Rise of Digital-Business-Related Market Dynamics

Competing successfully in the digital industrial economy is rapidly becoming a leading strategic imperative for businesses all around the world.

This shift in business priority and focus brings a new perspective regarding applications. For example, the need to compete on an increasingly global scale stimulates enhancement, rationalization and re-engineering of supply chains, leading companies to modernize their supply chain system or adopt the latest supply chain management applications.