We just completed another re-forecasting exercise at IDC, as
uncertainty increases over the health of the global economy. This
time in particular, I was pressured to lower the enterprise
applications forecast for next year and adjust the 5 years forward
to account for the new and lower 2012 numbers. I have remained
fairly optimistic for apps though, despite the overall economic
conditions. It's a question that I answer several times a
week..."what's the applications market doing and why?" If you look
at the numbers over the last couple of years, especially since the
"bottom" year of 2009, you'll see a market that is very healthy.
Even so, I find a lot of skeptics when I talk about this health
Generally there is a predictable pattern to the tech markets and
how they respond to economic pressures. We've documented this
several times historically and in the most recent crisis,
2008/2009, the pattern held true for the most part. The cycle
usually is something like this: 1. hardware spend drops
dramatically just after the crisis hits, 2. software lags hardware
by 2-3 quarters (the buying cycles are longer and it takes longer
to shut down) and 3. services lag the others by another 3-6
quarters (projects are in progress and aren't cancelled, instead
the future pipeline dries up and the work flushes out). The
recovery usually happens in the reverse, although the lag times are
much less. This time though, the cycle coming out, while following
the order, has bounced back much more aggressively for software. In
fact, in a lot of ways the software apps recovery has been
counterintuitive. As we came out of the crisis we talked about what
we called the "new normal" and our belief that there have been some
fundamental changes in business that are starting to change the
Look at some recent earnings highlights from leading software
- Oracle (
) - for Q1 2012, which ended August 31, it reported 17% year over
year software new license growth. This included growth of
applications in EMEA of a phenomenal 55%. In fact, Oracle has
seen strong, steady application new license growth for at least 9
straight quarters. Even during the worst of the recession, Oracle
remained relatively flat.
- [[SAP]] - for Q3 2011, which ended September 30, it reported
applications year over year growth of 28%. While SAP saw some
rough quarters during the worst of the recession, it has posted 7
consecutive quarters of double-digit applications growth.
- [[IBM]] - for Q3 2011, which ended September 30, it reported
software growth of 13% year over year. The previous quarter was
17% y/y growth for applications.
- Salesforce.com (
) - for Q2 2012, which ended July 31, it reported 38% year over
year growth in subscription and support revenues. For the
previous quarter subscription and support grew 35% y/y and for
the previous year 28% y/y.
These are only four examples out of many.
What I'm saying is that I think that business is undergoing some
long lasting changes and that technology, which is tied to some, if
not all of the overall changes, is seeing the impact come out as
stronger growth for many software markets above what would
"normally" be expected. In fact I think that software will hold up
even if the economy worsens significantly. Here are some of the
reasons I believe this:
- Companies are investing in automation instead of new jobs.
For the period since the end of the recession in June of 2009
payroll spending has been flat, software spend up about 26%.
Automation has moved from the shop floor and into the previous
bellwether people-centric jobs in the services sector. Technology
moves forward exponentially and is now doing things that no one
would have believed possible this quickly. Think of IBM's Watson
winning Jeopardy or Apple's new Siri voice driven assistant for
two high profile examples. With Google's
we are seeing that technology can stretch way beyond the limits
that we previously put on it; 7 test cars having logged over 1000
miles of unassisted driving and 140,000 miles with only limited
- The social customer is forcing companies to invest in new
ways to engage and service them, or they're defecting to
competitors. These investments are mostly in software to help the
companies build customers communities, engage and interact more
in the sales process, individualize marketing and offer support
"when, where and how" the customer wants across a breadth of
public social channels. For most companies the question isn't
whether to do social CRM, but a question of when (and the answer
better be fast).
- The need to increase productivity, that is, get more from the
employees you kept, added to employees insisting on new,
collaborative ways of working, is forcing investment in a variety
of internal social tools. Our research at IDC shows that social
tools can increase productivity by as much as 11-30%.
- Some emerging countries are finally at a development level
where automation is cheaper than labor, at least in some
industries. While this has not been the case in many emerging
countries like India and China, the situation is changing as
labor costs increase and technology becomes more available. There
is a cross over point where it's less expansive to automate than
to just throw more labor at the job. The cross over has the
potential to fund growth for many years.
- Customers are starting to expect that companies will provide
new and innovative ways for social and mobile commerce and this
shift is driving spend for infrastructure all the way out to
customer engagement solutions. Commerce, or digital commerce as
we call it at IDC, is hot. We're seeing a convergence of mobile,
social and on and off line that will drive businesses to invest
in a new, converged commerce architecture. The trend is already
impacting spend and will increase rapidly for many years as
businesses replace and build out the new infrastructure required
to provide this new customer experience.
- Companies are continuing to spend for traditional CRM
systems, as many were under-invested in some key areas AND they
have realized that you can't effectively do social CRM without a
solid CRM foundation.
- Companies have come to the realization that technology,
particularly software, can be a competitive advantage and serve
to level playing fields between large, medium and small
companies. Through technology companies can significantly
increase productivity, lower costs, engage new markets, innovate
on business models and products, etc.
These aren't the only things driving the strong applications
growth, but they are key to keeping the growth consistent going
forward. Have I missed any other drivers of growth?
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