Sales of business software surge as recession fades

New York: Business software sales are growing strongly as global economies emerge from recession and companies begin to invest in IT infrastructure again in order to reduce costs, improve efficiency and expand markets.

Figures published by Gartner, the IT research firm, suggest that worldwide enterprise software spending is likely to grow by 9.5 per cent this year and top $267 billion (Dh980 billion), up from $244 billion last year. Gartner predicts the global market will continue to grow in 2012 reaching $288 billion, welcome news for enterprise software vendors including Microsoft, Oracle and SAP.

"The market for enterprise software continues to recover, following the 2009 downturn, with signs of ongoing growth on the horizon," said Joanne Correia, managing vice-president at Gartner.

Market of uncertainty

"Economic recovery is evident across all regions, although concerns have arisen in some countries in Europe and Asia," she said. However she also cautioned that "the earthquake and tsunami in Japan has created additional marketplace uncertainty with a multiplicity of effects that are beginning to be determined."

Overall, enterprise infrastructure software spending is expected to reach $153.3 billion this year, a 9 per cent increase from 2010 revenues. The market is led by the operating systems segment in which revenue is projected to reach $32.6 billion in 2011, followed by database management systems at $25.5 billion.

Enterprise resource planning software is the largest segment of the enterprise application software market and is expected to account for $23.3 billion out of the total $114.4 billion spent on business applications this year, up from $103.8 billion last year. Sales of office suites including Microsoft's flagship Office package, will total about $15.7 billion.

"With this latest research, we see short-term currency uplift for US dollar-denominated growth for the period of 2011-2012 and downward adjustments in GDP across all regions," Correia said.

"We have identified a strong correlation between GDP growth and enterprise software spending growth, where software tends to grow 4 to 6 per cent above GDP in normal market conditions.

"However, we do have concerns about the rising cost of commodities, including oil, and its impact on certain regional and country economies."

Emerging countries such as Poland, India, China and Brazil, which were less affected by the latest economic downturn than the US and Europe, are expected to continue to invest heavily in enterprise software over the next few years as they build the IT infrastructures necessary to do business on a global basis.

Meanwhile Gartner expects enterprise software spending in North America to increase from $112.9 billion last year to $121.2 billion in 2011. The market will experience consistent growth through 2015, when spending in North America will surpass $158.1 billion.

"Gartner believes that oil prices and the outcome of the federal budget deliberations are the largest threats to economic stability in North America. However, current indicators are positive with consumer and business spending on both equipment and software holding up.

With the extension of federal tax cuts — including the tax relief on capital equipment depreciation — due to expire at the end of the year, additional stimulus revenue could further boost enterprise spending on technology and other capital goods."

Stronger headwinds

Enterprise software spending in Western Eur-ope is forecast to reach $78.3 billion in 2011, up from $70.3 billion last year.

"In Western Europe, enterprise software spending could see slightly stronger growth in the latter half of 2011, but the headwinds are getting stronger.

"The pace of growth in Europe is slowing, mostly because of recent currency appreciation, fiscal tightening, higher commodity prices and concerns about debt in countries such as Greece, Ireland, Portugal and Spain," said Fabrizio Biscotti, research director at Gartner.

— Financial Times