Software spending to grow despite headwinds: Forrester


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Global spending on software will continue to grow despite headwinds in the form of inflation, geopolitical risks and labor shortages, a new report from Forrester shows.

Driven to a large degree by deployment of cloud and enterprise applications, software spending worldwide is expected to grow at a compound annual growth rate (CAGR) of 10.3 percent from 2021 to 2023 — more than two times faster than the rate of spending in other segments of IT, which is forecast to be 4.4 percent, according to the market research firm.

The report, which is based on a survey of 657 publicly traded software companies, forecasts that dramatic macroeconomic conditions and other factors will have little to modest impact due to the “underlying strength” of the software industry fundamentals.

More than half of the companies surveyed are expected to grow revenue at a medium pace, or between 10 percent and 20 percent, the report says, adding that leading software vendors will see another year of solid revenue and profit, albeit at a slower pace than 2021.

The report also shows that software has been the fastest growing category within enterprise IT budgets, and has consistently delivered high revenue growth rates for vendors.

Cloud to drive enterprise software growth

Enterprise software — including application and infrastructure software — is expected to grow by 12 percent growth in 2022, buoyed by investment in cloud technology as a result of accelerated digital transformation efforts due to the pandemic, the report says.

“Investment in cloud to modernize legacy applications will drive strong software sales momentum in front- and back-office applications,” the report reads.

The application software market will see an 11.4 percent CAGR in 2022 and 2023, exceeding $400 billion, Forrester says. Front-office apps, such as CRM software and industry vertical programs, will grow the fastest in this segment, according to the report, which forecasts the $64 billion CRM market to grow by 11.9 percent in 2022.

Custom-built software for various internal divisions across enterprises, which Forrester defines as vertical software, is also expected to grow, adding that ERP application sales are expected to increase at a rate of 10.4 percent in 2022, also driven by digital transformation efforts.

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