IT spending to shift toward Enterprise Software as a Service

IT spending to shift toward Enterprise Software as a Service

Slower than expected growth in IT spending in 2014 can be attributed to a shift in focus from traditional IT spending to investing lower-cost alternatives such as cloud computing, according to Gartner data.  Earlier projections of overall IT spending in 2014 at a 3.2 percent growth rate have been reduced to 2.1 percent projected growth for the year.

“Price pressure based on increased competition, lack of product differentiation and the increased availability of viable alternative solutions has had a dampening effect on the short term IT spending outlook,” said Gartner’s managing vice president Richard Gordon in a recent press release. “However, 2015 through 2018 will see a return to ‘normal’ spending growth levels as pricing and purchasing styles reach a new equilibrium. IT is entering its third phase of development, moving from a focus on technology and processes in the past to a focus in the future on new business models enabled by digitalization.”

Enterprise software spending is expected to see the strongest growth at a 6.9 percent growth-rate to $321 billion.  The second fastest growing category is expected to be IT services, growing at a rate of 3.8 percent for a total of $967 billion.  These two categories are projected to remain among the top growing categories through 2015, indicating strong growth in the software as a service (SaaS) market.

IT spending on data center systems will perform at the slowest rate of growth at only 0.4 percent for a total of $140 billion, which may indicate a trend of moving from traditional IT deployment to cloud based enterprise software.

Table 1. Worldwide IT Spending Forecast (Billions of U.S. Dollars)

  2013
Spending
2013
Growth (%)
2014
Spending
2014
Growth (%)
2015
Spending
2015
Growth (%)
Devices 677 1.1 685 1.2 725 5.8
Data Center Systems 140 -0.1 140 0.4 144 2.9
Enterprise Software 300 5.1 321 6.9 344 7.3
IT Services 932 0.0 967 3.8 1,007 4.1
Telecom Services 1,624 -1.2 1,635 0.7 1,668 2.0
Overall IT 3,673 0.0 3,749 2.1 3,888 3.7

Source: Gartner (June 2014)

Also interesting to note in the table above is IT spending projection on devices through 2015.  At a projected 5.8 percent growth rate this will represent the second fastest growing category of IT spending next year.  This is likely due to increased popularity of mobile business technology along with the increasing trend of moving to cloud based enterprise software. As SaaS and other cloud solutions enable mobile business processes, organizations will be looking to enable their SaaS investments with mobile devices.

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