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Software One of Brighter Spots in Gartner's IT Spending Forecast

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Posted July 9, 2012 By Ann All     Feedback

Gartner sees "continued caution" in global IT spending for the second half of 2012. The amount spent for enterprise software will reach $281 billion by the end of the year, making it one of the strongest growth categories.

It looks as if 2012 is shaping up to be a decent year for enterprise software spending, with Gartner projecting companies will spend 4.3 percent more for software in 2012 than they did last year. That tops Gartner’s growth estimate of 3 percent for the entire IT spending category.

Gartner expects worldwide spending on enterprise software to hit $281 billion this year and overall IT spending to reach $3.6 trillion. Its forecast is a little rosier now than last quarter, when it said overall IT spending would grow just 2.5 percent.  The biggest growth category will be telecommunications gear, which Gartner predicts will hit $377 billion by the end of the year, up nearly 11 percent from 2011.

Gartner’s outlook is a bit better for 2013, when the firm expects global IT spend to reach $3.8 trillion, a 4.4 percent increase from 2012. Again, Gartner expects enterprise software to be one of the strongest performers, growing nearly 7 percent to reach $301 billion

'Continued Caution' in IT Spending

Gartner’s 2012 and 2013 projections for software spend and overall IT spend are a significant drop from 2011, when Gartner said overall IT spending grew nearly 8 percent from the prior year and spending on software grew nearly 10 percent.

"While the challenges facing global economic growth persist — the eurozone crisis, weaker U.S. recovery, a slowdown in China — the outlook has at least stabilized," said Richard Gordon, research vice president at Gartner. "There has been little change in either business confidence or consumer sentiment in the past quarter, so the short-term outlook is for continued caution in IT spending."

Cloud Is IT’s Silver Lining

It looks like IT providers will find the proverbial silver lining in the cloud in 2012. Gartner is bullish on the growth prospects for public cloud services, saying it expects enterprise spending on the category to grow from $91 billion worldwide in 2011 to $109 billion in 2012. By 2016, Gartner believes enterprise public cloud services spending will reach $207 billion.

Business-process-as-a-service (BPaaS) still accounts for the biggest chunk of enterprise cloud spending, but software-as-a-service (SaaS), platform-as-a-service (PaaS) and infrastructure-as-a-service (IaaS) are experiencing faster growth rates, Gordon said.

In its recent analysis of merger and acquisition (M&A) activity in the software industry, investment bank Berkery Noyes noted that buyers are growing increasingly comfortable with the cloud model. "SaaS businesses generate recurring revenue and their model affords significant visibility into future periods. This continues to get acquirers comfortable with their premium valuations," said Jonathan Krieger, managing director at Berkery Noyes.

Analytics, HCM Are Hot Buys

Customer analytics was an especially popular category for acquisitions in the first half of 2012, with transactions including Intuit’s $420 million purchase of SaaS CRM provider Demandforce , IBM’s acquisition of Tealeaf Technology and Oracle’s deal to buy social CRM specialist Collective Intellect. According to Berkery Noyes, transactions involving customer analytics software companies grew 33 percent between 2010 and 2012.

Another popular category, especially for cloud-based software acquisitions, was human capital management (HCM), with transactions up 39 percent from the first half of 2011. While Oracle’s $1.9 billion bid for HCM provider Taleo was the biggest such buy, Berkery Noyes also mentioned Saba Software’s acquisition of HumanConcepts for $20 million and Cornerstone OnDemand’s purchase of Sonar6 for $14 million.

Ann All is the editor of Enterprise Apps Today. Follow Enterprise Apps Today on Twitter @EntApps2Day.

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