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7/8/2014
02:45 PM
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Gartner: Rising Enterprise Software Spending Won't Lift IT

CRM and ERP spending will rise through 2015, but the switch to cloud and hosting means data center spending won't keep pace.

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Enterprise software used to be an engine of growth for the entire IT market, but with the move to cloud computing and hosting, those days are gone. That's one of the key findings of a just-released IT spending forecast from Gartner.

Gartner's Worldwide IT Spending Forecast, released in late June, has spending on pace to total $3.7 trillion in 2014 and $3.8 trillion in 2015 -- 2.1% and 3.8% increases, respectively. Enterprise software is leading all categories, with 6.9% and 7.3% spending increases forecast for 2014 and 2015, but with little trickle-down value for other categories, such as data center systems or telecom services (see chart below).

[Want more from Gartner? Read Gartner's Magic Quadrant 2014 For Cloud: Winners & Losers.]

"It used to be that, if you saw growth in enterprise software, you'd see corresponding growth in all of the other categories, but on-premises deployments are slowly going away or headed toward an equilibrium point," John Lovelock, a Gartner research vice president, told InformationWeek in a phone interview.

Where multi-tenant services used to be viewed as "true cloud" and hosting or single-tenant a form of cloud washing, many enterprises are now choosing hosting as their preferred route away from on-premises deployments, Lovelock said.

"Hosting gives organizations more control over version changes than multi-tenancy, and there's also more customization possible in a hosted offering that's not [availabble] in the cloud," he said. "Security is also raised in industries where they prefer to know where their data and servers are located."

CRM is among the hottest categories in enterprise software, and Gartner is seeing cloud-based CRM as a disruptive force, beating on-premises options in competitive deals, replacing on-premises CRM deployments earlier than usual, and even winning in deals where companies weren't even looking for CRM.

"There's a desire to reach out proactively with web, social media, mobile, and other [cloud] pieces that make it easier to interact with clients," Lovelock said. "There's a perceived value in the marketing functionality, e-commerce solutions, and some of the customer-service support applications."

This description matches Salesforce.com's success in pitching the Salesforce1 platform (formerly Force.com) as a route to mobile, social, and cloud enablement, both for enterprises and ISV partners, even if the apps aren't about classic CRM.

ERP is another hot ticket in enterprise software, with core financials spending expected to grow 7% in 2015, but organizations are in search of "post-modern ERP," according to Lovelock.

"In a big data world, as we move toward digital businesses, the current crop of ERP products are stifling innovation," he said. "What's required is a much more agile ERP requiring less customization and more support for standards that allow for integration of modules and a quicker reaction to the market environment."

Here, cloud and hosted ERP options such as Kenandy, Microsoft Dynamics GP and Nav, NetSuite, Oracle Fusion, Plex, and Workday come to mind. SAP and Infor, meanwhile, are highlighting hosting options and modern, mobilized interfaces (Fiori in SAP's case and SoHo in Infor's case).

Of course, demand for hosted and multi-tenant enterprise applications also sparks demand for more servers and storage, but this aspect of these services falls into the IT Services category, rather than Data Center Systems. IT Services is the second strongest category in Gartner's spending forecast, but Lovelock said services related to the cloud represent "a trivial amount" of the total IT Services category.

IT Services splits into product support, for both hardware and software, and business services, which includes consulting, implementation, IT outsourcing, and business process outsourcing. Though on-premises deployments may not be driving growth, Lovelock said the cloud remains a comparatively small (though fast-growing) pocket of the total market.

"In 2015, IT Services will total $1 trillion, and the cloud portion will be $17 billion," he said. "Yes, cloud is important and interesting, but it's never going to surpass even half of either the hardware-support market or the software-support market."

IT leaders who don't embrace public cloud concepts will find their business partners looking elsewhere for computing capabilities. Get the new Frictionless IT issue of InformationWeek Tech Digest today (registration required).

Doug Henschen is Executive Editor of InformationWeek, where he covers the intersection of enterprise applications with information management, business intelligence, big data and analytics. He previously served as editor in chief of Intelligent Enterprise, editor in chief of ... View Full Bio

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D. Henschen
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D. Henschen,
User Rank: Author
7/9/2014 | 8:05:54 PM
Re: Decoupled ERP/CRM?
There are several ERP systems that include CRM components, but ERP and CRM are often decoupled purchases. Even in cases where the ERP and CRM apps come from the same vendor, they're often deployed in separate projects. Core ERP on its own is quite enough to get your arms around in one project.
Stratustician
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Stratustician,
User Rank: Ninja
7/9/2014 | 6:36:50 PM
Decoupled ERP/CRM?
I wonder if cloud computing, particularly the influx of new vendors, will start to force the decoupling of ERP/CRM.  For one, the high price tag for these solutions are great for Enterprises, but many organizations still can't afford these large solutions.  Personally, I have a feeling we will see customers pick and choose between modules from different vendors (as long as the APIs can connect between everything) so that they can get a truly customized solution versus a big box solution that may or may not meet the needs (or may be too complex) for those smaller customers.
Charlie Babcock
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Charlie Babcock,
User Rank: Author
7/9/2014 | 4:11:27 PM
On-premises deployments going away...
Gartner's Lovelock: "On-premises (software) deployments are going away or reaching an equilibrium point." Why didn't anyone dare say such a thing when Larry Ellison was racing around, denouncing cloud computing? That was not so long ago. Now everyone can see where it's all headed and future cloud operations are a part of routine analyst assessments. About time. 
jagibbons
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jagibbons,
User Rank: Ninja
7/9/2014 | 12:34:33 PM
Re: Some irrational exuberance?
I would expect that we'll see even more optimization in the economies of scale where cloud vendors need less and less hardware to support more and more users. That will skew the market even further.
D. Henschen
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D. Henschen,
User Rank: Author
7/9/2014 | 9:18:29 AM
Re: Some irrational exuberance?
No, these numbers don't sound high to me. On-premises software sales are flat, but just about every major enterprise apps player in the cloud is reporting double-digit gains: Salesforce.com (30%+), Oracle and SAP (20%+), Workday (70%+), NetSuite... are all in double digits.

One other point, here, is that when cloud service providers buy hardware capacity, they generally have much higher capacity utilization rates than the typical enterprise. So they're buying that much less server and storage capacity per user.
Lorna Garey
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Lorna Garey,
User Rank: Author
7/8/2014 | 3:32:25 PM
Some irrational exuberance?
Doug, do 6.9% and 7.3% spending increase forecasts for 2014 and 2015 ring true to you? 
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