Special Feature
Part of a ZDNet Special Feature: 2010s: The Decade in Review

The next decade of software spending: A paradox

Prepare for a buyers' market in enterprise software.

Employee experience software likely to see boomlet, then consolidated There are a bevy of companies looking to improve employee engagement and experiences in a tight labor market. The big question is what part of the enterprise will make the buying decisions? Read more: https://zd.net/2WXLNKj

If software is "eating the world," in the words of Marc Andreessen, the world also has a reciprocal appetite for software. From 2020 until 2030, Forrester estimates that global software spending by businesses will climb from $920 billion to north of $1.3 trillion. Software will continue to spread, mediating, recording, and enabling more users, transactions, products, and business activities, driven by: 

  • Growth in online populations. Globally, the online population will jump 53% by 2030, to 6.6 billion people. 
  • Easier adoption, integration, and customization of software based on cloud-based architectures. 
  • Automation of formerly physical or human tasks, across every business domain. Whether it's customer service, product delivery, or field surveillance, the robots and algorithms are coming. 
  • An increasing amount of software embedded in the physical world around us. Everything from buildings and highways to doorbells and watches will be configured with software smarts. 

A global business software market of $1.36 trillion is gargantuan, to be sure, but this number actually reflects a paradoxical slowdown in software spending growth; we estimate 4% annual growth over the next decade, compared with 7% per annum in the period 1995 to 2020. Why? In a nutshell, software will get much cheaper; a variety of factors will bend the cost-per-unit-of-function curve downward: 

  • Automation will spread across the software development lifecycle in the coming years, making software programs cheaper to produce and consume. 
  • Price transparency and competition will increase due to packaged-app marketplaces. 
  • Custom software development will become more efficient and lower-cost. 
  • Businesses' use of open-source software will continue to increase. 
  • Finally, a macroeconomic downturn seems highly likely for the early years of the 2020s, contributing to slowing software spending growth. 

In a period of slowing growth of software spending, vendors and customers will face new challenges and opportunities. Read our next blog post to understand the implications of the impending buyers' market for enterprise software. 

This post was written by Senior Vice President, Research Director Chris Mines, and originally appeared here