Forrester finds enterprise software recession proof • The Register

Despite inflation hitting a 40-year high and expected recessions, growth in enterprise software spending is expected to continue at a steady 12%, according to Forrester figures.

While the research might be good news if you work for a software vendor, it’s a little more mixed for IT departments.

Using data from financial results and company filings as well as other secondary research sources to feed internal models, Forrester showed how enterprise software vendors were able to maintain their prices and margins despite economic headwinds.

US fears of a long and severe recession – in the face of a four-decade peak in inflation – are reflected elsewhere. The UK saw inflation top 10% in August as economists grew more confident of a recession. The story is much the same in the euro zone.

But don’t expect software vendors to respond by cutting prices.

“Software solutions are mission-critical and vital to the day-to-day operations of a modern business. Leading software companies can consistently raise prices without losing demand, resulting in high and stable margins,” indicates the report.

“With average software gross margins of 70%, software companies can effectively control their spending and protect their margins in the event of a downturn; they can then allow those margins to grow with economic growth,” he said. -he declares.

In other words, the economic situation of customers will not impact prices and margins – already much higher than in many other industries. In fact, according to the Bureau of Labor Statistics, application software pricing tops other areas of technology spending in the United States (see below).

From the Forrester report - based on BLS figures

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“The relative producer price index for application software has increased in recent years compared to other technology sectors. Adobe recently increased the cost of its Creative Cloud offering, while Microsoft increased the prices of its Office products in late Q1 2022,” Forrester points out. .

But the second reason for Forrester’s optimism about enterprise software is that enterprise customers will continue to invest in projects, despite the likely economic downturn.

The COVID-19 pandemic has accelerated cloud investments and digital transformation, while at the same time, customer communication and contact center software companies have experienced strong growth, in part due to the desire to digitally track customers in the new normal.

In back-office software, companies are also expected to continue funding projects as they lag behind software modernization efforts, both in terms of looks and cloud hosting.

According to the analyst firm, 24% of software makers deploy on-premises ERP, compared to 19% who support modern SaaS deployments.

“Back-office financial applications have long been an area of ​​underinvestment, with the pandemic catalyzing a move towards modern software. Cloud-based back-office software, such as financial management applications and resources (HCM), will also experience robust growth, driven by pent-up demand to replace legacy applications,” the research found. ®