Recession proof? Forrester Sees Continued Strong Growth in Enterprise Software

Venture capitalist Marc Andreessen’s oft-quoted prediction that “software is eating the world” is borne out by the latest global software industry forecast from Forrester Research Inc.

Inflationary pressures, higher interest rates and geopolitical unrest are expected to have little impact on an infrastructure and application software market that is expected to exceed $400 billion by 2023. This reflects a rate of compound annual growth of 10.3% from 2021 to 2023, more than double the 4.4% growth rate of all other IT spending.

Forrester cited “strong demand” for security, database management, operations management, vertical software and cloud-based enterprise applications as driving the trend. Over the next two years, he expects half of the 657 publicly traded software companies he tracks to see revenue growth of 10-20% per year.

And while you may not have noticed, the aggregate market capitalization of publicly traded software companies has more than sevenfold, from $718 billion in April 2010 to $5.4 trillion currently. That’s a CAGR of 18% even after the big market sell-off this year.

Price inelasticity

Part of the magic is that “major software vendors can consistently raise prices without losing demand, resulting in strong and stable margins,” wrote analysts Himank Joshi, Keith Johnston, Michael O’Grady, Michael Kearney and Ian McPherson.

Forrester expects security software to see the fastest growth through 2023, at 15.4% per year, led by pure cloud providers and those that respond to the growing enterprise appetite for security. zero trust protection.

Front-office financial and vertical software will lead the growth of enterprise applications. Cloud-based back-office software, such as enterprise resource planning and human resource management, is also expected to take a hit as organizations rush to replace legacy installations.

Vertical software is expected to grow at 13.3% per year. “Vertical [software-as-a-service] pure-players have a great opportunity to replace legacy custom software with modern cloud applications,” Forrester noted. “This underserved market is also attracting the attention of major cloud service providers, who are now focusing on a vertical strategy…to customize cloud technologies according to business needs.”

ERP is expected to grow somewhat more slowly at an annual growth rate of 10.4%, held back in part by the preponderance of on-premises installations. Database software may be a mature market, but it is expected to grow nearly 13% per year as “expensive and inflexible legacy database technology is supplanted by more flexible and flexible database solutions.” scalable,” the analysts wrote. This market is also fragmenting after decades of dominance by a small number of large vendors.

Software to manage increasingly complex technical stacks is expected to grow 13.1% annually. “The need to run infrastructure in dynamic environments has caused application monitoring trends to converge towards observability, cloud-based pure-play monitoring, and application performance management vendors,” said Forester.

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