Dataquest: Enterprise software buyers holding back in 2003

Researcher Gartner Dataquest is predicting slow growth for the enterprise software market based on users' continued reluctance to make major investments in new applications.

Cautious buying patterns will continue to dominate the market for enterprise applications in 2003, according to the latest research published by Gartner Dataquest.

Dataquest, a division of Stamford, Conn.-based Gartner Inc., projected limited growth in the enterprise and infrastructure software sectors, but it reported that investments will likely revolve around the streamlining, optimization and integration of established applications. IT buyers remain locked in a holding pattern of longer software purchasing cycles and are committing to smaller deals, according to the report.

Tom Topolinski, vice president of worldwide software applications at Dataquest, said he believes that the software industry will continue to face customers who are cautious and focused on the bottom line, at least through 2005.

"Buyer behavior has fundamentally changed," Topolinski said. "Vendors will have to work harder with individual prospects to determine the ROI [return on investment] sought in each project and commit to delivering on those goals."

Topolinski is projecting 3.5% growth for the enterprise software sector in 2003, with an estimated increase of 7.7% on tap for the market in 2004 and, by 2005, the industry should see stronger potential and move up by at least 8.2%. However, he recognized that continued turmoil in world politics could drive the market down even further.

Among the enterprise software sectors Topolinski cited as possible bright spots are application integrations and middleware; security, network and systems management; business intelligence analytical tools; front-office customer relationship management (CRM); and back-office enterprise resource planning (ERP) applications, in particular accounting and human resources tools.

Topolinski said that the most significant trend uncovered in Dataquest's latest market research was evidence pointing to sunnier prospects for the applications integration segment and tougher times ahead for the supply chain management market.

Also on the brighter side, Dataquest highlighted several trends indicating that the enterprise software market could be poised for renewed growth:

  • An increase in buying decisions being made by users.
  • A changing balance in the applications licensing/maintenance/services spending mix.
  • Continued consolidation of enterprise software vendors and product lines.

According to Topolinski, industry consolidation may be the most important of these trends, because it will give stability to segments where there are more vendors than customers can effectively support. However, the analyst said that enterprise software makers should still be preparing for the worst.

"Given the uncertainty surrounding the timing and strength of a global economic recovery, vendors should prepare for lower revenue-generation opportunities across the board," Topolinski said. "It's a slow growth market, at best."

FOR MORE INFORMATION:

IT spending to sink in 2002

CIOs look to rein in IT spending

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