TECH DEVELOPMENTS: With SAP's release of its Q1 2010 earnings, it is clear that those who saw an irresistible shift from licensed software to software-as-a-service (SaaS) are a bit premature in their obituaries for the licensed software model. SAP's license revenues increased by 11% in euros, and by 18% when its euro revenues are converted into dollars at the average exchange rates in Q1 2010 and Q1 2009. Oracle's license revenues for its fiscal quarter ending February 2010 rose by 13% in US dollars (and 7% in euros). Among other vendors, Lawson reported a 28% increase in its license revenues (in dollars), and Epicor reported 23%.
These growth rates partly reflect how badly licensed software (which is treated as capital investment) got hit in the general cutbacks in business corporate investment in 2009, as panicked companies scrambled to conserve cash and avoid having to borrow from shut-down financial markets. However, I think there's more to the recovery than rebound from depressed levels a year ago.
Forrester's surveys of companies about why they don't like software-as-a-service consistently turn up five reasons: 1) inability to customize; 2) difficulty in integration to other systems; 3) security of data and information; 4) worries about pricing models that put clients on a constantly rising escalator; and 5) lack of SaaS products. SaaS vendors are addressing all of these, and there is no question that these barriers are eroding. But they still persist, and mean that the license software model has a high degree of persistence in software categories like core ERP systems (integration and security of core data), industry-focused applications (need for customization), eProcurement products (integration to ERP systems), and contract life cycle management products (security of contract data).
Back in February 2009, I wrote a report titled “A New SMB Market Phoenix Is Rising” which examines how small and medium businesses (SMBs) will be the initial source of job growth and creation which leads us out of the current recession, as they have in most previous recessions. The report also examines how SMBs use technology, and how technology vendors can best market to them - this figure highlights my conclusions.
Today, Paul Kedrosky, who has a Ph.D. in the economics of technology and writes extensively on macro-economic trends, wrote a piece I found very insightful about why young firms (small businesses) not only historically account for most of the job growth in the United States, but that their doing so is mathematically inevitable.
My upcoming report, “Fueling the New SMB: Marketing Services-as-Software” on this topic, will work its way through our editing process in the next week. In the meantime, I encourage you to read his post and my older report and let me know if they match what your marketing team is seeing today.
As I predicted in January 2010 (see January 11, 2010, "US and Global IT Market Outlook: Q4 2009"), a tech recovery has started in the US and around the world. In my updated IT market forecast (see April 8, 2010, "US and Global IT Market Outlook: Q1 2010"), I point out that IT market indicators from Q4 2009 showed an end to declines, setting the stage for stronger growth in 2010. Since IT market trends are playing out as I expected, I have made only modest changes to my 2010 IT market forecasts. I now expect the US IT market to grow by 8.4%, a bit higher than my earlier forecast, because of better-than-expected performance in communications equipment. My forecast for the global IT market in US dollars is a bit lower at 7.7%, with the unexpected strength in the US dollar (due to the weaker Euro after the Greek debt crisis) dampening dollar-denominated growth. I continue to see computer equipment and software as the strongest product categories in 2010, with PCs, peripherals, and storage equipment leading the computer category and operating system software and applications setting the pace for software. Communications equipment purchases are looking up, especially for enterprise and SMB buying. IT services will lag a bit, with systems integration project work waiting for licensed software purchases to rise.
In this report, I provide our first look at 2010 IT purchases on an industry basis in the US. Confirming past research, the largest US industry market for tech products and services is the professional services industry ($103 billion), followed by financial services ($81 billion), and government ($71 billion). In terms of 2010 growth prospects, US manufacturers, financial services firms, utilities, and health care will see the strongest growth in 2010.