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Disruption for Legacy On-Premises IT Software

Legacy on-premises IT software is expensive to maintain and upgrade. It can also be difficult to scale and manage, especially as businesses grow and evolve. Besides, legacy software vendors often lock customers into long-term contracts, making it difficult to switch to a more cost-effective solution.

Cloud-based software is more scalable and cost-effective than legacy on-premises software. It's also easier to manage and upgrade, and there are no long-term contracts. As a result, large enterprise CEOs are eager to free themselves from the clutches of high-cost IT software vendors and move to the cloud.

Worldwide revenue for enterprise applications software will reach $483.1 billion in 2027 with a five-year compound annual growth rate (CAGR) of 9.6 percent, according to the latest market study by International Data Corporation (IDC).

Enterprise Software Market Development

Nearly all this forecast growth will come from ongoing investments in public cloud software, which is expected to represent more than two thirds of all enterprise applications revenue in 2027.

IDC's survey found that, across 23 applications and 2,875 respondents, 51 percent of organizations on average are keeping their current applications, while 46 percent on average are planning on replacing their current systems within the next three years.

With organizations accelerating their shift to cloud computing, and many others planning on replacing their current cloud system, the enterprise applications software market overall, along with the individual application markets, will continue to be very competitive for years to come.

In addition, organizations will continue to invest in new tools to keep their application portfolio up to date as they move into the digital business arena, automating all processes while also leveraging innovation and a wealth of data to become a more creative and resilient company.

IDC's survey also found that many organizations are willing to pay more for cloud-native architecture featuring micro-services and containers as well as machine learning and artificial intelligence (AI), or advanced and predictive data analytics.

"The digital era has ushered in new opportunities for enterprise application vendors to bring better products, rich in features, functionality, and innovation," said Mickey North Rizza, group vice president at IDC.

The enterprise application's market future is enabled by automation and the ability to compete, gaining market share because of the differentiating factors found in the technology. New software entrants have an ability to totally reshape the markets, redefine software, and change the future indefinitely.

Current market participants can become more entrenched while also redefining the future of their markets by understanding what is needed now to create user stickiness for years to come.

In addition to the ongoing cloud services migration, IDC has identified a number of other significant market developments that are driving growth in the enterprise applications market, as follows:

  • Generative AI can be utilized to drive innovation, automate repetitive business tasks, improve organizational decision making, personalize customer and employee experiences, and boost efficiencies overall in the business. Vendors providing use case–level clarity for their clients on Gen AI will be seen as innovative and forward looking, and investment with these vendors will be much easier to come by.
  • Composable modular applications are an attractive alternative to custom developed software products due to their lower cost and minimal dependence on full-stack development talent. With modularity, a sophisticated piece of software can be divided into simpler components that are independently created and integrated (or assembled) to create the desired end product. Composing entire systems of modular applications is meant to provide an alternative to all-in-one legacy platforms.
  • Applications bring forward a series of activities where data and people come together to complete tasks or make decisions to improve the performance of the organization. Often, vendors focus on the data side of the equation, leaving a less-than-optimal employee user experience. Features that support real-time communication, mobile employees, and accessibility can greatly improve the user experience.

As automation becomes the standard, CISOs continue to be under tremendous pressure to manage both fraud detection and fraud prevention in key financial areas. IT vendors must add more tools and product features to help fight fraud, including innovations like AI and machine learning for pattern analysis.

Outlook for Enterprise Software Market Transformation

Against this background, the enterprise applications market remains highly competitive with a long tail of solution provider contenders.

The Top 10 enterprise applications leaders in 2022 held a combined revenue share of just 30.8 percent. This combined share was down 0.9 percent from 2021. In addition, the Top 10 has seen some movement among the leaders over the past two years in terms of order and market share.

That said, I believe there is a huge upside opportunity for the emerging IT vendors that don't play by the same old rules of the legacy software incumbents. New and ongoing software app market disruption is somewhat inevitable.

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