Research shows that global software spending will grow despite market downturn

Software spending, driven largely by cloud computing and enterprise application deployments, is expected to grow at a compound annual growth rate of 10.3% from 2021 to 2023, more than twice as fast as spending in other IT areas, which is expected to grow at a rate of 4.4%, according to the company's forecast.

The report, based on a survey of 657 publicly traded software companies by Forrester, predicts that turbulent macroeconomic conditions and other factors will have little or moderate impact due to the underlying strength of the software industry's fundamentals.

More than half of respondents expect revenue to grow at a moderate rate, between 10% and 20%, according to the report. Leading software vendors believe revenue and profits will continue to grow steadily in the coming year, albeit at a slower pace than in 2021.

The report also shows that software has been the fastest growing category in enterprise IT budgets and has consistently delivered high revenue growth rates for vendors.

Cloud computing drives enterprise software growth

The report said that as digital transformation accelerated due to the COVID-19 pandemic, enterprise software (including application and infrastructure software) is expected to grow 12% in 2022, driven by investments in cloud computing technology.

“Investments in cloud computing to modernize legacy applications will drive strong sales momentum for both front- and back-office applications,” the report reads.

Forrester said the application software market will grow at a compound annual growth rate of 11.4% in 2022 and 2023 to exceed $400 billion. Front-office applications such as CRM software and industry vertical programs will grow fastest in this area, according to the report, which predicts the CRM market will be worth $64 billion in 2022, an increase of 11.9%.

Driven by digital transformation efforts, ERP application sales are expected to grow at a rate of 10.4% in 2022. Sales of content and collaboration software such as Microsoft Teams, Zoom and Slack are expected to grow at a rate of 11.9%, the report said.

Sales of what Forrester defines as vertical software, custom software for various internal departments across an enterprise, are also expected to grow.

Infrastructure software sales increased 12.6%

Meanwhile, infrastructure software sales are expected to grow 12.6% in 2022 and 2023 to more than $400 billion, driven by growth in traditional database technologies and investments in DevOps and database management software, Forrester said.

In the infrastructure software category, the database management software market is expected to grow 12.8%, driven by demand for real-time analytics.

Additionally, technology management software, another subcategory within infrastructure software, is expected to maintain its growth momentum of 13.1%, driven by the trend of enterprises modernizing their technology stacks using complex serverless architectures and containers.

However, security software (also considered infrastructure software by Forrester) is expected to grow at a CAGR of 15.4% due to multiple cyberattacks and geopolitical challenges such as the Russia-Ukraine conflict.

The software market still has room for continued growth

The report said the total market value of listed software companies has increased from $718 billion in April 2010 to $5.4 trillion today, a compound annual growth rate of 18%. The survey also showed that the software industry only accounts for 5.9% of the total market value of listed companies worldwide, indicating that there is still more room for growth.

Another reason for the continued growth in software spending can be attributed to the ability of software vendors to continually raise prices without losing demand, the report said, as software is a critical part of day-to-day operations, a strategy that has resulted in consistently high profits for vendors.

Software providers that have recently increased software prices include Adobe and Microsoft.

Average profit margins could be as high as 70%, the report said, allowing software vendors to develop strategies while addressing challenges such as uncertain macroeconomic conditions.