Highlights and Analysis

of
Software Industry Trends 2007-08

- Anurag Johari (Program Manager – RMSI (P) Ltd.)

 Table of Contents
1. Executive Summary ......................................................................................................................... 3

2. Software Spending Plan for 2008 ..................................................................................................... 3

3. Top requests to PMO ....................................................................................................................... 4

4. Priority Projects ............................................................................................................................... 4

5. Challenges faced by PMO................................................................................................................ 4

6. Key priorities ................................................................................................................................... 5

7. Software budget across business models .......................................................................................... 5

8. Software share of IT budget ............................................................................................................. 6

9. Expected trend in control of software purchase decision ................................................................... 6

9.1 Decision Makers: ........................................................................................................................... 7

9.2 Decision Influencers: ..................................................................................................................... 7

10. Conclusion................................................................................................................................... 7

2
1. Executive Summary
In any industry, we can remain competivive only if we are vigilant
about the industry development and changes.We are the part of a software service industry,
which caters theGlobal Software Market with potential (projected spending for 2008) of
$341B.The industry is vast, covering many business verticals and models. However the
market fundamentals like demand, budget, challenges, priority and decision making etc. are
generally common across the business verticals and model. This report is an analysis of
various inputs received from Forrester Research, McKinsey and Enterprise Software
Customer Survey 2008. The survey covered 857 enterprise software customers covering
SMBs to large and verge large enterprises from North America & Europe in the ratio of
around 2:1.The survey covered industries like manufacturing, retail, services, media,
entertainment and leisure, energy, utilities, construction, finance, isurance and the public
sector. For proper understanding of decision making across industry, majority of the
respondents were managers and above.

This report is an attemplt to analyze the industry updates and trends, which can help us in
better aligning with growing market needs.

2. Software Spending Plan for 2008

Following is the breakup of software budget.

Source: Forrester Research

The largest component (33%) of the budget goes toward software upgrade and maintenance.
For software services companies, the potential market is 58 % of total software spending.
Hence we can also say that there is around $198 billion market potential for software services
companies. Out of that 25 % comes from new development and 33% from maintenance &
upgrade. Here another important aspect is 13% budget for SaaS. There is around 20% growth
(from 11 % to 13%) in SaaS business.

3
3. Top requests to PMO
In most of the organizations, Project Management Office (PMO) is
responsible for identifying, prioritizing the projects, budget allocation, execution and implementation
of the projects. As a result of that PMO becomes a central body to manage various internal stake
holders say Finance, User Group and Business Process Owner etc. Based on its research, Forrester
has suggested that in 2008, following will be top requests to PMO.

 Rapid Deployment New Functionality

 Reduce IT Cost

 Timely up gradation ( as per vendor imposed timeline)

Here it is interesting to see that there is a request to reduce the IT cost, but that is second to
rapid deployment. Hence no astronomical wisdom is needed to deduce that aggressive
development schedule and adherence to that add more value to the customer than that the
cost. Hence in the wake of 2008 slump in US market, the offshore IT companies need to
revisit their own strategy, rather than expecting the repetition of 2003-04 type outsourcing
boom.

4. Priority Projects
As per Foressters Research, the priority projects (Enterprise domain)
trends are as follow.

 Instance Consolidation

 Software Upgrades

 Integration Projects

 BPO

 Process Improvement

Here its easy to notice that the top two priorities are dealing with maintenance and upgrade of
existing applications / ERP / Products. But next priority is also equally important. Ever since
the industry moved to SOA, the demand of integration projects is continuously increasing.

5. Challenges faced by PMO

The PMOs execute the projects, with the constraints like
schedule and budget etc. As a result of that the priority projects are generally executed in
piecemeal. Hence the piecemeal execution poses following challenges, before PMOs.

4
  Organizational fatigue

 Expensive rework

 Lost ROI

Hence most of the organizations are strategically moving to SOA and system upgrades. This
is the reason that most of the CIOs are looking forward to evolve a long term vision and a
corresponding strategy, to attain the larger IT goals of the organization.

6. Key priorities
Enterprise Application industry survey 2008 has identified following key
priorities, as set by PMOs.

 Improve the integration between applications

 Adjust to hybrid deployment options

 Adopt SOA strategies

Here first one is quite obvious to understand. Second one is more interesting, which indicates
that even industry heavy weights are also targeting SMBs. Regarding third point, as adoption
of SOA increases, there is the need being felt for long term Application Management
Strategy.

7. Software budget across business models

The survey also forecasts a dip in traditional license / maintenance, but increase in
subscription / Transaction based / Advertisement funded etc.

Source: Enterprise software customer survey 2008

However the rise in subscription / transaction based business model is the indicator of
growing demand for software as service. Just a note of caution, for any small size software

5
 service company, that jumping into SaaS business, will pose a lot of operational challenges
which will be essential to sustain the business model.

8. Software share of IT budget

Following graphs indicates almost steady growth (on
an average 1 % YOY) between years 2006-08.

Source: McKinsey

However a relatively rapid growth from 30 to 35 % is projected between years 2008-10.

Interestingly this growth is projected when US market is not very encouraging. Hence we can
logically deduce that the main driver for this growth will be primarily third world country.

9. Expected trend in control of software purchase decision

Software survey
indicates that in the industry, around 45% of the decision making processes will remain stable.
But beyond that majority of the software purchase decision making will become more and more
decentralized and controlled at BU level.

Source: Enterprise software customer survey 2008

To analyze the centralized software purchase decision making, following is the

distribution of decision maker and influencers.

6
9.1 Decision Makers:

9.2 Decision Influencers:

Based on that we can easily say that even in the centralized software purchase decision,
one can not afford to ignore all of Finance / Business Process Owner / Business Users
and Security & risk management, as they all have considerable influence on the decision
making.

10. Conclusion
Based on above analysis, we can say that enterprise software market is
growing and also that the maintenance and new development continue to be major chunk of
software budget. The growth in IT spending is also driven by third world & erstwhile eastern
bloc countries. There is considerable growth in subscription / transaction based model, but
such model can be successful with adequate operational efficiency along with innovation.
The decision making process, for the purchase enterprise software application, is fairly stable
in the industry and in many cases its going to be more BU controlled in next 2 years. In either
case, the software vendors can’t ignore the key decision influencers.

----- Concluded -----