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January 12, 2016updated 22 Sep 2016 12:01pm

The ‘age of the customer’ brings software growth in SaaS, data analytics and applications

Analysis: Customers are more empowered, and firms are having to spend to keep up.

By Charlotte Henry

As consumers we are bombarded with information continually. Access to information has put us in a stronger position in relation to the firms we interact with and purchase from.

That shift in the power dynamic between buyer and seller is also having an effect in the IT market. Software sales are on the rise, and they are being driven by firms having to keep up with customer demand, according to research published by Forrester.

The research was conducted by Andrew Bartels and his team as part of its annual look at IT trends. He told CBR that "software and services are the leading categories while hardware has really taken a backseat," said Bartels. Cloud based software-as-a-service (SaaS) is expected to grow, as are applications, particularly sell side business technologies.

The decline in hardware sales has also been tracked by Gartner, who said that worldwide revenue from semiconductors declined 1.9% in 2015, with forecasts predicting that worldwide capital spending in semiconductors will fall by 4.7% in 2016.

Forrester said that in total software spending is set to rise by between 5% and 6% by 2017, compared to a 2% rise in IT spending overall in the UK, and 4.9% in the US. Forrester also predicts that $351bn will be spent on software globally by 2017, out of a total of $2.9tn that will be spent on tech goods and services.

Another of the key elements behind this growth in software is cloud and analytics

Bartels said that we are now living in the "age of the customer", whereby customers have the power in the relationship with firms they want to purchase from.

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"We’re in a business environment where customers are much more empowered, have much more information that they can use to choose and find the products and services they want to buy from and that in turn has required the companies to in effect invest in keeping up," he said.

This shift is driving the changes in the IT market, and spurring the growth in software sales that is helping the market expand. Customer Relationship Management (CRM), analytics, and app products are driving growth in the software sector.

Emerging markets are also helping the software market grow. Gartner forecasts that the software market it India will grow 12.8% in 2016, making it worth $5.3bn. A large part of this growth will come from software-as-a-service offerings.

What this all means is that "knowing more about your customers, knowing who they are, knowing what they’re doing, being able to look for the right marketing to be sure to make the right sales offerings, and making sure serving and meeting their question and answering their questions effectively is absolutely critical," says Bartels.

One piece of evidence that Bartels cites for this is the growth in sales of CRM software, saying Forrester’s data "is suggesting that [firms] are finding enough value in it that they are in fact writing cheques to make the purchase for the software."

Bartels also noticed the upturn in sales of analytics and e-commerce tools, with the report noting that "Analytics, whether as standalone business intelligence apps, cognitive solutions like IBM’s Watson, or embedded in applications, will be a second driver of software growth."

The growth in cloud and SaaS will come as no surprise to industry watchers. SAP’s UKI managing director, cloud, Kevin Kimber has previously told CBR that his firm expects cloud revenue to overtake its more traditional revenue streams in the near future, on the back of its "beyond CRM" strategy.

What this all demonstrates is that firms are now demanding greater amounts of data from their software providers, in order to successfully engage with their customers. "You as a seller need to be equally empowered to meet those customer needs and expectations," said Bartels.

For firms providing such solutions, there is also the added benefit they will be able to offer consultancy services, with the report saying that software spending will pull in tech consulting and systems services spending.

Another area growing is mobile applications, which is up by 30%. "Mobile devices have become such an intrinsic part of people’s lives that it would be a surprise if that wasn’t growing," said Bartels.

This again ties into the theme of the age of the customer. "One of the forces that has contributed to the age of the customer is the proliferation and ubiquity of mobile devices, which have given consumers the ability at any point to get information about the product they are looking at," he said, noting that customers can now pull up review and pricing information from various sources online while looking at a product in a bricks and mortar shop.

Accenture, in its Igniting Growth in Consumer Technology report, notes that smartphone market has reached maturity, and that only 48% of consumers plan to buy a smartphone in the next 12 months.

The growth in the mobile industry then is going to be from people purchasing the applications that those devices use. It is not a great leap to imagine such trends will play out in both the business and consumer markets.

As ever with outsourcing, part of the reason for the growth in buying software, as opposed to firms using developers in house to build it, is because firms can often get it faster and for cheaper than buying commercial software.

"You might well get better quality because you have vendors who are doing this for multiple clients and therefore have to be very good at doing it," said Bartels.

He also said that often firms do not have the skills, such as mobile application development, that they need in house, and so have to approach other firms to build the tools, products, and solutions that they need.

Forrester says that there is more reasons optimism than pessimism in the IT sector, with the industry as a whole growing. It says there will be no boom, but no bust either, with the global market increasing by $625 to $2.9tn. Software will make up the second largest segment of that.

It says that business technology, which it defines as "the portfolio of technologies that help firms win, serve and retain customers", will drive growth in new projects. Overall, spending in new projects will rise from 4.6% in 2016, to 6.8% in 2017, with business technology projects drive that growth.

Overall spending in business technology will grow 8.1% in 2016, and 9.4% in 2017.

What this proves is that as customers become more demanding on the back of having greater information and power, firms are will to put money into knowing more about who their customers are, and what they want.

The age of the customer is here, and firms are having to spend money to make sure that they can stay relevant in it.

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