Venture capitalist Marc Andreessen’s oft-quoted prediction that “software is eating the world” is borne out by Forrester Research Inc.’s latest global software industry forecast.
Inflationary pressures, higher interest rates and geopolitical turmoil are expected to have little impact on a market for infrastructure and application software that should exceed $400 billion by 2023. That reflects a 10.3% compound annual growth rate from 2021 to 2023, or more than twice the 4.4% growth velocity of all other IT spending.
Forrester cited “robust demand” for security, database management, operations management, vertical software, and cloud-based enterprise applications as fueling the trend. Over the next two years, it expects half of the 657 publicly traded software companies it follows to grow revenue between 10% and 20% annually.
And while you may not have noticed it, the aggregate market capitalization of publicly traded software companies has swelled more than sevenfold from $718 billion in April 2010 to $5.4 trillion currently. That’s a CAGR of 18% even after the market’s big selloff this year.
Part of the magic is that “leading software vendors can raise prices consistently without losing demand, resulting in high and stable margins,” wrote analysts Himank Joshi, Keith Johnston, Michael O’Grady, Michael Kearney and Ian McPherson.
Forrester expects security software to grow the fastest through 2023 at 15.4% annually led by pure-play cloud providers and those addressing enterprises’ growing appetite for zero trust protection.
Front-office financial and vertical software will lead the growth in enterprise applications. Cloud-based back-office software like enterprise resource planning and human resource management are also due for a bump as organizations rush to replace legacy installations.
Vertical software is set to race ahead at 13.3% per year. “Vertical [software-as-a-service] pure-plays have a big opportunity to replace legacy custom-built software with modern cloud applications,” Forrester noted. “This underserved market is also grabbing the attention of major cloud service providers, which are now focusing on vertical strategy…to customize cloud technologies to business requirements.”
ERP is expected to move ahead a bit more slowly at a 10.4% annual growth rate, held back in part by the preponderance of on-premises installations. Database software may be a mature market, but it’s expected to grow nearly 13% annually, as “expensive and rigid legacy database technology is being supplanted by more flexible and scalable database solutions,” the analysts wrote. That market is also fragmenting after decades of being dominated by a small number of big vendors.
Software to manage increasingly complex technical stacks is poised to grow 13.1% annually. “The need to run infrastructure in dynamic environments has converged application monitoring trends toward observability, pure-play cloud-based monitoring, and application performance management vendors,” Forrester said.