Software will be the fastest-growing market this year, spearheading business IT spending, Gartner found.
Worldwide IT spending is projected to hit $3.9 trillion this year, a 3.4% increase from 2019, according to Gartner research. While on this trajectory, IT spending is projected to cross $4 trillion in 2021.
Gartner’s latest IT spending forecast, released on Wednesday, relies on the analysis of sales by thousands of vendors across IT products and services.
The growth is mainly driven by the desire from businesses to keep up with the evolving enterprise, said John-David Lovelock, research vice president at Gartner.
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“From a business point of view, it’s really the shift to digital business from traditional business,” Lovelock said. “Every company has their own balance between the business and digital business. Gartner is calling that their ‘Tech-uilibrium’ (tech equilibrium) point,” Lovelock said.
“Most companies are on a five year journey to go from where they are to where they want to be, or where that new Tech-uilibrium point is going to be,” he said. “Where not only their product services that they put in front of their clients is digital, but their internal processes, internal systems, and their checks and balances are digital.”
What is leading spending?
IT services and communications services lead the pack with the highest spending in 2019, as well as the highest projected spending in 2020, the report found.
While businesses spend the most money on those services, software saw the fastest growth in the market in 2019, reaching 8.5% growth. This year will also be big for software, as the report projected the service to see up to 10.5% growth.
Enterprise software growth is being driven by the adoption of software as a service (SaaS), Lovelock said, as more companies opt for pay-as-you-go cloud-based computing services. Some of the biggest players in the SaaS space include Amazon Web Services, Microsoft Azure, and Google Cloud.
“Software is that linchpin in [businesses] becoming digital enough,” Lovelock said. “With a transition from licensed software to cloud software, CIOs are able to take budget line items and dollars from other line items.
“If I buy a license software, I also have to buy a server and storage and make sure my networking is included, and a bunch of implementation consultants can put it in, rather than wrapping my own security and backup system to it,” Lovelock said.
“If I buy a cloud system, there’s no server, no storage, maybe a little networking, less consulting. The backup disaster recovery is handled for me,” he said.
Overall, IT spending for cloud-based offerings will be faster than the traditional, non-cloud IT offerings through 2022. This movement toward cloud adoption shows the direction businesses are going in its business models, the report found.
“It’s really indicative of two things,” Lovelock said. “It’s indicative of the shift [from traditional business to digital], but it’s also indicative of what Gartner’s been calling the ‘and dilemma,’ where CEOs are being asked to do two very different things: Save money and drive business forward.
“License spending is not going away. Software license spending is still a growth market,” Lovelock said. “Cloud software delivery is just a faster growing market.”
Other major spending areas
The other two products businesses spend the most on are data center systems and devices, both of which are projected to grow by .8% and 1.9% in 2020, respectively.
While devices will see growth this year, that market had the sharpest decline among all segments at a -4.3% drop in 2019. The growth will return, however, because of the adoption of new, less expensive smartphone options from emerging countries, Lovelock said.
The decline in large part had to do with the cost of items. While new devices are consistently being released, the features haven’t been exciting enough for people to want to spend the money upgrading, Lovelock said.
“We’re out of those must-have features,” he said. “People are looking at the phone that they have and saying, ‘you know what, that’s good enough for now.'”
However, the demand for devices will be around for a while and will rise right back up as a new generation of users gear up to get their first smartphones, Lovelock noted.
For more, check out Research: 2020 IT budgets increase as priorities grow on ZDNet.