Tier-1 behemoths still dominate the enterprise software landscape with transaction-based platforms for data management, business intelligence (BI), and reporting. But new best-of-breed cloud applications are pushing into this space, winning customers and market share, and amping up overall investment in cloud enterprise software.
Market research firm Gartner last week projected the biggest worldwide IT splurge in a decade for 2018, attributing increased outlays to the rise of cloud computing, and therefore to fatter spending on cloud-based enterprise software. By 2021, 28 percent of all IT spending will be dedicated to cloud-based infrastructure, software, and services, Gartner says.
“It’s more of the same of the market moving from a license model, with on-premises software, to a service model in the cloud,” Gartner research VP, John-David Lovelock, told Barrons.
Lovelock and other market analysts note that internal management teams, as well as entire companies, are reallocating budgets from expenditures on servers, networking equipment, and other hardware to Software-as-a-Service. It’s happening at high and low levels throughout the public-private economy.
Large organizations are investing in newer cloud-based ERP systems, and they’re subscribing to best-of-breed cloud planning platforms. Tyson Foods recently canceled an on-premise upgrade in favor of a cloud-based ERP system. The food distributor’s CTO meanwhile, is asking internal management teams to also embrace cloud solutions, believing they are the surest bet for advances in predictive analytics, automation, and other capabilities necessary for transparency, sustainability, and traceability in food sourcing.
Meanwhile, a groundswell of small and medium businesses are also subscribing to the cloud for better-perceived functionality, value, and viability. Cloud apps not only offer computational might, but they’re also scalable, secure, and used increasingly for highly-strategic and business-critical functions. They are (by most measures) more affordable than traditionally installed planning solutions. The SaaS subscription model cuts out the upfront investment required for purchased software, and it eliminates many in-house expenses tied to buying, building, hosting, and maintaining proprietary software. Cloud SaaS deliveries art lightning-fast, making their speed-to-market another compelling advantage over traditional and large-scale deployments.
Cognitive and AI
IT market analysts believe that widespread adoption of cloud enterprise software will further boost investment in key technologies, such as automation and artificial intelligence (machine learning in particular). IDC estimates that worldwide spending on cognitive and artificial intelligence (AI) will reach $19.1 billion in 2018 and $57.6 billion by 2021, a solid multiple of the $12 billion spent last year. The firm also says three-quarters of all digital transformations will use AI by 2021. This includes predictive and prescriptive capabilities, as well as customer-service and process automation.
Cloud solutions have been present in HR and Finance circles for years but are now gaining traction in other facets of enterprise planning, such as supply chain management and Sales and Operations Planning (S&OP). Indeed, Vanguard Software’s Q1 revenue more than doubled this year from last, primarily on supply chain related forecasting and planning sales. In many cases, new customers saw a need to replace manual spreadsheet-based processes with an enterprise grade solution. Others wanted a best-of-breed application that could apply advances in artificial intelligence, data science, and connectivity to complement their more transaction-oriented ERP systems. Still, others wanted a faster, nimbler, and less costly alternative to large-scale ERP implementation.
No matter how you slice it, cloud migration has become contagious and continues to attract investor attention to enterprise software, especially amid recent declines in high-profile social media stocks. There are now 45 public SaaS companies worth more than $1 billion, according to a DFJ figure cited by GeekWire. This bodes well for market faith in the continued growth of enterprise software.