January 2, 2014
Forrester has just published our forecast for the 2014-2015 global tech market (January 2, 2014, “A Better But Still Subpar Global Tech Market In 2014 And 2015”), and we are predicting that business and government purchases of information technologies (IT) will grow by 6.2% in US dollars in 2014, and by 5.5% in exchange-rate-adjusted or local currency terms. (Note that this data includes purchases of computer equipment, communications equipment, software, IT consulting and systems integration services, and IT outsourcing services, but does not include purchases of telecommunications services.) The US dollar growth rate will be distinctly better than the 1.6% growth in US dollars in 2013, though constant currency growth will be only somewhat better than the 4.3% growth in 2013. Still, the global tech market won’t see strong growth until 2015, and even then the 8.1% US dollar and 6.9% local currency growth rates will be well below the double-digit growth rates of the late 1990s and 2000 era.
Three interconnected and reinforcing themes will define the global tech market this year:
· US tech buying sets the pace. The US tech market continues to dominate the global tech market, with a 40% share of all purchases. Despite self-inflicted wounds from austerity zealots in the US Congress, the US economy has continued to expand at a steady (albeit modest) rate. In contrast, Western and Central Europe is just starting to recover from its debt crisis and related economic slump; Japan is experiencing a modest expansion after years of deflation; and Brazil, China, India, and Russia are going through a period of sluggish and uneven growth. While the US economic expansion has not been robust, it has been and will continue to be more solid than growth elsewhere, and that has sustained tech market growth of over 6% in 2013 and 2014. Only the small tech markets of Eastern Europe, the Middle East, and Africa did better than that in 2013, with Latin America also doing well in 2014 after a sluggish 2013.
· Software leads, hardware slips, and services follow software. Business and government purchases of software will post the fastest 2014 growth (7.8% in US dollars, 7.1% in local currency terms) of any tech category, followed by IT consulting and systems integration services (7.3% in US dollars, 6.6% in local currencies). Computer equipment will lag, with only tablets posting strong growth, though laptops and other PCs will see a modest recovery. Communications equipment will do somewhat better, driven by business and government spending on smart phones and wireless equipment, which will offset weakness in traditional routers, switches, and other wireline equipment. The strength of software reinforces the position of the US tech market, because the US represents almost 50% of global software purchases. IT outsourcing and hardware maintenance will be weak in 2014 due to smaller deals and widespread discounting.
· Cloud, mobile, and smart drive software growth. Within software, cloud computing in the form of software as a service (SaaS), mobile computing in the form of custom mobile app development, and smart computing in the form of business intelligence, analytics, and what Forrester has called smart process apps for human-based collaboration are growing at double-digit rates, and in the case of SaaS at over 20% per year. Traditional licensed, on-premises software has suffered, especially in the slow-growth economies of 2012 and 2013, but will revive in 2014, especially in Europe, Asia, and emerging markets. The combination of strong growth in new software categories and restored growth in older categories will help make software the leading tech category. That also helps the US tech market, because the US has an almost 60% share of SaaS and analytics spending. The revival of on-premises software will also be good news for IT consulting and systems integration services in 2014 — because SaaS leads to much less systems integration services spending than on-premises software, a revival of the latter will slow the erosion of services vendor revenues from on-premises software implementation in 2014, though continued expansion of SaaS will hamper IT services revenue growth in 2015 and beyond.
Beyond 2014, we are expecting a strengthening global economy in 2015 will propel global tech market growth higher across the board, but with software growing at double-digit growth rates for the first time in many years.