August 9, 2017
Forrester’s European tech market forecast for 2017 and 2018 has just been published (see “European Tech Market Outlook For 2017 To 2018”). We project that growth in purchases of technology software, hardware, and services by European businesses and government measured in Euros will hold steady at 1.6% in 2017, and increase to 2.2% in 2018. Spending on software and tech consulting services will do better, with software spending rising by 2.5% in 2017 and 3.5% in 2018, and tech consulting and systems integration services increasing by 2.8% and 2.2%, respectively. Communications equipment, telecomm services, and tech outsourcing will be weak, with growth of 1% or less in both cases. Computer equipment purchases will pick up to 3% growth in 2018 after 1% growth in 2017 accelerates.
Three developments in the European tech market are central to our latest forecast:
- European economic growth has remained sluggish. Modest improvements in real GDP growth in France, Germany, Italy, Switzerland, and the Benelux countries have been offset by slowing in the above-average growth of Spain and Sweden and the prospect of a slump in the UK economy as it grapples with the challenges of Brexit. The election results in the Netherlands and France and projected re-election of Angela Merkel in Germany have removed the threat of populist governments and the break-up of the European Union, but the new governments have not yet pushed through the structural reforms that could lead to stronger growth.
- The transition to cloud picks up steam, but cloud cannibalization holds back growth in software, tech consulting, and tech outsourcing services. Europe has lagged the US in the adoption of cloud platform services, cloud business services (middleware), and cloud applications. But with the major US cloud platform vendors like AWS and Microsoft Azure opening data centers across each of the European countries, US SaaS vendors following in their footsteps, and new European SaaS vendors coming into the market, the various types of cloud are gaining adoption in Europe, but still represent a minority of these tech categories. For example, cloud applications, which in the form of either SaaS or single-instance hosted applications represent the largest software category, represented 15% of all app revenues in 2015, but will rise to 27% by 28%. With license and maintenance revenues still dominant but growing slowly, European software markets will not start to see stronger total growth until cloud represents a third or more of the market. Tech consulting services for choosing and implementing traditional software vs. cloud software is going through a similar cannibalization process. Similarly, cloud platform services are eating into traditional outsourcing, holding down growth.
- European adoption of business technology (BT) is a force for growth. Technologies that help businesses and government win, serve, and retain customers become more attractive in periods of economic growth. European spending on the software products (like CRM, eCommerce, contact centers, and customer data analytics), services (like mobile strategies, digital marketing, customer data analysis, and CRM implementations), and selected hardware products (like Internet of Things sensors and digital signage) that make up BT will grow at 6% to 7% rates, three or more times faster than the overall tech market. BT spending growth will be particularly strong in the Nordic countries; moderate in France, Germany, Spain, the Benelux countries, and the UK; and weaker in Italy, and Switzerland where growth is slowest.