SaaS, Cloud to Return IT Market to Growth

It’s been a slow tech market for the last few quarters, but 2014 could start to see the beginnings of a turnaround for business and government purchases of IT. It’s not the double-digit growth rates of the late 1990s and 2000 era, but Forrester Research predicts that the market will grow by 6.2 percent this year. As-a-service and cloud services will have much to do with that.

That’s a big improvement over the 1.6 percent growth in 2013, though leaves room for improvement, the firm said in its A Better But Still Subpar Global Tech Market In 2014 and 2015 report. Stronger growth will actually kick in for 2015 (8.1 percent).

The U.S. tech market will dominate the sector with a 40 percent share of all purchases. “While the U.S. 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 percent in 2013 and 2014,” said analyst Andrew Bartles. “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.”

Business and government purchases of software will post the fastest 2014 growth (7.8 percent) of any tech category. 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 percent per year. The U.S. has an almost 60 percent share of SaaS and analytics spending.

Traditional licensed, on-premises software has suffered, the firm noted, but could rebound in 2015. 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,” Bartles said.

Software growth is followed by IT consulting and systems integration services growth (7.3 percent). Computer equipment will lag, with only tablets posting strong growth, though laptops and other PCs will see a modest recovery, the firm sound.

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.

“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,” Bartles said.

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