SaaS to drive the local software market, says IDC

The local software market will increase at a five-year compound annual growth rate of 8.2%, predicts IDC. The market is expected to reach a value of $940.6 million in 2011, compared with $635.4 in 2006, according to a recent IDC report.

One of the trends expected to drive the market is software-as-a-service (SaaS), says Ullrich Loeffler, team leader of software research at IDC Pacific. The SaaS delivery model is an attractive value proposition for small- and medium-sized businesses, he says. “But we are also seeing quite a few companies in the high-end adopting software-as-a-service.”

The SaaS model opens up software capabilities to a market which previously didn’t have the infrastructure, financial background or IT resources to support high-end software solutions, he says. But vendors should also be aware that delivery models such as SaaS could potentially rule out the partners that rely on upfront investments and licensing costs, says the report.

“SaaS has the potential to cause conflicts of interest within the partner ecosystem,” says Loeffler.

The real growth potential in the next five years lies in the SMB market, says Loeffler. With 96% of companies employing less than 20 people, the local business landscape is dominated by the SMB segment, he says. On the downside, profit margins in this segment are obviously smaller than in the enterprise market, due to smaller-sized deals, he adds.

Loeffler recommends vendors wanting to target this market really listen to what SMBs want, rather than offering them scaled-down enterprise solutions with functionalities that SMBs don’t necessarily need.

The report also found that end-users, who often deal with limited IT resources, are increasingly looking for simplicity in solutions, says Loeffler.

IDC predicts that the main growth opportunities are in applications that assist companies in managing, for example, content; compliance with regulations; security risk; and better utilisation of capital and operational costs.

Other areas of high growth in the coming years will include project and portfolio management software, which is expected to have a compound annual growth rate (CAGR) of 18.8%; virtual machine software (CAGR 17%) and identity and access management software (CAGR 16%), says the report.

However, there are some factors that could slow the overall growth of the software market. These include, for example, interest rates, the skills shortage and a high dollar, as well as pricing pressure, technology bundling and the relatively small number of enterprise companies in New Zealand, says Loeffler.