I fielded an inquiry from a client recently who asked what levels of investment Forrester is seeing in custom software development, and whether that investment remains significant compared to other activities in IT, especially given the downward pressure we've seen on budgets in 2009.
The request was timely, as I've started to comb through the results of our annual Enterprise And SMB Software Survey. Forrester's own Andy Bartels already gave our clients some insight into 2010 IT spending patterns earlier this month, predicting that the global IT market will rise in 2010 by 8.1% in US dollars (or 5.6% in local currencies). So what can we expect when it comes to custom development spending?
- On average IT shops will spend about 27% of their 2010 software budget on custom software development - e.g. software languages, application servers, application architecture or testing issues. This compares to an average of 35% spent on packaged application software, and 37% spent on platform and infrastructure software (See figure 1).
- About 1 in 8 shops spends more that 50% of their software budgets on custom development. These shops tend to be highly concentrated in the financial services and insurance industry sector and they are likelier to be smaller business - in the 20-500 employee range.
Figure 1: Spending On Software In 2010
Industry Specific Processes Top This Year's Development Punch List
So what sorts of applications are developers spending their time on this year? It's no real surprise that applications which support industry specific business processes hold the top spot; by definition these processes define the unique intellectual property that gives businesses their competitive edge (See figure 2). It's also harder to buy packaged applications off the shelf to automate these unique practices. Shops are also building apps on information and knowledge management (IKM) platforms - a data point that my colleague John Rymer sees from a qualitative point of view every month in his large number of inquires on products like Microsoft Sharepoint.
It may seem a bit surprising that CRM is the third place category when it comes to custom development - after all CRM is a solved problem with packaged app options like SalesForce and Siebel - right? Well, not necessarily - as firms double down on keeping their existing customers and finding new ones they are investing in a larger concept of customer relationship management, including enhanced self service, improved user experiences, and customer-centric integration of the systems that run their businesses - that's pretty hard to buy out of the box.
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In closing, I hope you find this concept of a "DataByte" useful. There's a lot of data our team has compiled over the past few years that doesn't always make it into our research reports. If you want to see more snippets of information like this in the future, drop us a line and let us know that you're interested. And of course if you're already a Forrester client and would like to dig into this data in deeper detail, please don't hesitate to set up an inquiry - we'd be happy to discuss at length.
About Forrester's Enterprise And SMB Software Survey:
Forrester's Enterprise And SMB Software Survey, North America And Europe, Q4 2009, was fielded to 2,165 IT executives and technology decision-makers located in Canada, France, Germany, the UK, and the US from SMB and enterprise companies with two or more employees.
This survey is part of Forrester’s suite of Business Data Services studies. Forrester fielded the survey from September 2009 to November 2009. LinkedIn fielded this survey online on behalf of Forrester. Survey respondent incentives included gift certificates and research summaries. We have provided exact sample sizes in this report on a question-by question basis.
Forrester’s Business Data Services fields eight business-to-business technology studies in 19 countries each calendar year. For quality control, we carefully screen respondents according to job title and function.
Business Data Services ensures that the final survey population contains only those with significant involvement in the planning, funding, and purchasing of IT products and services. Additionally, quotas are set for company size (number of employees) and industry as a means of controlling the data distribution and establishing alignment with IT spend calculated by Forrester analysts.