Software Spending Growth Will Accelerate by 40% in 2023, But it Doesn't Feel that Way
Software spending in 2024 should rise 12%, increasing from 9% last year according to Gartner. Overall spending will rise from $4.4t to $4.6t. Why doesn’t it feel that way
Devices will be the only category to decline. CDW, a $20b distributor of software & hardware, announced earnings last week & their results echoed these. CDW has a significant government & education business.
SMB revenues decreased 13%
Education declined 9% with a 68% drop in hardware sales
Government grew 13.5%
Healthcare increased 8%
Overall software grew 8%
The data sets are largely consistent : high single digit growth in most areas outside of hardware.
The hard part about this data is that in market, it doesn’t feel this way for most businesses. Software growth rates will increase 40% year over year, but many private companies & public companies have seen a decline contraction.
Why not?
Many of these companies have been growing at 30-50% annually & their growth rates are asymptoting to a level closer to 12% annual growth.
To grow 40% annually in a market adding 12% spend means taking 28 percentage points from someone else. The market is zero sum. Competitive dynamics have changed with budget consolidation favoring suites over best-in-class solutions & cost-cutting rather than revenue growth products.
If Gartner is correct in their forecast, next year should see 13% annual growth. Software spending is accelerating, which means the market remains vibrant, just more competitive.
CEO Whisperer | M&A Advisory and Private Capital, Strategy & Communications | TMT
1 年Now add that 40% growth means 0% profits or worse if everyone is doing rule of 40 management. Most SaaS sales budgets are double what they should be in order to achieve those numbers. If you look at Porter or anything considered classical management at this point you will see that profit is the indicator of market position, not revenue. Labor and factor productivity would also measure the impact of software on the economy as a whole -- but those numbers are so bad we shouldn't even discuss them publicly. Without new VC money it will unravel pretty quickly -- never mind the high percentage of unprofitable SaaS firms' customer bases that are actually just other unprofitable SaaS firms. No one will quantify this for me but most VCs and CEOs admit it's there. Now don't get me started on Customer Success, the department that costs as much as sales and does less than service... sending gift baskets and padding T&E so you don't churn...
Co-creating with AI team members.
1 年"To grow 40% annually in a market adding 12% spend means taking 28 percentage points from someone else. The market is zero sum." The most competitive sales market we've seen in a half-decade.
CEO @ Salesmotion | Unlock Revenue with Account Intelligence AI Agents | Ex-Clari, Ex-Salesforce
1 年It really doesn’t feel like that at the moment. Would be curious to see a heatmap of spend by industry and geography. Earnings this week by the big cloud provider could shed more light on if this is the case.
Marketer | HealthcareIT | SaaS | B2B
1 年Every software vendor we know is also increasing prices post pandemic. So that’s a decent 10%-20% growth right off the bat.
Senior Technology Leader Specialized in Software Engineering, Product Development across Multi-faceted industries | Digital | IoT | Cloud | Mobile | Agile | Applications | Architecture
1 年Thanks for sharing the summary Tomasz Tunguz! Agree, The COVID-19 pandemic has affected the devices market, there are indications of improvement despite ongoing resource constraints.