Titans hurt less by IT spending downturn

The continued slump in IT spending is altering the shape of the software industry, as top-tier software vendors are gaining market share at the expense of pure-play vendors, says Gartner.

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By  Neil Denslow Published  November 5, 2002

The continued slump in IT spending is altering the shape of the software industry, as top-tier software vendors are gaining market share at the expense of pure-play vendors, says Gartner Dataquest.

The analyst house divides up the software market between titans and pure-play vendors. The titans, such as Oracle and Microsoft, have large market shares in various sectors, while the pure-play vendors derive most of their revenue from one specific market. However, the continuing economic is shifting the competitive advantage in favour of the titans.

"Software titans have deeper pockets and can withstand the economic challenges much easier than many pure-play vendors, which have smaller revenue streams and cash reserves," observes Joanne Correia, vice president for Gartner Dataquest's software industry research group.

"This has caused struggling pure-play vendor solutions to be less desirable from a financial perspective even though they can be a better solution to risk-averse decision makers. Loss of revenue, partly because of such reluctance in the marketplace may indeed make bankruptcy or acquisition by a titan a self-fulfilling prophecy," she adds.

The analyst firms adds that end user spending on software is set to grow by 3.6% in 2002, hitting a total revenue figure of US$76.9 billion. In 2003, spending should reach US$81.8 billion, an improvement on the lacklustre spending seen in the first half of 2002.

"Tight IT budgets have meant that buyers can't satisfy their pent up demand for software projects to improve corporate business performance and IT infrastructure efficiencies," says Roger Fulton, group vice president & worldwide director for Gartner Dataquest's software industry group.

"When budgets loosen in the second half of 2003 or the first half of 2004, the backlog of demand could cause a temporary growth surge that then settles down to normal growth rates," he adds.

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