Every cloud has a silver lining

Despite reporting mixed results in 2010, the enterprise software market is showing strong signs of recovery in 2011

Tags: Gartner IncorporationGulf Business MachinesIBM (www.ibm.com)SAPSage Group Middle East
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Every cloud has a silver lining Sam Alkharrat managing director SAP Middle East and North Africa
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By  Aaron Greenwood Published  April 20, 2011

Despite reporting mixed results in 2010, the enterprise software market is showing strong signs of recovery in 2011

While the market for enterprise software in the Middle East struggled to shake off the worst effects of the recession in 2010, the sector is showing positive signs of growth with enterprise clients shoring up their IT budgets for 2011 and beyond.

Recent research published by Gartner found that enterprise software sales in Europe, the Middle East and Africa (EMEA) fell 3.4% in 2010, from $66.8bn in 2009 to $64.5bn. Despite this poor showing, the organisation expects the market to rebound this year before reaching $76.2bn in revenues in 2014, accounting for 25.7% of the expected $297bn generated globally.

Much of this growth will be driven by the broader availability of software applications delivered by Cloud Computing and Software-as-a-Service (SaaS) channels; two relatively new distribution platforms which have significant long-term consequences for vendors and their distribution partners.

While much is already known of the capabilities of Cloud-based services, there is some misinformation in the marketplace regarding SaaS applications and how they relate to the Cloud.

By definition, SaaS applications are those that are accessed by clients on a subscription basis but are not hosted by the client themselves. Instead, the software is located on the vendor’s infrastructure, with clients logging in to access it. The benefits of this approach are two-fold: the client is assured of access to the latest version of any given software application, while the vendor can establish strict licensing controls. SaaS is particularly pertinent to financial-based software applications and customer relationship management (CRM) tools.

By contrast, Cloud-based services are generally not large-scale software applications. Instead, the Cloud is largely viewed as a platform for hosting certain software applications that can be accessed by multiple users in a collaborative environment.

According to IDC, the global market for SaaS applications is set to grow from $13.1bn in 2009 to $40.5bn by 2014, representing a compound annual growth rate of 25.3%. This trend will have a major impact on demand for software shipped by CD, with IDC estimating this model to account for just 15% of all software sales by 2012.

While the Middle East may be behind this curve, with broadband penetration lagging established Western markets, the trend will inevitably find its way here, meaning upheaval for traditional channel distribution models.

Yet, while the vast majority of the major stakeholders surveyed for this feature still view the Cloud and SaaS-based services as significant ‘game changers’, current market dynamics mean that the status quo is likely to be maintained for some time to come.

“Cloud is a positive trend, but it’s not a short-term proposition for this market,” says Sam Al Kharrat, managing director of SAP Middle East & North Africa. “There is no doubt that there is a certain level of complexity in enterprise applications that can’t be replicated in a Cloud-based environment.

“As a vendor, you can’t simply view the Cloud as a distribution model either. However, in saying that, we are starting to see increasing interest in the Cloud, particularly for lower-end applications servicing the SME sector.

“From a long-term perspective, we are very excited by the opportunities provided by the Cloud. However, we are also realistic in recognising that few of our biggest clients will embrace it anytime soon. The Middle East is one of the few markets in the world where clients still expect a certain amount of customisation when it comes to software, which is obviously something the Cloud cannot easily deliver at this point.”

This view is also shared by some of the region’s biggest distributors, including Gulf Business Machines (GBM), which already offers Cloud Computing applications on behalf of official partners including IBM and Salesforce.

“Globally, we see Cloud Computing making inroads in mature application areas such as SCM (supply change management), CRM and human resources, where it is replacing on-premises systems particularly when the customer hasn't already purchased such functionality. In other categories such as e-purchasing, expense reporting tools and blogging platforms, Cloud Computing is now the default standard model,” says Maruf Majed, director of Software Group for GBM.

“In regards to the Gulf region, we are seeing customers warming to the concept of Cloud-Computing. However, concerns remain over governance, privacy, security, availability and broader integration into existing infrastructure. If anything, these issues are pushing CIOs overwhelmingly towards private Cloud roll-outs.” Despite this, Majed says GBM remains hugely optimistic about the commercial opportunities Cloud Computing applications offer.

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