APeJ software market sees growth again

Source: IDC. The top five software companies in APeJ for 2H16 include Microsoft, Oracle and SAP.

The Asia Pacific excluding Japan (APeJ) software market grew 6.3% year over year (YoY) during 2H16 to reach US$18.9 billion according to the latest IDC APeJ Semiannual Software Tracker*. This is a strong contrast to previous periods where the software market has remained relatively flat (0.1% decline in 2H15).

On-premise software sales grew 3.5% YoY, while software revenue from public cloud services grew 34.5%. As a share of total software, public cloud services went from 9% of software in 2H15 to 11.4% in 2H16.

"Despite softening of the economy, it did not deter APeJ organisations from investing in software. It is an encouraging sign that organisations are beginning to recognise software as a key enabler in their digital transformation initiatives. There has also been a wider acceptance for public cloud services and open source technology (i.e. microservices, Hadoop, Kubernates, TensorFlow) even for mission-critical workloads as concerns around data sovereignty, security, portability and most importantly, skillsets, are being addressed by the vendors. Due to the pivotal role that software has in organisations today, we also expect markets related to agile software development and DevOps to gain significant traction over the next years," says Chris Zhang, Research Manager, IDC Asia/Pacific's Software Research.

Highlights include:

• The top five software companies dominate 40% of the market, with Microsoft leading the pack. Although there are initial signs that the top vendors are losing market shares, their shares will remain relatively constant (if not increase) due to an inorganic growth strategy and further market consolidation. Inevitably, the growth in public cloud services subscriptions have also started to cannibalise on-premises license revenue for these giants.
• Locally-born vendors are still hot favourites in certain geographies. These vendors enjoy an edge over global players due to their geo-specific expertise and knowhow (from localisation to go-to-market). Companies such as Huawei, Neusoft, Kingdee, Yonyou Network in China and MYOB and Xero in Australia are already the top 30 vendors in APeJ. Some other local vendors to watch out for include Systex and DSC from Taiwan, Tally and Ramco Systems from India, and TmaxSoft from Korea. Strategic alliance and local partnerships are critical ingredients for vendors seeking to penetrate these territories.
• Subscription of public cloud services. Beyond the top five companies, exponential growth has been achieved by pure-play cloud software providers such as Salesforce.com, Google, Xero, AWS, ServiceNow, Zendesk, MYOB, and Dropbox over the past few years. This new breed of vendors has been very successful in demonstrating their unique value proposition (i.e. attractive price points, being quick to market, constant innovation) against the traditional on-premises vendors. IDC expects the growth trajectory of public cloud services to continue at sa imilar rate over the next two to three years.
• The fastest growing markets in 2H16 include dynamic data management systems, enterprise social networks, file synchronsation andsharing software, IT event and log management tools, software-defined storage controller software, and team collaborative applications all have a part to play in enabling a collaborative, agile, analytics-driven and self-healing IT environment, which is essential for organisations embarking on a digital transformation journey.

"What customers are increasingly demanding is freedom of choice when it comes to mode of deployment and pattern of consumption. APeJ organisations tend to operate in hybrid environments, hence the portability of workloads between on-premises, public cloud, private cloud and even multi-clouds will be one important assessment criteria. Vendors will also have to incorporate some degree of flexibility in their licensing contracts and even work with other vendors to help their customers achieve a true hybrid vision," Zhang added.

The IDC APeJ Semiannual Software Tracker provides unmatched market coverage and forecasts for the entire packaged software space, covering 81 distinct functional software markets and over 900 vendors in more than 13 countries in the region — providing fast, essential, and comprehensive market information.

*Notes:

• All figures rounded up to nearest 1 decimal point
• Software revenue consists of license, maintenance, and other software revenue
• Countries and territories included are Australia, Hong Kong, India, Indonesia, Korea, Malaysia, New Zealand, Philippines, mainland China, Singapore, Taiwan, Thailand, Vietnam and the rest of Asia Pacific as a single entity