IDC forecasts the growth rate of enterprise applications software sales will pick up in 2024, and remain steady through 2027, despite a dip this year as a result of CIOs continuing to pull back on spending due to economic headwinds.\n\nSoftware sales grew 9.8% last year to $306 million, according to a new IDC study, \u201cWorldwide Enterprise Applications Software Forecast 2023-2027: Digital Era Brings Opportunity.\u201d It expects that growth rate to dip to 8.5% this year, before picking up again in 2024 and averaging 9.6% through 2027.\n\nThe top risk factors influencing CIOs spending decisions are inflation, labor shortages, and recession, the study\u2019s author, Mickey North Rizza, told CIO.com. \u201cWhile enterprise applications are still investment areas, organizations have reduced some spending as they adjust to these macroeconomic headwinds,\u201d she said.\n\nCloud is taking an ever-larger proportion of IT departments\u2019 budgets, and the picture is no different here. Sales of public cloud enterprise applications software had already overtaken on-premises, hosted, and private-cloud sales by 2022, representing 51.4% of a market worth $306 billion, the study said. That swing will only accelerate in the years to come, with public cloud software sales accounting for 67.5% of a projected $483 billion enterprise applications software spend in 2027, according to the study.\n\nThat means public cloud software spending will soar, with a compound annual growth rate of 15.7% through 2027, while spending on software running on-premises and elsewhere will stagnate, growing only 1.1% annually, IDC predicts.\n\n\u201cOn-premises is still there and hasn\u2019t gone away, however cloud is being used by all sizes of business,\u201d Rizza said. \u201cThis will continue as organizations start to recognize the benefits of public cloud in the digital world.\u201d\n\nIDC\u2019s definition of enterprise applications software spend encompasses ERP, CRM, and supply chain management applications common to many industries, as well as commercial (not custom) industry-specific engineering and production applications.\n\nIt\u2019s a diverse market with a long tail, according to another IDC study, from 2022, which found just 30.8% of spend went to the top 10 enterprise applications software vendors: SAP, Salesforce, Oracle, Microsoft, Intuit, Workday, Constellation Software, Siemens, Dassault Syst\u00e8mes, and Autodesk.\n\nSoftware spend includes annual license renewals and ongoing support, whether bundled or charged separately, but excludes additional fees for training, consulting, or systems integration.\n\nRising support costs\n\nSupport costs, like many other labor-related costs, are rising. Just last week, SAP announced it will increase support costs for its on-premises applications by as much as 5% in 2024, and will only include new innovations such as AI in the public cloud versions of its software, which are also seeing steady price rises.\n\nRizza said such moves are included in IDC\u2019s projections.\n\n\u201cWhile some vendors are increasing pricing, most are increasing it either for on-premises support or addition of innovation, like AI,\u201d she said.\n\nWhether new features such as AI should cost extra is a divisive topic. In another recent piece of research, IDC found that 26.7% of enterprises are willing to pay more for machine learning and AI functionality in their enterprise software, while 24% expect it to be included in the product price. That study found software buyers seek trusted brands, value for money, ease of integration, a good user experience, and ease of implementation.\n\nRizza stresses the importance for CIOs of aligning software spend with an enterprise\u2019s overall strategy, and not just IT needs, to get the most out of their budgets. Decisions about whether to put new applications in the cloud, or move existing ones there, will depend on how advanced the enterprise is in other areas. IT leaders, she said, should ask themselves, \u201cHow does that align as the business either finishes transformation into a digital business or runs a digital business?\u201d\n\nWhen it comes to expanding software spend beyond inflation, CIOs will need to consider what new capabilities will be on their shopping list. \u201cAI, for certain,\u201d said Rizza\u2014but that then raises another question for her: \u201cDo you do it internally, yourself, or do you partner with the vendors to bring more, faster?\u201d\n\nIf software vendors are reading Rizza\u2019s study, they\u2019ll fall over themselves to build out those AI tools themselves.\n\nIn the study, she offers 10 pieces of advice to vendors, including build a generative AI narrative, build modular or composable applications, which allow enterprises to tailor their own solutions from otherwise commoditized software stacks, and incorporate best-of-breed microservices that better meet their needs. \n\n\u201cThe composable world is another way for vendors to make money, as is modularity,\u201d Rizza said, adding that both bring benefits to the enterprise.