Demand for improved resilience and automation will drive European software market to growth until 2027 - IDC

Growth in 2022 hit a 20-year record high at 15 per cent year on year

The European software market grew 15 per cent year on year in 2022 despite economic turbulence and global instability, according to IDC.

The analyst claimed this is the highest growth in the last 20 years, demonstrating the resiliency of demand for software in the face of major macroeconomic factors.

Growth was primarily driven by increased price of software licenses (reflecting high inflation), customers locked in with existing partners, and contracts signed for longer time periods than in previous years.

While worldwide IT spending is on a downward trend in 2023 and European IT security spending continues to grow, the European software market is predicted to slightly slow down at 11.7 per cent, owing to general caution across all sectors.

Although IDC expects the five-year compound annual growth rate (CAGR) for 2022-2027 to be 12 per cent for the European software market overall, three main areas are predicted to grow substantially faster.

AI leads the way

Artificial intelligence platforms have an expected CAGR of 41 per cent (reflecting a 16 times increase from 2018 to 2027), followed by integration and orchestration middleware with a CAGR of 24 per cent and software quality and life cycle tools with a CAGR of 20 per cent.

In addition to those top three segments, IDC forecasts the overall application development and deployment market (platform as a service) to post a 18 per cent CAGR, making it a key spending driver.

Prior to the COVID era, applications were the leading software investment area for European companies, IDC said. Security software was central to companies' investment strategies during the pandemic period and in 2022, when the number of DDOS attacks reached a record high.

Healthy growth in security spending is expected throughout the forecast period, alongside an increasing demand for tools used by developers and integration specialists.

"Applications integration, business transactions, and automated decision making - including predictive and prescriptive analytics - are growth areas now, and we expect demand to be stable or increasing for the next five years, underpinned by massive AI enablement," says Tomas Doktor, research manager with IDC European Software.

"New capabilities and services based on GenAI will open opportunities for competitive differentiation and revenue growth for vendors that can offer those solutions with the appropriate security and governance."