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Issues Monitor
Sharing knowledge on topical Sharing knowledge on topical issuesissues in the in the Technology Industry Electronics, Software & Services industry June2011, 2012,Volume VolumeSix 10 January
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KPMG INTERNATIONAL
Issues Monitor
Sharing knowledge on topical issues in the Technology Industry July 2012, Volume 10 kpmg.com
b | Issues Monitor: July 2012, Volume 10
Gary Matuszak
Global Chair, Technology
Keeping up to date with the very latest and most pressing issues facing your organization can be a challenge, and while there is no shortage of information in the public domain, filtering and prioritizing the knowledge you need can be time consuming and unrewarding. Issues Monitor Technology is published to help you navigate the multitude of information out in the market. I hope that you find it useful and I welcome the opportunity to further discuss the issues presented and their impact on your business.
Welcome to the July edition of Issues Monitor Technology. Each edition pulls together and shares industry knowledge to help you quickly and easily get briefed on the issues that affect your sector.
ISSUE 1: Software as a Service market growing rapidly The growth in the global Software as a Service (SaaS) market is largely driven by the increasing need of organizations, across industries, to cut costs, and by the relative speed and ease with which SaaS solutions can be deployed. Further, an increasing number of small and medium-size firms are adopting SaaS, prompting service providers to introduce a wider range of SaaS solutions. Many vendors are also looking at potential acquisitions to strengthen their market position. At the same time, major concerns remain regarding security, network instability and integration. This has caused customers to focus more on stringent service level agreements, contract terms and governance structures.
ISSUE 2: Enterprise IT spend takes a cut The global economic challenge is forcing CIOs to look at their IT budgets very carefully. The return on each IT investment is critically evaluated and CIOs are finding various ways to derive the maximum value out of the IT investments made. Cloud computing, business analytics, virtualization, social media and mobility are few of the initiatives that enterprises are considering to be on high priority in order to meet their client needs, increase profitability and gain competitive advantage. It is evident that despite the global economic challenges, enterprises continue to invest in IT (especially in various technologies such as cloud, analytics, mobility etc). Many research firms suggest that there might be a slowdown in the growth of enterprise IT spend because of the postponement of IT spending decisions and delay in decision making process; however organizations are expected to continue spending in critical IT areas which are expected to add value to the business with an assured return on investment (RoI).
2012 KPMG International Cooperative (KPMG International), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
Issues Monitor: July 2012, Volume 10 | 1
Software as a Service market growing rapidly
The growth in the global Software as a Service (SaaS) market is largely driven by the increasing need of organizations, across industries, to cut costs, and by the relative speed and ease with which SaaS solutions can be deployed. Further, an increasing number of small and medium-size rms are adopting SaaS, prompting service providers to introduce a wider range of SaaS solutions. Many vendors are also looking at potential acquisitions to strengthen their market position. At the same time, major concerns remain regarding security, network instability and integration. This has caused customers to focus more on stringent service level agreements, contract terms and governance structures.
2 | Issues Monitor: July 2012, Volume 10
Global SaaS market being driven by cost cutting and ease and speed of deployment
According to KPMGs Embracing the Cloud , nearly half of the end-users surveyed (46 percent) stated that their most likely investments are expected to be in cloud-delivered SaaS. The global cloud computing market networks of virtual servers that allow individuals and businesses to access information from any internetconnected device is experiencing robust growth. This growth is driven primarily by the need of companies to reduce costs. Another factor driving growth is the need for easy access to technology, as cloud computing can provide such access.1, 2 The Software as a Service (SaaS) model has experienced the most rapid growth in the global cloud computing market. According to Embracing the Cloud KPMGs 2011 Global Cloud Survey report (based on a global survey of over 900 executives in 15 countries) nearly half of the end-users surveyed (46 percent) stated that their most likely investments are expected to be in cloud-delivered SaaS, as shown in Figure 1.3 As SaaS also referred to as on-demand software provides applications through the internet, it eliminates the need to install, run or maintain programs in internal systems.4
Figure 1: KPMG study showing likely investments in different cloud computing service models, 2011 (percent of respondents) 50 40 30 20 10 9% 0 Software as a Service (SaaS) Infrastructure as a Service (IaaS) Total users (n = 805)
Source: Embracing the cloud, KPMG, November 2011
46%
48%
45% 35%
41% 32%
34%
35%
33% 9% 10% 14% 10% 16%
Platform as a Service (PaaS) Users (IT n = 237)
My organization does not have plans to invest in cloud environment Users (Business n=568)
Don't know
In 2011, the worldwide SaaS market revenue reached US$12.3 billion, up from US$10 billion in 2010. In 2012, the worldwide SaaS market revenue is expected to reach US$14.5 billion. Companies across industries are
increasing their investments, shifting their projects from on-premise to SaaS. The following factors are contributing to the robust growth seen in global SaaS market, as shown inFigure 2:
Figure 2: Factors driving growth in the global SaaS market5, 6, 7, 8, 9, 10, 11 Cost cutting Amid the current uncertain economic conditions, tight IT budgets are pushing demand for cloud computing services. Post 2009-2010 recession the opportunity to save costs is attracting companies to implement SaaS-based applications, as these do not require upfront investments for physical infrastructure, deployment and training. The global SaaS market is expected to reach US$21.3 billion by 2015, growing at a CAGR of 14.7 during 2011-1512
The speed and ease of deployment have contributed to the increasing popularity of the SaaS model. The faster implementation of SaaS and the immediate access it offers reduce the time taken by customers to realize value from software purchases. Growth is also being driven by consumers increasing familiarity with the SaaS model
Ease and speed of deployment Increasing demand from SMBs
Increasing adoption of SaaS by small and medium-size businesses (SMBs) is another major factor driving growth. As SMBs find the pay-as-you-use SaaS model in line with their business objectives, the demand from these SMBs is increasing. Another factor behind SMB adoption of SaaS solutions is the need to reduce overall investment by eliminating added costs associated with on-premise solutions such as software licenses, dedicated servers, maintenance fees and upgrades, and IT personnel support.
Further, with the increased workforce mobility in both large corporates and SMBs, there is greater need to access data from smartphones and tablets. As SaaS facilitates the integration of powerful business applications on smartphones, tablets and other
wireless devices, it is likely to be increasingly adopted by the corporate business environment. This model will help boost companies productivity and efficiency by providing employees access to data while they are on themove.13, 14
Worldwide SaaS market Geographic outlook.

Across markets and regions, SaaS is being adopted at different rates, depending on the various factors driving the growth in any particular market.15, 16 In 2011, North America accounted for 63.4 percent of the global SaaS market. In 2011, SaaS revenue in the region reached US$7 .8 billion, a 20 percent increase over the revenue generated in 2010. In Latin America, SaaS revenue is forecast to total US$419.7 million in 2012, up from US$331.1 million last year. In Western Europe, SaaS revenue grew 23.3 percent, from US$2.2 billion in 2010 to US$2.7 billion in 2011. In the Eastern European region, it is projected to reach US$169.4 million in 2012, up from $135.5 million last year. Apart from these regions, Northern Europe, which comprises the UK, Ireland, the Netherlands and Nordic countries, is also experiencing robust SaaS adoption. In the Asia Pacific region, SaaS market revenue grew 21.5 percent, from US$601.8 million in 2010 to US$730.9 million in 2011. Australia, New Zealand, Hong Kong, Singapore and South Korea are some of the key SaaS markets that offer growth opportunities for service providers. In Japan, SaaS revenue reached US$427 million in 2011, up 35.4 percent from US$315.3 million in 2010. Figure 3 provides SaaS revenue in different regions and the factors pushing growth, along with forecasts for 2015.
Figure3: SaaS revenue in different regions and high-growth markets EMEA The Western European SaaS market revenue is expected to grow from US$2.7 billion in 2011 to US$4.8 billion in 2015. Eastern Europe SaaS market revenue is expected to reach US$270.1 million in 2015, up from US$135.5 million in 2011. Major factors contributing to the robust growth in the Northern Europe SaaS market include culturally open outlook toward technology adoption, well-established internet infrastructure and English as the primary language. Low TCO is the key driver of growth in the EMEA region. AMERICAS North Americas SaaS revenue is expected to reach US$12.9 billion in 2015, up from US$7.8 billion in 2011. Ease and speed of deployment and lower total cost of ownership (TCO) are driving growth. Latin Americas SaaS market is at an embryonic stage. It is expected to grow from US$331.1 million in 2011 to US$694.2million in 2015. ASIA PACIFIC The Asia Pacific SaaS market revenue is expected to reach US$1.7 billion in 2015, up from US$730.9 million in 2011. Major factors spurring growth in Australia, New Zealand, Hong Kong, Singapore and South Korea, include established infrastructure, more-stable networks and availability of vendor sales, marketing and support service structures. Japan SaaS market is expected to grow from US$427 million in 2011 to US$629.1 million in 2015.
Source: North America to account for 64 percent of SaaS revenue in 2011, Gartner, September 14, 2011; Gartner says worldwide Software-as-a-Service revenue to reach US$14.5 billion in 2012, March 27, 2012
Worldwide SaaS market Segment outlook

.
Within the global SaaS market, customer relationship management (CRM) accounts for the largest share, as shown in Figure 4. In 2011, the segment revenue is expected to reach US$3.8 billion, up 18.7 percent from US$3.2 billion in 2010. This growth in the SaaS CRM market is being driven largely by the need to improve customer
loyalty management, promote customer retention and enhance the customer experience. The market landscape for on-demand CRM continues to evolve and mature as the availability and use of SaaS solutions become more pervasive, said Tom Eid, Vice President of Technology and Service Provider Research at Gartner.17
Within the global SaaS market, customer relationship management (CRM) accounts for the largest share.
Figure 4: Worldwide SaaS market segments, 2011 (%)
28.1%
31.4%
14.1%
26.4%
Customer Relationship Management Enterprise Resource Planning
Content Communication and Collaboration Others
Source: Gartner says worldwide Software-as-a-Service revenue is forecast to grow 21 percent in 2011, Gartner, July 7, 2011
The other key SaaS segments are content, communication and collaboration (CCC) and enterprise resource planning (ERP). In 2011, SaaS revenue within the CCC market is expected to reach US$3.3 billion, up 17 .8 percent from US$2.8 billion in 2010. Businesses are increasingly moving to CCC solutions, as they not only facilitate content sharing but also enable employees to connect and collaborate more effectively. Employees can work on the same
documents in real-time from any location and any internet-connected device.18, 19 In fact, CCC solutions have made instant messaging, web conferencing and document sharing both internally and externally easier.20 The SaaS ERP segment revenue is expected to grow 13.3 percent, from US$1.5 billion in 2010 to US$1.7 billion in 2011. As SaaS ERP solutions eliminate the need to install hardware and ensure easier and faster implementation, executives involved in technology decision-making across businesses
are increasingly turning to these solutions. However, the penetration of SaaS within ERP varies greatly between subsegments, with human capital management (HCM) having the most penetration. The availability of HR systems as SaaS which can be paid for on a monthly subscription basis helps companies manage HR data in real time. Some of the core HR areas for SaaS that are gaining importance are labor management, HR administration, payroll and recruitment.21, 22, 23, 24
Strategic initiatives taken by various SaaS providers

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Players such as Microsoft, IBM, HP , Dell, Salesforce.com and Amazon are all developing new SaaS solutions and adding capabilities to the existing ones to strengthen their positions in
the market. Also, they are looking at potential acquisitions to expand their offerings. Table 1 outlines various initiatives taken by service providers in the global SaaS market.
Table 1: Strategies followed by companies in the SaaS market to increase market share Strategy Introduction of new SaaS solutions Description As the demand for SaaS grows, service providers are launching new offerings, adding new capabilities to the existing services and introducing industry-specific SaaS solutions. Example BMC Software In January 2012, BMC Software, a US-based provider of IT service management (ITSM) solutions, announced the availability of its Remedy OnDemand solution, the ITSM SaaS solution optimized for local, state, federal and public highereducation markets, for the government sector. 25 Fujitsu In January 2012, Fujitsu announced the release of Ticket Management SaaS, a solution that enables event promoters throughout Japan to manage ticket sales for entertainment events including movies, theater performances, concerts and sporting events in addition to managing events and purchases. In contrast to the conventional method of selling tickets through Playguide, a popular ticket purchasing system in Japan, the new solution allows users to handle ticket reservations, sales and management on their own in real time. As a result, promoters can sell tickets efficiently and at lower cost.26 Also, in October 2011, Fujitsu announced the launch of Ufinity for Public, a SaaS offering for public libraries throughout Japan. This next-generation library service is expected to bring greater convenience to both library customers and staff, through portal sites. The services include features that make it easy to create and update a library portal site and communicate with staff over the web.27 CSC In September 2011, US-based CSC announced the launch of a SaaS model for its insurance billing application, Exceed Billing. This application is expected to help insurance companies cut costs, expand billing channels, increase payment options and consolidate multiple market segments. The software offers unlimited payment options and processing for all bill types. Built-in automated processes and integrated workflow help boost productivity. Further, Exceed Billing helps insurers enhance customer and agent satisfaction, improve retention rates and accelerate speed to market.28
Strategy Technology companies focusing on M&A to enhance SaaS capabilities
Description Various technology companies such as Oracle, Microsoft and HP are looking at potential merger and acquisition (M&A) opportunities to extend their SaaS offerings. They are also entering into partnerships with other players to offer new SaaS services. In the US, 48 SaaS companies were acquired in the third quarter of 2011, up from 45 in the second quarter and 39 in the first quarter. This rise in M&A activity in the SaaS market reflects the fact that chief information officers (CIOs) are gaining confidence in SaaS-deployed applications.29, 30
Example Oracle In February 2012, Oracle completed the acquisition of Taleo, an on-demand talent management software company, for US$1.9 billion. With the Taleo acquisition, Oracle plans to bolster its cloud HR applications.31 Also, in October 2011, Oracle announced its plans to acquire RightNow, a US-based cloud-based customer service application company, for US$1.5 billion. As RightNows Customer Service Cloud helps companies deliver customer experiences across call centers, the Web and social networks, the acquisition is expected to boost Oracles CRM initiatives and counter the stiff competition from Salesforce.com.32, 33 SAP and NEC In February 2012, IT and network technologies firm NEC and enterprise application software firm SAP Japan entered into a partnership to provide billing services through SaaS that operate on NECs cloud computing systems. Under the new business partnership agreement, NEC and SAP Japan are expected to provide the billing services as cloud-based SaaS that enable a reduction in initial investments, and are easy to expand.34 In February 2012, SAP acquired SuccessFactors, a leading provider of cloud-based business execution software, for US$3.4 billion. The acquisition combined with Oracles acquisition of RightNow highlights how legacy enterprise software vendors are building their capabilities in the cloud based HR solutions.35 Wipro and Oracle In January 2012, India-based Wipro Technologies announced the launch of Wipro SprintHR, a cloud-based technology offering, used to deploy Oracle Fusion Human Capital Management. It is available as a SaaS model and is designed to help enable enterprise customers to transform their HR processes.36 Salesforce.com In September 2011, Salesforce.com completed the acquisition of Assistly, an instant customer-service helpdesk built for the cloud, for US$50 million. The acquisition is expected to help Salesforce.com extend its Service Cloud customer service offering to small businesses.37, 38
Service providers focus on pricing strategy to foster SaaS adoption
To bolster SaaS adoption, SaaS providers are also focusing on their pricing strategies. Increased activity in this area by leading technology players such as Microsoft, HP and Google is adding to the competition, thereby resulting in an intense price war in the global SaaSmarket.39
Microsoft In August 2011, Microsoft introduced its Cloud CRM for less offer. Under this offer, which was available through March 2012, companies did not need to pay any premium for CRM solutions. During this time, Microsoft was expected to grant US$150in cash per user seat to any customer that switched to its application. A minimum of 50seats were required under the offer, for a maximum of 500 user seats. This made it easier for Salesforce.com, SAP and Oracle customers to switch to Microsoft Dynamics CRMOnline.40, 41
Challenges yet to be addressed

Although SaaS is becoming increasingly popular, certain issues around security, network instability and implementation Figure 5: Challenges that are hindering SaaS market growth42, 43, 44, 45, 46, 47, 48, 49, 50 Security continues to be a major issue. In August 2011, Salesforces Sandbox* outage raised concerns over the security and reliability of SaaS. The Sandbox environment went down for six days, compelling customers to focus on SLAs and SaaS testing. Also, in August 2011, the five-hour outage of Microsofts Office 365 drew attention to the issue of security.
cycles remain. Figure 5 shows the major challenges that are hindering growth in the SaaS market.
Network instability is another issue that is hampering growth of the SaaS market. Well-established infrastructure and stable networks that can handle huge traffic are important to ensure consistent services.
Security
Network instability
While SaaS deployment is usually quick, customized SaaS installations can take considerable time, due to technical challenges.
Longer-thananticipated implementation cycles
Limited integration with existing systems
Lack of integration between SaaS and on-premise systems creates challenges around monitoring or controlling user identity access.
These challenges call for stricter governance policies that can ensure data security and efficient running of SaaS applications.
As access is a centralized and automated function, accesscontrol systems that are well-established in enterprise applications, but are rarely extended to SaaS provider networks, can cause problems while performing several functions such as disabling access to any employee. The issues around integration are expected to cause further challenges, as organizations look to better leverage internal and external data and information.
These challenges have prompted service providers to increase their focus on ensuring uninterrupted service and effective security of their SaaS solutions. In August 2011, Salesforce. com acquired Navajo Systems, an Israel-based cloud security encryption vendor to encrypt customer data and ensure data security. This acquisition has the promise of providing greater customer
assurance that the data in Salesforce is effectively guaranteed safe, said Jeff Hudson, Chief Executive Officer of Venafi, a US-based company that provides an automated way to manage encryptionkeys. In October 2011, NetSuite, a cloud-based SaaS integrated business management software provider, announced plans to boost its SaaS capabilities and enhance security in
* Sandbox is a hosted testing and training application, which helps customers conduct training on hosted applications from AppExchange. AppExchange was designed to extend Salesforce.coms presence in the enterprise beyond hosted sales and service applications. It provides new applications, such as human resources, data cleansing or vertical editions of Salesforce.com.
its solutions. The company formed a partnership with CA Technologies, a US-based IT management software and solutions company, whose twofactor authentication technology (two-factor authentication is a security process in which the user provides two means of identification, one of which is typically a physical token such as a card, and the other of which is typically something memorized, such as a security code) is expected to be applied on NetSuites back-end
systems and sold as an option to customers.51, 52 The need for security governance is also pushing for stricter governance policies around cloud computing and SaaS. The importance of governance mechanisms will continue to increase as SaaS becomes a larger element of a companys overall sourcing strategy, said Sharon Mertz, Research Director atGartner.53 Further, buyer behavior has also
been changing. Customers are now making more informed choices. They are seeking guidance regarding SaaS prices and discounts, service-level agreements (SLAs) and contract terms. They are also emphasizing uptime and performance in the negotiation process. In addition, they are focusing on understanding the exit clauses and strategies that should be set in place before entering into a SaaS agreement, so as to protect them from failedsolutions.54
Outlook
Given the increasing popularity of SaaS and the various initiatives taken by service providers to overcome SaaSrelated challenges, the global SaaS market is expected to show robust growth.55 This growth is expected to be driven by the increasing demand for SaaS solutions from sectors such as government, manufacturing, natural resources, wholesale trade and retail.56 Also, increasing demand from the SMB sector is likely to bolster the growth. The following examples suggest the future growth in the global SaaSmarket: In November 2011, the US federal government released a draft version that discusses its plans to accelerate the adoption of cloud computing. The Obama administration is pushing its federal agencies to adopt SaaS solutions, to reduce spending and increase the efficiency of federal IT.57 Between 2010 and 2014, the SaaSbased ERP software market in the Asia-Pacific region is expected
to grow at a compounded annual growth rate (CAGR) of 45.2 percent, according to a November 2011 Research and Markets report. In North America, it is expected to grow at a CAGR of 24.8 percent over the same period. The US SMB SaaS CRM market is expected to triple by 2015, according to AMI Partners* US SMB Cloud Services study. The increased availability of broadband internet connectivity, the proliferation of wireless-enabled mobile devices and the need to cut costs amid uncertain economic conditions are the major factors driving SMBs toward cloudservices.58 In order to explore this growth opportunity, service providers need to form partnerships and collaborate with multiple vendors to introduce new solutions. Cloud alliances and partnerships are expected to support future growth, especially when the market is becoming increasinglycompetitive.59
* AMI-Partners specializes in IT, Internet, telecommunications and business services strategy, venture capital, and actionable market intelligence with a strong focus on global small and medium businesses (SMBs), and extending into large enterprises and home-based businesses.
Further Information
Visit kpmg.com for the following related publications
.
Key contacts Transaction Services KPMGs Transaction Services teams are trusted advisors to many of the worlds leading corporations and financial investors. KPMGs global network comprises of 3,500 transaction professionals with M&A advisory skills and experience working with firms clients to preserve and create value in major business transactions. KPMGs Transaction Services practice helps clients plan and complete major business transactions. Internal Audit, Risk Consulting Services KPMG member firms Internal Audit, Risk Consulting Services (IARCS) deploys multidisciplinary teams of professionals experienced in financial and operational internal auditing, IT, fraud analytics and risk assessment, shared services, finance management, treasury and financial instruments, and the supply chain to augment and enhance an organizations existing internal audit capabilities.
Embracing the Cloud - Global forces shaping the service provider market Semiconductor Executives Temper Growth Expectations Seizing the moment - 2011 share forum for financial planning, budgeting, and forecasting How KPMG firms can help. IT Advisory Services (IT Strategy andPerformance) KPMG member firms work with clients to analyze business technology issues within their businesses. A client might approach us for assistance with developing an appropriate IT strategy, sourcing, cost optimization, logistics and supply chain issues and regulatory and compliance. KPMG member firms focus on the business impact of technology rather than systems implementation. As a result, their advice is geared to the specific needs of each client.
Gary Matuszak Global Chair Technology, Media & Telecommunications Tel.+1 408 367 4757 gmatuszak@kpmg.com David McAllister Global Sector Executive Technology, Media & Telecommunications Tel.+61 2 9335 8143 dmcallister@kpmg.com.au
Enterprise IT spend takesacut.

The global economic challenge is forcing CIOs to look at their IT budgets very carefully. The return on each IT investment is critically evaluated and CIOs are nding various ways to derive the maximum value out of the IT investments made. Cloud computing, business analytics, virtualization, social media and mobility are few of the initiatives that enterprises are considering to be on high priority in order to meet their client needs, increase protability and gain competitive advantage. It is evident that despite the global economic challenges, enterprises continue to invest in IT (especially in various technologies such as cloud, analytics, mobility etc). Many research rms suggest that there might be a slowdown in the growth of enterprise IT spend because of the postponement of IT spending decisions and delay in decision making process; however organizations are expected to continue spending in critical IT areas which are expected to add value to the business with an assured return on investment (RoI).
Introduction
In 2012, worldwide enterprise IT spend is expected to increase 3.9 percent y-o-y to US$2.7 trillion, falling much short of the early 2011 estimate of 5.9 percent. These weak forecasts indicate that IT departments across industries worldwide are cutting their IT budgets. According to Stephen Minton, Vice President of Worldwide IT Markets at IDC, 2012 IT spending forecasts are based on the assumption of a weak European economy between zero
and one percent growth and in the US between one and two percent growth. This is pretty weak by historical standards. 60, 61 This reduction in enterprise IT spend is impacting the overall IT spend globally (enterprise IT spending constituted around 70 percent of overall IT spending in 2011). After experiencing a lull in 2009, the technology industry experienced a recovery in IT spend in 2010. Further, 2011 marked a year of growth for IT
budgets, even though they remained far below pre-2008 levels. In 2012, the global IT spend is expected to grow only 3.7 percent year-on-year (y-o-y), to reach US$3.8 trillion, lower than the earlier estimate of 4.6 percent according to Gartner.62, 63 Figures 6 and 7 show the global IT spend over 201112, and the global enterprise IT spend (201112) with projected vs. actual growth rates.
Figure 6: Global and enterprise IT spend, 2011,2012 (US$ trillion) projected vs. revised
Figure 7: Percentage change in global and enterprise IT spend, 2012- projected vs. revised growth rate
4 3 2 1 0 3.7 3.8 3.8 2.6 2.8 2.7
6% 4% 2% 0% Global IT spend Enterprise IT spend 2011 2012-Projected 2012-Revised
5.9% 4.6%
3.9% 3.7%
2012-Projected growth rate Global IT spending
2012-Revised growth rate Enterprise IT spending
Note: The figures are rounded off; The growth rates were projected during 3Q,2011; and the revisions were made during 4Q,2011 (as per update published on Jan 5,2012) Source: Gartner, January 2012
Note: The percentage change is based on the absolute numbers; The growth rates were projected during 3Q,2011; and the revisions were made during 4Q,2011 (as per update published on Jan 5,2012) Source: Gartner, January 2012
The global IT spend, which was projected during 3Q 2011 to grow 4.6 percent in 2012, is now expected to grow 3.7 percent. On the same lines, global enterprise IT spending is expected to grow 3.9 percent against a projected growth rate of 5.9 percent.64
According to Gartner, the reduction of its forecast for worldwide IT spend for 2012 is not only for the anticipated slower growth rate of the global economy, but also Thailand floods impacting general IT spending in the first two quarters. There seems to be greater concern from Thailand supply
chain than previously expected. This apart, the European credit crisis also seemed to have cast its shadow on Gartner to reduce its outlook for IT spending in 2012.65 Figures 8 and 9 show global IT spend by key sub-sectors in 2011 and 2012 and their growth rates.
Figure 8: Global IT spend by key sub-sectors, 2011(US$trillion) 3.0 9.6% 7.6% 1.5 6.9% 7.7% 6.1% 5% 1.7 0.4 0.4 0.3 0.0 0% Computing Enterprise IT Telecom Telecom hardware software services equipment services Growth (%) IT Spend 2011 (US$, trillion)
Note: The figures are rounded off; IT spend 2011 figures are actual Source: Gartner, January 2012
Figure 9: Global IT spend by key sub-sectors, 2012(US$trillion) 10% 3.0 5.1% 1.5 3.1% 6.4% 6.9% 8%
2.3%
4%
0.8
0.9 1.7 0.5 0.4 0.3 0.0 0% Computing Enterprise IT Telecom Telecom hardware software services equipment services Growth (%) IT Spend 2012 (US$, trillion)
Note: The figures are rounded off; IT spend 2012 figures are projected Source: Gartner, January 2012
The reduced IT spending affects almost all the verticals, including Government which is a focus vertical for the IT companies because of various e-governance initiatives across regions.
The reduction in growth of worldwide IT spend for 2012 is expected to impact four major technology sub-sectors, namely computing hardware, enterprise software, IT services, and telecommunications equipment andservices. It has been predicted that all the four sub-sectors will grow at a slower rate in2012 than in 2011. The computing hardware sector, which grew 7 .6 percent y-o-y in 2011, is expected to grow at 5.1percent in 2012; The IT services segment is expected to grow at 3.1 percent in 2012, while it grew 6.9 percent y-o-y in 2011; Enterprise software is expected to grow at 6.4 percent y-o-y in 2012, compared to 9.6 percent in 2011. The floods in Thailand (that occurred in October, 2011) is having serious implications for businesses globally, especially with regard to computer and storage purchases. In fact, many prominent companies, such as Intel,
had to reduce their revenue forecasts (Intel reduced its Q4,2011 revenue forecast to US$13.7 billion, from the earlier projection of US$14.7 billion) following the supply constraints of hard disc drive (HDD) from Thailand. The shipment of PCs too was reduced in the wake of floods.66 Thailand enjoys a 40 to 45 percent market share in the HDD market globally and the supply constraints from the country, as a result of the closure of some of the manufacturing units after the floods, have increased the prices of HDD. The increase in HDD prices have resulted in postponement of new IT projects and reduced IT spending across corporate and government organizations. Supply of HDD from Thailand is expected to increase during the latter part of the second quarter of 2012, followed by stabilization in prices.67 The reduced IT spending affects almost all the verticals, including Government which is a focus vertical for IT companies because of various e-governance initiatives acrossregions.
Tumultuous economic conditions in eurozone and US taking toll on enterprise IT spend

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With factory output falling and economic sentiment weakening, the eurozone economy continues to falter.68 In the first quarter of 2012, the regions y-o-y gross domestic product (GDP) contracted 0.1 percent, lower than the average quarterly GDP growth of 1.8 percent over 19952011.69, 70 According to Gartner, in 2011, enterprise
IT spend in Europe, Middle East and Africa (EMEA) of which Western Europe accounts for an 80 percent share is estimated at EUR604 billion (US$787 .5 billion), representing a y-o-y decline of 1.4 percent, as shown in Figure 10. Enterprise IT spend in Western Europe is estimated to have declined 1.8 percent annually in 2011.71, 72
Is your company well focused on the emerging economies that are driving the growth of enterprise IT spend?
Figure 10: Eurozone GDP growth and its impact on enterprise IT spend Eurozone y-o-y GDP growth rate, Q1 2010Q1 2012 (%) Eurozone GDP y-o-y growth rate (%) 2.5 2.0 1.5 1.0 0.5 0.0 -0.5 0.6 2.0 2.0 1.9 2.4 1.6 1.4 0.7 -0.1 Uncertain economic conditions in the eurozone are weighing down on IT budgets of both corporations andgovernments. In the first quarter of 2012, GDP in Greece contracted by 6.2 percent y-o-y, while Italys GDP declined by 0.8 percent. Among the other major countries, both UKs and Spains GDP contracted by 0.3 percent, during the same period. According to an IDC survey conducted in November 2011, Western European companies are planning cautious IT spend in 2012. Approximately 40 percent of the companies are expected to raise external IT spend, with only a quarter of these planning to increase by 5 percent. About 17 percent of the companies expect external IT spend in 2012 to decline, while the remaining plan to make no changes to their IT budgets.
Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 EMEA Enterprise IT spend, 201011 (US$ billion) The second recession is about to hit and CIOs must decide which way to turn. The continued global economic uncertainty and the eurozone crisis will impact your IT budget in 2012, and your business will face difficult budgetary questions, said Peter Sondergaard, Senior Vice President and Global Head of Research, Gartner
800 790 780 798.6 787.5 2010 2011
Source: Trading Economics, Gartner, CIOs Face Tough Year With Demands Up, Budgets Down, WSJ, January 12, 2012; Western EU organizations prepare tougher IT budgets for 2012, Factiva, January 23, 2012
Also, austerity measures by governments in the eurozone suggest that further IT budget cuts are expected across the region. In February 2011, the UK government extended its IT spending controls program introduced in 2010. According to the new budget guidelines, all central government IT contracts worth more than GBP5 million (US$8.1 million) are subject to approval by the Treasury and the Cabinet Office. The Cabinet Office is reviewing all large existing IT
contracts with other departments. It has already reviewed over 300 projects and aims to stop contracts worth GBP1 billion (US$1.5).73 Such moves are targeted at checking the viability of various IT projects and curtailing those that are not sustainable, and subsequently saving costs. Similarly, government departments and enterprises in the US have also been compelled to implement IT budget cuts. In the first quarter of 2012, the
y-o-y GDP growth rate in the US stood at 1.9 percent, a modest increase from the 1.6 percent y-o-y growth in the previous quarter, as shown in Figure 11.74, 75, 76 This slow economic growth has led to shrinking corporate profits and a widening trade deficit. In North America, in 2012, investment in IT by enterprises and the public sector is expected to fall 0.6 percent, according to a global Gartner survey of 2,335 chief investment officers (CIOs) published in January 2012.77
Figure 11: US GDP growth and its impact on enterprise IT spend US y-o-y GDP growth rate, Q1 2010Q1 2012 (%) 3.5 US GDP y-o-y growth rate (%) 3.0 2.5 2.0 1.5 1.0 0.5 0.0 2.2 3.3 3.5 It (IT budgets) looks pretty much correlated to the macro economy. Large companies, the multinationals, are much more hostage to the macro economy. For them, there is almost no way to avoid these pressures, said Dave Aron, analyst at Gartner 3.1 2.2 1.6 1.5 1.6 1.9 Federal agencies and departments are focusing on cost-cutting initiatives. During 201217, IT spend for civilian agencies and departments are expected to be around US$43 billion. IT spending by defense agencies and departments 2012-17 (US$, billion) 40 30 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 20 38 2012 35 2017
Source: Trading Economics, Gartner, Federal IT Budgets Flat Through 2017, InformationWeek, October 19, 2011; Feds Expand Data Center Consolidation Plans, InformationWeek, October 7, 2011
These conditions are prompting US federal agencies and departments to cancel or defer planned IT projects. Federal IT budgets are expected to remain flat through 2017 , according to
TechAmerica, a US-based technology trade association.78 Moreover, in October 2011, the federal government announced its plan to close a substantial number of data centers
to increase savings. By 2015, it is planning to close 962 data centers, and estimates that these closures would help it save more than US$5 billion over the long term.79, 80, 81, 82
Reduction in enterprise IT budgets affects technology companies

.
The increased risk of another economic meltdown has compelled companies and governments in both the eurozone and the US to contract their IT budgets. This has affected the technology companies that rely primarily on these two regions. In the third quarter of fiscal year 2012 (ended February 8, 2012), CSC reported a loss of US$1.39 billion, or a 5.8 percent y-o-y decline in revenue, to US$3.7 billion. This dip in performance was due to a US$1.49 billion charge related to the UK governments cancellation of a health IT contract.83 In the first quarter of 2012, HP reported a 7 percent y-o-y fall in its revenue, to US$30 billion. The company further issued cautious outlook for the second quarter of 2012, highlighting cautiousness around both consumer
and commercial spending, and hard disc drive shortage.84 In addition, other companies such as Microsoft, Sony, Toshiba and IBM reported softening in demand from companies across industries. This trend is expected to continue in the second half of 2012. For example, in November 2011, life insurance company Western & Southern Financial Group announced plans to cut or leave IT spend unchanged in 2012. However, it also announced plans to invest in virtualization software from VMware so it can cut purchases of server computers from Dell and HPQ and storage products from EMC and NetApp.85 Mark Loughridge, Senior VP and CFO of IBM, highlighted how the trend is affecting business decisions. I do think
Is your company focused on new opportunity areas such as cloud, virtualization and business analytics?
CFOs are cautious, and they want to make sure they have the right processes engaged. On the other hand, they are also looking for value to apply to their business equations, he said. However, he also emphasized that amid such challenging conditions, the demand for opportunities that new technologies such as cloud computing and business analytics offer are also on the rise.86
Emerging economies to drive enterprise IT spend

.
While in developed economies, technology companies are facing tough IT budgets, the emerging economies are likely to drive IT spend. The pace of economic growth in emerging economies is leading to a shift in enterprise focus toward IT. Moreover, these economies are experiencing a rapid growth in demand for customer support services, supply
chain management, business process optimization or innovation in business, and as a result, enterprises are increasingly looking at IT to cater to this demand.87 In 2012, enterprise IT spend in Asia Pacific (including Japan and Australia) is expected to grow 8 percent y-o-y, to US$367 billion. This growth is expected to come mainly from India and China, as shown in Figure 12.
While in developed economies, technology companies are facing tough IT budgets, the emerging economies are likely to drive ITspend.
Figure 12: Economic growth and enterprise IT spend of emerging economies
In the first quarter of 2012, Chinas GDP grew 8.1percent y-o-y. In 2011, Chinas GDP expanded 9.2 percent y-o-y. Over 2011-15, IT spend in china is expected to grow at a CAGR of 8.8 percent, according to Ovum. Enterprise IT spend is expected to spur driven by the gradual modernization of sectors such as education, healthcare, manufacturing and government.
In the first quarter of 2012, Indias GDP grew 5.3percent y-o-y. In 2011, Indias GDP expanded 7.2 percent y-o-y. In 2012, Indian enterprise IT spend is expected to reach US$39 billion, a y-o-y growth of 10.3 percent. This is expected to be driven by the increasing demand from the retail industry and the government.
In the first quarter of 2012, Malaysias GDP grew 4.7percent y-o-y. In 2011, Malaysias GDP expanded 5.1 percent y-o-y. In 2012, Malaysias enterprise IT spend is expected to grow 6.1 percent y-o-y to US$10 billion. Increasing private investment and support from government are likely to boost this spend.
Source: EIU accessed on March 26, 2012; Trading Economics; Chinese GDP growth beats expectations, Asia Pacific News, January 17, 2012; Chinas 2011 GDP growth slows to 9.2%, ChinaDaily, January 17, 2012; Financial markets IT spend to hit US$18 billion in Asia-Pacific, The Nation, August 8, 2011; China IT spending is forecast to reach US$105.4bn in 2011, Wooeb, August 5, 2011; Public sector IT spending in China to exceed US$42.8 billion, SMBWorldAsia, March 14, 2011; Indian enterprise IT spending will grow 10.3% in 2012, The Economic Times, January 24, 2012; Indian enterprise IT spending will grow 10.3% in 2012, The Economic Times, January 24, 2012; Retail, govt to drive enterprise IT spend in India, Business Line, January 24, 2012; Malaysias IT industry to grow, but challenges ahead, ZDNet, January 13, 2012; Malaysia: Look Ahead to 2012 - Part 1, MIS Asia, January 4, 2012; Chinas GDP growth slows to 8.1% in first quarter of 2012, ICIS.com, April 13, 2012; India GDP growth rate, Trading Economics; Malaysias GDP growth in the first quarter slows to 4.7 percent, xinhuanet, May 23, 2012
Further, technology companies are expanding their footprint in these emerging economies in order to leverage the growth opportunity such regions offer.88 In January 2012, HP announced plans to expand its market in India, particularly in the state of Uttar Pradesh, targeting micro, small and medium enterprises. Meanwhile, the company launched its new range of monochrome and color laser printers for small office home office (SOHO) and SMBs in the state.89 In September 2011, IBM announced the adoption of its smarter computing systems, software and services across Chinas private and public sectors, including China National Bureau of Statistics, Guizhou Provincial Health Department and Guizhou Mobile.90
IT spend in the Middle East and Africa is expected to grow steadily Economies in the Middle East and Africa are also expected to observe a higher growth rate across verticals.
.
Gartner predicts Middle East and Africa enterprise IT spending across all industry markets to reach EUR70 billion (US$53 billion) in 2012, a 6.3 percent increase from 2011 spending of EUR66 billion (US$49.1 billion).91 Comparing with the growth rate of 2011, Peter Sondergaard, Senior Vice President and Global Head of Research at Gartner, said, In 2011, the growth rates across the Middle East and Africa region were in double-digit figures. As a consequence, 2012 will be hampered more. 92
Further, technology companies are expanding their footprint in these emerging economies in order to leverage the growth opportunity such regions offer.
Figure 13: Enterprise IT spending by vertical market in Middle East and Africa,(US$ billion) 20 15 10 5 0 8.9 Banking and securities 9.8 7.8 2011 = US$49.1 billion 8.4 2012 = US$52.2 billion Y-o-Y growth = 6.3 percent
9.5
7.3 Communications, media and services
9.3 1.5 1.4 Education Government
2.4 2.3 Healthcare providers
3.3 3.1 Insurance
8.1 Manufactruing and natural resources
2.4 2.3 Retail
2.6 2.4 Transportation
3.1 2.9 Utilities 1.2 1.2 Wholesale trade
2011
2012
Source: Middle East and Africa Enterprise IT spending will grow 6.3% in 2012, says Gartner, February 27, 2012
Transportation, banking and securities, healthcare, communications, media and services are the fastest growing
segments in Middle East and Africa markets with y-o-y growth in IT spend of 7 .5 percent, 7 .4 percent, 7 .4 percent and
7 .2 percent, respectively. Government accounts for the largest portion (19 percent) of overall IT spend.93
IT spending in Asian countries is expected to grow significantly The enterprise IT spend in Asian countries such as India and China is expected to achieve a significant growth rate in 2012.
.
According to Gartner, Indian enterprise IT spending across all industry markets is forecast to surpass US$39 billion in 2012, a 10.3 percent increase from 2011 spending of US$36 billion.94
Figure 14: Enterprise IT spending by vertical market in India, 2011-2012 (US$ billion) 20 2011 = US$36.0 billion 2012 = US$39.7 billion 7.5 6.2 7.3 8.1 Y-o-Y growth = 10.3 percent
15
10
5 5.6 Banking and securities 0 6.8 1.1 1.0 Communications, media and services Education Government 6.6 1.2 1.1 Healthcare providers 1.6 1.5 Insurance
7.3
2.1 1.9 Retail
2.0 1.8 Transportation
1.6 1.4 Utilities
1.1 1.0 Wholesale trade
2011
Source: Gartner, January 24, 2012
2012
Manufactruing and natural resources
The Indian enterprise market is quite distinct from other markets in Asia/ Pacific, said Derry Finkeldey, Principal Research Analyst at Gartner. The retail industry is expected to achieve the strongest growth in percentage terms in 2012, where IT spending is forecast to grow at a CAGR of 12.8 percent during 2010 (US$1.7 billion) -2016 (US$3.1 billion). A recent decision to allow 100 percent foreign direct investment (FDI) in single brand retail is expected to provide the sector with a significant boost in terms of IT usage
and adoption. Selection of partners with deep vertical expertise will be crucial to success. 95 Given the emergence of IT as an enabler in industries beyond manufacturing, government and financial services, currently IT providers are investing a significant amount of money with their channel partners. The focus is to convert them from generalists to specific industry product specialists to boost their products/solutions sales.96
Figure 15: Enterprise IT spending by vertical market in China, 2011-2015 (US$ billion) China IT market size and growth (US$ billion) 250 200 150 100 50 119.3 China IT vertical spending 2011-2015 CAGR Consumer/home 22.1% 19.8% 19.5% 15.8% 15.5% 15.4% 15.4% 15.3% 15.3% 14.5% 14.1% 14.1% 13.8% 13.3% 10.9% 9.6% 6.7% 16.5% 5% 10% 15% 20% 25%
= GR CA
5% 16.
Healthcare Wholesale Construction 220.0 Retail Discrete manufacturing Insurance Resource Industries Transportation Utilities Financial markets Process manufacturing Services Banking Government Communications and media Education Overall IT 0%
0 2011 China IT market y-o-y growth = 20.5%
IT spending 2011 2015
China IT market size by IT sub-sectors 2011 and 2015 11.5% 5.5% 83.0% Hardware 2011 = US$ 119.3 billion
Source: IDC Worldwide Blackbook, 2Q11
10.3% 5.1% 84.6% Software Services 2015 = US$ 220.0 billion
Enterprise IT spending in China is expected to grow at a CAGR of 16.5 percent between 2011 and 2015. China tends to spend more on infrastructure (83 percent of IT investment was in the hardware segment in 2011) and IDC expects this trend is likely continue till 2015.97 By 2013, Chinas share of the software
market in Asia/Pacific is expected to reach 30 percent (27 percent share in 2011), representing US$9.4 billion or 3.3 percent of total worldwide software market revenue. Compared with mature countries in the Asia/ Pacific region such as Australia (with 21 percent share of regional spending in 2010), the software market in China is still relatively young and evolving.
The top four vertical industries in terms of software spending are manufacturing, financial services, communications and government. Gartner estimates that these industries together account for 60 percent of total software spending inChina.98
The key local vendors in China that have a significant presence in the domestic market include AsiaInfo Linkage, Digital China, Founder, Neusoft, and Taiji. Large international vendors such as IBM, Oracle and SAP are also focused on the Chinese market to tap the growing opportunity.99
Technology companies exploring key opportunity areas to push sales

.
Technology companies are exploring new opportunity areas to help enterprises across industries improve their business performance. These new areas include technological advancements related to cloud computing, virtualization, social media, business analytics and mobility, as shown in Table 2. These areas provide enterprises the opportunity to cut costs, a key driver of growth amid the uncertain economic environment.
Further, they empower organizations to operate more efficiently, achieve long-term savings and reduce total cost ofownership. These forces (opportunity areas) are innovative and disruptive just taken on their own, but brought together, they are revolutionizing business and society. This nexus defines the next age of computing, said GartnersSondergaard.100
Table 2: Technology companies focus on key opportunity areas Opportunity area Business analytics Market snapshot Company initiatives
The global business analytics market is In March 2012, Oracle launched a new option to Oracle Database expected to grow at a compound annual 11g, called Oracle Advanced Analytics, for complex statistical growth rate (CAGR) of 6.8 percent over and predictive analytics. The solution is aimed at quants and 201014, according to Technavio, a UK-based statisticians looking to do complex analysis.103 independent market research company.101 Further, Oracle revealed its business intelligence and analytics In 2012, the business analytics software strategy at Oracle Open World held on April 4, 2012 in Tokyo, market is expected to reach US$33.9 billion, Japan, including the announcement of: registering a y-o-y growth of 8.2 percent, Latest release of Oracle Hyperion Enterprise Performance according to IDC.102 Management (11.1.1.2) New analytic applications for SAP Two new Oracle Business Intelligence Applications - Oracle Manufacturing Analytics and Oracle Enterprise Asset Management (EAM) Analytics General availability of Oracle Endeca Information Discovery.104 In May 2012, SAP announced innovation on the SAP HANA (high performance analytic appliance) platform, including the release of service pack 4. The announcement was made at SAPPHIRE NOW, an SAP event, held in Florida, US during May 14-16, 2012. With the SAP HANA platform, SAP customers can easily add new capabilities with service packs instead of costly upgrades.105 In January 2012, IBM introduced a new analytics appliance that can analyze large volumes of data, including consumer sales information and online shopping trends, to help retailers gain actionable insight into buying patterns.106
Cloud computing
By 2016, North America is expected to be the largest consumer of cloud computing, representing half (US$33 billion) of the global cloud computing market, according to Ovum. The cloud computing industry in Asia Pacific is expected to grow at a CAGR of 34.2percent over 201016, according toOvum.107
In order to explore the cloud computing opportunity, technology companies are launching cloud computing services, carrying out mergers and acquisitions (M&A) and forming partnerships. In March 2012, SAP announced its plans to introduce a cloud computing version of its enterprise resource planning (ERP) suite, Business One OnDemand. The product which was previously available as a licensed on-premise or hosted solution however, is now available on demand across 18 countries.109, 110
In 2010, US$74 billion was spent on public In January 2012, Microsoft entered a four-year partnership with cloud services representing three percent of HP to deliver its communications and collaboration applications enterprise spend. This is expected to grow to through HPs cloud services.111 19 percent annually through 2015, according In January 2012, IBM acquired Platform Computing, a Canadato Gartner.108 based cloud management software provider. Platform Computings In 2012, in EMEA, EUR20 billion (US$26.1 customer base of over 2,000 clients, with leading ones in billion) is expected to be spent on public government, media, education and oil and gas, is expected to cloud services, up from the estimated value bolster IBMs revenue base.112, 113 of EUR16 billion (US$20.8 billion) in 2011.
Opportunity area Enterprise Mobility
Market snapshot Total global shipments of tablet computers to enterprises are expected to increase at a CAGR of 48 percent, from 13.6 million units in 2011 to 96.3 million units in 2016, according to Infinite Researchs (a UK-based market research firm) Worldwide Enterprise Tablet Market Forecast report.114
Company initiatives In January 2012, Asustek introduced the Asus B23E 12.5 inch laptop for business professionals. The notebook offers features such as fingerprint readers, optional TPM and anti-shock hard drive. It also has a 2MP webcam, which enables chats and conference sessions.116 In January 2012, Lenovo introduced seven new laptops in its Thinkpad series for small businesses.117
In 2012, CIOs are expected to invest In October 2011, Motorola Solutions introduced the ET1 Tablet, an US$19 billion in Apple products Android-based device, intended for retail and factory use. It is a US$10 billion in iPads and US$9 billion in 1 GHz dual-core tablet with an 8MP camera and a front camera. Macs up from the $12 billion investment in It can operate with both Windows and Android OS, making it 2011, according to Forrester. This represents compatible with other corporate entities that use Windows a dramatic rise in the number of Apple enterprise for their server and point of sale (POS) needs.118 products used byenterprises.115 Social computing The concept of social computing focuses In March 2012, Salesforce.com introduced two new social on mass-customer and mass-employee applications. One of its applications, Salesforce Rypple, helps involvement with enterprise systems. With companies to build better employee communities.121 over 1.2 billion people, representing 20 percent In March 2012, Jive Software announced the release of a new of the worlds population, on social networks, version of its enterprise social software tailored for customer IT leaders across enterprises are looking at service tasks. Called Jive Social Customer Service Solution, incorporating social software capabilities the product is expected to include native integration with CRM across their systems.119 (customer relationship management) and case management applications, social media monitoring capabilities, mobile Over 201014, the global enterprise social access and elements of play intended to promote usage software market is expected to grow throughgamification.122, 123 at a CAGR of 17.9 percent, according to Technavio. Improved productivity and collaboration are the main factors drivinggrowth.120
Virtualization In a survey by IDC published in January 2012, In January 2012, IBM, in collaboration with RedHat (a US-based 40 percent of CIOs stated that virtualization software company), launched an interactive virtualization facility and server consolidation were their top at the IBM Solutions Centre in Australia. The IBM facility would priorities in 2012. Growth of virtualization is allow customers to examine virtualization as a key enabler of being driven by factors such as cost savings cloud computing, as interactive virtualization facilitates the move and productivity enhancement.124, 125 from a virtual resource pool to a private and public cloud and back. Such a facility helps customers to interact with virtualization During 2010-14, the global cloud virtualization and cloud technologies.128 software market is expected to grow at a CAGR of 16.2 percent, according to Technavio. In January 2012, VMware (a US-based company providing Increasing demand for cloud-based services virtualization software) introduced its vCenter Operations is the primary driver of this growth. Also, Management Suite, designed to make cloud and virtualization maintenance easy and automated. Some of its key features the enterprise server virtualization market is projected to grow at a CAGR of 32 percent are tighter integration of performance, capacity and during the same time.126, 127 configurationmanagement.129
Outlook
The uniform and stable economic growth in Asia Pacific, coupled with growth in emerging markets such as Brazil and Mexico, is expected to provide a thrust to enterprise IT spend. Enterprises in these geographies are revamping their IT infrastructure to expand their presence both domestically and internationally.130 Moreover, SMB spending in these regions is expected to drive IT spend. According to IDCs Worldwide SMB 2012 Predictions published in January 2012, worldwide SMB IT spend is expected to reach US$542 billion in 2012, up from
US$508billion in 2011. In 2012, growth in SMB spend is expected to be 11percent each in both Asia Pacific and Latin America. SMB spend in Central Europe and the Middle East and Africa (CEMA) is expected to be 10 percent during the same year. At the same time, SMB spend growth is expected to be 6 percent in North America, around 4percent in Western Europe and around 2 percent in Japan.131 Figure 16 shows forecast economic growth in developed and developing economies vis--vis enterprise IT spend in these regions.
Figure 16: GDP forecasts and enterprise IT spend outlook US GDP growth unchanged at 1.8 percent in 2012. However, estimates for 2013 lowered, from 2.5 percent to 2.2 percent. Eurozone GDP estimates revised down to -0.5 percent in 2012. For 2013, GDP growth is cut to 0.8 percent, down from earlier estimate of 1.5 percent.
GDP growth in China is expected at 8.2 percent in 2012 and 8.8 percent in 2013. India is expected to grow at 7 percent in 2012. Cloud computing, virtualization, business analytics, mobility and social media are expected to push enterprise IT spend
In 2012, enterprise IT spend is expected to show moderate growth over 2011. In the EMEA region, enterprise IT spend is expected to grow 1.5 percent y-o-y in 2012, while it is expected to grow 1.9 percent in Australia. The US is expected to see modest growth in enterprise IT spend, due to non-uniform economic growth. However, both enterprises and government are expected to invest in cloud computing, business analytics, mobility and security. In the Asia Pacific region, enterprise IT spend is expected to grow 8 percent y-o-y in 2012.
Source: IMF Revises Down 2012, 2013 GDP Growth Estimates, WSJ, January 19, 2012; IMF cites eurozone debt budget cuts lowering 2012 growth forecast international monetary fund, France 24, January 1, 2012 ; APAC enterprise IT spending to reach US$367 billion in 2012, Hardware Zone, November 21, 2011
In addition to expanding in emerging economies and key opportunity areas, technology players can focus on the following to grow during tough economic conditions:132 Building customer loyalty, with a customer-centric approach With chief information officers (CIOs) in business and government facing increasing pressure to deliver innovative technology-enabled services to meet ever-changing demands from customers and citizens, technology companies are offering innovative solutions to ensure customer loyalty.133, 134 In February 2012, Qualcomm released a version of its software development kit (SDK) for augmented reality apps, which is expected to be marketed under the Vuforia brand name. This SDK allows computer-generated content to be superimposed over a live camera view of the realworld.135
Along with the new name, Qualcomm also announced version 1.5 of its SDK for Android and iOS. The Vuforia SDK 1.5 is compatible with devices running on Android 2.2 and above, as well as the iPad 2, iPhone 4, iPhone 3GS, and the fourth generation of the iPod touch, running iOS 4 or newer versions of Apples OS. This provides user convenience across various operatingplatforms.136 Examining the role of key decision makers Technology companies are closely examining the role of CIOs and chief marketing officers (CMOs), as they are crucial to IT budget decision-making processes. With the convergence of marketing and IT, CMOs are expected to hold more influence in setting high-tech marketing budgets than CIOs.137 Also, as both marketing and IT depend on data, teams, processes and software, CMOs and CIOs
are forming strategic partnerships. This cross-functional collaboration can help companies create efficiencies, improve workflows and reducecosts.138 By 2014, CIOs will have lost effective control of 25 percent of their organizations IT spending, and by 2017 , chief marketing officers may have a bigger IT budget than CIOs do, according to GartnersSondergaard.139 Focusing on secure and reliable solutions The new technologies introduced by technology companies are focused to ensure security and reliability, as that is one more way that they can influence IT spend decisions. For example, in August 2011, Salesforce.com acquired Navajo Systems, an Israelbased cloud security encryption vendor. This new encryption technology at Salesforce.com may ease customer concerns about data security in thecloud.140, 141
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Companies Mentioned in this Issue

Amazon Apple AsiaInfo Linkage Asustek BMC Software CA Technologies China National Bureau of Statistics CSC Dell Digital China EMC Founder Fujitsu Google Guizhou Mobile Guizhou Provincial Health Department HP HPQ IBM Intel Jive Software
6 24, 26 22 24 6 9 19 6, 17 6, 17 22 17 22 6 7 19 19 6, 7, 17, 19, 23 17 6, 17, 19, 22, 23, 24 14 24
Lenovo Microsoft Motorola Solutions Navajo Systems NEC NetApp NetSuite Neusoft Oracle Qualcomm RightNow Salesforce.com SAP Sony SuccessFactors Taiji Taleo Toshiba VMware Western & Southern Financial Group Wipro
24 6, 7, 8, 17, 23 24 8, 26 7 17 8, 9 22 7, 22, 23 26 7 6, 7, 8, 24, 26 7, 22, 23 17 7 22 7 17 17, 24 17 7
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16
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SaaS M&A Transactions, Softwareequitygroup, June 1, 2011 Quarterly Reports, Softwareequity.com Oracle buys Taleo for $1.9 billion; SaaS consolidation ramps, ZDNet.com, February 9, 2012 Oracle To Acquire RightNow, DailyMarkets.com , October 25, 2011 Oracle to buy RightNow for $1.5 billion, Los Angeles Times, October 25, 2011 NEC, SAP Japan partner to provide billing services through SaaS, CBR Software Enterprise Applications, February 7 , 2012 SAP Completes Acquisition of SuccessFactors Inc, SAP , February 2012 Wipro Collaborates with Oracle to Offer Next Generation Oracle Fusion Human Capital Management Solution, Factiva, January 25, 2012 Salesforce.com Picks Up Tiny Assistly, SeekingAlpha, September 22, 2011 Salesforce.com Acquires Assistly, PRNewswire, September 21, 2011 Cloud Computing Experts Set to Spark Price War, PRWeb, September 21, 2011 Microsoft Creates Profitable Businesses with Cloud CRM for Less , Cloud Tweaks, August 29, 2011 Get USD $150 cash1 per license2 off Microsoft Dynamics CRM Online, CRM Dynamics Salesforce Sandbox outage raises concerns about SLAs and SaaS testing, SearchCRM, September 1, 2011 SAP blames Amazon outage for difficulties selling SaaS products, V3.CO.UK, May 5, 2011
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Salesforce.com Acquires SaaS Encryption Provider Navajo Systems, eWeek.com, August 26, 2011 Microsoft Office 365 outage a disaster or false flag, ITWire, August 18, 2011 Salesforce Sandbox outage raises concerns about SLAs and SaaS testing, SearchCRM, September 1, 2011 Key issues facing SaaS industry, NeTSecurity.org, October 3, 2011 Embracing the cloud, KPMG, November 2011 SaaS Silos Cause Multiple Integration Problems for IT, ITBusinessEdge, July 27 , 2011 SaaS: The Stampede into Cloud-Based Apps continues, Formtek, November 1, 2011 NetSuite adds CA Technologies to two-factor authentication, ZDNet, October 19, 2011 NetSuite boosts global capabilities of its SaaS business software, ITWorld.com, October 19, 2011 Key issues facing SaaS industry, NeTSecurity.org, October 3, 2011 Buyers increase SaaS contract scrutiny as deal sizes grow, ComputerWorld, August 30, 2011 Worldwide Software as a Service Revenue Is Forecast to Grow 21 Percent in 2011, Gratner, July 7 , 2011 Key issues facing SaaS industry, NeTSecurity.org, October 3, 2011 Feds Aim To Speed Cloud Adoption With New Roadmap, InformationWeek, November 2, 2011 U.S. SMB SaaS CRM Market Set to Triple by 2015, DestinationCRM.com, September 30, 2011
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Sources
59
Collaboration, partnerships with multiple vendors key to Cloud success: Thomas Duryea, Factiva, October 27 , 2011 Global IT spend saved by mobile device uptake, CRN, November 2, 2011 Worldwide Enterprise IT Spending to Reach $2.7 Trillion in 2012, Gartner, October 17 , 2011 Gartner forecasts $2.5T enterprise IT spend in 2011, Service Assurance Daily, October 10, 2010 The State Of Enterprise IT Budgets: 2009, Forrester Research, August 7 , 2009 Gartner Says Worldwide IT Spending to Grow 3.7 Percent in 2012, Jan 5, 2012 Gartner Cuts Worldwide IT Spending Forecast On Slower Growth Expectation, Jan 5, 2012 Gartner Cuts Worldwide IT Spending Forecast On Slower Growth Expectation, Jan 5, 2012 Gartner Cuts Worldwide IT Spending Forecast On Slower Growth Expectation, Jan 5, 2012 Euro Zone: Economic conditions deteriorate. the ECB takes actions, FXStreet.com, December 8, 2011 Euro Area GDP Growth Rate, Trading Economics Euro Area GDP Annual Growth Rate, Trading Economics Scaling the summit, The Economist, December 10, 2011 EMEA Enterprise IT Spending in Euros Will Decline 1.4 Percent in 2011 and Grow Only 2.3 Percent in 2012, Gartner, November 7 , 2011 Government extends IT spending controls, Guardian.co.uk, March 2, 2011
74 75 76 77 78 79 80 81 82 83 84
United States GDP Annual Growth Rate, Trading Economics Fed's Evans: Recent US Economic Data Suggest 'Welcome Traction', WSJ, January 11, 2012 US annual economic growth confirmed at 1.9 percent in first quarter, xinhuanet, June 28,2012 Economic woes hit Europe, North America IT spend, The Economic Times, January 18, 2012 Federal IT Budgets Flat Through 2017 , InformationWeek, October 19, 2011 Fed's Evans: Recent US Economic Data Suggest 'Welcome Traction', WSJ, January 11, 2012 Tight budgets prompt IT cutbacks, FederalTimes, August 14, 2011 Economic woes to hit Europe, America IT spending, Livemint, January 18, 2012 Economic woes hit Europe, North America IT spend, The Economic Times, January 18, 2012 CSC Reports a $1.39B Loss on Revenue Down 5.8 Percent, PCWorld, February 8, 2012 HP Q1 Revenue Down 7 Percent To $30B, Net Income Down 44 Percent, Software Sales Up 30 Percent, Techcrunch, February 22, 2012 "Microsoft-Intel Inside Suffer as Governments Cut Spending," Bloomberg, November 21, 2011 IBM, tech results point to robust IT demand, Business Times, January 25, 2012 Indian Enterprise IT Spending Will Grow 10.3 Percent in 2012, Gartner, January 24, 2012 Financial markets IT spend to hit $18 billion in AsiaPacific, The Nation, August 8, 2011
60 61 62 63 64 65 66 67 68 69 70 71 72
85 86 87 88
73
Sources
89 90
HP India eyeing small business segment in UP , Business Standard, January 12, 2012 Chinese Government and Businesses Continue to Embrace IBM Smarter Computing, IBM, September 6, 2011 Middle East and Africa Enterprise IT spending will grow 6.3% in 2012, says Gartner, February 27 , 2012 Middle East and Africa Enterprise IT spending will grow 6.3% in 2012, says Gartner, February 27 , 2012 Middle East and Africa Enterprise IT spending will grow 6.3% in 2012, says Gartner, February 27 , 2012 Gartner Says Indian Enterprise IT Spending Will Grow 10.3 Percent in 2012, January 24, 2012 Gartner Says Indian Enterprise IT Spending Will Grow 10.3 Percent in 2012, January 24, 2012 Gartner Says Indian Enterprise IT Spending Will Grow 10.3 Percent in 2012, Jan 24, 2012 IDC Worldwide Blackbook, 2Q11 China fastest-growing enterprise software market, March 18, 2010 IDC Worldwide Blackbook, 2Q11 Worldwide Enterprise IT Spending to Reach $2.7 Trillion in 2012, Gartner, October 17 , 2011 Global Business Analytics Market 2010-2014, Technavio, October 7 , 2011 Worldwide Business Analytics Software Tracker Market Is Expected to Reach $33.9 Billion in 2012, Up 8.2% from 2011, BusinessWire, January 17 , 2012 Oracle advances its Advanced Analytics strategy, Ovum, March 14, 2012 Oracles Mark Hurd Delivers Strategy to Drive IT Simplicfiaction and Emphasizes Oracles Business analytics Strategy at Oracle OpenWorld Tokyo 2012, Press Release, April 4, 2012
10 5 10 6
SAP Continues to Expand Capabilities and Scale of SAP HANA Platform and Ease Developer Adoption IBM Debuts New Analytics Appliance to Help Retailers Transform Big Data Into Business Opportunities, MarketWatch, January 24, 2012 Asia Pac to lead cloud computing growth: Ovum, ITNews, October 5, 2011 Worldwide Enterprise IT Spending to Reach $2.7 Trillion in 2012, Gartner, October 17 , 2011 SAP unveils Business One ERP cloud computing service for SMEs, V3.co.uk, March 6, 2012 SAP Business One Heads Into the Cloud, SAP , March 16, 2012 Microsoft and HP Join Hands on the Cloud, CloudTweaks, January 18, 2012 IBM Acquires Another Cloud Firm, Platform Computing, Technorati.com, January 10, 2012 IBM Continues Cloud Push With Platform Computing Buy, CMSWire, January 10, 2012 Enterprise tablet shipments could top 96 million by 2016, TabTimes, January 25, 2012 CIOs to spend 12 billion on iPads, Macs in 2012, CIO, January 12, 2012 Asus B23E 12.5-inch laptop surfaces for the business brigade, Techshout, January 24, 2012 Lenovo announces ThinkPad Edge S430 with Thunderbolt, six other small business laptops, Engadget.com, January 5, 2012 Motorola Introduces ET1 Tablet: First Android Tablet for Enterprise, IBTimes, October 11, 2011 Worldwide Enterprise IT Spending to Reach $2.7 Trillion in 2012, Gartner, October 17 , 2011 116 Global Enterprise Social Software Market 2010-2014, Technavio, October 7 , 2011
91 92 93 94 95 96 97 98 99 10 0 101 10 2
10 7 10 8 10 9 11 0 111 11 2 11 3 11 4 11 5 11 6 11 7
10 3 10 4
11 8 11 9 12 0
Sources
12 1 12 2
Salesforce.com adds social enterprise software tools, SmartPlanet, March 16, 2012 Gamification element provides competitive incentives intended to motivate end users to use the product, while the social monitoring capabilities let companies monitor sources like their Facebook Business page and Twitter account and address comments posted by "fans" via the Jive interface. Jive tailors enterprise social software for customer service, InforWorld, March 7 , 2012 Virtualization Tops CIO Priorities In 2012: IDC, InformationWeek, January 11, 2012 Worldwide CIO Agenda 2012 Top 10 Predictions, IDC, January 2012 Global Enterprise Server Virtualization Market 2010-2014, MarketResearch.com, January 10, 2012 Global Cloud Virtualization Software Market 2010-2014, MarketResearch.com, February 10, 2012 IBM and Red Hat Introduce Local Virtualisation facility in Sydney, PRWire, January 19, 2012 VMware Launches Enhanced vCenter Operations Management Suite, TheVARguy, January 27 , 2012 India Inc's IT spend to rise in 2012, Times of India, March 14, 2012 Worldwide SMB 2012 Predictions: Shifting Priorities, Opportunities, and Challenges as SMB Spending Exceeds $500 Billion, Bloomberg, March 27 , 2012
13 2
EMEA Enterprise IT Spending in Euros Will Decline 1.4 Percent in 2011 and Grow Only 2.3 Percent in 2012, Gartner, November 7 , 2011 EMEA Enterprise IT Spending in Euros Will Decline 1.4 Percent in 2011 and Grow Only 2.3 Percent in 2012, Gartner, November 7 , 2011 Malaysia: Look Ahead to 2012 - Part 1, MIS Asia, January 4, 2012 Qualcomm Boosts Augmented Reality Technology With New Brand, SDK, IDG News, February 29, 2012 Qualcomm Boosts Augmented Reality Technology With New Brand, SDK, IDG News, February 29, 2012 EMEA Enterprise IT Spending in Euros Will Decline 1.4 Percent in 2011 and Grow Only 2.3 Percent in 2012, Gartner, November 7 , 2011 Five Years From Now, CMOs Will Spend More on IT Than CIOs Do, Forbes, February 8, 2012 EMEA Enterprise IT Spending in Euros Will Decline 1.4 Percent in 2011 and Grow Only 2.3 Percent in 2012, Gartner, November 7 , 2011 Malaysia: Look Ahead to 2012 - Part 1, MIS Asia, January 4, 2012 Salesforce.com Acquires SaaS Encryption Provider Navajo Systems, Eweek, August 26, 2011
13 3
13 4 13 5 13 6 13 7
12 3 12 4 12 5 12 6 12 7 12 8 12 9 13 0 13 1
13 8 13 9
14 0 14 1
Contact us
Gary Matuszak Global Chair Technology, Media & Telecommunications T: +1 408 367 4757 E: gmatuszak@kpmg.com David McAllister Global Executive Technology, Media & Telecommunications T: +61 2 9335 8143 E: dmcallister@kpmg.com.au
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. 2012 KPMG International Cooperative (KPMG International), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis--vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International. Designed and produced by Evalueserve Contact: Vipin Kumar Head of Global Markets Research KPMG in India Tel.+91 124 612 9321 Publication name: Issues Monitor Publication number: 07 - 010 Publication date: July 2012

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KPMG INTERNATIONAL

b | Issues Monitor: July 2012, Volume 10

Issues Monitor: July 2012, Volume 10 | 1

Software as a Service market growing rapidly

2 | Issues Monitor: July 2012, Volume 10

33% 9% 10% 14% 10% 16%

Platform as a Service (PaaS) Users (IT n = 237)

Issues Monitor: July 2012, Volume 10 | 3

Ease and speed of deployment Increasing demand from SMBs

4 | Issues Monitor: July 2012, Volume 10

Worldwide SaaS market Geographic outlook.

Issues Monitor: July 2012, Volume 10 | 5

Worldwide SaaS market Segment outlook

Figure 4: Worldwide SaaS market segments, 2011 (%)

Customer Relationship Management Enterprise Resource Planning

Content Communication and Collaboration Others

6 | Issues Monitor: July 2012, Volume 10

Strategic initiatives taken by various SaaS providers

Issues Monitor: July 2012, Volume 10 | 7

Strategy Technology companies focusing on M&A to enhance SaaS capabilities

Service providers focus on pricing strategy to foster SaaS adoption

8 | Issues Monitor: July 2012, Volume 10

Challenges yet to be addressed

Longer-thananticipated implementation cycles

Limited integration with existing systems

Issues Monitor: July 2012, Volume 10 | 9

10 | Issues Monitor: July 2012, Volume 10

Issues Monitor: July 2012, Volume 10 | 11

12 | Issues Monitor: July 2012, Volume 10

Enterprise IT spend takesacut.

Issues Monitor: July 2012, Volume 10 | 13

4 3 2 1 0 3.7 3.8 3.8 2.6 2.8 2.7

6% 4% 2% 0% Global IT spend Enterprise IT spend 2011 2012-Projected 2012-Revised

2012-Projected growth rate Global IT spending

2012-Revised growth rate Enterprise IT spending

14 | Issues Monitor: July 2012, Volume 10

Issues Monitor: July 2012, Volume 10 | 15

Tumultuous economic conditions in eurozone and US taking toll on enterprise IT spend

800 790 780 798.6 787.5 2010 2011

16 | Issues Monitor: July 2012, Volume 10

Issues Monitor: July 2012, Volume 10 | 17

Reduction in enterprise IT budgets affects technology companies

Emerging economies to drive enterprise IT spend

18 | Issues Monitor: July 2012, Volume 10

Figure 12: Economic growth and enterprise IT spend of emerging economies

Issues Monitor: July 2012, Volume 10 | 19

7.3 Communications, media and services

9.3 1.5 1.4 Education Government

2.4 2.3 Healthcare providers

3.3 3.1 Insurance

8.1 Manufactruing and natural resources

2.4 2.3 Retail

2.6 2.4 Transportation

3.1 2.9 Utilities 1.2 1.2 Wholesale trade

20 | Issues Monitor: July 2012, Volume 10

2.1 1.9 Retail

2.0 1.8 Transportation

1.6 1.4 Utilities

1.1 1.0 Wholesale trade

Manufactruing and natural resources

Issues Monitor: July 2012, Volume 10 | 21

0 2011 China IT market y-o-y growth = 20.5%

IT spending 2011 2015

10.3% 5.1% 84.6% Software Services 2015 = US$ 220.0 billion