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Demand for improved resiliency will drive European software market growth

The European software market grew by 15% year on year in 2022 despite economic turbulence and global instability. This represented the highest growth in the last 20 years, demonstrating the resiliency of demand for software in the face of major macroeconomic factors. The 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. In 2023, however, the European software market is predicted to grow at “just” 11.7%, owing to general caution across all sectors.

Although the five-year compound annual growth rate (CAGR) for 2022–2027 is expected to 12% for the European software market overall, three main areas are predicted to grow substantially faster. Artificial intelligence platforms has an expected CAGR of 41% (reflecting a 16x increase from 2018 to 2027), followed by integration and orchestration middleware with a CAGR of 24% and software quality and life cycle tools with a CAGR of 20%.

In addition to those top 3 segments, the overall application development & deployment market (platform as a service) is forecast to post a 18% CAGR, making it a key spending driver. Prior to the COVID era, applications were the leading software investment area for European companies.

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.” IDC

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