The US tech market outlook has turned more positive. More people in the US have been vaccinated, businesses are starting to welcome employees back into the office, stores and restaurants have fully reopened, and the US economy is now projected to grow by 6% in 2021. Forrester’s previous report on the US tech market overall projected the US tech budget to grow by 6% in 2021 and 6.8% in 2022. In our recent report, US Tech Market Outlook By Category For 2021 And 2022, we now forecast that US tech budgets will expand by 7.4% in 2021 and 6.7% in 2022.
All categories of tech budgets will see growing demand in 2021 and 2022. Software spending will be especially strong, with growth accelerating to almost 10% in 2021 and just over 11% in 2022. Tech consulting services and tech outsourcing services will also experience increased spending, while computer and communications equipment will fluctuate.
Amid the numbers, three key trends emerge:
- On-premises technologies persist.
- Pure cloud solutions face increased competition from hybrid cloud offerings.
- Customer software development stages a renaissance using new middleware platforms.
The headline numbers are as follows:
- Software will be the star performer in the 2021–2022 US tech market outlook. Software purchases will see the fastest growth, of almost 10% in 2021 and just over 11% in 2022. Middleware platforms are growing in strength, driven by businesses’ increased focus on platforms and aided by the rise of security software, the absorption of AI functions into the panoply of software, and the resurgence in custom app development. Additionally, business process applications, desktop apps, and information management apps will all experience growth in 2021 and 2022, and tech operations management software and vertical industry apps will recover after drops in 2020.
- Single-instance cloud becomes a competitor to software as a service (SaaS). Offered on a subscription pricing model, single-instance cloud is attractive because each client has their own instance of software, which they can customize and shift to their own environment. SaaS subscription revenue growth will slow in 2021 and even more in 2022 as a result of the growing popularity of single-instance cloud. Companies that want cloud solutions for their core systems are typically doing so as a single instance, causing this deployment model to grow at accelerating rates in 2021 and 2022. But it is important to note that licensed software will experience a small growth in 2021. As companies focus on a much-needed refresh of their legacy back-office systems, they are buying licensed software versions.
- Tech services will ride the coattails of software demand. With economic recovery, CIOs and their business partners will have room to expand their project spending, resulting in an increase in demand for tech consulting and system integration (SI) services. SI work for cloud will grow faster than SI work for on-premises software and tech consulting, and training services will expand at moderate rates. Cloud platform services and managed services will lead outsourcing growth, with hosting, application outsourcing, and hardware maintenance experiencing a decline.
- Equipment and telecommunications services will see moderate growth. After cutbacks in spending on communications equipment and telco services in 2020, these two categories, along with computer equipment, will return to prior patterns of slow growth by 2022. Remote work has exposed weakness in the US’s broadband wireless infrastructure. Now, as offices reopen, employees start to travel, and overall business activity increases, telecommunications spending will recover but remain subdued. Additionally, certain industries, such as financial services and governments, will continue to drive the growth of cloud, supporting the increase of server purchases. CIOs will keep their tech staff counts and costs under control, with steady growth in tech staff and average salary and strong growth in data and security jobs.
So now you have the data. What should you do next?
When thinking about your own tech spending in 2021 and 2022, pursue a hybrid strategy that combines cloud and on-premises systems, and shift the balance of your software application portfolio toward custom solutions. Want to see more data and learn more about Forrester’s forecast for the US tech market? Read the full report here.
(Kara Wilson helped prepare this blog.)