As we’ve stepped into 2021, PAC has analyzed the expected trends on the software and IT services market. Nevertheless, the impact of 2020 is critical for the further evolution of the markets. The year 2020 was clearly marked by the Covid-19 health crisis and the resulting massive economic crisis. On the IT market, however, we have observed a highly differentiated situation in terms of products and segments, industries, topics, and countries. For example, while the consulting and contract staff markets have substantially decreased, cloud-related services have all but maintained their pre-crisis growth dynamics. On the one hand, the crisis has created huge pressure on costs in many industries; on the other, it has led many companies to accelerate their digital transformation.

The growth topics have more or less remained the same. The strongest drivers of growth and change are cloud transformation as well as analytics, AI (artificial intelligence), and automation, supported by agile and DevOps models. These levers are the key enablers of the digital transformation taking place mainly in three areas: front-end processes and customer experience (CX, where transformation started), back-office and front-/back-office integration, and industrial IT/ OT/ IoT. Security remains a major issue, with increasingly numerous and diverse challenges. Both vendors and customers have difficulty finding skills, especially in topics such as cloud, security, AI, IoT, and CX. The skills shortage leads to rising, or at least stable, rates. Finally, raising operational efficiency is always part of the equation. While the past few years (2014-2018) were marked by an excellent economic environment, we already saw a slight slowdown in selected industries and countries in 2019. The current situation has dramatically reinforced the importance of this topic.

What changes will be triggered by the current environment? What impact will it have on growth opportunities? Before we discuss our top 10 trend topic predictions for 2021, let me mention some generic trends:

• AI, automation, IoT, and CX projects have remained on the agenda, though only if they are expected to deliver concrete results, in particular efficiency improvements, and not only in the long term. Cost savings and resiliency are key targets, rather than hypothetical growth targets.
• Most companies are still running, or considering starting, new IT projects, but with a much better coordinated, prioritized, and arbitrated approach, involving a more limited number of IT service providers.
• We expected, and are observing, a renaissance of outsourcing, aimed at saving costs.
• Outsourcing opportunities increasingly include a transformational approach, e.g. migration to the cloud.
• Companies are looking for a new DevOps/agile approach – a compromise between innovation and control (cost control, risk management).
• Cost pressure is back at the top of the agenda, favoring vendors with global sourcing and automation capabilities.

This means there are plenty of opportunities on the market. It does not mean, however, that vendors’ situation is easy: overall volumes are smaller, and customers are more cautious, take longer to select and decide, and put additional pressure on costs. Plus, competition is even fiercer than usual, with some vendors fighting for survival, and others working for free to secure long-term customer relationships, using employees on the bench. And the fact that many countries are finding it difficult to master the current second wave certainly gives reason to be cautious about the outlook for the coming year.

On the whole, though, we expect a substantial recovery in 2021, from a low comparative level. At worldwide level, we expect a similar growth rate as in 2019 for both software and IT services; as in 2020, there will be considerable differences between the segments (products & services, industries, topics, countries and regions).

Cloud will remain the key growth driver. Excluding SaaS, we expect the software market (licenses and maintenance) to be nearly flat in 2021 (-0.4%), following a significant decrease (-8.2%) in 2020. Excluding public IaaS/PaaS (i.e. mainly revenue from a handful of hyperscalers), we expect the IT services market to grow by 3.2%, after a -6% slump in 2020.

In this context, we expect particular traction from the following 10 topics:

• Automated SOCs – as cyber security capabilities become the main source of C-Suite focus, expect to see automated SOCs
• AI – the ultimate game changer in the CX market
• Employee-centric new work style and digital workplace
• Enterprise applications are moving towards the public cloud
• Mass migration to the public cloud is now in vogue
• Next-generation transformational outsourcing
• Rebalancing supply chains – from efficiency to more resiliency
• Secure access service edge (SASE) becomes the must-have cyber service
• Smart factory automation – more agility around production efficiency
• Sustainability and decarbonization

We will pay attention to each topic in dedicated articles in the future.

About PAC (Pierre Audoin Consultants)

With a history of over 45 years, PAC, part of teknowlogy Group, is the leading European market research and consulting company in the field of digital transformation, software, and IT services. PAC provides market research, competitive analysis, as well as strategic consulting, all related to software and IT services market segments and topics. 

PAC has offices in Paris, Munich (focused on DACH region), London, and Bucharest, and several partners in Italy, Nordics, US, and APAC. Since early 1999, the Bucharest team, well integrated into our European operations, provides market analysis and advisory services for local, regional and global customers. 

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