Infrastructure software – largest part of enterprise and second largest software category

The software market is worth over a trillion dollars, but is quite dissipated in terms of vendor performance – the top 7 vendors only took 13.9% of the spending in the year to the end of June 2019. Applications accounted for the majority (52.3%) of the spending to which we could add the 11.9% SaaS spending. Either way infrastructure software is the second largest type, accounting for 17.9% ($198b) in the last year (see my Figure above), which gives market shares by type and the top 7 vendors… and this only covers part of the market because Open Source projects account for a significant amount, which can’t be measured by vendor revenues. In particular docker is perhaps the most important software house, with an influence that goes far beyond its own business.

The largest infrastructure software vendors in this $198b market are shown in my Figure above. I’ve split out VMware’s and Red Hat’s revenues as part of their owners Dell EMC and IBM respectively. Having an associated subsidiary helps to break the assumption that Dell or IBM is in charge for customers who need virtualization (in the case of VMware) or verified open Source software (in the case of Red Hat. In addition to docker, Google is also absent from the top vendor list, despite their significant contribution to this important market.

Spending growth rates for software in general have been higher than those for hardware, IT and Telecoms services for decades and this is particularly so for infrastructure software. The unbundling of management features from traditional hardware (in particular servers, storage systems and enterprise network hardware) has led many vendors to describe the enterprise market as ‘software defined’, with a few market entrants being able to exploit this through the introduction of heterogenous products; VMware, Red Hat and docker have all taken advantage of the preference for open management.

In total the enterprise IT market was worth $481b worldwide in the year to the end of June 2019. Currently infrastructure software is the largest component followed by cloud, which is growing faster and is liable to reach the top in the next three years. The traditional hardware areas of server, storage system and enterprise network products have shrunk to represent just 35% of the current market. I expect their share to decline, but their revenues to grow over the next few years as users seek to build hybrid on and off premise solutions and multi-cloud strategies, moving applications and data between on premise and a choice of public clouds – most notably AWS, Azure, IBM and Google Cloud. There’s much heavy lifting still needed to turn enterprise computing into a utility market due to major differences in connecting systems together; the simplified systems built by public cloud suppliers sold to users as services are different from each other in the same way that many of the servers, storage systems and network products were before a degree of standardisation was brought in with the success of x86 processors from Intel and AMD. The need to integrate all enterprise computing safely (and compliant with a growing set of regulations) will help grow the infrastructure software market further in coming years – alongside systems management, virtualization, containers and other kinds of application modernisation.

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