Egham, U.K., June 4, 2018

Digital Transformation Efforts Will Drive Application Infrastructure and Middleware Spending Over $30 Billion in 2018

A significant shift toward digital business models that harness technology trends such as cloud computing, Internet of Things (IoT), analytics and artificial intelligence (AI) is boosting worldwide spending on application infrastructure and middleware (AIM). Gartner, Inc. numbers show that AIM market revenue reached $28.5 billion in 2017, an increase of 11.9 percent from 2016 (see Table 1).

The wider technology trends driving the AIM market are commonly accepted: migration to cloud platforms and services, ever-increasing demand for near-real-time data and analytics, a shift toward an API economy, rapid proliferation of IoT endpoints, and deployment of AI.

"A new approach to application infrastructure is the foundation organizations build their digital initiatives upon, and therefore robust demand in the AIM market is testament to the occurrence of digitalization," said Fabrizio Biscotti, research vice president at Gartner. "The more companies move toward digital business models, the greater the need for modern application infrastructure to connect data, software, users and hardware in ways that deliver new digital services or products."

Table 1. AIM Software Market Share by Revenue, Worldwide, 2016 and 2017 (Millions of Dollars)

Source: Gartner (June 2018)

Gartner forecasts that the AIM market will grow even faster in 2018, after which spending growth will slow each year, reaching around 5 percent in 2022. Moreover, momentum in the AIM market is shifting from market incumbents to challengers.

Licensed, on-premises application integration suite offerings that make up larger segments served by market incumbents such as IBM and Oracle achieved single-digit growth in 2016 and 2017. Gartner expects this growth to continue through 2022. "We can generally describe the products in this slow-growing segment as serving legacy applications," said Mr. Biscotti.

Small challenger segments — built predominantly around cloud and open-source-based application integration (iPaaS) offerings — will continue to enjoy double-digit growth.

"In iPaaS we find the groundwork being laid for a digital future, as the products in this segment generally are lighter, more agile IT infrastructure suited for the rapidly evolving use cases around digital business," said Bindi Bhullar, research director at Gartner. "The result is that well-funded, pure-play iPaaS providers, open-source integration tool providers and low-cost integration tools are challenging the dominant position of traditional vendors."

The iPaaS segment is still a small part of the overall market, topping $1 billion in revenue for the first time in 2017 after growing over 60 percent in 2016 and 72 percent in 2017. This makes iPaaS one of the fastest-growing software segments.

"The iPaaS market is also starting to consolidate, most notably with Salesforce's recent acquisition of MuleSoft," said Mr. Bhullar. "There is still a lot of room for further consolidation, with more than half the AIM market held by vendors outside the top five. This "others" segment is enjoying double-digit growth, which is likely to encourage acquisitions from big players losing market share to challengers."

Mr. Biscotti added that the most successful challengers in the AIM market will be those that position their products as complementary to — rather than replacements for — the existing legacy software infrastructure that is common in most large organizations.

"While new agile challengers may seem better fits for those pursuing digital initiatives, the underlying reality is that legacy middleware and software integration platforms will persist," said Mr. Biscotti. "Pure-play cloud integration is a niche requirement today — most buyers have more extensive requirements as they pursue hybrid integration models. The long-term market composition is likely to consist of a broad spectrum, from generalist comprehensive integration suites to more-specialized fit-to-purpose offerings."

More information on the trends affecting the AIM market will be discussed in the complimentary webinar "Application Infrastructure & Middlewware Trends: Creating Digital Value at Scale" on June 7, 2018 at 9:00 a.m. EDT.

Gartner clients can find more information on the effect of digitalization on the AIM market in the research note "Forecast Overview: Application Infrastructure and Middleware Software, Worldwide, 2018 Update."