SINGAPORE, June 28^th, 2017 – Asia Pacific excluding Japan (APeJ) software market grew 6.3% year over year (YoY) during the second half of 2016 to reach $18.9 billion, according to the latest IDC APeJ Semiannual Software Tracker . This is a strong contrast to previous periods where the software market has remained relatively flat (0.1% decline in second half of 2015).

On-premise software sales grew 3.5% YoY, while software revenue from public cloud services grew 34.5%. As a share of total software, public cloud services went from 9.0% of software in 2H15 to 11.4% in 2H16.

"Despite softening of the economy, it did not deter APeJ organizations from investing in software. It is an encouraging sign that organizations are beginning to recognize software as a key enabler in their digital transformation initiatives. There has also been a wider acceptance for public cloud services and open source technology (i.e. microservices, Hadoop, Kubernates, TensorFlow) even for mission-critical workloads as concerns around data sovereignty, security, portability and most importantly, skillsets, are being addressed by the vendors. Due to the pivotal role that software has in organizations today, we also expect markets related to agile software development and DevOps to gain significant traction over the next years," says Chris Zhang, Research Manager, IDC Asia/Pacific's Software Research.

Some key highlights include:

• The top five software companies dominate 40% of the market , with Microsoft leading the pack. Although there are initial signs that the top vendors are losing market shares, their shares will remain relatively constant (if not increase) due to inorganic growth strategy and further market consolidation. Inevitably, the growth in public cloud services subscriptions have also started to cannibalize on-premises license revenue for these giants.
• Locally-born vendors are still hot favorites in certain geographies. These vendors enjoy an edge over global players due to their geo-specific expertise and know-how (from localization to go-to-market). Companies such as Huawei, Neusoft, Kingdee, Yonyou Network in China and MYOB and Xero in Australia are already the top 30 vendors in APeJ. Some other local vendors to watch out for include Systex and DSC from Taiwan, Tally and Ramco Systems from India, and TmaxSoft from Korea. Strategic alliance and local partnerships are critical ingredients for vendors seeking to penetrate these territories.
• Subscription of public cloud services. Beyond the top five companies, exponential growth has been achieved by pure-play cloud software providers such as Salesforce.com, Google, Xero, Amazon Web Services, ServiceNow, Zendesk, MYOB, and Dropbox over the past few years. This new breed of vendors has been very successful in demonstrating their unique value proposition (i.e. attractive price point, quick to market, constant innovation) against the traditional on-premises vendors. IDC expects the growth trajectory of public cloud services to continue at similar rate over the next two to three years.
• Fastest growing markets in 2016H2 - Dynamic Data Management Systems, Enterprise Social Networks, File Synchronization and Sharing Software, IT Event and Log Management Tools, Software-Defined Storage Controller Software, and Team Collaborative Applications all have a part to play in enabling a collaborative, agile, analytics-driven and self-healing IT environment, which is essential for organizations embarking on a digital transformation journey.

"What customers are increasingly demanding for is freedom of choice when it comes to mode of deployment and pattern of consumption. APeJ organizations tend to operate in hybrid environment, hence the portability of workloads between on-premises, public cloud, private cloud and even multi-clouds will be one important assessment criteria. Vendors will also have to incorporate some degree of flexibility in their licensing contracts and even work with other vendors to help their customers achieve a true hybrid vision," Zhang added.

Notes:

• All figures rounded up to nearest 1 decimal point
• Software revenue consists of license, maintenance, and other software revenue
• Countries included are Australia, Hong Kong, India, Indonesia, Korea, Malaysia, New Zealand, Philippines, the PRC, Singapore, Taiwan, Thailand, Vietnam and the Rest of Asia Pacific

IDC APeJ Semiannual Software Tracker provides unmatched market coverage and forecasts for the entire packaged software space, covering 81 distinct functional software markets and over 900 vendors in more than 13 countries in the region — providing fast, essential, and comprehensive market information.