By Paul Carton

November 4, 2008

A greater than expected pullback is occurring in software spending.

That's according to ChangeWave's latest corporate software survey, which points to a striking deterioration in software spending plans for the next 90 days. Moreover, in a sharp reminder of the severity of the current U.S. recession, the purchasing decline cuts across all software categories.

The ChangeWave survey was conducted October 6-15, 2008, and a total of 1,841 respondents involved with their company's software spending participated.

Software Industry Faces Hard Times Ahead

In the most telling finding of the survey, 40% of corporate software purchasers now say their company will spend less on software over the next 90 days - a whopping 15-points worse than the previous ChangeWave survey in July.

Only 8% say they'll spend more - 4-pts worse than previously.

What's Driving the Slowdown?

Nearly one-in-four corporate respondents (23%) cite a general slowdown in business conditions and capital budgets as driving their software purchasing decisions - up 9-pts since July. Another 31% say their company currently doesn't need to purchase any new software .

Compounding the matter, when asked if there had been any recent changes in their company's overall capital budgets, eleven times as many respondents said their budget had been adjusted lower over the past 90 days than said it had been increased.

In a further ominous sign, half of our respondents (50%) report their company has no plans to purchase software over the next 90 days, a 6-pt jump from previously and the highest level since we began asking this question in July 2007.

Software Spending Trends Downward in All Categories

A key focus of the survey was on whether companies plan to increase or decrease their spending within specific software categories. For the first time ever in a ChangeWave survey, all software categories are experiencing decreased spending going forward.

Even Virtualization (-13) and Security (-7) software - categories that have held up much better during 2008 than the rest - are now experiencing decreased spending going forward.

Virtualization Software. Just 12% say their company is increasing virtualization spending over the next 90 days, while 25% say it is decreasing - a net 15-pts worse than three months ago.

Two major vendors - Microsoft, (MSFT; 24%; +3) and Citrix (CTXS; 17%; +2) - look poised to increase their share of the virtualization market going forward. But although they're garnering a larger share of the pie, it's happening as the overall virtualization market has slowed and projections going forward look even worse.

And what of industry leader VMware (VMW; 67%; down 1-pt)? For the third consecutive survey, it continues to show slightly reduced visibility.

Security Software. Security also registered negative growth for the first time this year in a ChangeWave survey. Only 13% of respondents say their company is increasing security software spending over the next 90 days while 20% say it is decreasing (a net 11-pts below July).

Business Intelligence (BI) Software. BI has consistently shown negative growth in our software purchasing surveys since January 2008 - but suddenly it has taken a considerable turn for the worse.

Within the shrinking BI purchasing universe, IBM (IBM; 16%; up 3-pts) continues to show sales momentum, although Microsoft (MSFT; 20%; unchanged) is now the leading vendor for companies planning to purchase BI in the next 90 days. On the down side, Oracle (ORCL; 13%; down 13-pts), and SAP (SAP; 18%; down 4-pts) both show declines in BI market share going forward.

Bottom Line

The recession is sparing few sectors, as even the once-mighty have fallen on hard times. With companies slashing their spending budgets in an attempt to salvage their 2008 bottom lines, software purchases have been landing in the expendable column.

All of this points to a very soft future for corporate software spending for the next 90 days, and probably for far longer.

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Jim Woods co-wrote this article.