Enterprise applications are the foundation of modern business operations. In 2023, the market expanded by 12%, reflecting its continued importance.
We can attribute this market growth to the following drivers:
- AI and Generative AI: The integration of AI and generative AI (GenAI) is transforming enterprise applications. From predictive analytics in CRM systems to personalized recommendations in ecommerce platforms, these technologies are making applications more intelligent and insightful.
- Cloud Dominance: Cloud technology is the present and the future of enterprise applications. Its ability to support technologies such as AI, machine learning, and the Internet of Things ensures that businesses can continue to evolve and adapt to internal and external needs and requirements.
- Ongoing Investments in Digital Transformation: Continuous digital transformation efforts are driving the adoption of enterprise applications, with organizations modernizing outdated systems and implementing innovative solutions across all business functions.
The Imperative of Enterprise Application Modernization
With more legacy systems reaching the end of their lifecycle — if only from a support perspective — and older platforms faltering under demand for increased agility, flexibility, and resilience, the modernization of enterprise applications has swiftly ascended organizations’ priority lists. In EMEA, application modernization has become a central focus, with an impressive 96% of surveyed organizations planning to undertake this essential transformation.
Challenges in Modernization
Each organization possesses a distinct approach to application modernization; no singular path forward exists. The complexities involved in modernizing applications across an enterprise demand a variety of tailored strategies — and this will likely remain the case.
Specific routes to modernization differ significantly by market, sector, and organization, with varied strategies emerging to address the diverse needs of different departments and their respective applications.
The Role of Cloud
While these strategies may differ, cloud technology stands out as the unifying force, having rapidly established itself as the preferred framework for both new and existing enterprise applications. Organizations are exploring multiple routes to modernization, with nearly half of those surveyed in EMEA expressing a desire to lift and shift their existing applications to the cloud.
Moreover, 43% aim to migrate to new cloud-based versions of their current applications, while 42% are eager to embrace entirely new cloud solutions.
Cloud: The Catalyst for Enterprise Transformation
Cloud technology is increasingly the foundation of organizations’ efforts to modernize their business applications. It empowers enterprises to swiftly adapt to shifting business needs, deploy updates seamlessly, and leverage cutting-edge technologies such as AI/GenAI, advanced analytics, and next-gen security.
Growth of Cloud-Based Applications
Cloud computing has massively fueled the growth of enterprise applications throughout EMEA. According to IDC’s May 2024 release of its software and public cloud services forecast, the enterprise apps market will continue to expand hugely — from $27.2 billion in 2019 to an estimated $63.7 billion in 2028 — reflecting a significant shift from on-premises to cloud-based applications.
The proportion of enterprise applications in public cloud surged from 36% in 2019 to an astonishing 68% in 2023, reflecting a marked acceleration in the growth of public cloud usage throughout the region. By migrating to cloud, companies can enhance performance, bolster security, and ensure superior disaster recovery. Cloud’s role as a crucial component of modern IT strategies has solidified.
Factors Driving Cloud Adoption
Additionally, the rise of remote work — especially during the pandemic — alongside regulatory compliance needs and the integration of emerging technologies, has further catalyzed cloud adoption. With the ongoing establishment of local cloud datacenters and numerous partnerships formed by enterprise application providers, we predict that cloud-based enterprise applications will continue to expand, reaching nearly 77% of all enterprise applications in 2028.
Regional Insights: EMEA Market Dynamics
From a subregional perspective, Western Europe commands a dominant position in the region, holding EMEA market share of 88%. This dominance can be attributed to the strong presence of companies like Visma and DATEV, which primarily focus on financial applications, payroll management, and HCM within Western European markets. Global giants such as SAP, Oracle, and Sage also maintain significant footholds in this subregion.
In contrast, each of the Central & Eastern Europe (CEE) and the Middle East & Africa (MEA) subregions accounts for EMEA enterprise applications market share of 6%.
However, CEE has recorded a decline in spending due to several challenging macroeconomic factors.
The protracted Russia-Ukraine War, which began in February 2022, has introduced notable economic instability in the subregion. High inflation rates have diminished the spending power of businesses, while stringent monetary policies have adversely impacted software investments, resulting in a significant decline in 2022 and sluggish recovery in 2023.
On the flip side, MEA has experienced substantial growth over the past four or five years, largely driven by the emergence of cloud and cloud-based services in 2018 and 2019. This growth has been bolstered by considerable investments from cloud providers.
Organizations and large family-owned enterprises in MEA, previously reliant on monolithic legacy applications, have begun adopting SaaS solutions for non-critical workloads such as HCM, procurement, and asset management. They have thus far been successful in their overall application modernization efforts, with a growing number of businesses re-architecting, re-platforming, and re-engineering their in-house legacy systems.
Navigating the Complexity of Cloud Migration
As organizations consider their enterprise application investments and modernization opportunities and the advantages of cloud migration, they are exploring the most effective implementation paths for their new cloud-based applications. In the past, heavily customized implementations were the preferred route, as organizations sought to tailor their applications to better suit their operations.
However, a noticeable shift is occurring as organizations increasingly embrace a more standardized implementation approach.
Approximately 31% of respondents plan to rely solely on standard functions and configurations for their new cloud-based applications, while 42% are contemplating only essential modifications — typically, those focused on sector-specific functionality — to maintain otherwise predominantly standardized implementations.
The Benefits of Standardization
The preference for standardized approaches is motivated by clear and tangible benefits. For instance, as new security patches are released, organizations with more standardized implementations can rapidly update their systems without necessitating further testing. This capability ensures the most robust protections are in place as quickly as possible, without requiring additional investments in IT, security, or implementation capabilities.
Accessing New Features Quickly
Access to new features is another crucial factor. As the pace of change accelerates, organizations are eager to leverage new functionalities — such as GenAI and sustainability tools — immediately upon their release.
Typically, these enhancements are first introduced in cloud-based SaaS versions, with vendors maintaining slower update cadences for on-premises editions. Consequently, a more standardized implementation offers the quickest and most straightforward access to these emerging features and functionalities.
This inclination for less customized implementations ensures that organizations stay current with vendor innovations — ultimately, helping them maximize the benefits of their enterprise application modernization investments.
Conclusion
Enterprise application modernization is essential for businesses competing in the digital age. Cloud technology is key to this process, enabling agility and innovation. While modernization approaches vary, a trend is clear toward standardized solutions that maximize the benefits of cloud and AI, including GenAI.
To be successful, increase efficiency and competitiveness, and future-proof operations, organizations must take a comprehensive approach to modernization, considering not only specific business needs and appropriate technologies, but also data governance and sustainability.
This blog serves as a summary of the valuable insights shared during our recent webinar on enterprise application modernization. If you found this discussion on the transformative power of cloud technology and AI interesting, we invite you to access the full webinar on demand.