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Agenda

Master Data Management Market UpdateIBM Multiform MDM Strategy Keep it simpleIntroduction to IBM MDM Server v8Key Supported FeaturesImplementation StylesPackaging and PricingCDI Entry Level ConceptCase Studies

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Gartners View of the CDI market

By 2010, the customer data integration hub software market will grow to $706 million, with a five-year compound annual growth rate of 30%.

Source: Gartners Market Share and Forecast: CDI Hub Software, Worldwide, 2005-2010 by Fabrizio Biscotti and John Radcliffe, December 2006

CDI Hub Total Software Revenue,
2003-2010

Source: Gartner Dataquest (December 2006)

Chart12003200320042004200520052006200620072007200820082009200920102010RevenueGrowth431031190127403860485058507060ContentsMarket Share and Forecast: CDI Hub Software, Worldwide, 2005-2010Table of Contents1CDI Hub Software Forecast, 2005-20102Pivot Table: CDI Hub Software Market Share3Overview and Findings4Geographical Assumptions5Vendor Product Map6Mergers and Acquisitions7Exchange Rates and Notes8Segmentation and Definitions9Glossary of TermsList of Tables1-1CDI Hub Total Software Revenue Market Share by Vendor, Worldwide, 2003-2005 (Millions of Dollars)1-2CDI Hub Total Software Revenue Market Share by Region, Worldwide, 2003-2005 (Millions of Dollars)1-3CDI Hub Total Software Revenue, 2003-2010 (Millions of Dollars)1-4CDI Hub Total Software Revenue by Region, Worldwide, 2003-2010 (Millions of Dollars)1-5CDI Hub Total Software Revenue by Vertical, Worldwide, 2003-2010 (Millions of Dollars)2-1CDI Hub Software Total Software Revenue (Millions of Dollars)5-1CDI Hub Products6-1Key Mergers and Acquisitions, 2003-20057-1Exchange Rates (Foreign Currency per U.S. Dollar)7-2Geographical Segmentation9-1Report GlossaryList of Figures1-1CDI Hub Total Software Revenue Market Share by Region, Worldwide, 20051-2CDI Hub Total Software Revenue, 2003-20101-3CDI Hub Total Software Revenue by Region, Worldwide, 2005 and 20101-4CDI Hub Total Software Revenue by Vertical, Worldwide, 2005List of References1-1Methodology Change From New License Revenue to Total Software Revenue3-1Market Overview, Recommendations, Drivers and Inhibitors3-2Key Findings3-2Key Findings4-1North America Geographical Assumptions4-2Latin America Geographical Assumptions4-3Europe Geographical Assumptions4-4Middle East and Africa Geographical Assumptions4-5Asia/Pacific Geographical Assumptions4-6Japan Geographical Assumptions4-2Latin America Geographical Assumptions4-3Europe Geographical Assumptions4-4Middle East and Africa Geographical Assumptions4-5Asia/Pacific Geographical Assumptions4-6Japan Geographical Assumptions7-1Notes on Exchange Rates and Currency Impact7-2Link to Exchange Rate Perspective7-3Notes on Data Collection8-1Link to Definitions and Methodology Guides8-2CDI Hub Software Market and Technology DefinitionsFor More Information...In North America and Latin America:1-203-316-1111In Europe, the Middle East and Africa:44-1784-268819In Asia/Pacific:61-7-3405-2582In Japan:81-3-3481-3670Worldwide via gartner.com:www.gartner.com&LMarket Share and Forecast: CDI Hub Software, Worldwide, 2005-2010&R&P of &N&L145406&C 2006 Gartner, Inc. and/or its Affiliates. All Rights Reserved.&R21 December 2006In addition to the total market view displayed in the Forecast tab, pivot tables allow Forecast statistics to be displayed in various views as demonstrated in Tables 9-1 and 9-2. Please use the tutorial below to assist with manipulating the data into the display view required.In addition to the total market view displayed in the Forecast tab, pivot tables allow Forecast statistics to be displayed in various views as demonstrated in Tables 9-1 and 9-2. Please use the tutorial below to assist with manipulating the data into the display view required.Entire contents 2006 Gartner, Inc. All rights reserved. Reproduction of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice.Summary: By 2010, the customer data integration hub software market will grow to $706 million, with a five-year compound annual growth rate of 30%. The top three vendors (Siebel, IBM and Initiate Systems) accounted for more than 50% of the market in 2005.By Fabrizio Biscotti and John Radcliffe145406Table of ContentsCDI Hub Software Forecast, 2005-2010Pivot Table: CDI Hub Software Market ShareOverview and FindingsKey FindingsGeographical AssumptionsLatin America Geographical AssumptionsEurope Geographical AssumptionsMiddle East and Africa Geographical AssumptionsAsia/Pacific Geographical AssumptionsJapan Geographical AssumptionsVendor Product MapMergers and AcquisitionsExchange Rates and NotesSegmentation and DefinitionsGlossary of TermsReport GlossaryCDI Hub Total Software Revenue Market Share by Vendor, Worldwide, 2003-2005 (Millions of Dollars)CDI Hub Total Software Revenue Market Share by Region, Worldwide, 2003-2005 (Millions of Dollars)CDI Hub Total Software Revenue, 2003-2010 (Millions of Dollars)CDI Hub Total Software Revenue by Region, Worldwide, 2003-2010 (Millions of Dollars)CDI Hub Total Software Revenue by Vertical, Worldwide, 2003-2010 (Millions of Dollars)CDI Hub Total Software Revenue Market Share by Region, Worldwide, 2005CDI Hub Total Software Revenue, 2003-2010CDI Hub Total Software Revenue by Region, Worldwide, 2005 and 2010CDI Hub Total Software Revenue by Vertical, Worldwide, 2005Methodology Change From New License Revenue to Total Software RevenueCDI Hub Software Total Software Revenue (Millions of Dollars)Market Overview, Recommendations, Drivers and InhibitorsKey FindingsNorth America Geographical AssumptionsLatin America Geographical AssumptionsEurope Geographical AssumptionsMiddle East and Africa Geographical AssumptionsAsia/Pacific Geographical AssumptionsJapan Geographical AssumptionsCDI Hub ProductsKey Mergers and Acquisitions, 2003-2005Exchange Rates (Foreign Currency per U.S. Dollar)Geographical SegmentationExchange Rates (Foreign Currency per U.S. Dollar)Geographical SegmentationExchange Rates (Foreign Currency per U.S. Dollar)Geographical SegmentationNotes on Exchange Rates and Currency ImpactLink to Exchange Rate PerspectiveNotes on Data CollectionNotes on Exchange Rates and Currency ImpactLink to Exchange Rate PerspectiveLink to Definitions and Methodology GuidesCDI Hub Software Market and Technology DefinitionsMarket_Summary_and_ForecastChapter 1CDI Hub Software Forecast, 2005-2010List of Tables1-1CDI Hub Total Software Revenue Market Share by Vendor, Worldwide, 2003-2005 (Millions of Dollars)1-2CDI Hub Total Software Revenue Market Share by Region, Worldwide, 2003-2005 (Millions of Dollars)1-3CDI Hub Total Software Revenue, 2003-2010 (Millions of Dollars)1-4CDI Hub Total Software Revenue by Region, Worldwide, 2003-2010 (Millions of Dollars)1-5CDI Hub Total Software Revenue by Vertical, Worldwide, 2003-2010 (Millions of Dollars)List of Figures1-1CDI Hub Total Software Revenue Market Share by Region, Worldwide, 20051-2CDI Hub Total Software Revenue, 2003-20101-3CDI Hub Total Software Revenue by Region, Worldwide, 2005 and 20101-4CDI Hub Total Software Revenue by Vertical, Worldwide, 2005List of References1-1Methodology Change From New License Revenue to Total Software RevenueReference 1-1(Top)(Front Page)Methodology Change From New License Revenue to Total Software RevenueTable 1-1(Top)(Front Page)CDI Hub Total Software Revenue Market Share by Vendor, Worldwide, 2003-2005 (Millions of Dollars)200320042005Share 2003Share 2004Share2005Growth2004Growth2005Siebel5.220.843.012.0%20.21%22.68%300.0%106.7%IBM14.319.536.433.1%18.94%19.20%36.4%86.7%Initiate Systems8.711.624.720.1%11.27%13.01%33.3%112.5%Oracle1.316.019.53.0%15.53%10.29%1130.0%22.0%SAP0.62.515.01.4%2.43%7.92%300.0%500.1%Cicada4.06.012.59.3%5.83%6.60%50.0%108.3%Siperian1.37.811.13.0%7.58%5.83%500.0%41.7%VisionWare0.73.35.91.5%3.16%3.09%400.0%80.0%Sun1.15.55.62.6%5.30%2.95%387.5%2.6%Orchestra Networks0.71.72.51.5%1.64%1.30%160.0%46.2%GoldenSource1.41.51.93.1%1.44%0.99%9.6%26.8%Dun & Bradstreet1.21.31.72.7%1.26%0.89%11.1%30.0%Purisma0.00.71.40.0%0.63%0.75%NA120.0%Dendrite0.71.21.31.6%1.18%0.71%80.0%10.2%Hyperion Solutions0.71.01.31.5%1.01%0.69%60.0%25.0%Stratature0.50.81.21.2%0.76%0.62%50.0%50.0%Kalido0.30.61.00.6%0.61%0.53%150.0%60.0%Tibco0.00.01.00.0%0.00%0.53%NANACordys0.00.00.60.0%0.00%0.33%NANAOther Vendors0.71.32.11.7%1.22%1.11%72.3%66.8%Total43.2102.9189.5100.0%100.00%100.00%138.3%84.1%Source: Gartner Dataquest (December 2006)Table 1-2(Top)(Front Page)CDI Hub Total Software Revenue Market Share by Region, Worldwide, 2003-2005 (Millions of Dollars)200320042005Share 2003Share 2004Share2005Growth2004Growth2005United States25.055.3100.857.8%53.73%53.19%121.6%82.3%Canada0.72.64.51.7%2.48%2.40%250.2%78.1%Latin America0.61.63.01.5%1.54%1.61%145.5%92.7%Western Europe12.532.861.528.9%31.91%32.44%163.5%87.2%Central and Eastern Europe0.41.32.51.0%1.25%1.33%187.2%96.0%Middle East and Africa0.41.12.11.0%1.05%1.12%151.4%96.1%Japan1.84.77.74.2%4.52%4.05%156.2%65.0%Asia/Pacific1.73.67.33.9%3.52%3.86%113.2%102.1%Total43.2102.9189.5100.0%100.00%100.00%138.3%84.1%Source: Gartner Dataquest (December 2006)Figure 1-1(Top)(Front Page)CDI Hub Total Software Revenue Market Share by Region, Worldwide, 2005Source: Gartner Dataquest (December 2006)Table 1-3(Top)(Front Page)CDI Hub Total Software Revenue, 2003-2010 (Millions of Dollars)20032004200520062007200820092010CAGR 2005-2010Revenue43.2102.9189.5274.1386.3485.0585.3706.030.7%Growth138.3%84.1%44.6%40.9%25.6%20.7%20.6%-Source: Gartner Dataquest (December 2006)Figure 1-2(Top)(Front Page)CDI Hub Total Software Revenue, 2003-2010Source: Gartner Dataquest (December 2006)Table 1-4(Top)(Front Page)CDI Hub Total Software Revenue by Region, Worldwide, 2003-2010 (Millions of Dollars)20032004200520062007200820092010CAGR 2005-2010North America25.757.9105.4152.1213.6266.8321.7387.629.8%United States25.055.3100.8145.6204.4255.4308.0371.129.8%Canada0.72.64.56.59.111.413.716.429.3%Latin America0.61.63.04.56.68.710.713.133.9%Europe12.933.963.691.0127.3158.7190.0227.729.0%Western Europe12.532.861.587.7122.3152.0181.4216.828.7%Central and Eastern Europe0.41.12.13.45.06.88.610.938.8%Middle East and Africa0.41.32.53.85.67.49.311.635.7%Japan1.84.77.710.814.617.720.122.624.0%Asia/Pacific1.73.67.311.818.525.633.543.542.8%Total World43.2102.9189.5274.1386.3485.0585.3706.030.1%Source: Gartner Dataquest (December 2006)Figure 1-3(Top)(Front Page)CDI Hub Total Software Revenue by Region, Worldwide, 2005 and 2010Source: Gartner Dataquest (December 2006)Table 1-5(Top)(Front Page)CDI Hub Total Software Revenue by Vertical, Worldwide, 2003-2010 (Millions of Dollars)20032004200520062007200820092010CAGR 2005-2010Financial Services12.925.347.269.999.4125.4152.5185.031.4%Discrete Manufacturing4.911.824.235.649.862.274.288.729.7%Process Manufacturing4.311.822.232.846.157.769.383.030.1%Communications3.110.919.729.140.249.759.070.228.9%National and International Government4.411.119.128.439.849.559.672.030.4%Healthcare4.89.817.726.537.547.557.870.131.7%Retail Trade3.05.410.215.121.326.932.739.531.1%Services1.63.87.110.915.519.523.628.732.2%Local and Regional Government1.24.06.810.113.917.621.325.930.8%Utilities0.82.14.46.79.812.515.318.833.8%Transportation0.92.03.55.17.39.311.514.031.7%Wholesale Trade0.72.13.24.56.58.310.212.531.4%Education0.52.33.14.56.17.58.810.327.1%Agriculture, Mining and Construction0.10.51.01.52.02.52.93.528.2%Total43.2102.9189.5280.7395.2496.1598.8722.030.7%Source: Gartner Dataquest (December 2006)Figure 1-4(Top)(Front Page)CDI Hub Total Software Revenue by Vertical, Worldwide, 2005Source: Gartner Dataquest (December 2006)&LMarket Share and Forecast: CDI Hub Software, Worldwide, 2005-2010&R&P of &N&L145406&C 2006 Gartner, Inc. and/or its Affiliates. All Rights Reserved.&R21 December 2006Market_Summary_and_ForecastPivotUnited StatesUnited StatesUnited StatesCanadaCanadaCanadaLatin AmericaLatin AmericaLatin AmericaWestern EuropeWestern EuropeWestern EuropeCentral and Eastern EuropeCentral and Eastern EuropeCentral and Eastern EuropeMiddle East and AfricaMiddle East and AfricaMiddle East and AfricaJapanJapanJapanAsia/PacificAsia/PacificAsia/PacificHistorically, software new license revenue was the primary metric tracked by Gartner Dataquest. During the 1990s through the early 21st century, Gartner Dataquest considered the best method to quickly identify shifts in technology trends in the software market was by observing changes in measures of new license revenue. Changes in new license revenue showed trends faster than changes in total software revenue because new license revenue clearly revealed which product categories were accelerating and which were declining in sales popularity.The emergence of open-source software and "enterprise agreements" that include the right to the next version of software and strict rulings on generally accepted accounting principles compliance by the U.S. Securities and Exchange Commission have made the new license metric difficult to ascertain and maintain, and they have caused restatements for revenue recognition to become common among public software companies. In addition, as popular buyer consumption models change to include hosted and subscription offerings, the concept of "new license" becomes a less-meaningful calculation.Total software revenue is a more-accurate measure to reveal long-term trends in the industry and also for capturing a clearer size of the revenue spending for software products over time. Evolving software markets are more accurately represented and compared by using a long-term indicator rather than a short-term one.Gartner Dataquest defines total software revenue as revenue generated from new licenses, updates, subscriptions and hosting, technical support, and maintenance. Professional service revenue and hardware revenue are not included in total software revenue.RevenueGrowthRevenue (Millions of Dollars)CAGR 2005-201020052010CAGR 2005-2010993750517031305821002110312082307440Overview_Findings000000000000002005Geographic_AssumptionsChapter 2Pivot Table: CDI Hub Software Market ShareList of Tables2-1CDI Hub Software Total Software Revenue (Millions of Dollars)Table 2-1(Top)(Front Page)CDI Hub Software Total Software Revenue (Millions of Dollars)Source: Gartner Dataquest (December 2006)Region(All)SubsegmentCDI HubCountry(All)Vendor(All)DataSubregion200320042005Share 2003Share 2004Share 2005Growth 2004Growth 2005United States25.055.3100.857.8%53.73%53.19%121.6%82.3%Canada0.72.64.51.7%2.48%2.40%250.2%78.1%Latin America0.61.63.01.5%1.54%1.61%145.5%92.7%Western Europe12.532.861.528.9%31.91%32.44%163.5%87.2%Central and Eastern Europe0.41.32.51.0%1.25%1.33%187.2%96.0%Middle East and Africa0.41.12.11.0%1.05%1.12%151.4%96.1%Japan1.84.77.74.2%4.52%4.05%156.2%65.0%Asia/Pacific1.73.67.33.9%3.52%3.86%113.2%102.1%Total43.2102.9189.5100.0%100.00%100.00%138.3%84.1%Revenue (Millions of Dollars)Growth&LMarket Share and Forecast: CDI Hub Software, Worldwide, 2005-2010&R&P of &N&L145406&C 2006 Gartner, Inc. and/or its Affiliates. All Rights Reserved.&R21 December 2006(Top)(Front Page)CDI Hub Software Total Software Revenue (Millions of Dollars)Product_Map Chapter 3Overview and FindingsList of References3-1Market Overview, Recommendations, Drivers and Inhibitors3-2Key FindingsReference 3-1(Top)(Front Page)Market Overview, Recommendations, Drivers and InhibitorsReference 3-2(Top)(Front Page)Key Findings&LMarket Share and Forecast: CDI Hub Software, Worldwide, 2005-2010&R&P of &N&L145406&C 2006 Gartner, Inc. and/or its Affiliates. All Rights Reserved.&R21 December 2006For more information on the market for customer relationship management software in Europe, see "CRM Software Market: Europe, 2002."For more information on the market for enterprise resource planning software in Europe, see "ERP Software Market: Europe, 2002."For more information on current Exchange Rates and Economic Assumptions see the latest "SOFT-WW-GU-0004" Gartner Dataquest Economic Overview.Customer Data Integration Hub Software Market Overview, 2004 Through 2006Organizations typically have customer data spread across many systems. The data is fragmented and often inconsistent. This makes it difficult for organizations to understand the true value of customers, their likely behavior, their needs and also the risks associated with them. Without a single view of those customers, organizations are in the dark and cannot effectively retain customers, cross-sell to them, deliver the right customer experience to them or manage the risk associated with them. Some form of single customer view is, therefore, fundamental to managing customer relationships. Those customers may be consumers or businesses. In different industries or sectors, there may be a quite different focus and vocabulary. In government, the focus could be the citizen, the taxpayer or the criminal suspect. In healthcare provision, it would be the patient. In pharmaceuticals, it would be the physician.The creation of the "single view of the customer" is not a new aspiration; however, most organizations have struggled throughout the years to fully meet the goal. What is new now is a focus on the problem, typically referred to as customer data integration (CDI) and a new set of packaged technologies that include CDI hubs. CDI hubs are software products that support the global identification, linking and synchronization of customer information across heterogeneous data sources; create and manage a central, database-based, system of records; and enable the delivery of the single-customer view (see " Creating the Single Customer View With Customer Data Integration," G00132863).Since 2004, interest in CDI hubs has grown dramatically as organizations have revisited the need for a single view of the customer and their capability to achieve it. This interest has been driven by a combination of supply-and-demand factors. On the demand side, many organizations have accepted that their previous investments in CRM and ERP systems have not fully met the challenge, and early adopters are investigating new approaches, such as CDI hubs. On the supply side, an increasing number of vendors, with their own interpretations of meeting the requirement, are offering value propositions around CDI and CDI hubs, and the more-widely embracing concepts of master data management (MDM) and enterprise information management (EIM) (see "Magic Quadrant for Customer Data Integration Hubs, 2Q06," G00137774).DriversSeveral supply-and-demand factors are driving the emergence of a market for CDI hub products, including: The increasing focus on customer-centricity and end-to-end business processes across organizational units, channels and business partners The drive to save costs and increase efficiency by standardizing processes, consolidating systems and reducing duplication The proliferation of heterogeneous environments that extend well beyond the functionality of a single vendor The challenge of developing a single view of the customer, which the enterprise suite and CRM application suite vendors have not fully solved with their application suites The growing recognition that a master customer information database, or hub, is needed to support the global identification and linking of customer information across heterogeneous data sources and enable synchronization and delivery of the single customer view The complexity and ongoing enhancement costs of in-house customer master databases, which are causing businesses to revise their build vs. buy decisions The entry of enterprise and CRM suite vendors into the market joining the established, but smaller, specialist CDI vendors which has validated the CDI requirement and given it greater momentum InhibitorsSeveral challenges exist for vendors of CDI hub software, including the following: The CDI hub market is still at a relatively early stage and, although the hype level was high in North America in 2005, the need for education on the concept, the architectural variations and the best practices, particularly in Europe, the Middle East and Africa, and Asia/Pacific, still exists. Some vendors, particularly those that were early best-of-breed entrants into the market, can demonstrate good references in demanding situations. However, some of the larger vendors that entered the market later still have much work to do in terms of references. Many Type B and Type C organizations that typically buy from these larger vendors will wait until the value of the CDI hub concept is more widely proved. So far, most CDI hub projects that have gone live have been seen as successful. CDI hub software has not suffered the same failure rate problems as CRM in its early days. However, as the number of projects increases, so will the number of "failed project" stories, which have a negative effect on buyers' confidence. The upsurge in interest in EIM and MDM should be welcomed. However, many Type B and Type C organizations may decide that they want to purchase all necessary MDM technologies from a single vendor and wait until that vendor's "suite" of MDM products is fully available and mature. This would serve to freeze sections of the market and limit the opportunity for CDI hub specialists. Investment in CDI hub software will need to be accompanied by a strong business case that focuses on hard benefits, such as compliance, risk management and cost savings, as well as softer "CRM like" benefits, such as cross-sell, upsell, retention and customer experience management. Organizations outside of North America will be looking for the CDI hub vendor to have a local presence and proven internationalization of its software. This will create an investment and growth challenge for U.S. best-of-breed vendors looking to expand internationally. Application platform suite vendors packaging CDI hub functionality as a module within a larger suite of software products, at a heavily discounted price, could lead to commoditization of CDI hub products. This would make CDI hub software difficult to sell as an individual stand-alone solution, unless it had a superior value proposition in its chosen niche. Rapid consolidation can hinder the expansion opportunities of best-of-breed vendors. The likelihood of large vendors acquiring small stand-alone CDI hub software vendors is relatively high, and this can be a disrupting factor for the expansion of revenue generated by CDI hub software products, which risk being turned into a mere functionality within larger suites. The slow economy, particularly in Western Europe and Japan, can be a significant inhibitor for new software purchases and impact CDI hub products as well.CRM Systems Helped, but Often Didn't Fully Address the Challenge of a Single-Customer ViewMany large organizations thought they would solve all their single-customer-view challenges by implementing a CRM application package. Although those projects provided many benefits in terms of new functionality and improved customer data, they also created more silos of customer data. For example, in telecommunications, the new CRM sales and customer service systems resulted in new levels of functionality, improved sales efficiency and a better customer experience. However, they didn't solve the problem of customer data being split among the CRM system, billing systems and potentially other systems.Many Homegrown Customer Information File Systems Need a RefreshOther organizations, such as banks and insurance companies, took matters into their own hands years ago and built a central customer information file, but they are discovering that the technology base they chose is outdated, potentially too inflexible and not engineered for their service-oriented architecture (SOA) direction. In addition, many organizations are finding out the hard way that this is a complex requirement that keeps evolving, resulting in significant maintenance and ongoing development costs.Compliance Requirements Need Solutions by Set DatesCross-industry compliance requirements (such as the U.S. Sarbanes-Oxley Act and Safe Harbor) or industry-specific requirements (such as anti-money-laundering legislation and Basel II in financial services and the Health Insurance Portability and Accountability Act in U.S. healthcare insurance) provide strong drivers for many projects that may require creating and using a better single view of the customer. Not surprisingly, CEOs are anxious to stay out jail and will sign off on projects that help keep it that way.It Makes Sense to Manage Privacy Rights and Preferences CentrallyIncreased focus on data privacy legislation, particularly in the U.S. at the federal and state level, has led to an increase in the quantity and complexity of privacy information (such as opt in/out and "do not call") and preference information (such as "contact me by e-mail") that organizations have to collect, maintain and abide by. This task becomes more complex when it is coupled with the need to know what customer interaction is allowed or preferred on a state-by-state basis in the U.S., and which legal entity has that right to make that contact. Organizations are starting to manage these information assets centrally instead of trying to manage them in a fragmented way and potentially getting it wrong, which may lead to a fine or a negative impact on brand equity.A Central Customer Profile Can Help Drive Value From Customer InteractionsCreating and using a central customer profile is the goal of many industries. Organizations need to effectively manage customer interactions, providing the appropriate customer experience and using the opportunity in terms of cross-marketing, cross-selling or retention. This requires the ability to quickly identify the customer; retrieve and use key demographic, product holding and transaction data on them; and use insight generated in the analytical systems (for example, customer value information and behavior predictions) to guide the process. A central customer profile based on a CDI hub that links to key operational systems and operates in a closed-loop manner with the analytical systems is an attractive concept to many.Wherever There Are Multiple Systems Containing Customer Data, There May Be a NeedDifferent organizations will have different scenarios and needs: Most of the focus has been on operational situations, with several heterogeneous systems containing customer data. The systems may be from leading ERP and CRM package suppliers, or a mixture of homegrown and purchased horizontal and vertical-industry systems. In other situations, the need may be to create consistency across numerous, similar systems that are separated by geography or business unit (for example, a global organization with separate versions of SAP R/3 installed in 30 countries around the world needing to commonly define and share customer information). The focus could also be on the analytical side, not the operational side. In that same example, with SAP R/3 installed all over the world, the need may be to create consistency so that customer data can be rolled up to the corporate level and allow consistent reporting and analysis.Many Organizations Are Placing a New Focus on Holistic MDM Strategies, Including the CDI DomainIn some industries, particularly the product-centric ones (such as manufacturing, consumer packaged goods and retail), the need to create a single view of the customer is often a lower priority than the need to create a single view of the product. This requirement may be needed to provide consistent processes and internal reporting within the organization, or its aim may be to optimize collaborative processes with partners in the supply chain.Depending on the nature of the organization and its business, a need to manage a wide range of master data objects, such as customers, products, suppliers, assets, employees, locations and financial ledgers, across content stores may exist. The importance of different master objects and the balance between them will vary according to industry with: Government focused on the customer (citizens, taxpayers or potential lawbreakers) object Many service-oriented industries (such as banking) focused on the customer object Telecommunications companies trying to grapple with customer and product data Product-oriented companies giving priority to a product data initiative, but needing to manage customer and supplier data as wellRecommendations End-user organizations Large organizations should examine the business case for introducing a CDI hub, with a particular focus on hard benefits in regulatory compliance and privacy management. If the business case can be justified and a senior business sponsor found, then review the CDI hub scenarios to be addressed and create an evolutionary, but flexible, vision for what will be achieved. Investigate the relevant architectural styles and vendors before deciding whether to take a build or buy approach. Current or prospective CDI hub vendors This is an immature market that is showing strong growth. It is a time of opportunity. As an increasing number of larger application infrastructure players enter the market, small players will have to focus on particular value propositions, product capabilities and use-case scenarios. They will also have to decide whether their end game is acquisition by a larger player or creation of a sustainable niche. For larger players, the challenge will be to improve their credentials in the CDI hub market, in terms of skills, product capabilities and references, and use them to build a coherent, wider MDM and application infrastructure strategy. External service providers (ESPs) CDI projects tend to generate two to three times the service revenue relative to the software license revenue. ESPs that have experienced declining revenue from their CRM practices in recent years have the opportunity to re-purpose those skills and tap into a growing market. As the scope evolves into a wider EIM program, ESPs will need to bring a mix of vertical domain and horizontal technology and application skills from the architecture, business intelligence, CRM and ERP areas.Focus on the governance of enterprise information and EIM will increase.In many organizations, particularly in the CFO and IT architect communities, information is beginning to be recognized as a strategic asset to be maintained like any other asset. Organizations are thinking more widely about the management and exploitation of information, regardless of content type (structured, semistructured or unstructured) or purpose (operational or analytical) at the enterprise level. The Gartner Dataquest term for this is EIM, which is a program (with a set of building blocks, including a technology reference model) that starts with a vision and a strategy and has a strong focus on governance, processes and metrics (see "The Essential Building Blocks for Enterprise Information Management," G00130527). Technology also has a strong role to play in an EIM program (see "EIM Reference Architecture: An Essential Building Block for Enterprise Information Management," G00130553). CDI and product information management are examples of MDM capabilities and are key components of the EIM reference architecture. Often, organizations use CDI and product information management as incremental steps toward achieving their EIM vision.Organizations Are Realizing They Cannot Succeed Without a Complementary Focus on Data ServicesThe adoption of SOAs will potentially give organizations more flexibility in how they create applications and business processes, reuse components, buy or build new components, and compose or orchestrate them to form new processes. Historically, most applications have been tied to the underlying data model and database in a monolithic structure. SOA will give more freedom in using business logic to create new applications. However, at some point, these applications will need to access and consume data. If that data is fragmented across different underlying data models and databases, major semantic consistency problems will occur. IT architects and vendors are realizing that CDI and the wider topic of MDM, plus a data services layer, will be key to successful SOA (see "Service-Oriented Business Applications Require EIM Strategy," G00124926, and "Data Services: The Intersection of Data Integration and SOA," G00130332).Organizations must tackle data quality problems upstream from the analytical environment and provide a consistent entry point into it. In many organizations, the data warehouse is the only place where a complete view of the customer is maintained (however, its characteristics do not make it suitable for operational use). An enormous amount of effort goes into extracting data from the different data sources, and rationalizing and transforming it before integrating it and loading it into the data warehouse. These processes in the downstream analytical systems are routinely attempting to sort out problems created upstream in operational systems. By tackling MDM issues upstream in a CDI hub, an organization could potentially be able to reduce the amount of work that has to be done downstream in readying the analytical environment, or at a minimum, the new hub could provide a consistent touchstone for managing data in the operational and analytical systems.Interest Exists Across All Vertical Industries and GovernmentsDriven by a mixture of these trends, early adopters in all types of vertical industries are showing new interest in creating and using a single view of the customer, and they are investing in CDI-hub-based projects. Interest in consumer and business customer situations exists. There are variations in vocabulary by industry and sector. For example, instead of "customer," the applicable term could be "client," "citizen," "taxpayer," "physician," "patient" or something else. At a sector level in each industry, there are differences in requirements in terms of data model, processes and IT environment. In most situations, it will be acceptable to physically bring master customer data together in a central CDI hub. However, in other cases, particularly in healthcare and government, a lighter "registry" approach (see "How to Choose the Right Architectural Style for Master Data Management," G00142610) that links to the data, but doesn't physically consolidate it, will be all that regulations allow. North America Leads the Pack, But Other Regions Will Catch UpThe CDI market is an emerging market and, as expected, the largest portion of revenue is generated in North America. This situation is influenced by the fact that most of the key CDI hub software vendors are U.S.-based and, in several cases, they have sold their CDI hub products only in North America. As the U.S. vendors build a more-global sales and marketing presence and international vendors emerge, Europe, Japan and Asia/Pacific will start building up to their typical software market revenue relative to the U.S. from 2006 onward.(Top)(Front Page)(Front Page)(Top)Market Overview, Recommendations, Drivers and InhibitorsKey FindingsMergers_AcquisitionsChapter 4Geographical AssumptionsList of References4-1North America Geographical Assumptions4-2Latin America Geographical Assumptions4-3Europe Geographical Assumptions4-4Middle East and Africa Geographical Assumptions4-5Asia/Pacific Geographical Assumptions4-6Japan Geographical AssumptionsReference 4-1(Top)(Front Page)North America Geographical AssumptionsReference 4-2(Top)(Front Page)Latin America Geographical AssumptionsReference 4-3(Top)(Front Page)Europe Geographical AssumptionsReference 4-4(Top)(Front Page)Middle East and Africa Geographical AssumptionsReference 4-5(Top)(Front Page)Asia/Pacific Geographical AssumptionsReference 4-6(Top)(Front Page)Japan Geographical Assumptions&LMarket Share and Forecast: CDI Hub Software, Worldwide, 2005-2010&R&P of &N&L145406&C 2006 Gartner, Inc. and/or its Affiliates. All Rights Reserved.&R21 December 2006For more information on the market for customer relationship management software in Europe, see "CRM Software Market: Europe, 2002."For more information on the market for enterprise resource planning software in Europe, see "ERP Software Market: Europe, 2002."For more information on current Exchange Rates and Economic Assumptions see the latest "SOFT-WW-GU-0004" Gartner Dataquest Economic Overview.IntroductionKey PredictionsThe following key predictions include analysis from recent events, behavioral changes in buyers and financial performance of key software vendors:Forecast DriversShort Term The need to reduce total cost of ownership will drive the purchase of tools that increase operational efficiency and enable higher use of existing IT infrastructure resources. After the hard stop in new enterprise systems management (ESM) software purchases in 2002, businesses have worked through the bulk of their excess capacity and will begin returning to normal purchasing patterns again in late 2003 or early 2004.Long Term The drive toward a service-oriented approach to IT infrastructure management will drive supplier innovation and user demand for new IT management software. Increased funding of projects for dynamic infrastructure provisioning, software usage and other asset usage management, patch management, Java 2 Enterprise Edition (J2EE) applications management, improved network and systems event management, as well as distributed job scheduling, will drive growth in network systems management in the long term. Increased regulations, such as Sarbanes-Oxley and Health Insurance Portability and Accountability Act dealing with reliability, will drive additional IT spending across the board, including in IT infrastructure management disciplines.Forecast InhibitorsShort Term Companies will be hypercautious in terms of IT spending and investment in response to a stalled economy impacted by war, disease and continued disclosures of accounting fraud. Lack of funding for new technologies because of the economic issues of 2002 and 2003 will delay time to market for many new companies, slowing the rate of implementation of new product ideas. Staff reductions will delay product development at software companies and reduce customer experimentation with new technologies. Vendor ability to execute will continue to inhibit market growth. Key issues are timely delivery, quality product and support, effective marketing, strong customer references, and well-trained distribution channels. Increasingly, more vendors will use deferred revenue recognition accounting practices, which will cause the market to appear to be growing more slowly. Over time, however, this action will result in a "smoothing" of vendor revenue streams. Flat or weak spending in key verticals, such as telecommunications and high tech, will continue to negatively impact the growth of ESM and other infrastructure software through the end of 2004 and into 2005.Long Term Price competition among vendors is already reducing prices for ESM software, especially in less-hot segments. This is a trend that will not be reversed when the economy improves. Outsourcing of IT management will reduce the revenue per unit of ESM software when sold indirect through service providers.For more information on the market for customer relationship management software in Europe, see "CRM Software Market: Europe, 2002."For more information on the market for enterprise resource planning software in Europe, see "ERP Software Market: Europe, 2002."For more information on current Exchange Rates and Economic Assumptions see the latest "SOFT-WW-GU-0004" Gartner Dataquest Economic Overview.Western EuropeForecasts suggest that the economy in 2005 will grow, although at a slightly slower rate than 2004 as the general recovery across Western Europe gains momentum. The impact on software spending is expected to be mixed as companies are raising their demands after two years of contraction particularly in the business applications space. Software vendors will benefit from high levels of pent-up demand. The stance of fiscal policy is expected to be broadly neutral (possibly even slightly restrictive) both for the euro area and Western Europe as a whole in 2005. In view of the fragility of factors of domestic growth and the dampening effects of the stronger euro on domestic economic activity and inflation, monetary policy in the euro area is likely to be cautious. The ECB European Central bank is expected to leave interest rates unchanged in 2005, but there is scope for countering a possible weakening of the recovery by lowering interest rates, particularly as the stronger euro will dampen imported inflation. The Euro appreciation against the US dollar will continue to artificially inflate the revenues of IT companies competing in the European market. Looking at the real growth rates calculated at constant currency will become increasingly important. Moderate uplift in business investment is anticipated in 2005 and this is set to be beneficial for technology vendors although growth rates across the IT industry and in particular of the software market is expected to be positive but not extraordinary.Consumer spending in most countries continues to remain fairly buoyant. Drivers Public investment and spending will remain robust in the near term given the already-announced governmental policies for fiscal 2005/06. This will favor software projects in the government sector across Europe. In recent months, confidence has been pressurized by high oil prices, the strength of the euro, and evidence that global growth has lost some momentum. Business confidence within the services and industrial sectors are on the rise. The outlook for 2005 is encouraging as the demand for capital goods increases. As companies increase their confidence on the future, their software investments will benefit. The strength of the euro will continue to make import prices attractive for both businesses and consumers across the euro zone. Foreign vendors should benefit from particularly if in Europe they sell their products in US dollars. On the flip side, the costs of European operations will go up as blls are expensed in Euro. Inhibitors Increased oil prices worldwide due to fears about unstable oil-producing regions around the world. In addition, stockpiling by China and the United States will stoke inflation across Europe. The newly enlarged European Union (EU) may result in a decline of government investment in the established member states as funds are diverted to lower-cost countries in Eastern Europe. There is a risk of sharp adjustment in the equity and housing markets through rising interest rates, particularly in Ireland, the United Kingdom, Holland, parts of Spain and some European capitals. The strong value of the euro may inhibit growth within the euro zone by discouraging growth in exports. Move of industrial jobs to labor cheaper eastern European countries determing the shift of IT spending towards the Eastern Countries. Although unemployment rates are generally improving across Europe, they remain high in Germany, France, Belgium and Spain as the slow economic recovery of the euro zone is too weak for sustained job creation. Germany is a crucial IT market and its performance is decisive for the whole of the European market. Eastern EuropeWith eight Eastern European countries joining the EU in May 2004, economies within the region improved benefiting directly IT spending. Expected increase in imports from the euro zone means a bright economic outlook for the region and for the technology vendors selling in the area. The newly acceded states are expected to see strong growth due to funding from the EU and elsewhere. Although inflationary pressure is set to increase, it should remain controllable. Prospects for growth in technology spending is the area remain good for the forecasted period. Drivers Increased level of investment in Eastern Europe by strengthening euro zone countries. This is benefiting particularly those IT vendors that target government, telecommunications and financial institutions. Increased job prospects within the enlarged EU. The good technical expertise of locally educated personnel is a key asset for software companies that can benefit from the freedom of movement of labor force granted by the EU. Overall rise in industrial confidence for members of the European Union which is set to positively influence their technology purchases. Continued strong performance in key countries like Russia and Poland.Inhibitors The economic fortunes of economies in Eastern Europe are closely tied top the developments in euro zone. This should the recovery of euro zone this will impact the emerging markets in the east. Structural political instability in key countries. Software purchases particularly in the government sector and in the newly privatized companies are very much tied in to the stability of national governments and parliaments. Political unrest or instability can be a strong inhibitor for IT purchases in these countries. Growth in real wages in some countries which is contributing to inflationary pressures and the loss of price competitiveness in the international markets. High government deficits that will require some restrictive policies.Asia PacificAsia Pacific region has a great diversity and contrast amongst each individual country. Gartner Dataquest has 13 country coverage in Asia Pacific. Although in general the Asia Pacific region has a relatively slower IT adoption rate compared to Europe or the US, each country in Asia Pacific greatly varies in terms of both IT use and IT maturity. With a great contrast in GDPs, economic growth, demographics and almost all of social and political aspects, challenges and opportunities for each individual country will be significantly different. In general, however, the following should summarize the key drivers and inhibitors in the region. DriversAsia/Pacific will be among the most dynamic regions in the world with the regional economic growth expected to be 5.8 percent compound annual growth rate (CAGR) from 2003 through 2008. The region is attracting huge investment in manufacturing (especially in China) and services (especially in India) by multinational corporations. Penetration of software, especially packaged business software, is generally low in Asia/Pacific. There is a lot of room for market growth. Asia/Pacific organizations face increasing competition in their home markets from global, regional and local competitors. They are turning to IT to become competitive. InhibitorsAlthough purse strings of organizations are beginning to loosen, organizations are not likely to forget the lessons learned during the past few years. They would continue to do tough value/cost assessment and invest in discrete projects to solve immediate problems rather than investing in mega projects. Asia/Pacific organizations will continue to be cost-sensitive. The ongoing consolidation of the software market will continue to create uncertainty and delay decision making by organizations. Though economies of most Asia/Pacific countries are doing well, their dependence on exports of manufacturing goods makes them susceptible to economic shocks. Further, though recently concluded elections in many countries were by and large peaceful, risks of social and political instability continue to lurk in some countries. The region also remains susceptible to natural calamities (such as earthquakes) and public health disasters (such as SARS).JapanJapan's economy has been weak in the second half of 2004. The main cause was weakness in private consumption, as well as heavy cuts in public works spending (although the latter flattened late last year). This might have negative impacts on technology spending particularly on government related projects. Nevertheless, a number of positive signals for an upcoming rebound can now be confirmed allowing us to forecast a turnaround by mid year 2005. According to Global Insight, GDP growth for 2004 should register 2.9%; a growth rate of 1.5% is forecasted for 2005, rising to 2.0% in 2006. The rest of the economy was relatively well-balanced, and should continue for the near term. Drivers The Bank of Japan gradually shifts to a more expansionary monetary policy positively influencing business investment and also technology purchases as companies plan strategies for future expansion. Bank lending set to rise. Business confidence declines slightly, but not enough to seriously damage capital expenditures. Inhibitors Reforms, restructuring, and changed attitudes leads to a boom in inward direct investment. Deflation continues well into 2006. Investors become higher risks takers, searching for higher returns which leads to increased capital outflows to the United States and results in sharp yen depreciation.Latin AmericaWhen comparing the Latin America region to other regions, the technology gap is shrinking, but delays in technology adoption hamper the competitiveness of Latin American enterprises. The gap is partly caused by limited budgets for hiring, training, and experimenting with new technology (availability is no longer an issue; every major vendor is present in major Latin America centers). Lack of expertise in the new technology is important. It takes time for vendors to bring those resources from the places where the technology originated.A region of geographic contrasts, each country in Latin America also displays socio-economic contrasts, a heritage from colonial days. Diversity is everywhere. Despite efforts during the last 50 years, the region still must overcome difficult challenges, such as wealth distribution, healthcare, education, unemployment and, in some areas, social unrest.Drivers GDP growth is in the range of 3% to 4% from 2004 to 2009; IT spending is rising with a CAGR of 7.7 percent with 2006 as the key trigger year. Spending on wireless and mobile technologies continues to increase as new communication infrastructures are established Latin America, notably Brazil and Mexico, is becoming a challenger to other regions for application development outsourcing and in niche business process outsourcing The aggressive commercial policies of larger software vendors, coupled with restricted IT budgets, will lead CIOs to turn to open-source software (notably Linux). The public sector uses more open-source software, with political considerations and regional differences influencing adoption, especially on the desktop.Inhibitors Growing, but still rather small, government investments in IT products and services Latin American economies are in the North American "shadow" and are under-developed in relation to economies in other geographies As a new generation of enterprises develops in the new, global economy, there is a reluctance to transform existing enterprises to the more IT-centric and more automated work environments. Technology adoption curve is dampened as technology adoption occurs later in most vertical markets when compared with North America, Europe, and Asia-Pacific regions. A notable exception is financial services and the banker sector in Mexico and Brazil.Middle East and AfricaThe Middle East experienced strong economic growth in 2004 because of a surge in oil prices. The region is likely to continue this momentum in 2005 and could achieve its best performance since 2000. By 2006 growth rates will go back to more steady levels. Africa will perform on the lines of 2004 with the steady single digit growth rates. Although a minor software market for most of the large software vendors, Middle East and Africa offer good opportunities for greenfield projects and fast growth due to the low level of penetration of the most common software solutions.Drivers The developments in Iraq will not destabilize the region or disrupt the oil shipments from the Gulf. Non-oil commodities in the African region are on the rebound due to surging international commodity price. This has an impact on the regions economic growth. Non-oil sector, particularly tourism, will continue to grow especially in the Persian Gulf countries. Increased value and level of exports from Europe and Asia to the region.Inhibitors Stability issues in Iraq and the uncertain future of the government following the election in 2005. A plunge in the price of oil and internal disagreement within OPEC. Ongoing political unrest and terrorism threats across the Middle Eastern area and several African countries which impacts international investor confidence. Irregular swings in overall growth, particularly in North Africa, due to the wide fluctuations in weather conditions undermining agricultural production.The growth or decline of the enterprise software market is directly linked to the performance of the economy. Gartner Dataquest believes that the following economic and regional trends will help to shape software spending in the forecasted period: Note: Both internal Gartner and external research sources were utilized to establish these geographical assumptions including but not limited to Global Insight.North America Overall, the North American technology market is expected to continue to see respectable, albeit decelerating, growth in 2005. Corporate IT expenditures will generally remain in line with projected increases in GDP as global demand reverts to historical norms. Continued investments will be made in technology as enterprises seek to leverage IT to support new business processes. The focus will be trifold: efficient delivery of core IT services, maintaining security and mitigating risk, building out business process capability.In general, the United States and Canadian technology markets behave fairly similarly. However, as of the start of 2005, the weakness in the U.S. dollar has caused the Canadian dollar to appreciate about 25% since 2002. The impact of the stronger currency has put significant pressure on the Canadian economy and technology purchases. Drivers GDP growth will slow from 2004 levels, but continued GDP growth on the order of 3.1-3.4% per annum through 2009 will allow corporate technology investment to retain momentum Moderate profits and respectable productivity growth will support healthy corporate capital spending and modest job growth. In most cases, IT will continue to see budget increases in line with the rest of the organization. Technology investments by local and federal governments will continue to drive growth; however, rates will slow as the U.S. federal government in particular struggles to control overall spending. Business process integration, not automation is the new mantra. The business focus is now on improving, integrating, and innovating operations, and investments in these technologies and services are a top priority for CIOs Security and data protection concerns remain a top investment priority for all CIOs, and ranks particularly highly for CIOs in the private sectorInhibitors Continued caution and overall slower GDP growth will keep business and technology investments at moderate rather than strong levels. Additionally, organizations must adjust to overall tougher growth comparisons which will cause a slight flattening in confidence While many enterprises will grow business operating and IT budgets at the same rate, in some organizations, IT budgets will lag slightly as a result of continued caution about the longevity and strength of the economic recovery. In those instances, IT is expected to contribute value to the enterprise without significant upfront investment Benefits of easy cost-cutting and improving operational efficiencies have already been achieved. New growth and gains in IT efficiencies will require more effort and investment than for the previous "low-hanging fruit" projects Continued focus on ROI and cost will continue to govern technology investment decisions. Strong control by CFOs and the finance organization will force IT decisions to be prioritized and only the strongest cases will see funding In the near-term, Canadian enterprises will continue to feel the pressure from the strong Canadian dollar, losing market share in the United States and outsourcing elements of production to cheaper locales such as China and India. Generally lower corporate investments in technology will result.For more information on the market for customer relationship management software in Europe, see "CRM Software Market: Europe, 2002."For more information on the market for enterprise resource planning software in Europe, see "ERP Software Market: Europe, 2002."For more information on current Exchange Rates and Economic Assumptions see the latest "SOFT-WW-GU-0004" Gartner Dataquest Economic Overview.IntroductionKey PredictionsThe following key predictions include analysis from recent events, behavioral changes in buyers and financial performance of key software vendors:Forecast DriversShort Term The need to reduce total cost of ownership will drive the purchase of tools that increase operational efficiency and enable higher use of existing IT infrastructure resources. After the hard stop in new enterprise systems management (ESM) software purchases in 2002, businesses have worked through the bulk of their excess capacity and will begin returning to normal purchasing patterns again in late 2003 or early 2004.Long Term The drive toward a service-oriented approach to IT infrastructure management will drive supplier innovation and user demand for new IT management software. Increased funding of projects for dynamic infrastructure provisioning, software usage and other asset usage management, patch management, Java 2 Enterprise Edition (J2EE) applications management, improved network and systems event management, as well as distributed job scheduling, will drive growth in network systems management in the long term. Increased regulations, such as Sarbanes-Oxley and Health Insurance Portability and Accountability Act dealing with reliability, will drive additional IT spending across the board, including in IT infrastructure management disciplines.Forecast InhibitorsShort Term Companies will be hypercautious in terms of IT spending and investment in response to a stalled economy impacted by war, disease and continued disclosures of accounting fraud. Lack of funding for new technologies because of the economic issues of 2002 and 2003 will delay time to market for many new companies, slowing the rate of implementation of new product ideas. Staff reductions will delay product development at software companies and reduce customer experimentation with new technologies. Vendor ability to execute will continue to inhibit market growth. Key issues are timely delivery, quality product and support, effective marketing, strong customer references, and well-trained distribution channels. Increasingly, more vendors will use deferred revenue recognition accounting practices, which will cause the market to appear to be growing more slowly. Over time, however, this action will result in a "smoothing" of vendor revenue streams. Flat or weak spending in key verticals, such as telecommunications and high tech, will continue to negatively impact the growth of ESM and other infrastructure software through the end of 2004 and into 2005.Long Term Price competition among vendors is already reducing prices for ESM software, especially in less-hot segments. This is a trend that will not be reversed when the economy improves. Outsourcing of IT management will reduce the revenue per unit of ESM software when sold indirect through service providers.For more information on the market for customer relationship management software in Europe, see "CRM Software Market: Europe, 2002."For more information on the market for enterprise resource planning software in Europe, see "ERP Software Market: Europe, 2002."For more information on current Exchange Rates and Economic Assumptions see the latest "SOFT-WW-GU-0004" Gartner Dataquest Economic Overview.Western EuropeForecasts suggest that the economy in 2006 will grow at a slightly slower rate than 2005, despite the general recovery across Western Europe gaining momentum. The effect on software spending will be mixed because companies are raising their demands after two years of contraction, particularly in business applications. Software vendors will benefit from high levels of pent-up demand. The stance of fiscal policy was broadly neutral (possibly even slightly restrictive) for Western Europe during 2005, regardless of currency. In view of the fragility of factors of domestic growth and the dampening effects of the stronger euro on domestic economic activity and inflation, euro monetary policy is likely to be cautious. The exchange rate between the euro and the U.S. dollar did stabilize during 2005. However, the currency movements will continue to impact the U.S. dollar revenue of IT companies that are competing in Europe. Looking at real growth rates that are calculated at constant currency or in Euro, will remain an important indicator. A moderate increase in business investment is anticipated in 2006, and this will be beneficial for technology vendors, although growth rates across the IT industry and, in particular, software market will be positive but not extraordinary. Consumer spending in most markets continues to increase. Drivers Public investment and spending will remain strong in the near term, given the already announced government policies for fiscal 2006. This favors government software projects. In recent months, confidence has been eroded by high oil prices, the strength of the euro and evidence that worldwide growth has lost some momentum. Business confidence in the services and industrial sectors is on the rise. The outlook for 2006 is encouraging because the demand for capital goods is increasing. Software investment will benefit when confidence increases. The strength of the euro will continue to make import prices attractive for businesses and consumers. Foreign vendors will benefit if they sell their products in U.S. dollars. The cost of operations will increase, though, because they will be expensed in euros.Inhibitors Oil prices are increasing worldwide because of fears about unstable oil-producing regions. In addition, stockpiling by China and the United States will stoke inflation across Europe. The newly enlarged European Union (EU) may result in a decline of government investment in established member states because funds will be diverted to countries in Eastern Europe. A sharp adjustment in the equity and housing markets, through rising interest rates, is possible, particularly in Ireland, the United Kingdom, the Netherlands, parts of Spain and some capitals. The strong value of the euro may inhibit growth by discouraging exports. Industrial jobs are moving to Eastern Europe.Asia/PacificAsia/Pacific has great diversity. Gartner Dataquest has 13 markets covered. While the region has a relatively slower IT adoption rate when compared with Europe or the United States, each market varies greatly in terms of IT use and maturity. With a great contrast in GDP, economic growth, demographics, and most social and political aspects, challenges and opportunities for each market will be significantly different.Drivers Asia/Pacific will be among the most dynamic regions in the world, with regional economic growth to be 6.0 percent annually, from 2003 through 2010. The region is attracting huge investments in manufacturing (especially in China) and services (especially in India) by international corporations. Penetration rates of software, especially packaged business software, are generally low. Organizations face increasing competition in their home markets from worldwide, regional and local competitors. They are turning to IT to become competitive. Inhibitors Although spending is beginning to increase, organizations are not likely to forget the lessons that have been learned during the past few years. Tough value/cost assessments will continue to be done, and discrete projects to solve immediate problems will receive the most investment, rather than investing in large projects. Tactical spending dominates strategic initiatives. Asia/Pacific will continue to be price sensitive. The ongoing consolidation of the software market will continue to create uncertainty and delay decision making by organizations. Though economies of most markets are doing well, their dependence on the export of goods makes them susceptible to economic shocks. While recently concluded elections in many markets were by and large peaceful, risks of social and political instability continue to lurk in some countries. The region remains susceptible to natural calamities (such as earthquakes) and public health disasters (such as SARS).JapanStrong growth during the first half of 2005 has slowed even though the economy continued to experience strong annual growth during the third quarter. Domestic demand, specifically private consumption and capital expenditures, is the main driver of growth and should continue. There will be little stimulus from monetary policythe Bank of Japan is more concerned with its "exit strategy" from deflationor from fiscal policy, which is focused on reducing the budget deficit during the next few years. The labor market should remain constant, except that the labor force may finally stabilize after years of decline. The short-term weakness in the yen, as a result of high oil prices and the soft domestic economy, will strengthen in 2006. A moderate increase has occurred in fixed investments, export growth and sustained high profitability of large multinational companies. Business confidence is also strong for larger businesses and manufacturers because of economic performance, the re-election of Prime Minister Junichiro Koizumi's and strong growth in the stock market. This situation will continue because of ongoing productivity growth, modest wage growth and a temporary break from yen appreciation. Offshoring, defined as moving labor-intensive operations overseas, will continue. Offshoring will not cut into profits (Japanese auto companies have been reaping the benefits of their overseas production for years), but it will decrease production of capital goods as a share of GDP. However, investment should shift toward new, growing sectors of the economy, such as healthcare and consumer goods. These sectors could become strong growth generators for wages and profits, but only if restructuring is successful; this appears likely if capital markets remain focused on profitability.Drivers In Japan, the end of quantitative easing is in sight but we doubt that the Bank of Japanwill move towards significantly higher short-term interest rates. The Bank of Japan gradually shifted to a more expansionary monetary policy, positively influencing business investment and technology purchases because companies planned strategies for expansion. Bank lending began to rise. Business confidence declined slightly but not enough to seriously damage capital expenditure. The labor market is sufficiently flexible to keep the unemployment rate from rising. Corporate profits remain healthy, sustaining capital expenditures. Inhibitors Reforms, restructuring, and changed attitudes lead to a boom in inward direct investment. Deflation could prove more stubborn than anticipated, and continues well past 2006. . Investors become more willing to take risks and more intent on finding higher returns, leading to increased capital outflows and resulting in sharp yen depreciation.Latin AmericaWhen comparing Latin America with other regions, the technology gap is shrinking, but delays in technology adoption hamper the competitiveness of local businesses. The gap is caused partly by limited budgets for hiring, training and experimenting with technology. (Availability is no longer an issue; every major vendor is present in major centers.) A lack of expertise in technology is important. It takes time for vendors to bring those resources from the places where the technology originated.Each country in Latin America, which is a region of geographic contrasts, displays socioeconomic differences a heritage from colonial days. Diversity is everywhere. Despite efforts during the past 50 years, the region still must overcome difficult challenges, such as wealth distribution, healthcare, education, unemployment and, in some areas, social unrest.Drivers GDP growth will be in the range of 3 percent to 4 percent from 2004 through 2009; IT spending is rising at a 7.7 percent compound annual growth rate (CAGR), with 2006 as the key trigger year for boom in spending. Spending on wireless and mobile technology continues to increase because additional communications infrastructure has been established. Latin America, notably Brazil and Mexico, is challenging other regions such as China or India for the provisioning of application development outsourcing and niche business process outsourcing. The aggressive commercial policies of larger software vendors and restricted IT budgets will lead CIOs to turn to open-source software (notably Linux). The public sector uses more open-source software, with political considerations and regional differences influencing adoption, especially on the desktop.Inhibitors Government investment in IT products and services is growing but still small. Economies are in the shadow of North America are underdeveloped. Telecommunications infrastructure must be updated and upgraded to support more data-intensive broadband networks. The technology adoption curve is dampened, because technology adoption has occurred later than in North America, Europe and Asia/Pacific. A notable exception is banking and finance in Brazil and Mexico.Middle East and AfricaThe Middle East experienced strong economic growth in 2004 because of a surge in oil prices. The region is likely to continue this momentum in 2006 and could achieve its best performance since 2000. By year end 2006, growth rates will go back to steadier levels. Africa will perform on the lines of 2004/2005, with steady single-digit growth rates. Although a minor software market for most large vendors, the Middle East and Africa offer good opportunities for fast growth because of generally low penetration.Drivers The developments in Iraq will not destabilize the region overall or disrupt the oil shipments from the Gulf. Nonoil commodities in Africa are on the rebound because of surging international commodity prices. This has an effect on the regions economic growth. The nonoil sector, particularly tourism, will continue to grow, especially in the Persian Gulf countries.Inhibitors Stability issues in Iraq and the uncertain future of the government following the election in 2005 A plunge in the price of oil and internal disagreement for OPEC Ongoing political unrest and terrorism threats across the Middle East and Africa, which affect international investor confidence Irregular swings in growth, particularly in North Africa, because of wide fluctuations in weather that undermine agricultural production.The growth or decline of the enterprise software market is directly linked to the performance of the economy. The following economic and regional trends will help to shape software spending in the forecast period. (Internal Gartner and external research sources were used to establish these geographical assumptions, including Global Insight.)North America The technology market in North America will continue to see respectable, albeit decelerating, growth in 2006. Corporate IT expenditure will generally remain in line with projected increases in the gross domestic product (GDP), because worldwide demand will revert to historical norms. Continued investment will be made in technology as businesses seek to use IT to support various business processes. The focus will be on the efficient delivery of core IT services, maintaining security and mitigating risk, and building out business process capability.Drivers GDP growth will slow from 2004 levels, but continued GDP growth of 3.1 percent to 3.4 percent through 2009 will allow corporate technology investment to retain its momentum. Moderate profits and respectable productivity growth will support healthy corporate capital spending and modest job growth. In most cases, IT will continue to see budget increases in line with the rest of the organization. Technology investments by local and federal government will continue to drive growth; however, rates will slow because the U.S. federal government, in particular, has struggled to control spending. Business process integration is the new mantra. The business focus is on improving, integrating and innovating operations, and investments in these technologies and services are a top priority for CIOs. Security and data protection concerns remain a top investment priority for CIOs and rank particularly highly for CIOs in the private sector.Inhibitors Continued caution and slower GDP growth will keep business and technology investments at moderate levels. Additionally, organizations must adjust to tougher growth comparisons, which will cause a slight flattening in confidence. While many businesses will grow operating and IT budgets at the same rate, IT budgets in some organizations will lag slightly, as a result of continued caution about the longevity and strength of the economic recovery. In those instances, IT will contribute value to the business without significant upfront investment. Benefits of easy cost-cutting and improving operational efficiencies have already been achieved. Additional growth and gains in IT efficiency will require more effort and investment. Continued focus on ROI and TCO will continue to govern technology investment decisions. Strong control by CFOs and the finance organization will force IT decisions to be prioritized, and only the strongest cases will see funding. In the near term, businesses in Canada will continue to feel pressure from the strong Canadian dollar, losing market share in the United States and outsourcing elements of production to less-expensive locales, such as China and India. Generally, lower corporate investments in technology will result.Eastern EuropeWith eight Eastern European countries joining the EU in May 2004, economies in the region improved. An expected increase in imports from countries that use the euro means a bright economic outlook for the region. The newly acceded states will see strong growth because of funding from the EU and elsewhere. Although inflationary pressure is set to increase, it should remain controllable. The prospect for growth in technology spending remains good during the forecast period. Drivers Investment in Eastern Europe by strengthening countries that use the euro has increased. This benefits IT vendors that target government, telecommunications, and banking and finance. Job prospects in the enlarged EU have increased. The technical expertise of locally educated personnel is a key asset for software companies that can benefit from the freedom of movement by the labor force, which was granted by the EU. Industrial confidence has risen for members of the EU. Russia and Poland have shown a continued strong performance.Inhibitors The economic fortune of economies in Eastern Europe is closely tied to the developments in countries that use the euro. This will affect emerging markets. Key countries have political instability. Software purchases, particularly in the government sector and newly privatized companies, are tied to the stability of national governments and parliaments. Political unrest or instability can be a strong inhibitor for IT purchases in these countries. Real wages have grown in some countries, which is contributing to inflationary pressure and the loss of price competitiveness in international markets. High government deficits will require some restrictive policies.For more information on the market for customer relationship management software in Europe, see "CRM Software Market: Europe, 2002."For more information on the market for enterprise resource planning software in Europe, see "ERP Software Market: Europe, 2002."For more information on current Exchange Rates and Economic Assumptions see the latest "SOFT-WW-GU-0004" Gartner Dataquest Economic Overview.IntroductionKey PredictionsThe following key predictions include analysis from recent events, behavioral changes in buyers and financial performance of key software vendors:Forecast DriversShort Term The need to reduce total cost of ownership will drive the purchase of tools that increase operational efficiency and enable higher use of existing IT infrastructure resources. After the hard stop in new enterprise systems management (ESM) software purchases in 2002, businesses have worked through the bulk of their excess capacity and will begin returning to normal purchasing patterns again in late 2003 or early 2004.Long Term The drive toward a service-oriented approach to IT infrastructure management will drive supplier innovation and user demand for new IT management software. Increased funding of projects for dynamic infrastructure provisioning, software usage and other asset usage management, patch management, Java 2 Enterprise Edition (J2EE) applications management, improved network and systems event management, as well as distributed job scheduling, will drive growth in network systems management in the long term. Increased regulations, such as Sarbanes-Oxley and Health Insurance Portability and Accountability Act dealing with reliability, will drive additional IT spending across the board, including in IT infrastructure management disciplines.Forecast InhibitorsShort Term Companies will be hypercautious in terms of IT spending and investment in response to a stalled economy impacted by war, disease and continued disclosures of accounting fraud. Lack of funding for new technologies because of the economic issues of 2002 and 2003 will delay time to market for many new companies, slowing the rate of implementation of new product ideas. Staff reductions will delay product development at software companies and reduce customer experimentation with new technologies. Vendor ability to execute will continue to inhibit market growth. Key issues are timely delivery, quality product and support, effective marketing, strong customer references, and well-trained distribution channels. Increasingly, more vendors will use deferred revenue recognition accounting practices, which will cause the market to appear to be growing more slowly. Over time, however, this action will result in a "smoothing" of vendor revenue streams. Flat or weak spending in key verticals, such as telecommunications and high tech, will continue to negatively impact the growth of ESM and other infrastructure software through the end of 2004 and into 2005.Long Term Price competition among vendors is already reducing prices for ESM software, especially in less-hot segments. This is a trend that will not be reversed when the economy improves. Outsourcing of IT management will reduce the revenue per unit of ESM software when sold indirect through service providers.For more information on the market for customer relationship management software in Europe, see "CRM Software Market: Europe, 2002."For more information on the market for enterprise resource planning software in Europe, see "ERP Software Market: Europe, 2002."For more information on current Exchange Rates and Economic Assumptions see the latest "SOFT-WW-GU-0004" Gartner Dataquest Economic Overview.Western EuropeForecasts suggest that the economy in 2005 will grow, although at a slightly slower rate than 2004 as the general recovery across Western Europe gains momentum. The impact on software spending is expected to be mixed as companies are raising their demands after two years of contraction particularly in the business applications space. Software vendors will benefit from high levels of pent-up demand. The stance of fiscal policy is expected to be broadly neutral (possibly even slightly restrictive) both for the euro area and Western Europe as a whole in 2005. In view of the fragility of factors of domestic growth and the dampening effects of the stronger euro on domestic economic activity and inflation, monetary policy in the euro area is likely to be cautious. The ECB European Central bank is expected to leave interest rates unchanged in 2005, but there is scope for countering a possible weakening of the recovery by lowering interest rates, particularly as the stronger euro will dampen imported inflation. The Euro appreciation against the US dollar will continue to artificially inflate the revenues of IT companies competing in the European market. Looking at the real growth rates calculated at constant currency will become increasingly important. Moderate uplift in business investment is anticipated in 2005 and this is set to be beneficial for technology vendors although growth rates across the IT industry and in particular of the software market is expected to be positive but not extraordinary.Consumer spending in most countries continues to remain fairly buoyant. Drivers Public investment and spending will remain robust in the near term given the already-announced governmental policies for fiscal 2005/06. This will favor software projects in the government sector across Europe. In recent months, confidence has been pressurized by high oil prices, the strength of the euro, and evidence that global growth has lost some momentum. Business confidence within the services and industrial sectors are on the rise. The outlook for 2005 is encouraging as the demand for capital goods increases. As companies increase their confidence on the future, their software investments will benefit. The strength of the euro will continue to make import prices attractive for both businesses and consumers across the euro zone. Foreign vendors should benefit from particularly if in Europe they sell their products in US dollars. On the flip side, the costs of European operations will go up as blls are expensed in Euro. Inhibitors Increased oil prices worldwide due to fears about unstable oil-producing regions around the world. In addition, stockpiling by China and the United States will stoke inflation across Europe. The newly enlarged European Union (EU) may result in a decline of government investment in the established member states as funds are diverted to lower-cost countries in Eastern Europe. There is a risk of sharp adjustment in the equity and housing markets through rising interest rates, particularly in Ireland, the United Kingdom, Holland, parts of Spain and some European capitals. The strong value of the euro may inhibit growth within the euro zone by discouraging growth in exports. Move of industrial jobs to labor cheaper eastern European countries determing the shift of IT spending towards the Eastern Countries. Although unemployment rates are generally improving across Europe, they remain high in Germany, France, Belgium and Spain as the slow economic recovery of the euro zone is too weak for sustained job creation. Germany is a crucial IT market and its performance is decisive for the whole of the European market. Eastern EuropeWith eight Eastern European countries joining the EU in May 2004, economies within the region improved benefiting directly IT spending. Expected increase in imports from the euro zone means a bright economic outlook for the region and for the technology vendors selling in the area. The newly acceded states are expected to see strong growth due to funding from the EU and elsewhere. Although inflationary pressure is set to increase, it should remain controllable. Prospects for growth in technology spending is the area remain good for the forecasted period. Drivers Increased level of investment in Eastern Europe by strengthening euro zone countries. This is benefiting particularly those IT vendors that target government, telecommunications and financial institutions. Increased job prospects within the enlarged EU. The good technical expertise of locally educated personnel is a key asset for software companies that can benefit from the freedom of movement of labor force granted by the EU. Overall rise in industrial confidence for members of the European Union which is set to positively influence their technology purchases. Continued strong performance in key countries like Russia and Poland.Inhibitors The economic fortunes of economies in Eastern Europe are closely tied top the developments in euro zone. This should the recovery of euro zone this will impact the emerging markets in the east. Structural political instability in key countries. Software purchases particularly in the government sector and in the newly privatized companies are very much tied in to the stability of national governments and parliaments. Political unrest or instability can be a strong inhibitor for IT purchases in these countries. Growth in real wages in some countries which is contributing to inflationary pressures and the loss of price competitiveness in the international markets. High government deficits that will require some restrictive policies.Asia PacificAsia Pacific region has a great diversity and contrast amongst each individual country. Gartner Dataquest has 13 country coverage in Asia Pacific. Although in general the Asia Pacific region has a relatively slower IT adoption rate compared to Europe or the US, each country in Asia Pacific greatly varies in terms of both IT use and IT maturity. With a great contrast in GDPs, economic growth, demographics and almost all of social and political aspects, challenges and opportunities for each individual country will be significantly different. In general, however, the following should summarize the key drivers and inhibitors in the region. DriversAsia/Pacific will be among the most dynamic regions in the world with the regional economic growth expected to be 5.8 percent compound annual growth rate (CAGR) from 2003 through 2008. The region is attracting huge investment in manufacturing (especially in China) and services (especially in India) by multinational corporations. Penetration of software, especially packaged business software, is generally low in Asia/Pacific. There is a lot of room for market growth. Asia/Pacific organizations face increasing competition in their home markets from global, regional and local competitors. They are turning to IT to become competitive. InhibitorsAlthough purse strings of organizations are beginning to loosen, organizations are not likely to forget the lessons learned during the past few years. They would continue to do tough value/cost assessment and invest in discrete projects to solve immediate problems rather than investing in mega projects. Asia/Pacific organizations will continue to be cost-sensitive. The ongoing consolidation of the software market will continue to create uncertainty and delay decision making by organizations. Though economies of most Asia/Pacific countries are doing well, their dependence on exports of manufacturing goods makes them susceptible to economic shocks. Further, though recently concluded elections in many countries were by and large peaceful, risks of social and political instability continue to lurk in some countries. The region also remains susceptible to natural calamities (such as earthquakes) and public health disasters (such as SARS).JapanJapan's economy has been weak in the second half of 2004. The main cause was weakness in private consumption, as well as heavy cuts in public works spending (although the latter flattened late last year). This might have negative impacts on technology spending particularly on government related projects. Nevertheless, a number of positive signals for an upcoming rebound can now be confirmed allowing us to forecast a turnaround by mid year 2005. According to Global Insight, GDP growth for 2004 should register 2.9%; a growth rate of 1.5% is forecasted for 2005, rising to 2.0% in 2006. The rest of the economy was relatively well-balanced, and should continue for the near term. Drivers The Bank of Japan gradually shifts to a more expansionary monetary policy positively influencing business investment and also technology purchases as companies plan strategies for future expansion. Bank lending set to rise. Business confidence declines slightly, but not enough to seriously damage capital expenditures. Inhibitors Reforms, restructuring, and changed attitudes leads to a boom in inward direct investment. Deflation continues well into 2006. Investors become higher risks takers, searching for higher returns which leads to increased capital outflows to the United States and results in sharp yen depreciation.Latin AmericaWhen comparing the Latin America region to other regions, the technology gap is shrinking, but delays in technology adoption hamper the competitiveness of Latin American enterprises. The gap is partly caused by limited bu