Gartner: 5 Big IT Markets For Governments; SaaS, IT Services Top List

New data from Gartner reveals the top five IT markets in which governments from across the globe will spend more than $560 billion on, including SaaS, devices and IT services.

Governments across the globe will spend a whopping $590 billion this year on technology and IT services as they pour billions of dollars into replacing legacy applications.

Worldwide government IT spending will increase 7.6 percent annually in 2023 to $590 billion, up from $548 billion in 2022, according to new data from IT research firm Gartner.

“Governments are increasingly spending their IT budgets to replace legacy applications,” said Apeksha Kaushik, principal analyst at Gartner, in a statement.

The five largest spending markets governments will spend money on in 2023 are: IT services, software and SaaS, internal services, telecom services and devices. Combined, these five IT market segments will generate approximately $563 billion in sales from government customers around the world.

Governments Increase IT Budgets In 2023

Gartner pointed out some of the main reasons why government spending will increase 7.6 percent in 2023.

“Global challenges like inflation and workforce scarcity and their local repercussions are testing the abilities of government CIOs to respond with appropriate service delivery mechanisms and organizational accountability,” said Kaushik. “In addition, the ‘great resignation’ and the competing demand from the commercial sector have forced governments to re-examine their approaches to counterbalance internal talent scarcity.”

In fact, a 2023 Gartner survey of CIOs and technology executives showed that 57 percent of government CIOs plan to increase funding for application modernization in 2023, up from 42 percent in 2022.

This year, governments are also making sure their digital projects endure their mission impact. Gartner said an increasing number of government institutions are already putting in place at least one digital metric linked directly to outcomes associated with their organization’s public purpose or mission.

By 2026, Gartner expects over 75 percent of governments will gauge digital transformation success by measuring the enduring mission impact.

CRN breaks down the five largest technology markets where Gartner expects governments to spend the most money in 2023.

No. 5: Devices

2023 Spending: $32.6 Billion

2022 Spending: $34.2 Billion

The only market segment that will see a drop in government spending in 2023 is devices. This could be because of the surge in devices spending in 2020 and 2021 during the height of the COVID-19 pandemic and remote work.

Device spending by governments worldwide will fall 4.6 percent annually to $32.6 billion in 2023. Last year, governments spent $34.2 billion on devices on a global basis.

No. 4: Telecom Services

2023 Spending: $68.5 Billion

2022 Spending: $67.6 Billion

Telecommunication services rank No. 4 in terms of government spending at $68.5 billion in 2023, representing an annual growth rate of 1.4 percent year over year.

In 2022, global government spending on telecom services was $67.6 billion, down nearly 5 percent year over year compared to 2021.

Telecom services fall short in comparison to other services markets like Software as-a-Service (SaaS) and IT services as government CIOs are looking to ensure their tech investments are realizing maximum benefits, Garter said. “Government CIOs who are moving beyond scaling digital solutions across their critical services are ensuring that further investment in digital solutions can directly impact how they achieve the mission or public purpose of their organization,” Gartner’s Kaushik said.

No. 3: Internal Services

2023 Spending: $69.2 Billion

2022 Spending: $66.9 Billion

To continue modernizing IT infrastructure and applications, some governments are embracing a multi-sourced workforce strategy by optimizing the use of their internal IT talent and investing in employee experience tools to empower and spark innovation, while at the same time partnering with external IT service providers to speed time to value.

This is why the internal services market is expected to see a 3.3 percent increase in government spending in 2023. Governments will spend $69.2 billion on internal services in 2023, up from $66.9 billion in 2022.

No. 2: Software (SaaS)

2023 Spending: $183.7 Billion

2022 Spending: $161.9 Billion

In 2023, software will be the highest growing segment in the government sector by increasing 13.5 percent annually to nearly $184 billion. Software is the only market that will witness double-digit spending growth by governments worldwide, according to Gartner.

In 2022, software spending reached around $162 billion, representing an annual increase of 10 percent year over year.

Application modernization investments will increase supported by more SaaS-based solution offerings. The use of low-code application platforms is also on the rise and will further accelerate legacy modernization efforts.

No. 1: IT Services

2023 Spending: $209.1 Billion

2022 Spending: $191.9 Billion

The No. 1 market governments will be spending their IT budget dollars on are IT services. The IT services market is expected to reach over $209 billion this, up from less than $192 billion in 2022.

This represents a nearly 9 percent annual spending increase year over year.

Additionally, hiring and keeping IT talent internally is a real challenge, which is why governments are seeking outside IT services. “Compensation constraints and limited resources to attract and retain IT talent is becoming an even bigger challenge today as many governments are facing IT talent shortage,” said Kaushik.

Gartner said throughout 2023, governments will invest in initiatives that improve access to digital services as organizations increasingly demand experiences that are equivalent to online customers.