During the three years to 2017, HR software prices have been increasing at an estimated average annual rate of 0.9%. Price increases have come primarily on the back of greater demand for the software, as well as growth in suppliers’ R&D costs.
The rising popularity of online-based systems significantly impacts this market in that many businesses have begun to invest in cloud solutions to replace older on-premise software. Cloud-based systems are more accessible, and they are easier to implement and update because they are hosted remotely on the supplier’s network. In addition, in recent years, HR software programs have begun to offer a multitude of measurements and control tools to help businesses with recruitment, payroll, training and other core HR functions. Increased accessibility and functionality have helped generate more demand for HR software, which has allowed suppliers to raise prices.
Private investment in computers and software has also risen consistently, indicating the healthy and growing level of demand for cost-effective IT solutions, including HR software. Additionally, the number of businesses has increased. As the number of businesses requiring HR software has risen, demand and prices have grown. Moreover, to enhance software functionality, suppliers have increased their investments in R&D. These higher costs, in turn, have been passed to buyers in the form of higher prices. Furthermore, market consolidation somewhat stifles competition, which encourages price growth and reduces negotiation power for buyers. Therefore, as large vendors have acquired smaller ones to bolster their product portfolios, they have gained greater pricing power.
HR software buyers have nonetheless benefited from low price volatility, which makes it easier for them to budget for their software costs and minimizes the risk of price fluctuations. Nevertheless, buyers benefit from securing long-term contracts to lock in prices because prices are forecast to continue growing during the three years to 2017.
In the three years to 2020, the price of HR software is forecast to continue to rise, albeit at a slower average annual rate of 0.5%. The forecast price growth is mainly due to the rising demand. Growth in corporate profit will increase companies’ budgets for investments in software, including HR software, supporting overall demand for HR software. Demand growth due to improvements in software functionality and delivery will also place upward pressure on prices.
In addition, the prices are forecast to grow because the market share concentration is expected to rise. As the market becomes more concentrated, vendors will have greater control over prices, which will encourage price growth. The HR software market is expected to consolidate further in the three years to 2020 as dominant vendors continue to acquire smaller operators with niche technology and strong SaaS offerings.
Although the forecast price growth will not favor buyers, buyers will benefit from continued low price volatility, which will limit the risk of price fluctuations. Nevertheless. because prices are expected to continue rising, buyers are advised to use subscription services if they can lock in favorable prices over a longer term.