Business investment in software is up sharply over the past ten years while computer hardware spending is down — suggesting Software as a Service and cloud computing are having a big impact.

That’s according to data on non-mining business investment released yesterday by the Reserve Bank.

It’s good news for the 40 or so ASX stocks that offer exposure to the Software as a Service (or SaaS) market.

SaaS refers to “software that is owned, delivered and managed remotely by one or more providers”, says IT analyst Gartner.

SaaS or cloud-computing services are delivered over the Internet typically on a subscription basis — which saves businesses costs in managing their own computer networks.

ASX-listed SaaS stocks include Elmo Software (ASX:ELO) which provides online HR and payroll solutions, LiveTiles (ASX:LVT) which sells an online workplace system and  BigTinCan (ASX:BTH), which offers sales software.

Then, of course, there’s big daddy SaaS accounting platform Xero (ASX:XRO).

>> Head here for a table of 40+ ASX-listed SaaS stocks

Gartner reported last year that SaaS spending was “growing faster in 2017 than previously forecast” and would hit $US100 billion globally by 2020.

Those numbers tally with a Reserve Bank business investment bulletin released yesterday.

At around the time of the global financial crisis in 2008, total prices paid for computer hardware and software were similar, the RBA says.

Since then, a stark contrast has emerged. Spending on software has risen by more than 50 per cent, while investment in computer hardware has fallen by a similar amount.

Investment in IT as a service has ‘risen strongly’

“Technological change influences firms’ decisions about whether to outsource certain operations or shift operations offshore and, ultimately, which types of activities will continue to be undertaken in Australia,” the RBA analysts said.

“The trend towards information technology being offered as a service (such as cloud computing) is a common example of outsourcing (and also often offshoring, in the cases where the servers are located outside of Australia).

“Such investment has risen strongly over recent years.”

In addition, “over the past decade, the value of investment in computers and electronics has more than halved as a share of output”.

“In real terms, investment in IT equipment has also declined, occurring alongside the significant slowing in the pace of price falls for computers and electronics.”

The data indicates that the use of IT software, from outsourcing traditional manufacturing operations to the rise of cloud computing, is taking a more central role in how the modern economy operates.

Overall, non-mining investment had risen strongly in recent years “suggesting that some of the cyclical factors that have been weighing on it have eased”, the RBA said.

“The drag from the mining investment boom is close to an end and there are also signs of activity recovering in the states that are most exposed to mining activity, which support the outlook for investment there,” the analysts said.


This article first appeared on Business Insider Australia, Australia’s most popular business news website. Read the original article. Follow Business Insider on Facebook or Twitter.