Application Modernization Services Market Size, Share & Trends Analysis Report By Service (Application Portfolio Assessment, Cloud Application Migration, Application Re-Platforming, Application Integration, UI Modernization, Post Modernization), By Vertical (BFSI, Healthcare and Life Sciences, Telecommunications, Retail and Consumer Goods, Government and Public Sector, Energy and Utilities, Manufacturing), By Cloud Deployment (Public Cloud, Private Cloud), By Organization Size (Large enterprises, Small and Medium Enterprises (SMEs)) and By Region(North America, Europe, APAC, Middle East and Africa, LATAM) Forecasts, 2024-2032

Market Overview

The Application Modernization Services Market revenue was valued at USD 17.19 billion in 2023. It is estimated to reach USD 60.87 billion by 2032, growing at a CAGR of 15.48% during the forecast period (2024–2032).

Application modernization is updating, renovating, or converting existing software applications to meet current business requirements, technological trends, and user expectations. This is frequently done to increase functionality and performance and keep applications relevant in changing technologies. Application modernization services cover various operations to improve and renew software systems.

Additionlly, there is an increased demand for analytics and related technology to enable faster service recognition and delivery. Demand for speedier analytics is expected to drive the growth of the worldwide application modernization services market as cloud computing becomes more widely used in industrial and enterprise applications. Small businesses and organizations rely on legacy applications because they are cost-effective, creating a massive chance for the market to grow shortly.

Market Dynamics

Global Application Modernization Services Market Drivers:

Business Agility and Innovation

The business agility and innovation requirement drives enterprises to engage in application modernization services. Companies must be adaptable in a continuously changing business world, responding to market movements, client preferences, and emerging technologies. Legacy systems frequently need more agility for rapid change and innovation, driving firms to upgrade their applications. According to Forbes, company agility can also help you save money and improve efficiency. Agile organizations optimize processes and remove waste, resulting in greater efficiency and effectiveness. Organizations prioritizing business agility through application modernization have a reduced time-to-market for new features and services. This agility enables businesses to react quickly to client input, competitive landscape changes, and market trends. Businesses may stay ahead of the competition by developing an innovative culture.

Furthermore, an IDC survey found that by 2022, 90% of global organizations will have used a multi-cloud management approach to support their digital transformation initiatives. This significantly emphasizes agility and flexibility in meeting evolving business requirements. Organizations know that updating applications and infrastructure is critical to competitiveness in the digital economy. Investing in application modernization services allows firms to improve processes, shorten time-to-market for new goods and services, and position themselves as industry leaders in an increasingly digital marketplace. This emphasizes the Application Modernization Services Market trend throughout the projection period.

Global Application Modernization Services Market Restraints:

Budget Constraints and Legacy Complexity

Legacy systems, defined by monolithic architectures and obsolete technology, sometimes contain intricate interdependencies and complex topologies. Modernizing these systems requires navigating complex codebases, dependencies, and sometimes antiquated technology, making the task easier. According to a Clutch poll, 69% of firms say integrating with existing legacy systems is the most challenging aspect of their digital transformation efforts. This shows the pervasive complexity of legacy systems and the challenges businesses encounter when attempting to upgrade them. Furthermore, Harvard Business Review Analytic Services reports that 50% of firms need help with the complexity of legacy systems during digital transformation projects. This complexity frequently leads to longer project schedules and higher costs as organizations try to decode and upgrade extensive legacy architectures.

Furthermore, budget constraints are a significant impediment to application modernization activities. Organizations may need more time to confront financial resource constraints for modernization projects, limiting the breadth and size of their operations. Application modernization can cost between USD 40,000 and USD 150,000 or more. However, the cost varies according to the job. Upgrading a small application might range from USD 40-75,000 to USD 75-150,000, while a large solution will cost more. Deloitte research shows that budget restrictions are a significant hurdle for firms seeking digital transformation, particularly application modernization. According to the study, 31% of surveyed firms perceive budget restrictions as a substantial barrier to digital transformation success.

Global Application Modernization Services Market Opportunity:

Government Initiatives and Compliance Requirement

Government initiatives to promote digital transformation and compliance requirements in many industries drive demand for application modernization services. Governments worldwide understand the need for technology to improve public services, increase efficiency, and maintain regulatory compliance. In response to these measures, organizations must modernize their applications to meet changing standards, increase transparency, and give citizens seamless digital experiences. The European Commission has approved an adjustment to the Digital Europe Programme Work Programmes 2023-2024, which comprises an investment of more than €760 million. The Digital Europe Programme is a financial support instrument included in the European Union's Multiannual Financial Framework (MFF) for 2021-2027. The program's budget is 7.5 billion Euros, which aims to speed up economic recovery and define Europe's digital revolution. As part of this strategy, businesses and public organizations are encouraged to upgrade their apps and adopt sophisticated technologies to remain competitive in the digital landscape.

Additionally, according to a McKinsey analysis, governments worldwide are boosting their digital transformation initiatives, with spending estimated to exceed USD 1 trillion by 2025. This considerable expenditure demonstrates governments' commitment to modernizing their IT infrastructures, which creates prospects for application modernization services. Compliance regulations, such as GDPR (General Data Protection Regulation) in Europe and the CCPA (California Consumer Privacy Act) in the United States, compel firms to establish robust data protection procedures. Compliance-driven modernization entails updating applications to meet data privacy rules, creating opportunities for service providers specializing in compliance-oriented application modernization.

Regional Analysis

North America Dominates the Global Market

The global application modernization services market analysis is conducted in North America, Europe, Asia-Pacific, the Middle East and Africa, and Latin America.

North America is the most significant global application modernization services market shareholder and is estimated to grow at a CAGR of 14.6% over the forecast period. Rapidly changing IT infrastructure, expanding small and medium-sized organizations (SMEs), and rising cybersecurity solutions drive the North American application modernization services market. Growing IT supply manufacturers and distributors in the United States are replacing physical servers with virtualized environments to cut costs. Canada is experiencing strong demand in a multi-cloud scenario and more significant automation usage.

Furthermore, rising regional firms provide innovative cloud-based solutions with low investment and deployment costs. Such approaches benefit the regional application modernization services industry. The FedRAMP is a US government-developed standard for security evaluation, authorization, and continuous monitoring of cloud products and services. The country's established BFSI and healthcare industries and its large IT enterprises drive the demand for application modernization. Cloud technology is widely adopted in the United States. The nation's established digital infrastructure allows firms to modernize legacy systems and increase profitability quickly. Updating outdated government systems drives the country's need for application modernization services.

Asia-Pacific is anticipated to exhibit a CAGR of 14.8% over the forecast period. Asia-Pacific's application modernization market is driven by growing populations, major technological shifts, and intensive technologies to meet expanding software service demand in nations such as Australia, China, Japan, and India. Many Asian countries are expected to demonstrate attractive opportunities for deploying application modernization technologies. The existence of numerous significant vendors and government investments in technology-related services encourages the adoption of application modernization. According to a Gartner analysis, investment in application modernization will increase as more software-as-a-service-based solution offerings become available.

Additionally, the government's IT spending in India is expected to reach USD 11.6 billion in 2023, up 10.3 percent from 2022. Emerging firms in emerging countries such as India drive market expansion. India is rapidly becoming a leading provider of IT services and solutions. Many Indian companies offer application modernization services both domestically and internationally. Wipro, Infosys, HCL, and other Indian companies provide application modernization services. As a result, the region will likely offer fresh chances for global enterprises to expand.

The European market for application modernization services is predicted to develop at a significant CAGR over the forecast period. Rapid improvements in associated technology and increased awareness of the benefits of modernization services help expand the regional market. Significant businesses in this field also contribute to the market's growth. Furthermore, the UK application modernization services market had the highest market share, while Germany's application modernization services market was the fastest-growing in this area. According to a 2023 venture capital firm Atomico estimate, total money invested in European tech firms is expected to plummet to USD 45 billion. This is a 55% decline from 2021, when investment volumes reached USD 100 billion for the first time. 

However, the EU plans to invest nearly half a billion euros in groundbreaking digital technology. This is part of the Horizon Europe Programme, which promotes collaborative research and development throughout the EU and beyond. 

Segmental Analysis

The global application modernization services market is segmented based on service, vertical, cloud deployment, organization size, and region.

The market is further segmented by service into application portfolio assessment, cloud application migration, application Re-planning, application integration, UI modernization, and post-modernization.

Application Re-Platforming holds a significant market share.

Application Re-Platforming

Application re-platforming entails moving apps to a new platform or environment while keeping the old codebase. This could entail migrating from on-premises servers to cloud platforms or changing the underlying technologies. The goal is to increase infrastructure efficiency, scalability, and compatibility without completely rewriting the application. This solution enables enterprises to upgrade their apps with minimal disturbance. It balances adopting new technology and protecting old investments, providing a practical method to keeping up with changing IT landscapes.

Cloud Application Migration

Cloud Application Migration transfers apps and associated data from on-premises or legacy systems to cloud infrastructure. This service takes advantage of cloud computing characteristics like scalability, flexibility, and cost-effectiveness. It frequently entails redesigning applications to comply with cloud-native concepts, boosting performance, and assuring smooth integration with cloud services. This solution allows enterprises to use the benefits of cloud computing, which improves agility, lowers infrastructure costs, and encourages innovation. It integrates applications with cloud infrastructures, enabling new capabilities and meeting changing business needs.

Based on verticals, the market is sub-segmented into BFSI, Healthcare and Life Sciences, Telecommunications, Retail and Consumer Goods, Government and Public Sector, Energy and Utilities, and Manufacturing.

Telecommunication influenced the market growth.

Telecommunications

Telecommunications application modernization addresses the need for effective network management, customer relationship management (CRM), and service delivery. Modernizing applications in this area entails migrating from outdated infrastructure to software-defined networks (SDN), optimizing billing systems, and boosting consumer communication channels. Modernized telecommunications apps improve network agility, maximize resource consumption, and allow for the rapid deployment of new services. Improved client interactions and efficient operations help businesses gain a competitive advantage in this ever-changing industry.

BFSI

In the BFSI vertical, application modernization addresses the financial industry's unique issues. It entails modernizing legacy banking systems, improving customer-facing applications, strengthening security measures, and guaranteeing compliance with financial rules. Modernizing BFSI applications aims to deliver a seamless and secure digital banking experience, optimize operations, and foster financial service innovation.

The market is fragmented by cloud deployment into Public Cloud, Private Cloud. 

Public Cloud is a significant contributor to the market.

Public Cloud

Public cloud deployment entails hosting and administering applications on cloud infrastructure that numerous companies share. Cloud service providers deliver resources such as computer power, storage, and networking via the Internet. Public cloud deployment is scalable, cost-effective, and enables enterprises to access diverse services without requiring considerable infrastructure administration. Public cloud deployment is ideal for enterprises requiring flexibility, scalability, and quick resource access. It offers cost savings through a pay-as-you-go model, making it especially appealing for enterprises with fluctuating workloads or those wishing to use various cloud services for their modernized applications.

Private Cloud

Private cloud deployment entails hosting and administering applications on a cloud architecture devoted to a single enterprise. Unlike the public cloud, a private cloud can be hosted on-site or by a third-party service. It provides more resource management, increased security, and the opportunity to customize the cloud environment to meet unique corporate needs.

The market can be further bifurcated by organization size into Large enterprises, Small and Medium Enterprises (SMEs).

Large enterprises generate the most revenue in the market.

Large Enterprises

Large enterprises are companies with great size, extensive resources, and complex activities. These organizations often have a huge staff, a diverse business portfolio, and a global presence. Large businesses frequently need robust and scalable application modernization solutions to support their various operations, optimize processes, and drive innovation. Large corporations invest in application modernization to increase agility, boost operational efficiency, and stay competitive in volatile markets. They frequently have legacy systems and large application portfolios that must be modernized to keep up with changing company needs, industry standards, and technological advances.

Small And Medium Enterprises (SMEs)

Small and Medium Enterprises (SMEs) are firms with a lower scale and fewer resources than significant enterprises. SMEs include startups, family-owned firms, and mid-sized businesses operating in various industries. These firms frequently need more IT budgets and resources, yet they need contemporary software to support their growth and competitiveness.

Impact of covid-19

The COVID-19 outbreak is expected to open up new insurance third party administration market opportunities. The introduction of digital technology in insurance and the rising demand for TPAs solutions managed on the cloud are predicted to heave the market.

Also, there was a growth in health insurance claims during the pandemic. Thus, insurance companies have emphasized investing in TPAS services to efforts to a greater extent. These factors have boosted the morale of insurance companies to consider TPAs for improving efficiency and business operations during the pandemic.

Market Recovery Timeline and its Challenges

The market is witnessing growth owing to the surge in technology and the growing concern of people after the COVID-19 pandemic attack. Very few TPAs have addressed the changing needs of the insurance industry and thus are focusing on building the requisite capabilities in data, talent, and technologies. Due to this, the market is expected to quickly return to the pre-pandemic level.

Although some TPAs are gaining momentum to their pre-pandemic level, few TPAs lag. Such TPAs face significant challenges such as rapidly changing rules and regulations, ever-changing employer and employee health needs, staff retention, recruitment, growing security concerns, and technological limitation in some areas.

Recent Developments

• January 2024- Accenture completed the acquisition of global digital product company Work & Co.
• January 2024- Regional Investment Corporation Australia subscribed to Infosys Finacle's SaaS offering on AWS for its lending operations.
• July 2023- Innova Solutions joins the Pega Partner Program to accelerate its digital transformation.