Business is Booming in Customer-Managed Environments

Nikki Rouda
Sep 5, 2023

Customer-managed environments pose distinct challenges, and opportunities, for any commercial independent software vendor (ISV), really anyone, who then needs to distribute their application for their business customers. The good news is that business is booming. The bad news is also that business is booming. This blog will be the first in a series with a data-driven exploration of the stark realities and important implications for ISVs.


Each year, Replicated commissions an independent research firm to study the market for commercial software deployed into any customer-managed environment. We define customer-managed environments to include public cloud infrastructure-as-a-service (IaaS), public cloud platform-as-a-service (PaaS), private cloud, hybrid cloud, virtual private cloud (VPC), and on-premises data center) – pretty much anything but a pure Software-as-a-Service (SaaS) offering. 

You can see highlights of last year’s report here: Customer Demand Drives On-premises Software Growth.

Grow your addressable market by serving customer-managed environments

79% report software business growth in customer-managed environments
Research finding: “79% of software companies report increased business for software installed into customer-managed environments. These companies also reported those customers generate more revenue than a similar SaaS customer.”

Perhaps the most basic and most controversial finding is that demand has not gone away for applications that customers can run on resources control. In fact, the large majority of vendors say this demand is growing (79% compared to 75% last year), and a similar 79% report that this each deal tends to be more valuable per customer.

Why is this? Because businesses and governments that care about data privacy and security tend to be willing to pay more for those qualities, and large organizations like finance, healthcare, pharmaceutical, and governments may even have practical and regulatory requirements that reinforce this approach. Addressing the concerns of these sectors is just good business. Despite what cloud-only vendors and service providers may say, not everyone wants to put their data in the hands of all their various vendors. 

AI is reinforcing the need to control your data

The recent popularity of AI services is only helping drive this realization - customers see that “if you can’t keep your data for model training or analysis in your own environment, then you’re probably disclosing too much.” Once a model receives your proprietary information, be that masses of collected data or pointed questions, it’s out of your customers’ control what happens next. Your customers don’t know who it might end up benefiting, including their vendors, their competitors, even foreign governments and malicious entities. Turns out they don’t like this idea.

Neglect customer managed environments at your own peril

47% report loss of business if they don't support customer-managed environments
Research finding: “In response, 47% of companies only offering SaaS solutions stated they are losing revenue by not having a customer environment installation option, prompting 39% of them to offer a customer-managed environment option over the next 12 months.“

This finding is simply the corollary of the previous, but worth mentioning anyway. Again this trend is actually accelerating, with that 47% losing money noticeably up compared to 42% last year. If you’re not willing or able to sell to these security-conscious customers, someone else is getting their business and you’re leaving money on the table. As many vendors realize this reality, they are rapidly looking to find ways to distribute their software to customers wherever they want to run it.

About This Study

Research goal: The primary research goal was to capture and document current trends for software installed in customer-managed environments (CME). The research sought to understand market demand, customer needs, support challenges, revenue growth, and future software development plans. POCs, installation challenges, upgrade habits, the impact on company personnel requirements to build and support CME solutions. investigated.  

Methodology: Executives, business, and technology professionals at all seniority levels representing software companies of all sizes were invited to participate in a survey on their company’s customer-managed environment software development, delivery, and strategy. The survey was administered electronically, and participants were offered a token compensation for their participation.

Participants: A total of 695 qualified participants completed the survey. 505 participants were recruited by Dimensional Research while 190 were Replicated customers.  All participants had direct software responsibilities. Participants were from 5 continents representing a global view.

View the full report here.