Software Industry

The software industry recorded robust growth in 2004. IBM emerged as the leading software company in 2004 owing to high services revenues, followed by Microsoft whose revenues were driven by software license revenue. In 2004, the fastest growing company was Google followed by DST Systems.

The growth of the software industry in 2004, however, does not convey the full picture. The slow growth of the software industry’s packaged segment, for instance, has been made up by the fast growth of information technology services (IT) market. The IT services market has boomed in the past few years as multinationals increased offshoring of IT operations to low-cost suppliers in India.

Software Industry - Packaged Segment

The growth of the software industry’s packaged market, has been driven by new application segments and technologies, but a slowdown in innovations has dampened growth. Increasing focus on operational performance and growing consolidation highlight the growing maturity of the packaged software industry. Microsoft, for instance, announced a regrouping of its businesses to improve decision-making and speed up product development.

The packaged segment of the software industry saw a flurry of deals in the past few years, with all the major players participating. While Microsoft made 34 acquisitions since 2000, IBM concluded 16, and Oracle has also been on an aggressive buying spree. Oracle’s tally does not include its proposed acquisition of Siebel Systems and Global Logistics Technologies.

Indeed the magnitude of structural change in the packaged software industry really stands out. For instance, only eight companies of the top fifteen in 1994 managed to stay among the top fifteen in 2004. The situation at the top has been stable however. Microsoft, IBM, Oracle and Computer Associates, who were among top five in 1994, managed to stay among top five in 2004. Indeed the big are getting bigger in the software industry as increasing number of packaged software companies opt for the acquisition route to growth.

Software Industry - IT Service Market

IT services companies have begun to drive the growth of the global software industry. A recent study of Computer Business Review showed that top 50 IT services companies recorded total revenue of US$256.6 billion in 2004, up 11.4% over previous year. The top 50 IT services companies recorded a growth of 6.4% in headcount to 1.33m in 2004. The top five IT services companies include IBM Global Services, EDS, Fujitsu, Accenture and Computer Sciences Corporation.

Three significant trends in the IT services market are:

• Growing offshoring of IT operations
• Emergence of consortiums
• Increasing consolidation.

Multinational corporations have begun to outsource a greater part of their IT operations to outside vendors especially in offshore locations to cut costs and raise efficiency. In recent months, corporations have begun to hand out contracts to consortiums rather than a single supplier. Some multinationals that announced multi-supplier deals include Renault, ABN Amro and Walt Disney. Furthermore, the consolidation is increasing in IT services segment as companies use acquisitions to fill service gaps or increase geographic coverage. IBM, for instance, became a major player in the IT-enabled services and business process outsourcing through its acquisition of Liberty Insurance Services and Daksh eServices. Indeed the current trends point toward the maturing of the software industry, calling for an entirely different approach toward customer service, software supply chain and productivity.

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