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Software industry

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The software industry includes businesses for development, maintenance and publication of software that are using different business models, mainly either "license/maintenance based" (on-premises) or "Cloud based" (such as SaaS, PaaS, IaaS, MBaaS, MSaaS, DCaaS etc.). The industry also includes software services, such as training, documentation, consulting and data recovery. The software and computer services industry spends more than 11% of its net sales for Research & Development which is in comparison with other industries the second highest share after pharmaceuticals & biotechnology.[1]

History

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The first company founded to provide software products and services was Computer Usage Company in 1955.[2] Before that time, computers were programmed either by customers, or the few commercial computer vendors of the time, such as Sperry Rand and IBM.

The software industry expanded in the early 1960s, almost immediately after computers were first sold in mass-produced quantities. Universities, government, and business customers created a demand for software. Many of these programs were written in-house by full-time staff programmers. Some were distributed freely between users of a particular machine for no charge. Others were done on a commercial basis, and other firms such as Computer Sciences Corporation (founded in 1959) started to grow. Other influential or typical software companies begun in the early 1960s included Advanced Computer Techniques, Automatic Data Processing, Applied Data Research, and Informatics General.[3][4] The computer/hardware makers started bundling operating systems, systems software and programming environments with their machines.

When Digital Equipment Corporation (DEC) brought a relatively low-priced microcomputer to market, it brought computing within the reach of many more companies and universities worldwide, and it spawned great innovation in terms of new, powerful programming languages and methodologies. New software was built for microcomputers, so other manufacturers including IBM, followed DEC's example quickly, resulting in the IBM AS/400 amongst others.

The industry expanded greatly with the rise of the personal computer ("PC") in the mid-1970s, which brought desktop computing to the office worker for the first time. In the following years, it also created a growing market for games, applications, and utilities. DOS, Microsoft's first operating system product, was the dominant operating system at the time.

In the early years of the 21st century, another successful business model has arisen for hosted software, called software-as-a-service, or SaaS; this was at least the third time[citation needed] this model had been attempted. From the point of view of producers of some proprietary software, SaaS reduces the concerns about unauthorized copying, since it can only be accessed through the Web, and by definition no client software is loaded onto the end user's PC.

Size of the industry

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Market research firm Gartner estimates the global market for IT spending in 2024 at $3.73 trillion. If telecoms services are included, this will rise to $5.26 trillion.[5] Major companies include Microsoft, HP, Oracle, Dell and IBM.[6]

Mergers and acquisitions

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The software industry has been subject to a high degree of consolidation over the past couple of decades. Between 1995 and 2018 around 37,039 mergers and acquisitions have been announced with a total known value of US$1,166 billion.[7] The highest number and value of deals was set in 2000 during the high times of the dot-com bubble with 2,674 transactions valued at US$105 billion. In 2017, 2,547 deals were announced valued at US$111 billion. Approaches to successfully acquire and integrate software companies are available.[8]

Business models within the software industry

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Software industry business models include SaaS (subscription-based), PaaS (platform services), IaaS (infrastructure services), and freemium (free with premium features). Others are perpetual licenses (one-time fee), ad-supported (free with ads), open source (free with paid support), pay-per-use (usage-based), and consulting/customization services. Hybrid models combine multiple approaches.[9]

Business models of software companies have been widely discussed.[10][11] Network effects in software ecosystems, networks of companies, and their customers are an important element in the strategy of software companies.[12]

See also

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References

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  1. ^ "The Pharmaceutical Industry in Figures Key Data 2021" (PDF). European Federation of Pharmaceutical Industries and Associations. Retrieved 28 June 2022.
  2. ^ Kubie, Elmer C. (Summer 1994). "Recollections of the first software company". Annals of the History of Computing. 16 (2). IEEE Computer Society: 65–71. doi:10.1109/85.279238. S2CID 5733812.
  3. ^ Campbell-Kelly, Martin (2003). From Airline Reservations to Sonic the Hedgehog: A History of the Software Industry. Cambridge, Massachusetts: MIT Press. p. 57. ISBN 978-0-262-03303-9.
  4. ^ Fishman, Katharine Davis (1981). The Computer Establishment (paperback 1982). New York: McGraw-Hill Book Company. p. 268.
  5. ^ "Gartner Forecasts Worldwide IT Spending to Grow 7.5% in 2024". Gartner. 2024-07-16. Retrieved 2024-12-14.
  6. ^ "Software Products Global Market Report 2021: COVID-19 Impact and Recovery to 2030". ResearchAndMarkets.com. September 9, 2021. Retrieved June 28, 2022.
  7. ^ "M&A by Industries - Institute for Mergers, Acquisitions and Alliances (IMAA)". Institute for Mergers, Acquisitions and Alliances (IMAA). Retrieved 2018-02-28.
  8. ^ Popp, Karl Michael (2013). Mergers and Acquisitions in the Software Industry - foundations of due diligence. Norderstedt: Books on demand. ISBN 978-3-7322-4381-5.
  9. ^ "Custom Software Development Company - Inoxoft". Software Development. Retrieved 28 June 2024.
  10. ^ Karl M. Popp and Ralf Meyer (2010). Profit from Software Ecosystems: Business Models, Ecosystems and Partnerships in the Software Industry. Norderstedt, Germany: BOD. ISBN 978-3-8391-6983-4.
  11. ^ Cusumano M. (2003) Finding Your balance in the Products and Service Debate, Communications of the ACM. Vol. 46:3
  12. ^ Software Ecosystem: Understanding an Indispensable Technology and Industry. Cambridge, MA: MIT Press. 2003. ISBN 0-262-13432-2.
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