Global Software Top 100 Edition 2011: The Highlights

Microsoft is by far the largest software company in the world, as it has been ever since the first publication of the Global Software Top 100 list in 2003.

Last year, Microsoft alone increased its software revenues another $5 billion to a world record of $54.3 billion.

The Top 10

While Microsoft fortified its leading position with strong results, Oracle (#3) posted a growth percentage of 12.8%, the highest in the top 10, further strengthening its 3rd place. Sun Microsytems was added to its long series of acquisitions and Oracle now challenges IBM's second place in the Global Software Top 100. IBM is still an allround IT company with leading positions in software, IT services and hardware. The Big Blue company embarked on a 5-year software expansion mission in 2009, aiming to double its software revenues, but despite several acquisitions IBMs software division grew only 5.1% last year.

In 2010, SAP (#4) decided in February 2010 not to extend the contract of CEO Leo Apotheker. SAP’s software revenues grew 11% compared to 2009. Apotheker signed on as CEO of HP (#6 on our list) in November 2010.

Ericsson is still the fifth largest software company in the world, despite 4% lower software revenues in 2010. Other telco software companies like Nokia Siemens Networks and Alcatel-Lucent experienced similar software revenue decreases due to lower telco network investments. Nokia Siemens Networks dropped out of the top 10 because of this decrease. Storage giant EMC took over its postion in the top 10.

Gaming powerhouse Nintendo lost a few places and is now 8th on the list. Nintendo saw the largest revenue decline of all companies, this was however not unexpected and not uncommon in the highly cyclical gaming market. Nintendo grew amazingly in 2008 and 2009 because of the Wii successes. This trend could not be continued, but Nintendo remains the largest gaming company in the world.

Countries

Most large software companies are headquartered in the USA, 63 companies in this year's Global Software Top 100 are US based. But non-US software companies are on the rise – big time. Last year, the list counted 35 non-US companies (now 37), and two years ago only 26 companies were headquartered outside of the US. Japan and France are 2nd and 3rd on the list of software-producing countries. Canada now has two companies in the top 100 with the entry of Constellation Software (the other one is RIM, the blackberry maker).

Companies from developing economies play a minor role in the global software industry, but signs of fast growth are clearly visible in China, Russia and Brazil. South Korean software companies also made great strides on the path towards Global Software Top 100 recognition.

Arrivals and departures

Eight new entries made it to the Top 100 this year; Informatica is the highest new entry of the list at position 74. Other new companies include Tibco (#89), Emerson (#93), Blackboard (#94), Micro Focus (#95), and Constellation Software (#98).

Among the departures are Sun Microsystems and Sybase after being acquired by Oracle and SAP respectively. Real, PGi, Acision and FICO did not make the revenue threshold this year.

A few acquisitions have taken place recently that will affect next year's Software Top 100, but the companies remained in this list because the deals were closed after year-end 2010. Intergraph (#69) for instance was recently bought by Swedish company Hexagon, and will not return in the 2012 list.

Fast growing software companies

Giant technology companies Intel (#58) and Google (#79) use their large resources to diversify activities. Even with software accounting for less than 2% of total revenues, Intel and Google have quickly established a prominent place in the software top 100.

Intel is of course primarily a hardware company (see: hardware top 100). The company entered the software top 100 last year as a result of the Wind River acquisition. This year, Intel is the fastest growing company in the top 100. The acquisition of security software maker McAfee (closed on February 28th 2011) will boost software revenues even further.

Google has also expanded the activities beyond internet search. Advertising provides the bulk of total revenues,  other revenues, including software revenues have risen sharply in the last 3 years.

NetEase.com has been one of the fastest growing software companies in recent years, as online gaming became very popular, especially in Asia. Last year, growth halted for NetEase, and the company did not make the threshold for the top 100. In 2010, NetEase got back on the growth path and re-enters the fast growth list and the global software top 100 as #100.

Outlook

As financial institutions are by far the largest customer segment for the software industry, generating an estimated 30% of all software industry income, the credit crisis impacted software companies around the globe. However the impact was not as severe as some analysts expected.

The general assumption that the software industry is a very cyclical industry  implies that software companies would see a decline even bigger than the financial industry, but that assumption is wrong. Software companies nowadays depend mostly on recurring subscription, support and maintenance revenue streams.

The maintenance/subscription revenue stream is generally based on multi-year contracts and hence a very stable source of income. This explains why the credit crisis did not cause much mayhem among the Software Top 100, although there were many instances of modest single digit revenue declines due to decreased license sales.

With a looming dollar crisis ahead, we expect to see a similar financial picture in the coming two years as we did during the credit crisis.

During the past 12 months we've seen an increase in software patent deals and software patent battles. As most of the new patent requests being filed at the US Patent Office are software patents, patents have become a business themselves.

As the industry has matured, and innovation has become incremental instead of disruptive, new patents generally have less meaning then the ones posted in the early days. Hence the patent war has shifted from filing as many patents as possible to buying as many patents as possible.

Recent multi-billion dollar patent deals can be seen in this light, and we expect them to be only the beginning. Buying patents will become a regular item in the software industry, and it will be a major cash outflow in coming years. As patents are seen as investments, they will not have an immediate effect on company profits, however in the long term this effect will be undeniable.