The year 2006 has been a great year for the software industry. The combined growth of the 100 largest software companies in the world was 16% compared to the previous year, driven by positive economic developments. On a company by company basis, revenues were up 19% on average.

Growth
Microsoft still leads the Software Top 100. It’s software revenues grew 8% or 2.8 billion dollars to 37.3 billion dollars. IBM follows with 18.2 billion, growing at a similar rate. Oracle –number 3- boosted it’s revenues with 34% by several sizable acquisitions in 2006, among which Top-30 company Siebel. Together, the Big Three accounted for 53.1% of the software revenues of the whole Top 100, up from 47.8% last year.

HP took over Mercury in 2006 and consequently jumped from 7th place to a 5th position in the Top 100. It also took over the number 1 position in overall revenues from IBM. Both companies had total revenues of over 90 billion, mostly composed of hardware and services revenues.

Fifteen software companies posted double-speed software revenue growth of 38% or more. Eight of those companies even posted three-times-the-average growth figures (57% or more)!

Changes to the list
In 2006 no changes were made to the research methodology of the Software Top 100, but we (the research team) did start to seek more interaction with listed companies in order to validate our research results, and to enhance the quality of the input data in case of revenue estimates.

Mergers & Acquisitions
During 2006 eight companies were acquired by other Top 100 software companies: Siebel, FileNet (51), Mercury (54), ISS (56), IDX (60), RSA (66), SSA (78), and Hummingbird (100). When a company is acquired and financially integrated into the buying company, it looses its individual Top 100 position.
Several companies, such as SunGard and GEAC, were bought by private equity firms last year; these companies remain individual entities, and hence remain part of the Top 100 individually.

New on the radar
Fourteen companies entered the Top 100 in 2006, for the first time. Half of these companies were below radar in previous years: there revenues were high enough, but they were not found during the Top 100 research.

Departures
Six companies did not make it to the revenue threshold for the 2007 list: GEAC, Unisys, RIM, I2 technologies, Borland and Tom Tom.

Research remarks
The quality of the revenue data found in annual reports enhances steadily every year. Still there is a long way to go. For example, large companies such as HP and Cisco do not report software revenue separately. Some other companies have problems with the SEC, and do not report at all, or post their reports too late. A few companies are in private hands, and often only post a short press release on their financial well-being. Rough revenue estimates were necessary in 24 cases.
In order to enhance the quality of the list, the research team will contact all such companies with insufficient revenue information online.

Trend forecasting: the crystal ball

The software industry has become a mature industry. As organic growth is not enough to keep management busy and shareholders happy acquisitions are multiple, and we expect the ‘acquisition party’ to go on for a few years more.
Private equity firms are always interested in companies with steady cashflows, such as software subscription revenues. Hence more acquisitions by private equity firms are likely to occur.

No more technological breakthroughs. After the mainframe, the minicomputer, the PC, the ethernet network, the internet, the three tier architecture, in our opinion, no real breakthroughs have taken place, just improvements to what was already there. So technology can not bring the software industry revenue boosts as it did before. In the long term, this may have effects on subscription revenue levels. However, this is mitigated by the strong and ongoing trend that the world is still becoming increasingly automated: companies buy more and more software to optimize their business processes, and this will go on as the world economy expands.

A few more predictions, mostly based on the assumptions above:

• The software industry will move from technology driven acquisitions to market driven acquisitions (as technology ripens), which will result in more sizable acquisitions; big companies buy other big companies
• no new technological breakthroughs to spur new license sales
• no new branches to add to the industry
• strong worldwide economic developments will enable price increases
• slow shift in the less developed economies from illegal use of software to more legal use of software
• more software sales in the developing economies in general
• open source software (like linux) will see growing momentum in the market. However Top 100 companies such as Microsoft will not see much effect on revenues yet, at least not for the coming three years (after that, the effect will become noticable in revenue figures)
• software revenue is shifting towards maintenance (subscription/support) revenue instead of new license sales
• the ‘computerization’ of businesses worldwide keeps increasing, resulting in ever more software licenses per employee
• healthy organic revenue growth, but not as fast as it used to be
• strong M&A activity, resulting in total revenue growth (including acquisitions) of about 15% for the coming three years