2007 was another good year for the software industry, even though software stock prices plummeted due to adverse changes in the economic outlook. Revenues grew 21% on average per company.

The leaders of the pack
The Top 10 saw little changes in 2008. Nintendo stepped up to 8th position from 10, forcing Electronic Arts down into 9th position. All companies in the first 7 positions stayed in their seats. Microsoft leads the Software Top 100 as it has done for at least five years in a row. The company extended its lead over IBM and Oracle, driven by healthy sales of Vista and Office 2007. Its software revenue growth accelerated to 29% (was: 8%), surmounting in an estimated 48.3 billion dollars. IBM follows with 20.0 billion, growing at a more modest 10% rate. IBM has changed tactics and has become more acquisitive in 2007, buying smaller players such as Telelogic (ranked 97 in the Software Top 100 of 2007). IBM also took over Cognos (29), which will affect next years figures. Oracle –number 3- stayed on its acquisitive path and grew revenues with 14%. During the year it integrated –amongst others- the successful Indian banking software maker I-Flex Solutions (82). Together, the Big Three (Microsoft, IBM and Oracle) accounted for 53.1% of the software revenues of the whole Top 100, up from 47.8% last year.

By the end of 2007, the combined Top 100 had 2.0 million employees (FTE) in their service, and sold for 179 billion dollars worth of software. Including hardware and services revenues, the total sales figure amounts to 790 billion dollars, mainly because of diversified giants like IBM, HP, Hitachi, Philips and McKesson.

The runners up
Many industries would dream of an average per company growth of 21%. The Software Top 100 of 2008 lists 15 companies that grew at double that speed. Activant knocked on the Top 100’s door with a growth figure of 154%, and VMWare made its debut as a stand-alone company with a growth figure of 84%, taking 30th position in the Top 100. Infor remained acquisitive, boosted by the deep pockets of Golden Gate Capital, assimilated former Top 100 member GEAC and bought its way to the 27th position, up from 38th. Gaming companies Ubisoft and Activision impressed with software sales increases of 56% and 71% respectively.

Departures and arrivals
Many companies left the Top 100, mostly because of falling revenues or because they could not keep up with the growth of the other Top 100 members. M&A activity also caused some names to disappear from the list, such as BEA (27, bought by Oracle), Cognos (29, bought by IBM) and Hyperion (41, bought by Oracle). 21 companies departed from the Top 100, making place for 21 new arrivals. Sizable new entrants such as Ubisoft (21), Thales (29), Wincor Nixdorf (40) and others were previously ‘below radar’: their existence and size had remained unknown to our research team in earlier research years. VMWare (30) and Teradata (31) were floated on the stock exchange by EMC and NCR respectively, EMC retaining the majority of the VMWare stock. Salesforce.com (43) was added to the list on a decision of the editor: companies that offer software as a service over the internet (SaaS) will be regarded as software companies under the research methodology.

Mergers & Acquisitions
During 2007 we registered 27 transactions involving large software companies. Top 100 software companies acquired 11 (former) Top 100 software companies, and a host of smaller companies. IBM and Oracle were most active, both buying 2 competitors. The German technology corporation Siemens bought UGS (29) and so it bought its way into the Top 100 of 2008.
After closing of the calendar year 2007, Microsoft bought FAST, the Norwegian search technology company. SAP bought Business Objects (41) and Borland decided to sell its coding tools to Embarcadero. At the moment of writing, Electronic Arts’ bid for gaming colleague Take2 is still pending. As Vivendi has decided to merge its gaming activities with Activision in 2008, the number of gaming companies on the next Top 100 may turn out lower, the players larger.

Research process and methodology
In 2007 no changes were made to the basic research methodology of the Software Top 100. However, we (the research team) researched thousands of companies more than last year in an effort to further improve the quality of the list. This explains the relatively high number of new arrivals in the list.
Revenue data availability and data quality are still points of attention. Rough revenue estimates were necessary in 27 cases (was: 24). Private companies often do not publish enough financial information, and diversified companies often do not split out software revenues, making it necessary for our researcher to estimate the figures. All estimates and calculations can be found in the research data.

Trends and forecast

Although the software industry is becoming more and more mature, with no new technology breakthroughs to boost revenues, substantial growth is still possible and likely. After all, customers are still paying maintenance and subscription fees for ‘old’ technology such as databases. Even though the fees are increasing over time, and the amount of new code added to the product is decreasing over time, customers evidently do not want to be stuck with ‘old’ software. This seemingly irrational behaviour is an important revenue driver for the software industry.

The last year or so stock prices have fallen due to adverse changes in economic conditions. As software stocks are regarded as growth stocks with high volatility (beta), investors offload them at times the economy is slowing down. Hence software stocks fell harder than the Dow Jones Industrial Average. As long as the economy does not recover, software stocks are likely to remain at lower levels.

Virtualization, a technology almost as old as the computer industry, was copied from the mainframe environment to other platforms several years ago. Virtualization of Unix and Windows installations has become very popular as it promises lower manual maintenance costs and higher flexibility. Companies such as VMWare, Microsoft and Citrix are reaping the benefits and will continue to thrive the coming years.

Rising interest rates and the reluctance of banks to engage in leveraged finance deals has slowed the number of private equity deals since the start of the credit crisis. For the coming year, little or no acquisitions by private equity houses are expected. One exception may be Golden Gate capital that may add more software companies to its Infor software conglomerate before it will spin it off.

Gaming companies have quickly climbed the Top 100 ranks in recent years, and they will continue to do so over the coming years. As gaming companies live from release date to release date, more than other software companies do, revenue development is often volatile. The general trend however is up.

Some more forecasts for the coming year and beyond:

• More sizable acquisitions by The Big Three;
• More software sales in the developing economies in general;
• Open source software like linux will see growing momentum in the market, but Top 100 companies such as Microsoft will not see much effect on revenues yet, at least not for the coming two years. After that, the effect will become noticable in revenue figures;
• More companies will start offering their software over the internet, following a Software-as-a-Service (SaaS) business model;
• Software revenues are generally shifting away from new license sales, towards maintenance (subscription/support) revenue. The gaming industry is and will be an important exception with healthy growth of new licenses;
• The computerization of businesses worldwide keeps increasing, resulting in ever more software licenses per employee.