Focus paid off in 2001: in a tough year to sell to enterprise IT buyers, the winning companies were those with well-established products that continue to be in demand and newer companies offering practical value and rapid ROI

Software Magazine, Summer, 2002 by John P. Desmond

SOFTWARE 500

It was a year to forget for a number of companies selling into the IT market. Many companies in 2001 saw their revenues shrink during a year in which IT spending was severely constrained, stock market valuations were low all year, the surviving dot.com companies came farther down to earth and the fourth-quarter nose-dived deeper after the events of Sept. 11.

Despite these extremely challenging market conditions, many companies did well and saw substantial growth. The software and services companies that thrived in 2001 were either big players entrenched in a growing market or smaller players offering pragmatic value. These successes, and the struggles, are reflected in Software Magazine's annual Software 500 issue.

The Software 500 is a useful guide for IT buyers who need to track the viability of the vendors seeking their business. For IT managers, who are in a profession in which managing change is a primary responsibility, it's important that the vendors they rely on to run their businesses have as much stability as possible over the long term. The ability to track the stability of 500 of the biggest companies--a hallmark of the Software 500--is invaluable.

This is the 20th year of this ranking, which predates the birth of the personal computer. The ranking was launched early in the era of the software industry, when it was emerging as a business separate from the computer hardware sector. A lot has changed. Back then, IBM was considered a monopoly. Today, Microsoft has been declared a monopoly, although IBM still has more software and services revenue than Microsoft.

Total software and services revenue for the Software 500 in 2001 was $301.8 billion, a 16.4% increase from the revenue total of last year's 500. The number of people employed in the Software 500 is 2,650,030, an 11.7% increase in employees over 2000 based on the companies on this year's list. But 34% of this year's 500 reported declining revenue from the previous year, a sure sign of the tough market conditions in 2001.

The following is a look by primary business category of which vendors did well in 2001 and how the categories compared with the previous year. (While many vendors offer products in numerous categories, the Software 500 survey asked them to identify their primary business.)

IT Services

IT services was chosen as the primary business category by 48 Software 500 companies, more than any other category. This leaves no doubt that the enterprise software market is trending toward generating more revenue from services over time.

With a few exceptions, the large services companies turned in positive software growth numbers for the year. Compaq Computer, for example, by virtue of the acquisition years ago of Digital Equipment Corp. and its services arm, saw its software and services revenue increase 4.2% to $7.75 billion. Hewlett-Packard Co. by contrast saw its software and services revenue shrink 7.5% to $2.26 billion, but the combination of the two companies to be reflected next year will vault the new HP into the $10 billion range, closer to Computer Sciences Corp.

Andrew Filipowski is doing it again at divine inc., which saw revenue increase 353% to nearly $200 million in 2001, with the help of a number of acquisitions. Divine combines technology, services and hosting to do what it describes as "extending the enterprise." At the other end of the spectrum, Razorfish Inc. saw its revenues decline 61% to $104 million. Things were better in the dot.com bubble days. The company now emphasizes enhancing customer relationship systems and helping with knowledge management projects.

Besides divine inc., companies citing IT services as their primary business that saw the most services revenue growth in 2001 were: The TriZetto Group Inc., 145%; Atos Origin, 49%; Infosys Technologies, 48%; and Anteon International Corp., 32%. In addition, Samsung SDS grew 26% to $1 billion in services revenue; Logica plc grew 25%; and DST Systems grew 22%.

What's the secret? Focus helps. Trizetto focuses on health care; Atos starts with management consulting and extends to e-business; Anteon focuses on government business; Infosys is one of the most disciplined software development organizations in the world; and Samsung is going after business around SAP, Oracle and Java.

E-Business Applications

In the e-business segment, established companies were more successful in 2001, including SAP, which reported 17% growth in software and services revenue, and Software AG, which showed 41% growth. BroadVision and Ariba came down to earth, with 41% and 31% declines in software and services revenue, respectively, for 2001. In last year's Software 500, Ariba reported 587% revenue growth from the previous year (1999 to 2000) and BroadVision saw 258% growth during that period.

Other 2002 Software 500 e-business winners included: Integic Corp., growing 33% to $120 million; Digital River, growing 85% to $58 million; Bottomline Technologies, growing 45% to $57 million; Imany Inc., growing 54% to $56 million; and ACTV Inc., growing 71% to $13.7 million.