In Like a Legacy, Out Like an E-business

Software Magazine, June, 2000 by Colleen Frye

The software industry in 1999, while putting the wraps on the Y2K problem, emerged as the core of the new Internet economy, and for this year's Software 500 that resulted in a 3 0.8% jump in revenue to $207.8 billion.

1999 WAS A YEAR OF STARK CONTRASTS. As the software industry hurried to close the door on a legacy problem--the century date change issue--it also ushered in the dramatic emergence of the Internet economy, which at its core is based on software products and services.

The rush to e-business was the innovation driver behind many integration projects, customer-facing applications, and outsourcing deals. New tools and services emerged in the business-to-business (B2B) and business-to-consumer (B2C) areas, among them Extensible Markup Language (XML), portals, trading exchanges, and enterprise application integration (EAI). Linux continued to gain steam as an OS alternative. And outsourcing, particularly in the form of application service providers (ASPs), began to gain favor as businesses battled time-to-market pressures, technology complexity, and IT skills shortages.

While many IT shops had a freeze on new application development as they dealt with the Y2K issue, 2000 has unleashed a pent-up demand for projects that were put on hold in 1999, says Dan Kara, CTO of Intermedia Group, a research and analyst firm in Westboro, Mass. And credit the Y2K effort with beefing up the IT budget, he says. Now that corporations are used to that line item, they plan to continue spending money on IT projects.

With money to spend and new technology to spend it on, revenue growth in the software industry continued apace. In this, Software Magazine's 18th Annual Software 500, we examine the growth and tends of worldwide enterprise software and services providers, both public and privately held. For the first time, we are including IT-related professional services revenue as part of a provider's overall software revenue because, as IBM's Lou Gerstner foresaw when he took the helm there, services are increasingly becoming part of the software "package."

For the 1999 Software 500, revenue from software and software-related services was $207.8 billion for the group in aggregate, a 30.8% growth from 1998. More than half of that revenue, $138.8 billion, derived from the top companies in the Software 500--IBM Corp., Microsoft Corp., PricewaterhouseCoopers, Oracle Corp., Andersen Consulting LLP, Hewlett-Packard Co., Compaq Computer Corp., Computer Associates International Inc., Hitachi Ltd., and SAP AG.

IBM continues to dominate the industry as a "solutions" provider, holding the top position in the services category, with $32.2 billion in revenue in 1999, and the number two position by software license revenue ($12.7 billion). In the services area, IBM is followed by Pricewaterhouse Coopers ($17.3 billion), Andersen Consulting ($8.9 billion), and Compaq ($6.6 billion), which seems to be making a go of the services business it picked up with the Digital Equipment acquisition.

In the license revenue area, Microsoft holds the top spot for 1999 at $21.6 billion, followed by IBM, Computer Associates ($4.96 billion), and Oracle ($3.9 billion).

The billionaires club continues to get bigger, as well, with the top 26 companies in this year's Software 500 reporting $1 billion or better in software and software-related services revenue.

As always, there are hot companies with big gains, as well as companies that did not fare as well. Among this year's Software 500, 156 companies, or 31.2%, grew their software/services revenue 50% or better during 1999. At the same time, 74 companies, or 14.8%, saw software/services revenues decline or remain level, while 31 companies, or 6.2%, saw their software/services revenues rise just 5% or less.

By business sector, companies in the customer relationship management (CRM) arena experienced the largest increase in software/services revenue, growing in aggregate 57.2%. This was followed by the middleware/connectivity/application server category, with a 56.1% growth in software/services revenue; development tools/languages, 43.6%; and infrastructure/systems management, 28.4%.

Looking at the Software 500 individually, not surprisingly, many of the fastest growers in terms of software/services fall into the e-business category, or related areas such as integration and CRM.

Among small companies in the Software 500, the fastest software/services revenue growers were: eGain Communications Corp., a CRM developer; Saba Software Inc., learning network infrastructure; Rainbow Technologies, security; Pacific Edge Software, ERP; and webMethods Inc., e-business services (webMethods recently announced its intent to buy EAI vendor Active Software).

Fastest software/services growers among midsize companies in the Software 500 include: CommerceOne Inc., e-business package/component; USinternetworking Inc., ASP and IT services; Ariba Inc., e-business package/component; Level 8 Systems Inc., EAI; and Vitria Technology Inc., EAI.

And the fastest growing large companies, in their software/services lines of business, include: Scient Corp., e-business services; Sapient Corp., e-business services/IT services; Veritas Software Corp., data availability; Wonderware Corp., manufacturing/supply chain; and BroadVision Inc., e-business/EAI.