Prepackaged Software

SIC 7372

Companies in this industry

Industry report:

This industry classification covers establishments primarily engaged in the design, development, and production of prepackaged computer software. Important products include operating, utility, and application programs. Establishments of this industry may also engage in services such as preparation of software documentation, installation of software, and training users in the use of software. Businesses primarily engaged in preparing software documentation or installing software on a contract or fee basis are classified under SIC 7379: Computer Related Services, Not Elsewhere Classified. Businesses primarily engaged in training users in the use of computer software are classified in SIC 8243: Data Processing Schools. Those primarily engaged in buying and selling prepackaged software are classified in trade industries; those offering custom computer programming services are classified under SIC 7371: Computer Programming Services; those developing custom computer integrated systems are classified in SIC 7373: Computer Integrated Systems Design.

Industry Snapshot

The packaged software industry is a key growth engine in the information economy and the U.S. economy in general. After roaring through the latter half of the 1990s with annual growth rates of 15 percent, the industry slowed in 2000. In 2001 a worsening economy was exacerbated by the terrorist attacks of September 11, 2001. Together these conditions translated into an environment of uncertainty and reduced technology spending in the corporate sector that continued through 2002, at which time industry revenues were approximately $150 billion. These conditions returned during the economic recession of the 2000s, although by 2010 total revenues for Software Magazine's top 500 software companies were $491.7 billion.

Factors Influencing Growth.
Software demand rose steadily in the 2000s, as computer hardware and software innovations improved business productivity and information management. Sales of desktop computers and higher-end hardware directly fueled new demand for packaged software. Strong PC shipments, for instance, created a fertile market for standard desktop software packages like operating systems and productivity suites.

New product categories, especially those aimed at the business market, also stimulated brisk growth. Emerging business software categories included Web-based service applications companies could customize to meet individual needs, as well as supply chain management, customer relationship management (CRM), sales force automation, knowledge management, security, and e-commerce suites.

Meanwhile, version upgrades drove repeat sales. Microsoft's release of Windows 2000, the most comprehensive overhaul of the operating system since 1995, ushered in a new wave of upgrade sales, particularly by corporate users. In addition, Microsoft changed the way it marketed volume licenses (a significant source of its revenue) to companies in an effort to simplify the upgrade process and generate more sales in this area.

New Delivery and Pricing Options.
The most fundamental changes in the software industry, however, were expected to be how and when end users obtain new software and under what pricing terms.

Software for rent, delivered by so-called application service providers (ASPs) over the Internet, posed a serious challenge to conventional software distribution and pricing. Instead of buying a static version of a program to run on their own computers, users log onto network-based applications that reside on the ASP's hardware. This means the current version is always on tap, and users are not saddled with installation and maintenance chores. What's more, rather than paying a fixed license cost, users pay either a flat monthly fee or a per-use fee. By some estimates, renting can save 20 percent or more over conventional licensing. These savings can be found not only in less money and time put into owning the software itself but also in reduced or eliminated costs of buying and maintaining servers to run network applications.

According to Dun & Bradstreet's (D&B) Industry Reports, there were an estimated 17,817 firms engaged in the design, development, and production of prepackaged computer software in 2010. Together these establishments employed 256,498 people and generated $163.2 billion in annual sales. A majority of these businesses were small, with about 80 percent employing fewer than 10 workers. However, large companies accounted for a majority of revenues. The largest sectors of the industry, according to D&B, were application software and business-oriented software, followed by educational software and home entertainment software. Operating systems software, publishers software, utility software, and word processing software represented smaller segments of the market.

Organization and Structure

Software Categories.
Packaged software is a major segment of the broader software industry, which also includes custom software development and systems integration services. The term "packaged" is thus in contrast to customized software. It is typically mass-produced with standard functionalities that are expected to work across a given class of computers, such as PCs running Windows 7 or network servers running Unix. Some high-end business software straddles the packaged and custom classifications because it comes with standard functions and interfaces but requires customization for a particular company's needs.

From a functional standpoint, there are three basic types of software: operating systems software, which controls how a computer operates; applications software, such as word processing or spreadsheet programs; and utility software, designed to perform support tasks for operating systems or applications. Many software companies sell products in each of these categories.

Software Markets.
In broadest terms, the software industry serves two markets, consumers and businesses. There is some overlap, though, particularly between consumers and small, home-based businesses. Productivity suites and operating systems, for example, are common to both homes and businesses.

The U.S. consumer market represents less than 10 percent of industry sales. Important subcategories include operating systems; financial and tax applications; games, including those for game consoles like Microsoft's Xbox, Nintendo's DS, and Sony's Playstation; educational software; and virus detection utilities.

Much larger and more fragmented, the business market is the software industry's bread and butter. Aside from the ubiquitous desktop operating systems and productivity packages, business software includes categories such as application development software; systems management utilities; network operating systems and utilities; database management systems; storage management systems; workgroup applications (groupware); and function-oriented applications for areas such as finance, sales, manufacturing, logistics, and human resources.

Background and Development

The packaged software industry has its origins in a 1969 U.S. Justice Department settlement that forced IBM to sell software for its mainframe computers separately from the hardware. IBM had included basic software with the computer, and additional programming was generally done in-house. With this decision, individual entrepreneurs were finally able to compete with IBM. Small software companies sprang up, usually to offer a single program or utility. However, most mainframe software was leased rather than sold.

Early Products Flourish.
The rise of the packaged software industry was a direct result of the appetite for software for personal computers (PCs). PCs got off the ground in the late 1970s, as computer enthusiasts bought machines by Apple Computer, Inc., Tandy Corporation, Atari, and Commodore. Software publishers such as Microsoft emerged to write programming languages for them, and soon these languages were sold to the public through retail outlets. By the end of 1979, Microsoft had already sold 1 million copies of its version of the BASIC programming language. Primitive spreadsheets and other applications began to appear as well, created by small, relatively unknown companies.

At this stage packaged software was something of a cottage industry, with programs often written by individuals at home in their spare time. Because authoring software requires little equipment, people who wrote software programs risked only their own time and stood to gain $200,000 to $1 million if the program proved successful, as perhaps 1 percent were, as Forbes reported in 1983. These small companies were encouraged by hardware manufacturers, particularly Apple, because software innovations helped sell hardware.

Considered revolutionary, Visicalc, the first spreadsheet for microcomputers, was introduced in 1979. Visicalc's popularity sold many Apple computers and raised the public awareness level of PCs in general.

In 1981 IBM introduced its version of the personal computer and chose Microsoft's DOS (MS-DOS) as its standard operating system. Other hardware manufacturers, with the notable exception of Apple, began making their hardware compatible with the IBM system, providing standardization for the industry. Standardization meant that software running on one manufacturer's equipment would run on all with minimal modification.

IBM's prestige also changed the image of the PC in the business world from that of a toy to that of serious equipment, and sales of software and hardware rose accordingly. In 1980 some 300,000 people owned microcomputers; by 1983, nearly 10 times that number did.

More than 21,000 PC software packages were available by 1983. Packaged software garnered about $2.7 billion worth of retail sales a year as early as 1981, and the industry grew at a rate of nearly 50 percent a year. Given this record of tremendous growth, the packaged software industry and PCs began to attract a great deal of attention from the press and investors, and a number of successful software firms soon went public. Over $180 million in venture capital was raised by about 90 software firms in 1983, and 20 firms went public. As the computer hardware business became less profitable, many investors switched to software companies.

By the end of 1983, some 500,000 copies of MS-DOS had been sold, carrying Microsoft's annual sales to $69 million. Other software publishers picked up steam as well. Lotus Development Corporation scored an immediate success when it introduced the Lotus 1-2-3 spreadsheet in 1983. Some businesses even bought computer hardware just so they could run the Lotus software. Software houses that had been tiny entities only a few years earlier racked up huge sales.

One of the most frequent complaints about early software was that it was too hard to use. Making software easier to use became an important goal. A defining advance came in 1984, when Apple introduced the Macintosh. It was the first popular system to employ a graphical user interface (GUI), a computing environment that relies heavily on images and visual tasks rather than text-based commands and keywords to control the computer. Apple also issued rules for companies writing Macintosh software to ensure all software for Apple systems would look and behave similarly.

Microsoft followed in 1985 with its first release of Windows, a GUI that ran on top of MS-DOS. Early versions were slow and cumbersome, and sales were poor. Microsoft worked to upgrade Windows, but it and IBM also began work on an operating system to replace the aging DOS. Called OS/2, the new operating system was envisioned as a more powerful graphical interface than Windows. Other software developers began adapting their applications for OS/2, but few of these versions were ready by the time OS/2 was released at the end of 1987. Initial reviews and sales of OS/2 were disappointing. By the mid-1990s IBM had all but abandoned OS/2, as Windows became firmly entrenched as the dominant PC operating system, commanding as much as 90 percent market share.

Competition Mounts.
With sales of PC software booming, software developers quickly branched into new markets and ratcheted up competition. It became much harder to launch new companies on a shoestring. Prices fell wherever similar programs existed, while the cost of marketing new software rose dramatically. VisiCorp, which had introduced Visicalc in 1978 on a $500 budget, had spent more than $10 million by 1984 developing its VisiOn computing environment.

Meanwhile, competition mounted as software packages for spreadsheets, word processing, databases, and graphics proliferated. Software companies escalated the competitive frenzy by offering discounts as well as upgrade and trade-in deals. To make switching brands easier, software publishers introduced conversion utilities that could read competitors' file formats. Some even offered on-screen tutorials specifically aimed at migrating users from a competitor's program, as when Microsoft Word added special help screens tailored for WordPerfect users.

Competition also led to the first price war in an industry that had been largely immune to serious pricing battles. Some observers complained that prices of individual productivity applications, which could easily reach $500 per user, were exorbitant. Packaged software prices were also hard to justify given the falling prices of computer hardware, because no one wanted to spend $500 on an application for a $1,000 computer. Discounting, often tied to attempts to win over customers from competitors' programs, resulted in savings of as much as 80 percent off a package's list price. Larger publishers like Lotus and Microsoft also introduced collections of three or four programs, known as suites, at a much lower per-unit price. Some industry analysts took the price war as a sign that the packaged software business was beginning to mature.

Businesses Connect.
As corporations invested in personal computers instead of mainframes and minicomputers, methods for linking computers to share information became increasingly important. Packaged software could often be shared only when the computers all ran the same operating system, but businesses often wanted to link computers that used different operating systems. This forced software companies to make heavy use of consultants and, sometimes, design custom solutions. Networking forced software firms accustomed to mass production of software to pay increasing attention to service. As market growth for PC software slowed to 15 percent by 1990, down from 40 percent in 1988, network applications, which run on network servers and facilitate sharing of storage space and resources such as network printers, also provided a new and lucrative niche for software publishers.

Until the mid-1990s, Novell, Inc.'s NetWare dominated the PC networking market without a close rival. However, as elsewhere, Microsoft began edging market share away from Novell with its 1993 launch of Windows NT. Windows NT gained ground quickly by having the power of Microsoft's immense marketing engine behind it, by integrating easily with other Microsoft products, and by embracing innovations and new technologies. For example, Microsoft beat Novell by almost a year in adding Internet technology and a World Wide Web server to its network platform.

Alternatives to Windows.
Tight integration with its ubiquitous MS-DOS and Windows operating systems and aggressive marketing and distribution tactics enabled Microsoft to dominate the applications and operating-system market, but other firms cast about for ways to break that hold. IBM tried with OS/2 and failed. In a separate effort in 1991, Apple and IBM announced an alliance to create the next-generation operating system, running on newer, more powerful hardware. Dubbed the PowerPC, the move was an attempt to win market share from Microsoft but also had potential to finally unite the IBM and Apple platforms. IBM floundered, however, and delayed promoting the product and developing software for it. This left its future almost entirely in Apple's hands. By the time the PowerPC was released in the mid-1990s, Apple was far too weak to compete head-on against Windows. Instead of becoming the next-generation PC, it quietly became the next-generation Macintosh.

In the meantime, Unix had proven a more viable alternative to Windows in some contexts. Originally designed in the 1960s by AT&T for telecommunications networks, Unix gradually became the standard for high-powered, networked scientific and technical computers. As workstations from Sun Microsystems and Silicon Graphics caught on in the 1980s, Unix slowly entered the mainstream. Among its strengths was the ability to run several programs simultaneously and display them on large monitors with crisp graphics. Indeed, few operating systems matched Unix's power and stability.

One disadvantage of Unix, nonetheless, was a lack of standardization. Many companies had released variations of it, and often applications written for one version did not work on another. Moreover, while a great deal of Unix software existed for science and engineering applications, few packages were available for the wider market.

In 1991 AT&T created Unix Systems Laboratories (USL) to manage the Unix operating system. The following year Novell bought USL from AT&T in a bid to take control of Unix. Another salvo in Novell's growing battle with Microsoft, the acquisition gave Novell an operating system of its own. Novell quickly moved to widen the program's appeal, trying to standardize its competing versions and link it with NetWare.

Fearing Microsoft's impending release of NT, a half dozen major Unix companies--IBM, Hewlett-Packard, Sun Microsystems, Santa Cruz Operation, USL, and Univel--agreed in 1993 on a standardization scheme. The alliance released specifications for the Unix interface and other key elements of the operating system, while allowing companies to pursue their own variations. In the months leading up to Windows NT's debut, many of these companies released new versions of Unix.

Despite such countermeasures, Windows NT enjoyed qualified success. It failed to displace Unix and other networking platforms but developed a user base on small and medium-sized networks. The workstation version likewise generated modest sales as a more robust and stable flavor of Windows for desktop machines. By 1998 some market watchers estimated that NT was the operating system of choice on more than one-third of new servers. Still, worldwide it was believed to hold less than 14 percent of the server market, where Unix versions continued to prevail.

Internet Changes Industry.
While Windows NT made headway in corporate information technology (IT) departments in the mid-1990s, a vastly more visible contest emerged over the Internet. The public computer network stemmed from a 1969 project of the U.S. Defense Department and had been used by scientists and researchers for years. The Internet gained popularity with its ease of exchanging text messages and files and, more importantly, with its expansive collection of linked graphical pages known as the World Wide Web.

It all required software. In 1994 Netscape Navigator was released as the first commercial Web browser. Developed by Marc Andreesson, a computer science undergraduate who masterminded the noncommercial Mosaic browser, Netscape was distributed mostly as a free download. This proved a shrewd tactic to gain market share and draw attention to the fledgling company's Web server products. Within a year, Netscape controlled some 80 percent of the burgeoning browser market. Other firms, including many start-ups, released software for Internet tasks like managing e-mail, browsing news groups, and authoring Web pages.

Microsoft countered Netscape in 1995 with the launch of its Internet Explorer, based primarily on licensed Mosaic code. Like Netscape, Internet Explorer was given away online and bundled free with other Microsoft programs. Widely seen as an inferior product, Explorer caught on slowly at first. Six months into its release, it held just 7 percent of the market.

Then, in a stunning feat, Microsoft reached an accord in 1996 with America Online (AOL), the largest online consumer service, to feature Internet Explorer as AOL's preferred browser. The deal surprised most observers because AOL already had an alliance with Netscape. AOL's collaboration and Microsoft's clout with PC makers helped the software giant pry its way into the browser market, claiming 20 percent at the end of 1996. It went on to capture more than 40 percent by late 1998, when, in another unexpected turn, AOL agreed to buy Netscape.

Elsewhere in the industry, Internet functions were increasingly integrated into many types of applications. On the simplest level, developers made common programs like word processors and spreadsheets more Internet friendly by allowing Web content to be imported and exported. More importantly, heavy-duty corporate packages like databases and enterprise applications were infused with e-commerce capabilities.

In the late 1990s, enterprise resource planning (ERP) software, which was used by large companies to integrate diverse business functions like finance, logistics, and human resources under a common, powerful, Internet-enabled interface, was one of the fastest-growing industry categories. These packages improved corporate information management and provided timely, high-level, organization-wide information for top management. However, in 1999 ERP sales faltered. Growth that year slipped to 12.5 percent, an otherwise healthy level for many industries, while individual companies' revenues and profits sank well below expectation. Some observers pronounced ERP dead. That was premature, but ERP, despite its promise, was notorious for long, problematic implementation cycles before executives could bask in the real-time corporate intelligence these systems were supposed to deliver. Fears about computer glitches in the changeover to the year 2000 only aggravated ERP's problems. By the early 2000s, this category was still relatively strong, especially in the manufacturing sector. However, ERP's woes demonstrated the software market's rising aversion to uncertainty and imperfection.

Technological advances and changing market sensibilities continued to reshape this ever-changing industry into the 2000s. For consumer and business markets alike, software publishers increasingly strove to deliver smart, integrated solutions that protected and empowered users and make them more productive while minimizing or eliminating the hassles associated with ramping up new software applications. Among the leading software categories in the early 2000s were security software and middleware.

Security Software.
By summer 2001 revenues in the security software sector already were experiencing strong growth. According to IDC, the worldwide market for security software totaled approximately $5 billion in 2000, a 33 percent increase from the previous year. By late 2002 security was an extremely hot topic across many industries. In the wake of the terrorist attacks that took place on September 11, 2001, and a number of subsequent undefined threats, companies implemented various measures to protect their electronic data and systems. In addition to firewall applications, security software also included encryption and antivirus programs. With more than 7,000 new viruses, Trojan horses, and worms found in 2002, these applications remained a necessity for computer users who shared files or used the Internet.

Middleware.
Middleware was an emerging software category in the early 2000s that enabled communication between a company's disparate network of computer systems. For example, some firms used middleware to enable older legacy systems for Web use, especially in the e-commerce arena. In many ways, middleware worked as a translator in these situations. As business processes became increasingly Web centric, corporate clients turned to solutions like middleware instead of scrapping systems in which they had made significant investments over the years.

Application Service Providers.
The Internet continued to have a major influence on the software industry. A growing number of applications were being distributed via the Internet instead of through older, more traditional distribution channels, impacting the industry's business model. Application service providers (ASPs) continued to represent a major shift for software buyers and sellers alike. ASPs pushed software distribution and hosting to the Internet and overturned pricing conventions. The end result was that software applications, especially for business, were cheaper and easier to manage. Under the traditional model, users buy software licenses at a set price per user and install the programs, typically from CD-ROM, on their machines. Usually licenses cover only the current version, and when a new version comes out, the cycle begins anew.

The shift toward ASPs was gradual. Microsoft, which previously derided the ASP model, served as a catalyst of sorts in 1999 when it announced guarded intentions to offer its market-leading Office suite for rent. The software giant had favored electronic distribution of conventional licenses. By the early 2000s ASPs were achieving much success with Web-native applications, especially so-called Web services software, which companies used to facilitate communication among disparate Web-based applications. According to IDC, e-marketplaces represented an especially lucrative market for ASPs.

Linux.
Beginning in the mid-1990s a swell of attention was given to the Linux operating system. It achieved much of its popularity simply by being an alternative to Microsoft's operating systems--an alternative that undermined Microsoft's traditional closed-code licensing paradigm. Inspired by Unix, Linux is an open-source (public domain) operating system for individual PCs and network servers. As such, different Linux packages are offered by a number of vendors, and the software is inexpensive or even free. This means Linux generally is not subject to the same kinds of licensing restrictions as most commercial programs.

Although the idea of a Linux-Windows horse race may be compelling, in business settings Linux is not likely to be a full replacement for Windows. According to a study conducted by Zona Research, by the early 2000s the operating system was still being harnessed for lightweight jobs like departmental networking and low-volume Web serving. Linux performs well in these settings and can save thousands of dollars even in a small deployment. Corporate IT departments in fact have grown used to running multiple operating systems for different functions. Just as NT often proved to supplement, rather than supplant, NetWare and Unix systems, so too is Linux likely to find a place alongside one or more other operating systems in a typical company network. By late 2002 a report from OneStat revealed that Linux accounted for a mere 0.26 percent of operating systems worldwide, compared to Apple (1.43 percent) and Microsoft Windows (97.46 percent).

By 2004, global expenditures of commercial packaged software stood at $59 billion, an increase of $8 billion from the previous year. Market researcher Gartner Dataquest indicated application integration software climbed 5.8 percent to $6.7 billion in 2004, while the combined growth in the packaged application software, infrastructure software, and application and development garnered $98.1 billion in 2004. The industry leader was IBM, who launched its MQ Series and WebSphere integration products. During 2004 licensed software revenues rose 10.2 percent. Database software developers sales increased to $9.6 billion, compared to $8.7 billion one year earlier. IBM led with 38.8 percent of the market, according to Gartner Dataquest. Oracle accounted for 27.4 percent of the market, while Microsoft garnered 20.9 percent. "Companies looking for ways to augment and improve reporting and data management capabilities to meet increasing regulatory compliance requirements contributed to the overall growth," noted Gartner.

Security issues were on the forefront of software technology in the mid-2000s. Technological advances in the security software sector, according to IDC, continued to make great strides in protecting the business sector, consumers, as well as fostering growth in the software industry.

According IDC as reported in Application Development Trends in 2005, the major market drivers for IT were services, manufacturing, and the private sector. IDC reported that another significant market driver was the development of healthcare software.

Challenges for the industry in the mid-2000s included the rise in piracy. According to the Business Software Alliance, 35 percent of all software installed on personal computers globally was pirated in 2004, and software developers lost revenues from pirated software of $33 billion in 2004 alone. The United States was responsible for 22 percent of the pirated software losses. Industry statistics suggested one out of every three copies of software currently in use were acquired illegally.

Current Conditions

Computer software was one of the very few industries that weathered the economic recession of the late 2000s well. According to a 2010 IBISWorld report, "Through the recession the industry stayed strong, and it will only grow in the outlook. Newer platforms and technologies, such as software as a service, open source software, and cloud computing, will penetrate the industry and change the landscape." In addition, production of prepackaged software remained a highly profitable business: Although initial creation of software required many hours of research and development as well as intense amounts of labor, the distribution costs were low, resulting in huge profits for originating companies.

Many in the industry pointed to software-as-a-service (SaaS) as the wave of the future in the software industry. According to Denim Group, as reported in eWeek in January 2011, "software development teams [will] start to shift their focus to building extensions to software-as-a-service applications instead of writing custom software from the ground up." One of the major challenges in the development of the SaaS involved security issues.

Leading companies in the industry continued to come out with new products. In 2011, for example, Microsoft launched Office 365. In addition, new opportunities were opening up for computer software companies, as handheld devices such as cell phones became, essentially, mini computers. Wireless and mobile applications were strong growth areas as the nation entered the second decade of the twenty-first century. According to research firm Gartner, the mobile applications industry was predicted to almost triple in 2011 to $15.1 billion.

Industry Leaders

Although monopoly allegations have captured countless headlines, the industry as a whole is nonetheless fairly fragmented. In one of the most comprehensive studies of its kind, each year Software Magazine ranks the world's leading 500 software producers by their estimated software revenues (thereby excluding sales of hardware, integration services, and other nonsoftware products and services. According to the journal, 2010 saw flat growth in the software industry, due in part to the effects of the economic recession of the late 2000s.

According to Software Magazine's report, the five largest software vendors in 2010 were Microsoft Corp., International Business Machines (IBM) Corp., Hewlett-Packard Co. (HP), Oracle Corp., and Accenture plc. In 2010 these producers collectively sold more than $208 billion in software worldwide. Other important U.S. companies in the industry included Computer Sciences Corp. and EMC Corp. These and a few other companies led various segments of the U.S. software industry either in sales or in influence.

Microsoft.
The world's largest software company in 2010, Microsoft was founded in 1975 by Bill Gates and Paul Allen. The software leviathan got its first major break in 1981, when IBM chose it to supply an operating system (MS-DOS) for IBM's pathbreaking first PC. As IBM's desktop computer became accepted as the industry standard, so did Microsoft's operating system. Microsoft quickly began offering application packages as well and became a major player in the Macintosh software market during the 1980s. Microsoft's Windows graphical interface, which partly emulated the Macintosh interface, became another standard in the IBM-compatible market, lifting the firm's sales to $1 billion by 1990. As Microsoft shored up its applications software line, which would eventually be united under its flagship Office productivity suite, the firm grew increasingly aggressive with hardware manufacturers about licensing its software according to its exacting terms. This later became fodder for antitrust litigation that dogged Microsoft.

Microsoft's aggressive tactics and phenomenal profit margins during the early and mid-1990s kept it lumbering forward in the software markets. The company developed a knack for neutralizing competitors through a combination of product innovations, application integration and bundling, strategic alliances, and marketing prowess.

In 1998 Microsoft unseated IBM as the world's largest software maker and held a commanding lead in the markets for PC operating systems, desktop productivity applications, and Internet browsers and was zeroing in on categories like software development applications, e-mail applications, and business diagramming applications. In 1998 it recorded an estimated $16.3 billion in software sales, which included a tantalizing 31 percent profit margin. By 2010 Microsoft's corporate revenues topped $58.5 billion, with about 86 percent coming from software sales.

In spite of being declared a de facto monopoly by the judge in the antitrust case and widespread rumors that it would be broken up, Microsoft forged ahead in 2000 with ambitious plans to release new versions of a few of its most popular programs. The most notable of these was the Windows 2000 upgrade, which was a bid to unify its divergent Windows NT and 95/98 operating systems and stave off new competition from Linux. The firm launched a host of new products in the early 2000s, including Windows XP, the Xbox game system, and mobile computing platforms like the Tablet PC. Microsoft finally settled its antitrust suit in November 2002.

In the late 2000s, the Redmond, Washington-based company made a series of acquisitions and entered an agreement with Yahoo! to combine the two companies' search operations. By 2010 it had launched its Windows 7 and Vista software, and employees numbered 89,000.

IBM.
Historically the world's largest packaged software producer, venerable IBM, often referred to as Big Blue, saw corporate revenues of $95.7 billion in 2010. Of this total, software accounted for about 78 percent. Big Blue's main packaged software offerings included operating systems, database management systems and other packages for transaction processing and system management, and groupware and desktop applications. Based in Armonk, New York, IBM employed almost 400,000 people in 2010.

HP.
Hewlett Packard, based in Palo Alto, California, was an important provider of computer hardware and services in addition to software, especially in the areas of enterprise IT management, information management, business intelligence, and carrier-grade communications. The firm more than doubled its size when it purchased former rival Electronic Data Systems Corp. in 2008. Corporate sales grew to $114.5 billion by 2010, although only about a third of revenues came from sales of software. Operating in more than 170 countries, HP employed 324,600 people in 2010.

Oracle.
Oracle Corporation, incorporated in 1977, was among the world's largest vendors of database management systems software, which is used to run high-end corporate data systems. Oracle recorded sales of $9.7 billion in 2002, at which time its database applications were growing at an annual rate of approximately 15 percent. In this area of the software industry, IBM and Microsoft were among its database software competitors. Oracle's products also include customer relationship management software and other large enterprise-oriented packages. The firm expanded aggressively in the late 2000s, acquiring former rivals PeopleSoft, Siebel Systems, and BEA. In 2010 Oracle made its biggest purchase to date when it bought Sun Microsystems for about $7.4 billion. In 2010, corporate revenues for Oracle were $23.2 billion. Based in Redwood City, California, the company had 105,000 employees in 2010.

Other Leaders.
Software was only one component of New York-based Accenture, the largest consulting firm in the world in 2010. With 211,000 employees in 120 countries, Accenture reported sales of $21.5 billion for fiscal year 2010. Other leaders in 2010 were Computer Sciences Corp., based in Falls Church, Virginia, with sales of $16.7 billion and 94,000 employees, and EMC Corp., headquartered in Hopkinton, Massachusetts, with $14.0 billion in revenues and 43,200 employees.

CA Inc., formerly Computer Associates International, began offering utilities for mainframes in 1976 and grew by buying programs from other software firms. In the mid-1980s it pushed into the market for PC applications software. At the beginning of the 1990s, the firm, best known for its Unicenter system management package, beefed up customer support and began to implement a plan to link different types of computer systems and allow all its programs to communicate with each other. By 2002 the company was especially focused on e-business applications. That year sales totaled almost $3 billion, 75 percent of which was attributable to software sales. The company's revenues stood at $4.3 billion in 2010 with 13,800 employees.

Software testing and implementation were the speciality of Compuware Corp., which offered applications to assist developers of high-end applications in mainframe and client/server environments. Compuware's core products helped software developers identify errors and debug software, but the firm also provided software for high-end file and data management. The firm capitalized on trends in the high-end corporate market by positioning its products as complements to large companies' deployment of ERP and e-commerce applications. The company's revenues more than doubled between fiscal years 1996 and 1998, and by 2002 totaled $1.73 billion. In 2010, the company generated sales of $892 million.

Adobe Systems Inc. was a leading provider of desktop graphics and document publishing software in the 2000s. Among its best-known titles were Illustrator, PhotoShop, and PageMaker, which supported overall 2001 sales of $1.2 billion. Adobe also is known for its ubiquitous Acrobat Reader, which displays and prints highly formatted documents, and its Dreamweaver Web authoring suite. In 1999 Adobe launched a major new desktop publishing title, In Design, aimed squarely at the high-end market dominated by Quark Inc.'s QuarkXpress. Adobe posted revenues of $2.9 billion in 2010.

Former Leaders.
Sun Microsystems was best known for its speedy workstations and low-end servers and was a sizable producer of packaged software as well as a force for change in the industry throughout the late 1990s and 2000s. Headed by Chief Executive Officer Scott McNealy, Sun embarked on a multitiered attack on conventional industry practices in the mid-1990s. In 1996 it introduced the Java programming language, geared toward delivering platform-independent programs and functions over the Internet. In a bolder foray, in 1999 Sun bought Star Division, a relatively minor business productivity software vendor, as well as StorageTek. In the early 2000s, software represented about 20 percent of Sun's annual revenue, which totaled $11.0 billion in 2004. Sun was purchased by Oracle in 2010.

PeopleSoft, also acquired by Oracle, was one of the top major enterprise resource planning (ERP) vendors in the 2000s. ERP packages like PeopleSoft's, which came into vogue in the latter half of the 1990s, automated and integrated diverse organizational functions at large companies under a common software umbrella. Such functions included finance and human resources, operations, and supply chain management. As corporate interest in ERP systems surged in the mid- to late 1990s, PeopleSoft's revenue more than doubled. By the early 2000s many of PeopleSoft's applications were Web based. The company also developed applications for clients in specific industries such as education and health care. In 2001 PeopleSoft's annual revenues exceeded $2 billion.

Workforce

The packaged software industry's vibrant growth demanded a steady influx of new employees in the late twentieth century. Indeed, industry employment nearly tripled during the 1990s. On average, according to government figures, the industry boosted its labor ranks by about 12 percent each year from 1990 to 1999.

Software engineers and programmers represented a major occupational group within the industry. Software engineers design and develop software, and afterward computer programmers write accompanying programs. In 2008 there were 1.3 million Americans working in this occupation, according to the Bureau of Labor Statistics (BLS). About 32 percent of these were computer programmers, who earned an average of $69,620 a year. The remaining workers were engineers who averaged about $89,000 a year. Other major occupational groups in the software industry include project/product managers, graphic designers, technical writers and editors, and technical support staff. In addition to its regular employees, the industry also relies heavily on contract programmers and technical consultants, whose work may be classified under other industries for statistical purposes.

The industry's fast expansion, coupled with a tight labor market, yielded above-average compensation for many of its workers, who tend to be highly skilled and educated. Still, pay varies considerably by workers' experience and skills, as well as by what kind of company employees them.

In addition to financial compensation, employees at publicly traded software companies, especially small firms, may also receive shares of company stock or stock options as compensation. This practice is famous for making young and relatively low-level employees wealthy if the firm does well in the stock market. Well-funded start-ups may likewise offer more generous salaries to attract top talent from established outfits, whereas large companies tend to splurge more on benefits packages, on-site amenities, and other kinds of perks.

Working conditions for programmers and other industry employees are generally good. Because they require concentration do to their jobs, most programmers work alone in quiet office settings. However, as in other professions, programmers are working increasingly out of their homes. The hours at some firms are the traditional nine-to-five, but from its earliest days, the software industry has been known for its long hours.

The employment outlook for this industry was positive into the 2010s, especially for software engineers. Whereas the number of jobs for computer programmers was expected to decline slightly, the BLS predicted employment for software engineers would increase 32 percent by 2018.

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