Software Industry Survey 2010

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Software Industry Survey 2010

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Mikko Rönkkö Jukka Ylitalo Juhana Peltonen Kaisa Parkkila Aku Valtakoski Nina Koivisto Linda Alanen Olli-Pekka Mutanen

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BY: All images and tables can be used under Creative Commons Attribution license version 3.0 http://creativecommons.org/licenses/by/3.0/

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Uuden kasvun kynnyksellä

Vuosi 2009 oli suomalaiselle ohjelmistoalalle haasteellinen, mutta se ei sammuttanut pyrkimystä kasvaa ja kehittyä. Pienemmät yritykset olivat paikoin vaikeuksissa, mutta suurempia yrityk-siä koettu taantuma ei juurikaan kolhinut. Pitkät palvelusopimukset, kasvavat ulkoistukset, ohjelmistojen myynti palveluna ja monissa tapauksissa ohjelmistojen liiketoimintakriittisyys pitivät kasvua yllä vaikeista ajoista huolimatta.

Vuosi 2010 tulee jo olemaan selvästi kasvun vuosi, vaikka taantumaa edeltävään tasoon on vielä matkaa. Erityisen lupaavalta näyttää ohjelmistoja palveluna tarjoavien yritysten tilanne. Myös kansainvälisesti vertaillen suomalaisella ohjelmistoalalla ei mene hassummin: esimerkiksi suurimpia eurooppalaisia ohjelmistoyrityksiä seuraavalla Truffle 100 –listalla on tänä vuonna kuusi suomalaista yritystä.

Muutamat kyseisen listan kärkipäässä olevat yritykset ovat kasvaneet yritysostoin, osto-kohteena muun muassa suomalaiset ohjelmistoyritykset. Tämä onkin tyypillistä suomalaisille yrityksille: päästäkseen liikevaihdolla mitaten muutaman miljoonan euron kokoluokkaan yri-tys on todennäköisesti löytänyt tiensä maailmalle, ja päätynyt sen seurauksena yhteen ulko-maisen yrityksen kanssa. Sen vuoksi puhtaasti suomalaiset menestystarinat ovat harvassa.

Etenkään kuluttajaohjelmistot eivät perinteisesti ole olleet suomalaisten leipälaji; tässäkin tutkimuksessa vain pari prosenttia vastanneista yrityksistä keskittyi puhtaasti kuluttajamarkki-naan, joka onnistuessaan tarjoaisi nopeaa kasvua - hintanaan kuitenkin suurempi riskikerroin. Suomi ei toisaalta ole tässä täydellinen kummajainen, vaan myös muissa Euroopan maissa ohjelmistoalan selvä painopiste on yritysten välisessä liiketoiminnassa.

Taantumasta parhaiten nousseet yritykset kasvattivat tuotekehityspanoksiaan taantuman ollessa syvimmillään. Suomi kuuluu niihin eurooppalaisiin poikkeuksiin, jotka eivät hyödynnä tutkimus- ja tuotekehityspanosten verovähennysoikeuden tuomaa laajaa, tasapuolista ja teho-kasta tapaa tukea suomalaista osaamista. Tästä poikkeuksesta tulisi pikimmiten hakeutua hy-väksi todettuun valtavirtaan Suomen kilpailijamaiden tavoin. Tämä kannustaisi myös niitä yri-tyksiä panostamaan tuotekehitykseen, jotka eivät syystä tai toisesta hae suoraa tukea Tekesiltä tai muilta julkisilta tukiorganisaatioilta.

Muun muassa työ- ja elinkeinoministeriö toteaa kasvuyrittäjyysraportissaan, että ”verotuk-sella voidaan vaikuttaa yritysten kasvuun ja kansainvälistymiseen siten, että myönteiset vaiku-tukset lisäävät dynamiikkaa koko taloudessa. Verotus on siten myös väline toteuttaa tärkeitä yhteiskuntapoliittisia päämääriä”. Myös valtiovarainministeriön vero-osaston tulisi vähitellen tiedostaa verotuksen vahva ohjaava vaikutus koko yhteiskunnallisesta näkökulmasta.

Ohjelmistoyritysten lisäksi ohjelmisto-osaamisen merkitys muulle suomalaiselle elinkeino-elämälle ja julkiselle sektorille on merkittävä. Useimpien suomalaisten kansainvälisesti men-estyneiden tuotteiden kilpailukyky perustuu nimenomaan niihin sulautettujen ohjelmistojen tuomaan älyyn ja lisäarvoon. Voi hyvällä omalla tunnolla sanoa, että suomalainen toimialako-htainen ohjelmisto-osaaminen on maailman huippua.

Taantuman jälkimainingeissa suomalaisen ohjelmistoalan tulevaisuus näyttää lupaavalta. Ei ole mitään syytä epäillä, etteivätkö lähivuodet tarjoaisi hyviä mahdollisuuksia sekä kansain-välisesti menestyvän ohjelmistoyrittäjyyden että kansainkansain-välisesti kilpailukykyisen ohjelmisto-osaamisen juurtumiseen syvälle Suomen maaperään.

Jukka Viitasaari Director

The Federation of The Finnish Technology Industries

Jaakko Salminen CEO

The Finnish Software Entrepreneurs Association

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For the Reader

Back in 1997, the Software Industry Survey was initiated in order to map the size and compo-sition of the emerging software product industry in Finland. The survey has since evolved to examine a broad range of issues such as growth, business models, internationalization, finance, innovation, and product development. The survey’s sampling frame has also expanded beyond its origins, and now encompasses firms that offer software-related services and on-demand soft-ware over the Internet.

In order to take the next step in developing the survey, have been actively seeking interna-tional collaboration to collect similar data from other countries. As a result, a survey is cur-rently underway in Norway and we have plans to run the survey in several other European countries in the oncoming years. We have also improved our outreach with a new website that was launched earlier this year (www.softwareindustrysurvey.org), where we will post the latest information on our survey and collect previous material in a more accessible manner.

This year we received 650 full responses to the survey, which is a significant amount consid-ering the size of the software industry in Finland. The response numbers are slightly smaller than last year, which is partially relates to relying more on online questionnaires instead of traditional postal mail in order to conduct the survey more effectively.

More clearly than in the previous years, the survey has attracted a group of companies that respond year-to-year. We continue to improve the company-specific reports to extend this group also in the future. In particular, these serial respondents provide very valuable data when looking at systematic relationships between firm-level actions and later outcomes. So in addi-tion to warmly thanking all of the respondents for their time, our special thanks goes out to those CEOs and managers who from year to year spend their valuable time to respond to the survey.

We also wish to thank all funding partners and other parties who have enabled this year’s study and the report at hand. Particularly we want to express our gratitude to our main supporters, the National Technology Agency (Tekes) and the Federation of the Finnish Tech-nology Industries (Teknologiateollisuus ry), without forgetting our long-term supporters the Finnish Centre for Open Source Solutions (COSS), Culminatum Ltd Oy, Finnish Software En-trepreneurs’ Association (Ohjelmistoyrittäjät ry), and The Finnish Information Processing As-sociation (TTL ry).

This year we have restructured the final report so that it is an edited volume of independent chapters rather than a single book. The reason behind this decision is to improve the accessi-bility of the report by splitting the content into smaller “chunks” but also to reduce the amount of coordination and editing that is required to write a coherent report. We hope that this and several other smaller changes make the report better and you will find it interesting to read.

Mikko Rönkkö Research manager Aalto University Jukka Ylitalo Researcher Aalto University Juhana Peltonen Researcher Aalto University

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List of Tables

2.1 Worldwide IT spending forecast (billions of U.S. dollars) . . . 6

2.2 Software and software-based services market in 2020 . . . 7

2.3 Acqusitions in software industry 2005-2009 . . . 8

2.4 Software development in other industries in 2007 . . . 11

2.5 Software and software-based services market distribution by segment . . . 13

2.6 Firms under industry code 62 (TOL2008) in Finland . . . 15

3.1 Profitability over years . . . 26

3.2 Productivity over years . . . 28

3.3 Development of research and development investments . . . 31

3.4 Determinants of R&D intensity . . . 32

4.1 Determinants of international revenue . . . 40

4.2 Descriptive statistics by internationalization (means) . . . 41

4.3 Descriptive statistics by internationalization (medians) . . . 41

5.1 Self-reported firm types by business models . . . 53

5.2 Basic descriptive statistics by business models (means) . . . 55

5.3 Basic descriptive statistics by business models (medians) . . . 56

6.1 Frequencies of current cloud service use and intention to use in 2013 . . . 63

6.2 The extent of cloud service use per firm age class . . . 65

6.3 The extent of cloud service use per firm revenue class . . . 65

6.4 The extent of cloud service use per overall cloud index . . . 66

6.5 The extent of cloud service use per firm type . . . 66

6.6 Logit analysis of cloud service adoption . . . 67

6.7 Regression analysis of cloud service adoption index . . . 69

6.8 Regression analysis of cloud service impact on firm revenue growth . . . 71

6.9 Regression analysis of the impact of cloud service use on firm profitability . . . . 73

7.1 Linear regression analyses of revenue changes and forecasts in 2009 (part 1) . . . 87

7.2 Linear regression analyses of revenue changes and forecasts in 2009 (part 2) . . . 88

7.3 Linear regression analyses of overestimating 2009 revenue forecasts and 2010 forecasts (part 1) . . . 89

7.4 Linear regression analyses of overestimating 2009 revenue forecasts and 2010 forecasts (part 2) . . . 90

7.5 Linear regression analyses on revenue aspirations for 2015. . . 91

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8.2 Items used to measure service capability, with correlations . . . 96 8.3 The average revenue shares of services for product and development service

soft-ware firms in 2009 . . . 97 8.4 Service revenue shares per firm type and age class in 2009 for product firms . . . 99 8.5 Service revenue shares per firm type and age class in 2009 for service firms . . . . 99 8.6 Service revenue shares per revenue class for year 2009 for product firms . . . 99 8.7 Service revenue shares per revenue class for year 2009 for service firms . . . 100 8.8 Regression analysis of service provision and service capability on revenue growth 102 8.9 Regression analysis on the impact of service provision and service capability on

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List of Figures

1.1 Contexts for professional software development . . . 2

3.1 Finnish software business 2004–2008 . . . 22

3.2 Firms by total revenue, all years and the most recent year . . . 22

3.3 Growth of revenue over years on firm level . . . 23

3.4 Expected growth of revenue over years on firm level . . . 24

3.5 Growth target over firm revenue . . . 24

3.6 Profitability levels over firm revenue . . . 27

3.7 Productivity levels over firm revenue . . . 29

3.8 Development of research and development investments . . . 30

3.9 Development of research and development investments for product and service firms . . . 30

4.1 Firm distribution by international operations . . . 35

4.2 Change of internationalization status over years . . . 36

4.3 Extent of international operations of firms with international revenue . . . 36

4.4 International revenue share over years . . . 37

4.5 Histogram of internationalization years . . . 37

4.6 International revenue shares over firm type . . . 38

4.7 Number of firms operating in different markets . . . 42

4.8 Number of areas where a firm operates . . . 43

5.1 Share of different sources of revenue . . . 46

5.2 Share of different sources of revenue by age class . . . 47

5.3 Share of different sources of revenue by revenue class . . . 47

5.4 Sources of revenue over years . . . 48

5.5 Customer types . . . 49

5.6 Share of revenue from public sector . . . 49

5.7 Share of revenue from 3 largest customers . . . 50

5.8 Share of revenue through channel partners . . . 50

5.9 Share of revenue from new customers . . . 51

5.10 Sources of revenue by business models . . . 54

5.11 Business models by revenue class . . . 57

5.12 Business models by age class . . . 57

6.1 Cloud service adoption index . . . 64

7.1 Realized revenue changes 2005-2010 . . . 80

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7.3 Perceptions of the impact of the recession . . . 81

7.4 Perceptions of internal responses of companies that adapted operations due to the recession. . . 82

7.5 Responses to questions about external effects of recession . . . 83

7.6 Responses to questions about internal effects of recession . . . 83

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Chapter 1

Introduction

Mikko Rönkkö, Jukka Ylitalo, Juhana Peltonen

1.1

Introduction

Software industry can be considered from two perspectives: It consists of parts of the comput-ing services industry1 and parts of the publishing industry2. These two industries cover all companies whose main activities are providing software as either products or services to their customers, but also include many other business activities relating to selling and operating soft-ware systems. Moreover, industry classificationa capture all revenue of firms whereas in this report we focus only on activities directly related to software business.

Software industry is also a small but a part of all professional software development. We classify these activities into four categories shown in Figure 1.1. The traditional categiruzation of software business has into software products and custom made software3is reflected on the horizontal axis of our classification. The vertical axis “visibility of software in the offering” refers to how apparent it is for the customer that part of the product or service being purchased has software as a central component or is produced by software4. This is related to trend that software is becoming more and more ubiquitous and software development a central part of product development and service design. Indeed, the boundaries between software industry and other industries have become increasingly blurred due to trends that are discussed later in this report: Hardware producers are relying on software for functionality and differentiation. In some cases firms considered traditionally to be solely device or machinery vendors have ex-panded their business to include also complementary software products or services that have a significant software component. Moreover, the emergence of online services and e-business has resulted in firms operating in other industries, such as media, retailing, and various services, to expand into internet-based offerings. This “extension” is what the vertical axis reflects. Again, on the lower half of the figure the degree of standardization refers to the replicability of soft-ware. In the lower left quadrant, the software is often unique and exists only on one server or server system while in the lower right quadrant the same software is copied on several devices that are sold to different customers. In this report, these two activities are not considered a part of the software industry and are hence not covered.

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In−house

systems

Customer tailored

software

Embedded

software

Software

products

Visibility of software in offering

Degree of standardization of software

Figure 1.1: Contexts for professional software development

contacted a large list of firms and measured the amount of software business done by these firms. This exploratory approach suits studies where the population to be surveyed is not known prior to the study5. The survey was also focused on Finland-based companies that are either independent or clearly distinct from their corporate parents. Some foreign corpo-rations were included due to the virtue of them willing to participate in the survey, but these are clearly separated when discussing the industry totals where these often larger firms have a large impact.

In this report, we define the software business as follows :

Software business is business of selling software (including systems software, application software, and games) either as licenses or as services and services re-lated to development and deployment activities of this software. This definition does not include operation of software produced by third parties (e.g. operating a server farm), business and operations consulting related to software systems, and deployment projects of third-party software.

Not all revenue of firms operating in the software industry is necessarily soft-ware business.

In this report we use the terms software business and software industry interchangeably refer-ing to the firms that derive their income mainly from software business.

The next chapter focuses on the current trends in the software industry covering a large number of third party reports. After this chapter, we will present the results from this year’s survey starting from the industry level trends and statistics. In the fourth chapter we will fo-cus on internationalization of the industry. The fifth chapter covers business models, and the sixth chapter provides an analysis of the use of cloud computing. The seventh chapter draws a more detailed picture of how the current recession has impacted the Finnish software firms. The report is concluded by a chapter discussing service business and particularly professional services.

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1.2

Implementation of the Study

This study uses a census design where the entire population of software companies in Finland is surveyed to answer two main research questions:

1. How have the key industry level figures developed in 2009?

2. What kind of impact has the recession had and how have the firms responded?

In addition to these main research questions set by the steering committee of the research project, we have included some sections due to our own interest or because something interest-ing was found in the data that warranted further treatment in the report.

The data for this report comes from several sources, but the most important source is the main survey that was conducted during May-August 2010 using paper questionnaires and web forms. Invitations to participate were sent to 7578 companies, which were selected from a database compiled for this survey. After several reminders, we received 650 complete and 754 partial responses6. In addition to data collected by us, we used several databases to obtain for example additional financial data about the firms. The research methods including sample se-lection, data colse-lection, and analysis and estimation techniques as well as the different sources of secondary data are described in Appendix A.

Notes

1. TOL2008 code 62 2. TOL2008 code 58

3. Satish Nambisan, “Why Service Business Are Not Product Businesses.,”MIT Sloan Management Re-view42, no. 4 (2001): 72–80,ISSN: 15329194,http://search.ebscohost.com/login.aspx?direct=true& db=buh&AN=4834440&site=ehost-live

4. Frederic Giron et al.,D2 – The European Software Industry, technical report (Pierre Audoin Consultants, June 2009), 339,http://cordis.europa.eu/fp7/ict/ssai/study-sw-2009_en.html

5. Robert M Groves et al.,Survey methodology, Wiley series in survey methodology (John Wiley, Hobo-ken, NJ, 2004),ISBN: 0-471-48348-6 (pbk.) 978-0-471-48348-9

6. A response was counted as a partial response if anything was filled in the survey form. Only part of these responses contained useful data

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Chapter 2

Recent Developments in the

Software Industry

Jukka Ylitalo, Mikko Rönkkö

Highlights of the Chapter

• Depending on the source, the estimates for software industry growth in 2009 varied between little contraction and little growth.

• Year 2010 is predicted generally as a year of growth for the industry.

• There are several changes in the software industry that are challenging the cur-rent industry structures.

– The software industry is maturing and consolidating, strengthening the American dominance of the industry.

– Large software companies are moving towards services from product based business models.

– Cloud computing and Software as a Service are gaining foothold in the markets.

– Outsourcing and offshoring trend continues.

– Mobile computing platform competition is increasing and table computing emerging.

– Embedded software is ever more important and currently employs proba-bly more software developers than the software product industry.

• The Finnish software industry has been ranked high in international bench-marks, but still has not realized the growth expectations that some forecast have laid out.

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2.1

Introduction

In this section we cover the recent events and trends in the software industry globally, in Europe, and in Finland. Our analysis of recent events focuses on the previous year and the current year whereas the section on trends focuses on issues of longer term focus. For this purpose, we collected and analyzed a large number of reports produced by leading market research institutes and governmental statistics centrals7.

Software industry is sub-sector of the larger information and communication technology (ICT) sector. The importance and size of the ICT sector has increased rapidly accounting cur-rently for approximately 5.4% of the GDP worldwide, and is estimated to account for 5% of total GDP growth between years 2003 and 20088. The role of software industry is considerable within the ICT sector. For example, according to the recent report of the European Commission, half of the total ICT employment in Europe was accounted by computer services and software sub-sector9in 200710. Furthermore, this sub-sector produced 42% of the total ICT sector value-added. In this chapter we focus on this larger sub-sector rather than only software business for the reason that typically reports covering software industry actually focus on the whole sub-sector covering also other IT services not related to software products or software development directly.

2.2

Recent Events

In this section we review the recent developments and events affecting the global software industry, and take a look at the projections for 2010. The past year is of special interest as the downturn shook the global economy. Today, as the result of globalization and the use of ICT penetrating virtually all industry sectors, the ICT sector has not remained unaffected. As of writing this report, the downhill of the economy is slowly showing signs of leveling off and turning back to the growth path.

Events and Developments in 2009

The year 2009 was widely characterized by the global economic downturn. Growth of the world economy plunged in 2008 and not many industry sectors were unaffected by the hit. The ICT industry was no exception to this, although the effects have been comparatively milder than in the past dot-com crisis in the beginning of the millennium.

Also software industry is turning out to be less affected by the recession than several other industries. ICT services — which software industry is a part of — performed overall better than ICT manufacturing, which is mostly due to computer services and software sub-sector perform-ing relatively well11. Despite the fact that the global IT spending contracted 4.9% in 200912, it was the computing hardware that suffered the biggest decline, while software spending growth was above average reaching -2.6%, as shown in Table 2.1.

As a result of the uncertain economic situation, the characteristics of IT projects have changed to the direction of small and shorter-term projects being favored over longer and larger projects13. Also, IT projects that are not urgent or critical have been delayed or cancelled, thus affecting the short-term figures of many IT firms. As a consequence, the IT services declined by -5.3% in 200914. The economic downturn has can also increase the rate of structural change that the software industry is currently going through.

The decline in the global IT spending is mostly attributable to contraction in U.S. and Eu-rope. In the Asia Pacific region, IT spending continued growing despite the adverse economic

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situation. For example, India-based software vendors attained positive growth figures of 3.6%15 despite the fact that they were impacted relatively early by the recession due to these providers selling offshore development services and having especially clients from the financial sector. Also IT spending in China grew by 7.5%, only slightly less than the Chinese economy on aver-age16(8.7%).

Table 2.1: Worldwide IT spending forecast (billions of U.S. dollars)

2009 Spending 2009 Growth (%) 2010 Spending 2010 Growth (%)

Computing Hardware 334 -12.4 365 9.1 Software 222 -2.6 229 3.1 IT Services 763 -5.3 786 2.9 Telecom 1,905 -3.5 1,970 3.4 All IT 3,225 -4.9 3,350 3.9 Source: Gartner17

Forecasts for 2010

While in 2009 software sector showed negative growth figures in general, year 2010 looks more promising. Worldwide IT spending is expected to grow by 3.9% during 2010 reaching $3.225 trillion18. Despite decline in growth figures, it seems that the effect of the economic downturn on the global software industry is turning out to be less severe and much shorter than the previous crisis, the one following the dot-com boom. The next question arising is that where the growth is taking place after the downturn. The fact that many EU countries are struggling with national budget deficits can result in EU recovering more slowly from the downturn than other major economic areas. Even though the U.S. has also similar challenges than the EU countries with national budget, it may be in a better position to engage post-recession economic growth due to considerable fiscal stimulus packages the government has been releasing19. The IDC predicts that IT spending in Western Europe will be flat this year, but will show growth in 2011 as growth track slowly returns after more emphasis on cost-driven initiatives in the short-term20. In the longer term the differences are expected to close as the EU countries get their budgets deficits under control. However, this will take time and for example PAC predicts the software and software-based services spending in the EU27 to on par with the U.S. by 202021.

Asia and Pacific region has been doing relatively well despite the adverse economic situa-tion, and they are predicted to do well also when the global economy starts to recover. Software and software-based services spending is estimated to be about twice as fast as the growth rate in the EU27 area (see Table 2.2), especially software-based Internet services taking a leap forward since there is less inertia caused due to less legacy systems in these countries22. Also Gartner predicts that Asia Pacific area and Latin America will be seeing growth in IT spending of about 7% on average23. China and India are expected to be leading the growth path of Asia. Both of these emerging economies achieved positive GDP growth rates in 2009 despite the decreased global economic activity24_{, and IT markets are expected to increase in 2010 by 13.7% in China} and 13.8% in India25. Gartner estimates that China’s enterprise software market maintains its strong performance also in the upcoming years with the highest growth rate in the world26.

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Table 2.2: Software and software-based services market in 2020 Market shares Geography 2008 2020 CAGR 2008/2020 EU27 32 28 4.4 North America 39 33 4.1 APAC 17 21 7.8

Rest of the World 12 18 9.3

World 100 100 5.7

Source: PAC27

2.3

Global Trends

According to almost every report that we reviewed, software industry is currently going through a structural change. In this section we cover the most important global trends that are likely to affect software business in the near future and in the longer term. We start the discussion by ex-amining the current structure of the industry and . Then we move the emphasis on the growing importance of services and outsourcing activities. Finally, we discuss the fast growing num-ber of computing platforms and the implication this trend is likely to have to in future of the software industry.

Consolidation of the Industry

Consolidation means that the industry revenues and profits are increasingly acrued by a small number of larger firms. Traditionally, the global software industry is generally characterized by large variation in firm sizes: On one side, it is relatively easy to start a small software firm leading to profileration of small and medium-sized companies. One the other side, software products have significant economies of scale and scope favoring larger corporations. As a re-sult of consolidation taking place during the recent years, the firm size distribution is becoming even more polarized. Although the economic downturn has slowed the progress of larger firms acquiring their competitors and promising smaler firms, this trend is still very strong. This tendency for centralization of revenues, profits, and control can be seen, for example, by exam-ining the list of top players in the software industry: the changes in the rankings of the largest software firms are very few between years. This indicates that the top players have managed to establish a position where they are difficult to bring down by the competitors28. The consolida-tion process has favoured large U.S. software vendors and consequently in 2007 the 20 largest software firms in the world included 15 U.S. software vendors that accounted for more than 37% of the world market29.

Although the worldwide volume of mergers and acquisitions collapsed due to the reces-sion30, the major players of the IT industry have been active n this frontier. The three largest U.S. companies operating in the software or IT services industries — Microsoft, IBM, and Oracle — have spent a total of 50 B€in purchasing other companies during the time period 2003-2008, while at the same time the top three European software vendors acquired only 8.5 B€worth of other companies31and the same trend has continued, as shown in Table 2.3.

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Table 2.3: Acqusitions in software industry 2005-2009

Acqusition deals, Me

Country Sum Mean Count

US 189,177 140 1,351

EU 27 37,483 35 1,083

Finland 644 17 38

Years 2005-2009, acquirer SIC code 73732

Services

Another indicator on the maturing of the industry is that the software industry is increasingly more characterized by services, while products are more and more becoming tools for vendors to sell services. This trend continued in 2009 while the economic downturn shook the industry structures, and is predicted to further accelerate in the upcoming years33_{. After the previous} crisis following the dot-com boom, large redistribution of jobs from the ICT manufacturing to services was seen34, and similarly the current downturn is likely to increase the pace of trans-formation to services due to increased effectiveness-seeking atmosphere and emerging new business models such as cloud computing.

For the Finnish software industry, the development of the business environment can mean that the traditional software product business and related competences may have lost their importance in favor of services based competences and revenue sources35. Generally, it is in-creasingly difficult to generate profits and growth around the traditional packaged software and license model. Many software markets segments are mature and saturated, continuing the trend of moving towards services that started already in the 1990s. The times when markets were growing so fast that every new entrant could find a niche are largely past. Competing models such as Software-as-a-Service are threatening the current modes. Also in the consumer market, the availability of free software and content on the Internet has made the potential cus-tomers used to getting everything for free, and some cuscus-tomers to resist paying for software.

Outsourcing and Offshoring

The increasing emphasis on services offering on the industry level has also put more focus on the outsourcing of different functions within firms. The economic downturn has in general put firms’ costs under closer inspection, and cost-savings and more effective IT solutions are of more interest than during better economic times. This combined with the perceived flexibility of outsourcing puts additional pressure on IT services costs. This is reflected by a recent report by Gartner36_{showing that about 53% of organizations in Europe will increase their outsourcing} during 2010 and 40% plan to increase their external IT services spending.

The global outsourcing of IT has enabled some of the developing countries to enter as chal-lengers in the software sector that has been traditionally dominated by the western world. The software industry growth rates in the developed market — U.S., Europe, and Japan — have been slowing down, and the fastest growth in the global software industry now takes place in India, China, and to some extent countries in Latin America, the Middle East, and the Asia Pacific region37. Consequently offshoring is gaining more attention due to fast growing IT in-dustry in these areas. China and India are currently the leading countries in the offshore IT and

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business process outsourcing services in these areas38. The share of Asia and Pacific region as a target for outsourcing is expected to increase fast also in the near future. For example, Gartner predicts that by 2012 India-centric IT service companies will represent 20% of the leading cloud aggregators in the whole market39.

The economic crisis has increased the appeal of outsourcing and offshoring in many firms due to cost-cutting and effectiveness-seeking attitudes covering more ground. This has caused an up-stick in the outsourcing and offshoring activities in Europe, and generally firms have growing interest in outsourcing and are now more positive towards offshoring then before the downturn40. The IDC predicts that although the current debt crisis in Europe is likely to result decrease in IT spending in the short term, in the longer run the demand for outsourcing also in the European public sector will increase due to expected efficiency gains and cost savings41.

Cloud Computing and Internet as a Platform

Another factor affecting the increase in outsourcing and offshoring is the growing role of the Internet and the so-called cloud computing model. The fact that developing nations are now driving worldwide growth in software is often attributed to the development of technologies that enable global trade of services42. Cloud computing means the provision of dynamically scalable and often virtualized resources as a service over the Internet on a utility basis. One of the key features of these new technologies is that the users need not have knowledge of, expertise in, or control over the technology infrastructure in the "cloud".

The use of cloud computing is increasing rapidly, and has become even more attractive dur-ing the economic downturn. As the companies focus more on cost-cuttdur-ing and optimization of their processes and solutions, the abilities of cloud computing to deliver scalable IT services with considerably lower capital outlay and potentially increase the effectiveness of firms’ IT so-lutions has provoked the interest of organizations in a large scale. Furthermore, companies are now more aware of cloud computing and its benefits and disadvantages than before, and due to this maturation of users’ understanding, cloud computing is now more than before viewed as an extension to firms’ outsourcing strategies rather than only a collection of new technologies43. Gartner predicts that cloud services revenue grows 16.6% in 2010 reaching $68.3 billion44. Software as a service (SaaS) is a subset and probably the most visible of these new models and has received considerable attention by several market research organizations. For example, according to Gartner’s survey, 95% of firms are expecting to grow or maintain their level of use of SaaS in 201045. The role of Internet as a prominent delivery channel for the software has increased and is expected to continue to challenge the more conventional channels. The software-based Internet services market is still relatively small compared to more traditional revenue models, but in the recent years the growth of the segment is expected to be fast, even 4 to 5 times faster than the traditional segments46. Furthermore, Gartner predicts that in 2010, 20% of businesses will own no IT assets by themselves47.

Besides cloud computing, Internet as a platform is generally of growing interest due to con-tinuously improving broadband connections. Consumer software markets have increased with the widespread of broadband services and the further adoption if mobile broadband is pre-dicted to increase this trend even further increasing the move toward Internet-based services. According to a research by European Commission48, half of European households and over 80% of businesses have a fixed broadband connection, and 93% of the EU25 population has broadband Internet access. Software is increasingly social and computer entertainment now includes activities such as users playing games online with each other, chatting and exchang-ing information in chat rooms, discussion forums, and meetexchang-ing rooms, and visitexchang-ing datexchang-ing and other social networking sites to meet people49. As a consequence, online content is the fastest

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growing market of the various software businesses and the share of advertising and paid web-based services are expected to double their share of the software revenue by 2012 in Europe50. The social platforms market showed significant growth of over 55% in 2009 despite the adverse economic situation51.

In addition to software that runs inside web browsers, Internet has enabled a new and grow-ing form of software delivery. The “App Store” model is where a special software is used to purchase and install other applications has gained momentum particularly in mobile phone software and computer games. This model has the potential to change software business in multiple ways: First, these software repositories provide instant global channel for sales and delivery of software. Second, restricting installing of software to a single channel can help in preventing the spread of malicious software. Third, the model can greatly enhance the market power of the company that controls the software repository.

Mobile Devices

Closely related to the growing role of the Internet as a computing platform and delivery channel is the mobile devices market. Apple and its iPhone truly started the software markets for these devices and now the trend of modularization that took place in the computer industry in the 70’s and 80’s is hitting smartphones52. This means that the software and hardware are decoupled and companies without hardware manufacturing, such as Google and Intel, are now offering operating systems for mobile phones. The fast growing adoption of mobile devices is having a significant impact on the software industry as the markets for mobile operating systems and applications are growing rapidly and is listed as one of the potential key drivers for the software industry in the next 5 years53. Furthermore, the current generation of mobile devices not only creates an ecosystem in which new software companies can emerge, but also significantly adds value to several Internet-based offerings.

The worldwide smartphone market has been growing rapidly in the previous years and the pace is expected to continue in the near future. The IDC54_{predicts that the smartphone markets} will grow 55.4% in 2010 with vendors shipping a total of 269.6 million devices over the year. The competition in the smartphone operating systems have been heating up lately as several new challengers have entered the markets. The newcomers to the market — primarily Google’s Android and Apple’s iOS — are mixing the game by gaining markets share and forcing the long-time leaders of the mobile operating system markets - BlackBerry OS, Symbian, and Windows Mobile - to adapt to shifting market balance. Several new operating systems are expected to en-ter the markets in the near future, and the older players are expected to or have already released refreshed and updated versions of their operating systems to overcome the new standards set by the newcomers. According to the IDC, it is unlikely that a single smartphone operating sys-tem will rise above all others in the market, but there will rather be four to five large operating systems competing in the fragmented markets55. While Symbian is currently the largest operat-ing system due to Nokia’s volume there are mixed views on the sustainability of this position: While some analysts predict that Symbian will maintain the market leadership56, Android is gaining market share at a considerable rate and some analyst predict that it will rise to compete with Symbian by 2014 about the title of the number one operating system in the market57_.

The year 201 has seen also introduction of a new class of computing devices: A new gen-eration of tablet computers entered the highlights lead by Apple’s iPad starting and followed by several PC and smartphone manufacturers releasing or announcing to release competing devices. The popularity of tablets has increased rapidly since the release of the iPad, and the shipments of media tablets is expected to increase from 7.6 million in 2010 to more than 46 mil-lion in 201458. The future role of the tablets is still uncertain as they start to spread from early

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Table 2.4: Software development in other industries in 2007

World market R&D level Software R&D Software size (Be) (share of revenues) of total R&D intensity (Be)

Aerospace 350 6% 39% 8.2 Automotive 1,550 5% 27% 20.9 Consumer Electronics 195 7% 50% 6.3 Medical Equipment 193 11% 28% 5.6 Telecom Equipment 247 13.5% 57% 19 Automation 40 4% 12% 0.2 Total 2575 60.3 Source: IDATE64

adopters to larger audience, but for example the IDC expects tablets to establish their position in the space between smartphones and PC’s as complementary device without replacing either of those59. The wider adoption of media tablets is likely to create new market space for software vendors as demand for applications designed and optimized for these devices is continues to increase. Moreover, the availability of third-party software unique to media tablets and may also have a crucial role in driving consumer demand of tablets in the future60.

Embedded Software

Another trend related to changing emphasis in computing platforms is the increasing impor-tance of the so-called embedded software, or software that is tied to a particular device and is elemental for the device functionality. Virtually any appliance, gadget, or machine can be equipped with a low-power computer processor to add features and functionality. The im-portance of embedded software development is difficult to measure since standard industry classifications do not capture these activities. In all, software R&D outside the software indus-try is estimated to exceed software indusindus-try R&D by a factor of 1.561. A few research results also indicate that in terms of direct economic impact, the embedded segment is probably larger than the standalone software industry. For example, in 2006 only 34% of software development done in industrial R&D context in the U.S. was done in the software industry62. At the same time in Germany, the number of software engineers in other industries exceed their number in software industry63. Table 2.4 provides further evidence of the importance of software outside the software industry by showing estimates of the global software development volumes in a few selected industries.

Conclusions

In all the consolidation of the traditional software markets and growing emphasis on services and new delivery modes have changed the growth possibilities for new software firms. Poten-tial niches are disappearing in regional and to some extent also in so-called vertical industry-specific segments, but at the same time, new global technology industry-specific niches are emerging65: First, as companies are selling services instead of software that has to be installed to a specific platform, the services providers have more freedom on selecting the services production plat-form and hence the drivers towards few standardized computing architectures are disappear-ing. Second, large services production environments have also needs for specific cost savings

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and scalability increasing technologies, searching globally for solutions. Third, users are using the services through their device and end user environment of choice. As a consequence of these developments, there still will be niches on which new firms can be founded, but these will be different than in the past.

2.4

European Software Industry

In general, the Western European IT markets, which are roughly a third of the world markets, are following the global trends. The software and software-based services market in EU27 area was about 231 billion Euros in 200966. In terms of market size, EU27 is the second largest in the world after the U.S.67. The dominance of U.S. players is most visible among software product vendors, where there are only 3 European software vendors among the top 20 accounting only for 5% of the worldwide market. Furthermore, U.S. software vendors cover more than 50% of the European software market due to their strong position in infrastructure software and tools markets. Although the position of U.S. players is strong in the software products market, the European providers do much better in IT service markets. This is due to software product industry being more global with leading vendors having strong positions in many key regions, while service industry is more local. The position of U.S. players in service industry is much less dominant within the top 100 IT service companies than in software product industry68.

Currently the European software industry faces several challenges. Software products are characterized by large economies of scale placing European software vendors at a disadvan-tage. While several European software companies already consider Europe as the home market and the harmonization of the markets is underway, there are still considerable legal and cul-tural barriers to cross-border business in Europe69. Another challenges that European compa-nies have faced recently is the shortage of skilled workforce. According to several European employer organizations, this problem is both qualitative and quantitative70: The shortage of trained engineers and seasoned managers is one of the trends that drives software companies to invest in emerging economies. Additionally, some of the managers of software companies are not considered to be sufficiently qualified to lead their companies to global success. Re-garding competencies, the lack of IT skills in both the production and consumption ends was also emphasized as one of the key challenges by European Software Association71. Digital il-literacy of general public is one of the biggest obstacles of growth since in the current state the home market does not generate sufficient demand for software innovations. As a consequence, Europe is at risk in being left behind in the current transition that is going on in the software industry worldwide.

As with the rest of the world, the European software industry was not spared from the im-pact of the economic downturn. Recently some European countries have been struggling with debt issues and trying get their budget deficits under control. The actions taken to decrease public spending are likely to have an impact on IT spending in both public and private sec-tors. Tax increases and budget cuts are likely to affect general economic growth and reduce the number of IT projects in the public sector. The fiscal measures are also likely to decrease the possibilities of the governments to stimulate economic growth, which is likely to have negative impact on the private sector spending as well. Consequently Gartner predicts that in addition to short-term fluctuations of the Euro, the debt crisis is likely to have adverse effects on the IT spending in Western Europe in the medium-term to long-term72. This in turn causes the GDP growth to lag in the area.

Despite the debt crisis, the enterprises seem to be healthier and the economy more stable compared to 2009. The demand for IT-services in Europe is expected to pick up first in Nordic

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Table 2.5: Software and software-based services market distribution by segment

Segments Market share 2008 Market share 2020 CAGR 08/20

Licence & Maintenance 28.6% 20.3% 1.5%

Associated IT Services 66.2% 53.6% 2.6%

Paid Web Based 5.2% 26.1% 19.2%

Total 100% 100% 4.4%

Source: PAC76

and Germanic regions, while growth in France and U.K. will be slower73. Benelux, Italy, and Spain are expected to continue perform below the market average until 201174.

In the longer-term, the European software industry is expected to follow the global trends. The emphasis is turning towards service-oriented markets, and Internet as a delivery channel is emerging fast. PAC predicts that the European software and software-based service market will be 383.5 billion Euros in size, with a 4.4% compound average growth rate75. The fastest growing segments will be software-based Internet services, while license and maintenance are losing their market share (see Table 2.5).

2.5

Software Industry in Finland

ICT and software have been focus areas in the Finnish innovation policy even to the extent that the industry has been visioned as a corner stone for the Finnish economy77. However, the current state of the software industry is a bit paradoxal. While the Finnish software industry has fared well in the international benchmarks, the growth rate has remained at roughly the same as the worldwide growth rate and the industry is still relatively small when compared to other industries or the Finnish gross domestic product. We list below some of the highlights from international benchmarks:

• The Economist Intelligence Unit78 found that Finland positions as the second most con-ductive environment for the development and growth of IT firms in the world, right after the U.S.

• The ratio of ICT R&D to GDP in Finland is the largest in the world79_{. Furthermore, in} Finland the ICT sector contributes to the GDP more than in any other country in Europe, and its share in total employment is only higher in Sweden80.

• The Economist Intelligence Unit81 ranks Finland as the fourth in the world in the digital economy rankings, reflecting the quality of a country’s ICT infrastructure and the ability of its consumers, businesses, and governments to use ICT to their benefit.

• An European Commission funded report found Finland to be one of the few “indepen-dent” countries with a healthy and self-sustaining IT industry82

• PriceWaterhouseCoopers ranked Finland in the sixth place when comparing how many companies different countries had in the global top 200 list of software product compa-nies83

• In 2009, there were seven Finnish software companies among the top 100 European soft-ware vendors84, while two years earlier the same ranking contained only four Finnish firms.

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While there are a few software product companies that have succeeded internationally and one large international IT service company that is originally from Finland and currently head-quartered in Finland, small and medium-sized firms are more characteristical for the Finnish software industry. While the large product firms and some game companies typically receive the most media coverage, an information system provider (e.g. CRM) that serves the business and public sector customers is the typical case. These companies are mostly serving the local markets, but the limited size of the home markets motivates firms to attempt internationaliza-tion. However, since information system products are often bundled with substantial amount of services, these business models do not internationalize as easily as pure product businesses. Overall, the challenges faced by the Finnish industry seem to be typical for most other Euro-pean markets. First, the home market is relatively small if considered on a national level and too fragmented if considered on the European level. Second, the mechanisms of industry consoli-dation do not favor the Finnish industry since it lacks large companies that could consolidate smaller ones through acquisitions. The maturing of the industry has been leaving fewer pos-sibilities for growth for locally operating small software firms. The processes of globalization, IT outsourcing, and offshore software development have lately further dimmed the prospects of those companies85, resulting in calls for Finnish companies to improve their capabilities in networking and partnering to cope with the situation86.

The Finnish official statistics record the software industry under the industry code 6201 “Computer programming activities” in the broader class 62 “Computer programming, consul-tancy and related activities”. The official figures for the industry class 62 and all sub industries are shown in Table 2.6. Only two years are presented, since the classification system that is now used was introduced only as recently as 2008. The new classification system presents the software industry more accurately than the old classification from 200287, however some firms selling packaged software or computer games are classified under class 58 “Publishing activities” and codes 5821 “Publishing of computer games” and 5829 “Other software publish-ing”. Moreover, some software companies have initially started within another industry and are hence classified there. While the official statistics are clearly not perfect, that does not mean that they would not be useful for following the development of the software industry.

According to the official statistics, software firms represent roughly two thirds of the IT ser-vices sector, the rest being different hardware related serser-vices. This differs from our estimates of software business accounting for half of the IT services since the official statistics record all revenue from a firm to the main industry code while our study only records revenue directly related to software business. In the official statistics, the software industry’s share88 of the Finnish GDP was about 0.8% in 1995, from which it has more than doubled to the currently es-timated 2.1%. Compared to other EU countries, this figure is little higher than the average, but, for example, in France (2.2%) and Ireland (2.7%), the percentages are higher than in Finland89_. There are approximately 33,000-48,000 people working in software development in Finland90, of which probably more than half are working outside the software industry91. The market for IT services is rather concentrated with the four largest IT service providers capturing 50% of the market. Tieto Oyj is the largest company with roughly one fourth of the market and ten largest companies have almost three fourths of the markets92. Curiously this company is offi-cially classified under the code 6203, but in the official statistics the revenue is distributed across industries judging by the fact that Tieto had revenues exceeding 1.8 Bewhile the official figure for the industry code 6203 in 2008 was only 1.2 Be. While the Finnish companies are strong in the IT services sector, Finland is currently a net importer of software licenses: The current amount of spending on licenses has remained at approximately 1 Be93 and our estimates of license revenue generated by the Finnish software firms is in the 600-700 Merange94.

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Table 2.6: Firms under industry code 62 (TOL2008) in Finland

Year TOL2008 Total number Total Total revenue % Firms Firms

of firms personnel (million euros) of GDP founded ceased

2007 62 4534 39142 5,659 3.1 928 593 6201 2807 24133 3,220 1.8 6202 1454 5304 788 0.4 6203 227 9448 1,625 0.9 6209 46 277 26 0.0 2008 62 4783 40928 6,094 3.3 1050 757 6201 3008 27122 3,927 2.1 6202 1489 5614 875 0.5 6203 229 7889 1,261 0.7 6209 57 302 30 0.0 2009 62 967 670

62 Computer programming, consultancy and related activities 6201 Computer programming activities

6202 Computer consultancy activities

6203 Computer facilities management activities

6209 Other information technology and computer service activities Source: Statistics Finland95_{, our calculations}

Similar to the rest of the Europe, the Finnish software industry was hit by the recession. According to a recent report by Marketvisio96, the IT markets contracted in Finland by 4.1% in 2009, which is close to the global average. However, when compared to other technology indus-tries, the IT markets did relatively well, as the total industrial revenue in Finland contracted by almost 30% in 200997. The effect was similar to the global markets: Hardware selling took the biggest hit, while IT-services and software performed better. Software markets grew by approx-imately 1.6% in 20099899despite the economic situation, although this is a slower pace than in the previous years. On the global scale Finnish software market did relatively well by sustain-ing a healthy positive growth rate despite the decline in global software markets. IT services, on the other hand, declined slightly in 2009100.

Despite the drop in 2009, year 2010 seems more promising. OECD101reports that although the drop in world trade impacted Finland, growth resumed in the second half of 2009, although slow in pace. The recovering foreign demand is predicted to accelerate the growth gradually while confidence is slowly restoring, although unemployment is expected to keep increasing in 2010. With the overall recovery of the economy, the IT markets are predicted to return to growth path in 2010 with about 2% rate102.

2.6

Conclusions

Currently the software industry is going through several transitions. First, we can see the pro-liferation of computing devices due to the explosive growth of smart phone software, the emer-gence of table computers, and the application enabled television sets that have been announced during the summer 2010. Second, the functionality of the software is moving from the end-user terminal to the servers run by the software provider. Third, the growth of the software markets is predicted to move more toward the developing markets rather than U.S. and Europe that

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are currently the two largest software markets. Finally, recession has typically strengthened these kinds of changes. While the software industry is predicted to grow for the foreseeable future, some of these trends are cannibalistic: It is currently more difficult to make money with packaged software for many companies than it was just a couple of years ago. Moreover, the proliferation of computing platforms can potentially cannibalize the sales of low-end computers and hence affect software sales in the near future.

A key problem faced with Finnish and other European software makers is the lack of finan-cial resources or the inefficiency of capital allocation in the software industry. While Finland invests larger share of GDP than any other country into developing the software industry, the internationally succesful Finnish software firms are few in number. The challenge of focusing the financial resources is manifests in two different forms. First, the more mature segments of the software industry are consolidating fast with U.S. software companies acting as the consol-idators by acquiring smaller companies. While being acquired can provide the current owners a lucrative exit opportunity and can provide a resource constrained firm with much needed capital, this is not a development that is entirely good for the Finnish and European software industries: The profits in the industry tend to accrue to larger firms. The second form of capital constraint relates to new firms. The clock speed of the software industry has increased substan-tially recently increasing the need for external capital in the growth phase of companies. Some of the most recent billion dollar companies (e.g. Facebook and Zynga) have received hundreds of millions of external investments. Currently the Finnish funding system cannot provide this kind of capital putting our firms at a disadvantage in markets where the size matters.

Notes

7. The reports that we reviewed use different definition for software industry: Many reports presented all the firms in the NACE rev 1.2 industry code 72 or NACE rev 2 industry code 62 as software firms. Others agreed that this is probably not correct, but used these figures as a “proxy”. The definition given by the OECD (OECD Information Technology Outlook 2008(OECD, 2008),ISBN: 978-92-64-05553-7,http:

//www.ingentaconnect.com/content/oecd/16080270/2008/00002008/00000016/9308041e) is closest to

ours. OECD divides the ICT sector is divided in eight classes: Communications equipment, Electronics, IT equipment, IT services, Internet, Semiconductors, Software, and Telecommunications. In this classi-fication, software industry does not include IT services or pure Internet companies - like Google - that generate their revenue from Internet-based services rather than software sales. The key difference be-tween the OECD definition and our definition is that we count in the software industry all the Internet firms that consider themselves as primarily software firms.

8. Soumitra Dutta and Irene Mia,The Global Information Technology Report 2009-2010, technical report (World Economic Forum, 2010),http://www.weforum.org/en/initiatives/gcp/Global%20Information% 20Technology%20Report/index.htm

9. This sub-sector is defined based on NACE 1.1 codes. This comprises hardware consultancy, software consultancy and supply, database activities, Internet, maintenance and repair, so it differs slightly from the definition of software sector we are using in this report.

10. Geomina Turlea et al.,The 2010 Report on R&D in ICT in the European Union, technical report (European Comission, 2010),ftp.jrc.es/EURdoc/JRC57808.pdf

11. ibid.

12. Richard Gordon,Forecast Alert: IT Spending Forecast, 2Q10 Update, technical report (2010),http:// www.gartner.com/it/page.jsp?id=1393414

13.The impact of the crisis on ICT and ICT-related employment, technical report (OECD, 2009),http : / / textio . co . uk / communications / oecd the impact of the crisis on ict and ict related -employment/

14. Dean Blackmore et al.,Market Share Analysis: IT Services Rankings, Worldwide, 2009, technical report (2010),http://www.gartner.com/it/page.jsp?id=1393414

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15. Blackmore et al.,Market Share Analysis: IT Services Rankings, Worldwide, 2009

16. Uko Tian et al.,Emerging Market Analysis: IT, China, 2010 and Beyond, technical report (2010),http: //www.gartner.com/DisplayDocument?ref=clientFriendlyUrl&id=1339313

17. Gordon,Forecast Alert: IT Spending Forecast, 2Q10 Update

18. ibid.

19. Richard Gordon,How will the European sovereign debt crisis impact IT spending?2010,http://blogs. gartner . com / richard gordon / 2010 / 06 / 30 / how will the european sovereign debt crisis -impact-it-spending/

20. Laura Converso,Western European IT Services Market 2009 and Forecast 2010–2014, technical report (2010),http://www.idc.com/getdoc.jsp?sessionId=&containerId=Q01S&sessionId=EB552006CE7527 07AC7B739C482F3879

21. Frederic Giron et al.,D3 – Baseline Scenario for 2020, technical report (Pierre Audoin Consultants, 2010),cordis.europa.eu/fp7/ict/ssai/docs/d3baselinescenariofor2020.pdf

22. ibid.

23. Gordon,How will the European sovereign debt crisis impact IT spending?

24. Dutta and Mia,The Global Information Technology Report 2009-2010

25.IT Market Is Still Recovering, But Volcanic Cloud Lingers Over Europe, According to Latest IDC Worldwide

Black Book Forecast, http://www.idc.com/getdoc.jsp?sessionId=&containerId=prUS22348110&sessionId=12500D749521B30EE807D392184C07BE, 2010,http://www.idc.com/getdoc.jsp?sessionId=&containerId=prUS22348110&sessionId=12500D7

49521B30EE807D392184C07BE

26. Hai Hong Swinehart, Yanna Dharmasthira, and Matthew Cheung,Market Trends: Software Market, China, 2009-2013, technical report (2010),http://www.gartner.com/DisplayDocument?ref=clientFriendlyUrl& id=1300129

27. Giron et al.,D3 – Baseline Scenario for 2020

28. ibid.

29.EuroSoftware100, technical report (PriceWaterhouseCoopers, 2008), 48,http://www.eurosoftware10 0.com/

30.Worldwide M&A Review: Q3 | Reuters.com, http://www.reuters.com/news/globalcoverage/Worldwide-Mergers-and-Acquisitions-Q3-2009, September 2009,http://www.reuters.com/news/globalcoverage/ Worldwide-Mergers-and-Acquisitions-Q3-2009

31.EuroSoftware100

32.Zephyr - Bureau van Dijk, http://zephyr2.bvdep.com/version-2010922/Home.serv?product=zephyrneo,

http://zephyr2.bvdep.com/version-2010922/Home.serv?product=zephyrneo

34. Turlea et al.,The 2010 Report on R&D in ICT in the European Union

35. Mikael von Herzen et al.,Drive for Future Software Leverage: The Role, Importance and Future Challenges of Software Competences in Finland, 262, technical report (Helsinki, Finland: Tekes, 2009),http : / / www . tekes.fi/fi/document/43459/software_competences_pdf

36. Claudio Da Rold,Survey Analysis: Outsourcing and IT Services Priorities, Europe, 2010, technical report (2010),http://www.gartner.com/DisplayDocument?ref=clientFriendlyUrl&id=1394715

37. Giron et al.,D2 – The European Software Industry

38. Jim Longwood and Jacqueline Heng,Gartner’s 10 Leading Locations for Offshore Services in the Asia/Pacific and Japan Region for 2010, technical report (2010),http : / / www . gartner . com / DisplayDocument ? ref = clientFriendlyUrl&id=1300113

39. Brian Gammage et al.,Gartner’s Top Predictions for IT Organizations and Users, 2010 and Beyond: A New Balance, technical report (2010),http://www.gartner.com/DisplayDocument?ref=clientFriendlyUrl& id=1268513

40.Problems in Europe Not to Affect IT Firms, technical report (Global Services, 2010),http : / / www . globalservicesmedia.com/Strategies-and-Best-Practices/Global-Sourcing/Problems-in-Europe-Not-to-Affect-IT-Firms/24/47/0/GS100330828187

41. Mette Ahorlu,European IT Services Forecast 2010–2013 a 2Q10 Update, technical report (2010),http: //www.idc.com/getdoc.jsp?sessionId=&containerId=Q62S&sessionId=EB552006CE752707AC7B739C4 82F3879

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42. Thomas L. Friedman,The World Is Flat 3.0: A Brief History of the Twenty-first Century(Picador, 2007), ISBN: 0312425074

43.IDC Survey Reveals Increased Awareness of the Rapidly Maturing Cloud Services Market among Asia/Pacific

CIOs in the past 12 Months, http://www.idc.com/getdoc.jsp?sessionId=&containerId=prSG22484910&sessionId=4855925BDD15F39106F655AE6BF3D998, 2010,http://www.idc.com/getdoc.jsp?sessionId=&containerId=prSG22484910&sessionId=4855925

BDD15F39106F655AE6BF3D998

44. Ben Pring et al.,Forecast: Public Cloud Services, Worldwide and Regions, Industry Sectors, 2009-2014, technical report (2010),http://www.gartner.com/DisplayDocument?ref=clientFriendlyUrl&id=1378 513

45. Sharon Mertz et al.,User Survey Analysis: Software as a Service, Enterprise Application Markets, World-wide, 2010, technical report (2010),http://www.gartner.com/DisplayDocument?ref=clientFriendlyUrl& id=1337828

47. Gammage et al.,Gartner’s Top Predictions for IT Organizations and Users, 2010 and Beyond: A New Balance

48.Europe’s Digital Competitiveness Report, technical report (European Comission, 2009)

49. M. Armbrust et al., “Above the clouds: A Berkeley view of cloud computing,”EECS Department, University of California, Berkeley, Tech. Rep. UCB/EECS-2009-28(2009)

51. Erin Traudt and Michael Fauscette,Worldwide Social Platforms 2009 Vendor Shares, technical report (2010),http://www.idc.com/getdoc.jsp?containerId=223817

52. Carliss Y Baldwin and Kim B Clark,Design Rules: The Power of Modularity(Cambridge, MA: MIT Press, 2000)

54.Worldwide Converged Mobile Device Market Projections Raised 10% for the Year, Says IDC, technical report (IDC, 2010),http://www.idc.com/getdoc.jsp?pid=23571113&containerId=prUS22486010

55. ibid. 56. ibid.

57.Worldwide Converged Mobile Device Market Projections Raised 10% for the Year, Says IDC; Roberta Cozza,

Forecast: Mobile Communications Devices by Open Operating System, Worldwide, 2007-2014, technical report (2010),http://www.gartner.com/DisplayDocument?ref=clientFriendlyUrl&id=1428830

58. Susan Kevorkian and Bob O’Donnell,Worldwide and U.S. Media Tablet 2010–2014 Forecast, technical report (IDC, 2010),http://www.idc.com/getdoc.jsp?containerId=223350

59.Media Tablets on the Up in Asia/Pacific Excluding Japan Market, Says IDC, http://www.idc.com/getdoc.jsp?pid=23571113&containerId=prHK22411510, 2010,http://www.idc.com/getdoc.jsp?pid=23571113&containerId=prHK22411510

60. Kevorkian and O’Donnell,Worldwide and U.S. Media Tablet 2010–2014 Forecast

62.nfs.gov - SRS Federal Funds for Research and Development: Fiscal Years 2004-06 - US National Science Foun-dation (NSF), http://www.nsf.gov/statistics/nsf07323/, June 2007,http://www.nsf.gov/statistics/ nsf07323/

63.OECD Information Technology Outlook 2008

64.Adapted from Giron et al.,D2 – The European Software Industry. This source describes the source as “IDATE, based on estimates from ASD, Eucomed, BERR (ex-DTI), DataMonitor, AIA, ACEA, European Commission for market size and R&D level in vertical industries, and also R&D spending and revenues from top 5 players of each industry”

65. J. Autere and A. Valtakoski, “On-demand muuttaa ohjelmistoliiketoiminnan rakenteita,”Systeemityö

22, no. 4 (2009)

67. ibid. 68. ibid.

69.EUSoft Position Paper, technical report (Syntec Informatique, 2008), 38,http://www.syntec-informatique. fr/import/ThemaTIC/ThemaTIC_22_Orientation_Paper_software_241008.pdf

70. ibid.

71.European Software Industry: looking for a competitive advantage, technical report (European Software Association, 2009),http://www.europeansoftware.org/resources.html

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72. Gordon,How will the European sovereign debt crisis impact IT spending?

73. Ahorlu,European IT Services Forecast 2010–2013 a 2Q10 Update

74. Converso,Western European IT Services Market 2009 and Forecast 2010–2014

76. ibid.

77. Olli Hietanen and Timo Nurmi,Ohjelmistotuoteliiketoiminnan klusterin visioprosessi, technical report (Espoo: Ohjelmistotuoteliiketoiminnan osaamiskeskus, 2005); Jussi Nukari and Marko Forsell, Suomen ohjelmistoteollisuuden kasvun strategiat ja haasteet, technical report, Suomen ohjelmistoteollisuuden kasvun strategiat ja haasteet (TEKES, 1999)

78.Resilience amid turmoil Benchmarking IT industry competitiveness 2009, technical report (Economist In-telligence Unit, 2009)

79. Turlea et al.,The 2010 Report on R&D in ICT in the European Union

80. ibid.

81.Digital economy rankings 2010: Beyond e-readiness, technical report (Economist Intelligence Unit, 2010),

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83.EuroSoftware100

84. Catherine Brault and Balder Verberne,Ranking of the Top 100 European Software Vendors(Truffle Capi-tal, 2009),http://www.truffle100.com/

85. K. Smolander, P. Ovaska, and P. Juvonen, “The challenges for small software firms in industry glob-alisation,”International Journal of Globalisation and Small Business3, no. 1 (2009): 73–

Software Industry Survey 2010