SIC 7372
PREPACKAGED SOFTWARE



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.

NAICS Code(s)

511210 (Software Publishers)

334611 (Software Reproducing)

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, this rapid pace began to slow down in late 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. Although International Data Corp. (IDC) expected a more favorable overall information technology (IT) climate in 2003, the company forecast weak spending on software. However, Value Line predicted that spending on software and services would rise 7 percent in 2003, followed by slightly stronger growth during the following three years.

Factors Influencing Growth. Software demand has risen steadily, as computer hardware and software innovations have improved business productivity and information management. Sales of desktop computers and higher-end hardware directly fuel new demand for packaged software. Strong PC shipments, for instance, create a fertile market for standard desktop software packages like operating systems and productivity suites.

New product categories, especially ones aimed at the business market, can also stimulate brisk growth. Emerging business software categories include Web-based service applications companies can customize to meet their 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 drive 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 markets volume licenses (a significant source of its revenue) to companies in 2001 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, will 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, poses 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 networkbased 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. By 2002 the ASP market had still not blossomed, as some analysts had expected. However, according to Standard & Poor's, IDC predicted revenues in this sector would climb from a mere $1 billion in 2000 to an estimated $24 billion by 2005.

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 XP or network servers running Unix. Some high-end business software straddles the packaged and custom classifications; 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:

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's 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 within it include operating systems, financial and tax applications, games (including ones for game consoles like Microsoft's Xbox, Nintendo's GameBoy, 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:

Leading vendors in these areas include BMC Software, Computer Associates, IBM, Oracle, PeopleSoft, and SAP.

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. Most mainframe software was leased, however, 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 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 being sold to the public through retail outlets. By the end of 1979, Microsoft had already sold one million copies of its version of the BASIC programming language. Primitive spread-sheets and other applications began to appear as well, all of them 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 spread-sheet 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 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 micro-computers; by 1983 nearly ten times that number did.

More than 21,000 PC software packages were available by 1983. Packaged software had 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 MSDOS had been sold, carrying Microsoft's annual sales to $69 million. Other software publishers picked up steam as well. Lotus Development Corporation introduced its 1-2-3 spreadsheet in 1983 and was immediately successful; 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; 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 all but abandoned OS/2, as Windows grew 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, 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 a price war—the first in an industry that had been largely immune to serious pricing battles. Some observers groused 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; 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, to 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 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 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, Apple and IBM announced in 1991 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 highpowered scientific and technical computers working on networks. 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, though, was a lack of standardization. Many companies had released variations on 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 a 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 non-commercial 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, 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 profoundly, heavy-duty corporate packages like databases and enterprise applications were infused with e-commerce capabilities.

In the late 1990s, enterprise resource planning (ERP) software—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.

Current Conditions

Technological advances and changing market sensibilities continue to recast this ever-changing industry. For consumer and business market alike, software publishers increasingly strive to deliver smart, integrated solutions that protect and empower 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 were implementing various measures to protect their electronic data and systems. IDC predicts revenues for this category could reach $14 billion by 2005, with more than half attributed to North America. In addition to firewall applications, security software also includes encryption and antivirus programs. With more than 7,000 new viruses, Trojan horses, and worms found in 2002, these types of applications remain a necessity for computer users who share files or use 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 use middleware to enable older legacy systems for Web use, especially in the e-commerce arena. In many ways middleware works as a translator in these situations. As business processes become more and more Web centric, corporate clients turn to solutions like middleware instead of scrapping systems in which they have made significant investments over the years. Some analysts are predicting explosive growth in this category by 2005.

Application Service Providers. The Internet continues to have a major influence on the software industry. A growing number of applications being distributed via the Internet instead of through older, more traditional distribution channels, impacting the industry's business model. Application service providers (ASPs) continue to represent a major shift for software buyers and sellers alike. ASPs are expected to upset the software industry's status quo by pushing software distribution and hosting to the Internet and by overturning pricing conventions. The end result: software applications, especially for business, will likely be 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; when a new version comes out, the cycle begins anew.

The shift toward ASPs is happening gradually. 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 has favored electronic distribution of conventional licenses. By 2002 ASPs were achieving much success with Web native applications, especially so-called Web services software, which companies use to facilitate communication among disparate Web-based applications. According to IDC, e-marketplaces represented an especially lucrative market for ASPs. The company forecast spending on Web native ASPs would reach $1.5 billion by 2006, increasing significantly from $200 million in 2001.

Linux. Beginning in the mid-1990s a swell of attention was given to the Linux operating system. It has 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 lowvolume 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).

Industry Leaders

Although monopoly allegations have captured countless headlines, the industry as a whole is non-etheless 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 non-software products and services). Based on the 2002 results (calendar 2001 sales), several figures illustrate the industry's competitive breadth. Of the top 25 firms:

According to Software Magazine 's report, among the five largest software vendors were Microsoft Corp., IBM Corp., Electronic Data Systems Corp., Accenture Ltd., and Oracle Corp. In 2001 these producers collectively sold more than $118 billion in software worldwide.

Below are profiles of some of these and other companies that have led various segments of the U.S. software industry either in sales or in influence.

Microsoft. The world's largest software company, 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 the 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.

By 1998 Microsoft had 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 calendar 1998 it recorded an estimated $16.3 billion in software sales, which included a tantalizing 31 percent profit margin. For its fiscal year ending June 2002, Microsoft's corporate revenues topped $28.4 billion, with the vast majority coming from applications and operating systems.

In spite of its being declared a de facto monopoly by the judge in its antitrust case and despite widespread rumors it would be broken up, Microsoft lunged ahead in 2000 with ambitious plans to release new versions of a few of its most popular programs, most notably its Windows 2000 upgrade, in a bid to unify its divergent Windows NT and 95/98 operating systems and stave off new competition from Linux. By late 2002, the future looked very bright for the company. In addition to a host of new products, including Windows XP, the Xbox game system, and mobile computing platforms like the Tablet PC, Microsoft finally settled its antitrust suit in November, although the company still faced government scrutiny abroad.

IBM. Historically the world's largest packaged software producer, venerable IBM fell to second place in 1998, as it redirected its strategic focus and as Microsoft's sales steamed ahead full throttle. In 2001 software represented about 15 percent, or $12.9 billion, of the computer giant's $85.9 billion in global revenues. Big Blue's main packaged software offerings include operating systems for its popular S/390 mainframes and AS/400 midrange systems; DB2 and IMS database management systems and other packages for transaction processing and system management (including Tivoli Systems); and groupware and desktop applications from its Lotus division, including Lotus Notes and Domino.

Oracle. Oracle Corporation, incorporated in 1977, is 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 are among its database software competitors. Oracle's products also include customer relationship management software and other large enterprise-oriented packages, where it competes with vendors such as SAP and PeopleSoft. The firm is also noteworthy for its outspoken CEO, Larry Ellison, a sharp-tongued critic of Microsoft.

Computer Associates International Inc. Computer Associates International Inc. 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 implementing 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.

Sun Microsystems. Best-known for its speedy workstations and low-end servers, Sun is both a sizable producer of packaged software and, since the mid-1990s, a rising force for change in the industry. Headed by Chief Executive Scott McNealy, another would-be Microsoft slayer, Sun has embarked on a multi-tiered attack on conventional industry practices.

In 1996 it introduced the Java programming language, geared toward delivering platform-independent programs and functions over the Internet. In theory this would make operating systems and even Web browsers irrelevant details because Java programs would be compatible with all kinds of systems and devices, including non-computing devices.

In a bolder foray, Sun bought Star Division in 1999, a relatively minor business productivity software vendor. The significance was this: Sun planned to distribute the Star Office suite freely over the Internet—broadsiding the pricing and distribution paradigm Microsoft thrived on. In the early 2000s, software represented about 20 percent of Sun's annual revenue, which totaled $12.5 billion in 2002.

PeopleSoft. PeopleSoft is one of the top three major enterprise resource planning (ERP) vendors. ERP packages like PeopleSoft's, which came into vogue in the latter half of the 1990s, automate and integrate diverse organizational functions at large companies under a common software umbrella. Such functions might include 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. At this time, the company was developing some applications for clients in specific industries like education and health care. In 2001 PeopleSoft's annual revenues exceeded $2 billion.

Compuware. Software testing and implementation are Compuware's specialty, as it offers applications to assist developers of high-end applications in mainframe and client/server environments. Compuware's core products help software developers identify errors and debug software, but it also provides software for high-end file and data management. The firm has capitalized on recent 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.

Adobe Systems Inc. Adobe Systems Inc. is a leading provider of desktop graphics and document publishing software. Among its best-known titles are Illustrator, PhotoShop, and PageMaker, which supported overall 2001 sales of $1.2 billion. Adobe is also known for its ubiquitous Acrobat Reader, which displays and prints highly formatted documents, and its PageMill 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.

Workforce

The packaged software industry's vibrant growth has demanded a steady influx of new employees. 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 (or programmers) represent a major occupational group within the industry. In 2001 approximately 361,660 application software engineers were employed in the United States, making an average of $72,370 per year. Working in systems software were 261,520 engineers, earning an average annual salary of $74,490. 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, has also 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 they work for.

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. Wellfunded 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 in quiet office settings and work alone. 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.

Further Reading

1998 Global Software Piracy Report. Washington, D.C.: Business Software Alliance, May 1999. Available from http://www.bsa.org .

Boston, William. "Business-Software Sales Expected to Surge after Y2K Moratorium." Wall Street Journal , 3 January 2000.

Business Software Alliance. Forecasting a Robust Future: An Economic Study of the U.S. Software Industry. Washington, D.C.: 1999. Available from http://www.bsa.org .

Clark, Don. "The End of Software." Wall Street Journal , 15 November 1999.

"Computer Software and Services." New York: Value Line Publishing Inc., 29 November 2002.

"Computers: Software." Standard & Poor's Industry Surveys. New York: The McGraw-Hill Companies, 11 April 2002.

Desmond, John P. "Focus Paid Off." Software Magazine , Summer 2002. Available from www.softwaremag.com .

"Doing More with Less." eWeek , 18 November 2002.

Favell, Andy. "Hard Sell." Wall Street Journal , 6 December 1999.

Hamilton, David P. "Sun to Challenge Microsoft's Office with Purchase of Software Maker." Wall Street Journal , 31 August 1999.

Hamm, Steve. "Industry Outlook 2000: Software." Business Week , 10 January 2000.

"IDC Research: IT Spending to Rise in 2003." Nua Internet Surveys, 22 November 2002. Available from http://www.nua.ie .

"IDC Research: Software Security Revenues Rising Steadily." Nua Internet Surveys, 29 August 2001. Available from http://www.nua.ie .

"OneStat: Windows Still Dominates OS Market." Nua Internet Surveys, 11 September 2002. Available from http://www.nua.ie .

PC Data, Inc. "PC Data Releases 1998 U.S. Software Sales Statistics." Reston, VA: 27 January 1999.

"The Software 500." Software Magazine , Summer 2002. Available from www.softwaremag.com .

Taylor, Roger. "Microsoft Counters Sun with Plan to Rent Out Software on Internet." Financial Times , 30 September 1999.

"U.S. ASP Services Spending to Grow Over $1.5 Billion by 2006." ASPstreet , 6 June 2002. Available from http://www.aspstreet.com .

U.S. Department of Labor, Bureau of Labor Statistics. "2001 National Industry-Specific Occupational Employment and Wage Estimates," 21 December 2002. Available from http://www.bls.gov .

"Zona Research: Linux Take-Up Slow in Corporate Sector." Nua Internet Surveys, 13 November 2000. Available from http://www.nua.ie .



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