Final report of the 2011 software industry survey has been published
We missed our deadline of publishing the survey final report by a couple of days, but the report can be now downloaded on our publications page. This year's final report consists of an introduction chapter and nine short independet chapters about the survey results. The chapters and their main results are listed below.
Chapter 2 - Recent Developments in the Software Industry
• For the entire world IT sector, 2010 was thus more a year of recovery than new growth. OECD estimated that the ICT sector grew 3-4% in 2010 after a decline of 6% in 2009.
• In 2010, IT spending grew an estimated 5.4% and is expected to grow 5.1% in 2011.
• The European software industry continues to be very centralized with 79% of revenues coming from the top 25 companies.
• Finland continues to rank well in international benchmarks, but is still a net importer of software products.
Chapter 3 - Overview and International Analysis of the Finnish IT Industry
• In the last 25 years the Software and IT Services industry in Finland has grown more than in most of the other EU member states.
• When compared with 7 other European countries, the Finnish IT services industry fares well
– Finland is together with the United Kingdom and Sweden in the leading group regarding the share of IT services of private business value added and employment.
– The Finish Software and IT services industry is shaped strongly by small and medium sized enterprises. When compared to the other countries, there are more medium-sized entreprises.
– In 2008, there were 1184 new enterprises founded in the Software and IT Services industry in Finland. The share of newly founded enterprise on the total population of the industry, so called “birth rate”, was 14.68% and compares favourable with the other countries.
– Generally the framework conditions for the software industry in Finland are in comparably good shape.
Chapter 4 - Finnish Industry Trends
• Finnish software industry size grew by 5% in 2010 being approximately 3.2 Be.
• Growth expectations of firms are higher for 2011 than they were for 2010.
• While smaller firms have recovered their profitability levels, profitability of larger firms remains below pre-recession levels.
• Two fifths of the companies have international revenue and an third of those that do not have international revenue plan to internationalize
• Western Europe and Scandinavia are the most important target markets followed by Eastern Europe and North America.
• The analysis on customers points out that only 8% of responding companies serve consumer markets. On the contrary, a typical company produces business critical applications for vertical software markets.
Chapter 5 - Software Platforms
• Developing server software and software for the Windows (desktop) operating system are the two most common cases among Finnish software companies in 2010, and apparently also in 2012.
• DevelopingformobileplatformsintheFinnishsoftwareindustryisestimatedto become almost twice as common in 2012 (41% of firms) compared to 2010 (22% of firms)
– The most used mobile platform in 2010 was iOS specifically in iPhone development (8.5% of firms). Symbian was used by 7.9% of firms.
– By 2012, Android and Windows Phone are looking to be the most common platforms used by 24% of firms.
– The rise in popularity of Windows Phone/Mobile is the most dramatic: Only 4% of firms report that they develop software using the platform in 2010, meaning a 500% increase by 2012.
– Regarding firms that developed for Symbian in 2010, their most common diversification strategies are Windows Phone (73%) and Android (68%) when looking ahead to 2012.
– Only 36% of Symbian-developing firms in 2010 plan to continue Symbian development in 2012.
• Fast growth is also expected for the use of cloud and social media platforms, though they are clearly left behind by mobile platforms.
Chapter 6 - Impact of Nokia’s Strategy Change
• Despite Nokia’s great difficulties and related cost cutting and strategic shifts,the great majority of software SMEs seem rather unaffected by the situation.
– Less than a fourth of companies report that Nokia’s evolving situation will have some sort of direct impact on them, and 33% expect new business opportunities.
– Far fewer companies expect their revenue to decrease (5%) or the viability of their core business to be threatened (3%).
– Subsequently,more firms believe that Nokia’s situation will have an overall positive effect on the Finnish software industry than a negative one.
• Interest toward the estimated 3,400 employees that will be laid off by Nokia or its subcontractors in Finland is generally high, but not universal.
– About a quarter of all responding firms indicated that they would be likely to recruit at least one such employee.
– Firms with higher interest in these employees typically target larger business customers, are software service firms, or develop software for Meego, Oracle, embedded, or desktop Linux platforms.
– Firms that have significantly below average intentions to hire these employees include software product firms, firms that develop for Facebook, have on-demand offerings, directly target end-users, or have below 200k€ of revenue.
• It is unrealistic to assume that the Finnish software industry would immediately absorb all the extra 3,400 mostly software workers entering the job market. Attention therefore turns to other industries and entrepreneurship.
Chapter 7 - Software as a Service
Eetu Luoma, Pasi Tyrväinen, and Mikko Rönkkö
• SaaS firms are currently less profitable as they are spending more on R&D and invest in growth.
• SaaS firms sell high volumes to smaller customers, requiring different sales model.
• Most Finnish software companies’ business models are not scalable for international business, increasing scalability (=less customer-specificity) is required.
• SaaS business model could be an opportunity for small software vendors.
Chapter 8 - Consolidation
Dani Pärnänen and Mikko Rönkkö
• Profits are increasingly accumulating for the largest companies
– A trend of consolidation in the global industry.
• The number of companies continue to increase steadily
– “Industry shakeout” has yet to begin in the software industry.
• Number of domestic M&A deals dropped due to recession.
– A clear trend of recovery in the number of deals, but not in the monetary value of deals.
Chapter 9 - Exiting the Finnish Software Industry
• 22 % of surveyed companies would consider performing an exit by trade sale to be possible within the next five years.
– Other exit avenues are rated very low.
– The same pattern applies for every age class.
• Even mature companies will not choose IPO.
– Only 13.5% of the biggest (10Me +) companies by revenue would consider IPO.
• Companies that are willing to exit:
– Are oriented towards growth
– Are seeking external financing
– Have trouble finding external financing
• Companies that are willing to acquire other companies:
– Are oriented towards growth
– Enjoy good revenue
Chapter 10 - Innovations and R&D
• The R&D spendings have recovered close to the pre-recession levels in 2010 typical product firms spending around 20% of their revenue in R&D.
• Most important objective in innovation and R&D activities is improving the existing products followed by market expansion.
• Social media and online communities is the fourth most significant source of information for innovations before universities, consultants, government research centers or traditional media.
• Innovations and growth are most constrained by lack of firm internal funding and qualified personnel.
– Firms think that the firm internal funding is much severe problem than availability of external financing. We interpret this such that the firms would like to grow with cash flow only, but face challenges in doing this.
– The problems with obtaining funding seems to be most severe for firms that are planning to internationalize.
• Moving work to lower cost countries has perhaps increased slightly.
– In all firms about one in ten do development in lower cost countries, but in the largest size class about half of the firms use either nearshore or offshore development.
– Both the number of firms doing development in lower cost countries and the share of development done in these countries has incresed since the 2009 survey.