The big, international software houses are currently expanding their offerings well beyond their original core activities. As technical advances are made, traditional horizontal competition between companies in the same segment of the value chain is being replaced by competition between entire value chains. This study by Deutsche Bank Research outlines key trends in the product ranges of software houses and examines the market environment for software houses on an international comparison.
In this study for Deutsche Bank Research, Stefan Heng analyses the development of software applications and the future of software product providers, highlighting several key points:
• For manufacturing companies and modern service providers, the software houses are changing from being product vendors into providers of comprehensive solutions. Strategies that span both the system software and application software segments are particularly attractive. Modularisation of the software enables a comprehensively integrated concept to be constructed.
• A broader product range opens up new potential markets. Between now and 2008, software product sales are forecast to rise by nearly 7% p.a. to EUR 125 bn in the US, by a good 5% p.a. to EUR 21 bn in Germany and by over 12% p.a. to EUR 4 bn in Eastern Europe. Global software sales during the same period are forecast to rise by 6% p.a. to EUR 270 bn.
• However, when software houses expand their range of activities this also intensifies the competition between them. The takeovers recently completed clearly illustrate this trend in the software market.
• The goal of customer relationship management (CRM), enterprise resource planning (ERP) and supply chain management (SCM) is to achieve efficient business processes. But the applications are predominantly confronted by the problem that IT structures in companies have expanded over time in most cases as stand-alone solutions and have seldom been coordinated.
• So CRM, ERP and SCM applications, that actually aim to improve efficiency, in some cases generate major inefficiencies when they interact with the complex overall system already in place. The inefficiencies of the complex IT architecture hinder broader acceptance of software applications as a whole.
• Web services are currently the focus of increasing attention among users. They allow existing systems to be integrated within tight budgetary limits. Costefficient integration will thus become the dominant trend in the software market.
• The big US software houses that specialise in standard software can further consolidate their dominant positions thanks to their economies of scale and the network effect arising from the broader base of users of their software.
• Contrary to many a forecast, the opportunities open to typical European competitors will be limited to niche segments only.