Innovation is alive and well in the software industry, and in this, the 26th year of the Software 500, new companies continue to rise up - more than 100 of them in this year's ranking.

Perhaps the most vital in the knowledge worker economy, the software industry continues to grow, although more in total revenue than total employees, according to the results of the 2008 Software 500 survey. Total Software 500 revenue of $451.8 billion worldwide for 2007 represents growth of 14.7% from the previous year, when Software 500 revenue totaled $394 billion.

Growth in total employees in the 2008 Software 500 rose 1.3% to 2,953,016, a more modest increase than last year's growth rate of 14.7%.

The top three companies in the ranking - IBM, Microsoft and EDS - remain the same as last year. IBM, atop the list for many years, is by far the largest employer, with 426,969 employees at the end of 2007, the ranking year. Hewlett-Packard is second with 172,000, followed closely by Accenture, with 170,000.

In revenue terms, IBM saw growth of 11.5% to $74.1 billion; Microsoft, growth of 14.1% to $44.8 billion; and EDS, growth of 4.1% to $22.1 billion.

This year's Software 500 sees more than 100 new companies on the list for the first time, and the public/private company breakdown is 58% public and 42% private.

Leaders in revenue growth naturally were smaller firms. First among them was ECi (eCommerce Industries, Inc.), which calls itself the "leader in industry-specific business software," and which targets growing and mid-size companies. ECi saw 323% growth in software revenue, to $65.5 million. Exalead, Inc., a player in advanced search techniques, saw growth of 311%, to $11.9 million. And BPO Management Services, targeting the back office of the middle market, saw growth of 250%, to $16.5 million.

Number one in revenue per employee was Miro Consulting, focusing on software license management for Oracle and Microsoft customers, with $2.2 million per employee. Next was JangoMail, making the list at No. 500, with $5.2 million in software revenue and $1.3 million in revenue per employee. And ePlus, a software reseller with a growth-by-acquisition strategy, came in at $1.1 million in revenue per employee.

Software is fundamentally a technology, and technologies require research. In general, the younger the company, the higher the percentage of revenue it dedicates to R&D. The top three leaders in R&D spending as a percent of corporate revenue were: Convera Corp., the "vertical search" company with an interesting maturation of a search approach, spending 90% of revenue on R&D; NorthStar Systems International, provider of wealth management products, which spent 74% of revenue on R&D; and Aztecsoft Ltd., a serious software engineering company, which spent 64% of revenue on R&D.

Revenue Growth Leaders

Number one among companies growing the fastest at over $1 billion in revenue is India-based Wipro Ltd., an IT services firm with 50 "centers of excellence" and a leader in our outsourcing services category at No. 18, with revenue up 127%. VMware, at No. 52, is second on the strength of its data center virtualization expertise, with 88% in growth. Third is Tata Consultancy, an Indian IT systems integration and services firm. At No. 21, Tata is a leader in our system integration services category, with revenue growth of 54%.

Open Text Corp., a content management player at No. 81, shows the most impressive gains among companies in the $100 million to $1 billion revenue range, with growth of 171%. Next in the category is Tech Mahindra Ltd., a systems integrator with a focus on telecommunications, ranked at No. 77, with growth of 136%. Third was Avocent Corp., a supplier of products to support IT infrastructure for companies of all sizes, at No. 197 and growing 131%. StepStone, offering on-demand talent management software at No. 175, grew revenue at a 112% pace.

Second to ECi in the $50 million to $100 million revenue range, Peopleclick, Inc., also focused on workforce and talent management at No. 262, grew its revenue 178%. Third was Cybernet-Slash Support, the outsourcing services firm at No. 238, which grew revenue 85%. And QlikTech International, the supplier of multi-dimensional data analysis tools for the business intelligence market at No. 223, grew its revenue 80%.

Notable among companies with $30 million to $50 million in revenue, Asure Software, a supplier of workforce management applications to small and medium businesses (SMBs) at No. 284, saw growth of 171%. Intershop Communications, a global e-commerce and online marketing supplier, was ranked No. 295 and grew its revenue 101%. And Apptix, Inc., a supplier of hosted communications services to SMBs at No. 292, saw growth of 73%.

Standing out among companies with $10 million to $30 million in revenue, along with the aforementioned Exalead and BPO Management Services, bitHeads, Inc., a nearshore software development services supplier based in Ottawa, at No. 405, saw revenue growth of 116%. For Nstein Technologies, a digital publishing and Web content management supplier at No. 352, revenue grew by 101%.

Among companies with $5 million to $10 million in revenue, Itransition Software Development, supplier of offshore software development services at No. 458, saw revenue climb 131%. At No. 429, Lithium Technologies, provider of an on-demand enterprise social media platform, saw revenue growth of 100%. And Infusionsoft, a supplier of marketing automation software at No. 468, saw its revenue grow 92%.

Software Company Business Sector Trends

Companies selecting system integration services/IT consulting as their primary business sector outnumbered all others in the 2008 Software 500, with 42 companies selecting the category. Last year, 29 companies selected it.

Given the importance of marketing and positioning to the success of a software product or services company, these shifts in primary business sector are instructive. Other business sectors increasing their numbers this year are enterprise application/data integration, storage management, vertical industry applications, e-learning, and outsourcing services. Primary business sectors companies moved away from this year include supply chain/manufacturing, business process management, customer relationship/call center management, engineering, and application development.

System Integration Services/IT Consulting

Companies based in India are moving up in this sector. Companies headquartered in India and above $1 billion in revenues include: Tata Consultancy, at No. 21; Infosys Technologies, at No. 26; and Satyam Computer Services, at No. 49. Companies headquartered in India in the $100 million to $1 billion revenue range include: Patni Computer Systems, at No. 75; Tech Mahindra, at No. 77; and Hexaware Technologies, at No. 132.

Headquartered in China and ranked at No. 255, Longtop Financial Technologies, with a focus on the financial services industry, saw its revenue grow 67%. Longtop is the first Chinese software company to be listed on the New York Stock Exchange, and was ranked as the most competitive solution provider by analyst firm IDC in its China Banking Industry forecast.

Among the category revenue leaders, Accenture grew revenue 18%; Capgemini, 26%; NTT Data Corp., 15%; Cognizant Technology Solutions, 50%; Ness Technologies, 19%; Sapient Corp, 35%; Perficient, 35%; and NewMarket Technology, 20%.

Vertical Industry Applications

Nine more companies selected this category this year than last, making 29 in total. Companies to note include Tyler Technologies, a software and services firm specializing in the public sector, which grew its revenue 13% to reach No. 157. Tyler is dedicated to helping local governments, including cities, counties, schools, and other entities, to become more efficient and responsive to the needs of citizens. Guidance Software, offering litigation and investigation support for corporations, government and law enforcement agencies, at No. 224, grew its revenue 41%.

DemandTec, Inc. targets retailers and consumer product manufacturers with a software-as-a-service platform that can optimize pricing, promotions, assortments, space and marketing. At No. 274, DemandTec saw its revenue grow 34%. Clarity Commerce Solutions, based in England, offers software products and services for business management, marketing, decision support, and IT support, and targets cinema operators, hotel and restaurant networks, pub and bar operators, sports and leisure facilities, and retailing. Clarity grew its revenue 24% to reach No. 280. Bullhorn, offering on-demand front office software for the staffing and recruiting industry, reached No. 389 with 68% growth.

Infrastructure/Network Management

Four more companies join the category this year to make 24 in total. At the top, at No. 22, is CA, Inc. the enterprise IT management leader, showing revenue growth of 4% from the previous year. Second is Juniper Networks, with its focus on consolidating services and applications across highly distributed networks. Juniper saw revenue increase 23% to reach No. 31. Other notables include Avocent Corp., focusing on digital, embedded, wireless, and mobile technologies at No. 197, with a 130% increase in revenue. Opnet Technologies, via its application performance management focus, saw 25% revenue growth to reach No. 210.

SolarWinds Network Management Solutions says it is "rewriting the rules on how companies manage their networks," and results may bear that out. The firm offers network engineers products for fault and performance management as well as for configuration and compliance. At No. 241, the company saw revenue growth of 63%. NetQoS, Inc., offering network performance management with expert capabilities, saw revenue increase 39% and reached No. 270.

NetPro Computing (now a part of Quest Software) makes its living extending and enhancing Microsoft products. Now at No. 315, the company saw 32% revenue growth. Nimsoft, angling for service level management and business service management and positioning itself against the "Big Four" (BMC, CA, HP and IBM) in the space, is finding success - evidenced by 71% revenue growth to reach No. 334. And Tideway Systems Ltd. is building its business on helping IT managers find out what's in their data centers, with products that map application relationships to physical and virtual infrastructure. The company saw revenue grow 66% to reach No. 359.

Storage Management

The leader is EMC at No. 13, showing 24% revenue growth. BMC Software at No. 45 registered 6% revenue growth on the strength of its breadth of offerings. Aspen Technology Inc., focused on optimizing process manufacturing, at No. 116, grew 16%. Other notables include CommVault Systems, Inc., with its focus on data management bringing it to No. 172 with revenue growth of 38%. FalconStor Software, concentrating on open network storage products, grew its revenue 41% to reach No. 227. DataCore Software Corp., a supplier of storage virtualization and management products, made the list at No. 415 this year.

Enterprise Resource Planning

Epicor Software Corp. grew revenue 13% to reach No. 103. The company works to extend ERP into supply chain, CRM, business intelligence, and enterprise performance management. CDC Corp., which targets medium and large enterprises with ERP, supply chain, manufacturing operations, CRM, and human resource management system offerings, grew revenue 42% to reach No. 115. SYSPRO built on its ERP base to grow revenue 6% and reach No. 242. Visibility Corp., offering products for complex product manufacturers, made the list at No. 443.

John P. Desmond is editor of Software Magazine and softwaremag.com. E-mail him at jdesmond@softwaremag.com.