The software and services companies that did well in 2001, a year to forget for many companies selling into the IT market, were either big players entrenched in a growing market or smaller players offering pragmatic value. Many companies saw their revenues shrink during a year in which IT spending was severely constrained, stock markets valuations were low all year, the surviving dot.com companies came further down to earth, and the fourth quarter nosedived further after the events of Sept. 11.
Despite these extremely challenging market conditions, many companies did well and saw substantial growth. The Software 500 is a useful guide for IT buyers who need to track the viability of the vendors seeking their business. To view an entire year for the 500 biggest companies in the industry targeting IT buyers, is a view consistent with the needs of IT managers to have as much stability as possible over the long term, in a profession in which managing change is a primary responsibility. This is the 20th year of this ranking, which predates the birth of the personal computer and was launched early in the era of the software industry articulating itself separately from the computer hardware business. Today Microsoft has been declared a monopoly; a lot has changed.
Here is a look by primary business category of who did well in 2001 and how the categories compared with the previous year.
IT ServicesThe IT services category was chosen as the primary business category by 48 Software 500 companies, more than any other category. This leaves no doubt that the enterprise software market is trending towards generating more revenue from services over time.
With a few exceptions, the large services companies turned in positive software growth numbers for the year. Compaq Computer for example, by virtue of the acquisition years ago of Digital Equipment Corp. and its services arm, saw its software and services revenue increase 4.2% to $7.75 billion. Hewlett-Packard Co. by contrast saw its software and services revenue shrink 7.5% to $2.26 billion, but the combination of the two companies to be reflected next year will vault the new HP into the $10 billion range closer to Computer Sciences Corp.
Andrew Filipowski is doing it again at divine, inc., which saw revenue increase 353% to nearly $200 million in 2001. Divine combines technology, services and hosting to do what it describes as “extending the enterprise.” At the other end of the spectrum, Razorfish Inc. saw its revenues decline 61% to $104 million. Thing were better in the dot.com bubble days the company now emphasizes enhancing customer relationship systems and helping with knowledge management projects.
Besides divine, companies in the category seeing the most services revenue growth in 2001 were: The TriZetto Group Inc. of Newport Beach, Calif., grew 145% Atos Origin of Murray Hill, N.J. grew 49%; Infosys Technologies of Fremont, Calif. grew 48%; Anteon International Corp. of Fairfax, Va. Grew 32%; Samsung SDS of San Jose, Calif. grew 26% to $1 billion in services revenue; Logica plc of Lexington, Mass. grew 25%; and DST Systems of Kansas City, Mo. grew 22%. What’s the secret? Focus helps. Trizetto focuses on health care; Atos starts with management consulting and extends to e-business; Anteon focuses on government business; Infosys is one of the most disciplined software development organizations in the world; Samsung is going after business around SAP, Oracle and Java.
Smaller companies in the IT services category that saw healthy growth in 2001 include netNumina of Cambridge, Mass., which saw 37% growth to $19.5 million; NCS Technologies Inc. of Piscataway, N.J., which saw 21%growth to $17 million; and RK Group of Mequon, Wisc., which saw 68% growth to $700,000.
E-Business ApplicationsEstablished companies were more successful in 2001, including SAP reporting 17% growth in software and services revenue, and Software AG surprisingly showing 41% growth. BroadVision and Ariba came down to earth, with 41% and 31% declines in software and services revenue respectively for 2001. In last year’s Software 500, Ariba reported 587% revenue growth from the previous year (1999 to 2000) and BroadVision saw 258% growth in that period.
Other 2002 Software 500 e-business winners included: Integic Corp. of Chantilly, Va., growing 33% to $120 million; Digital River of Eden Prairie, Minn., growing 84% to $58 million; Bottomline Technologies of Portsmouth, N.H., growing 45% to $57 million; I-many, Inc. of Portland, Me., growing 54% to $56 million; ACTV, Inc. of New York, growing 71% to $13.7 million. Enterprise Commerce & Communications of Gardena, Calif, growing 41% to $3.4 million; Integic Corp of and DataCert of Houston, growing 207% to $2.1 million.
Application Development ToolsThings have not changed much in this mature, increasingly commodity market for development tools. Sun lists it as a primary software category, no double because of Java, so they remain the leader. Based on a comparison to last year’s reported services revenue, Sun’s revenue in this area declined 16.3% to $4.02 billion. Second place Compuware Corp. was revenues decline 12% to $1.84 billion and Natinoal Instruments reported a 6.1% revenue decline to $385.3 million.
Mercury Interactive bucked the trend with 18% growth, resulting no doubt from timely testing and e-business performance products and well-executed marketing, to $361 million. Borland, the integrated development environment tool leader, continued its trend of positive growth with 16% higher revenues to $221.8 million. Merant, a smaller company compared to last year’s Software 500 due t the sale of the MicroFocus and DataDirect lines of business, reported 6% growth for the remaining code and content management products, to $186 million in revenue.
Telelogic got in the game with growth of 71% based with the help of acquisitions to $144 million in revenue, putting the company now among the leaders in application development tools, up from $87 million in last year’s survey. The company’s Tao tool for development of real time and embedded systems is a strong product. Starbase saw dramatically higher growth, also by virtue of acquisition, to increase reenues 60% to $50.1 million. The company’s requirements-driven development approach leverages its acquisition of the CaliberRM requirements management tool, which combines with the StarTeam change management system for development teams.
Other impressive growth in the development tool category was seen by Four J’s Development Tools of Irving, Texas, improving 29% to $9.1 million on the strength of its Business Development Language, supporting multiple databases; and Teamstudio of Beverly, Mass. grew 10% to $9 million; the company offers Web to host integration tools, and tools for Lotus Notes and Domino. [where is rational?]
InfrastructureThe category has many fewer companies citing it as a primary software business sector, 35 to 47 last year, but many companies in the group are experiencing dramatic growth as the infrastructure within enterprise IT goes through some fundamental retooling in the effort to integrate Web access into the data center fabric.
While some shrinkage has occurred for a number of companies, notably Computer Associates which reports a 31% decline in software and services revenue to $4.2 billion (based on its fiscal year), other companies show dramatic growth. These include Peregrine Systems, growing 123% to $565 million, although the company is currently reviewing its earnings reports for the past three years, announced a layoff of 48% of its 2,900 employees in June, was fighting efforts by Nasdaq to delist it in July, and completed the sales of assets acquired from Harbinger Corp. and Extricity, Inc., to exit the supply chain enablement business.
NetIQ Corp. grew 122% to $224 million, with help from the acquisition of WebTrends, which last year was ranked No. 208 in the Software 500 with $61 million in revenue. The company focuses on systems management, especially for Windows and Microsoft Exchange environments, security and Web analytics. Micromuse of San Francisco saw 72% growth to $212.5 million on the strength of its Netcool suite trained on keeping networks, services and applications up and running.
Healthy growth was also seen by Aprisma Management Technologies of Portsmouth, N.H., which grew 36% to $74 million. The firm’s Spectrum suite incorporates what the company calls service level intelligence to gain visibility across devices, applications and security elements in their network, diagnose rapidly and take action. Precise Software Solutions of Westwood, Mass grew at a 102% clip to reach $55.6 million in software and services revenue. The company is finding traction with its focus on application performance management.
Other companies growing dramatically in the infrastructure category were: Websense of San Diego, 106% growth to $36 million; Verso Technologies of Atlanta, 145% growth to $29.4 million; InfoVista SA of New York (and roots in France), 137% growth to $23.5 million; Intrinsyc Software of Vancouver, B.C., 255% growth to $7.1 million; and IntelliReach Corp. of Dedham, Mass., with 91% growth to $2.2 million.
Customer Relationship Management (CRM)Companies offering CRM products continue to invest in their offerings, 22% as a group for R&D as a percent of revenue. Siebel Systems continues it dominance of the category, dwarfing the number two company with over twice as much software and services revenue. Siebel grew at a 14% pace to reach $2 billion in revenue. Acxiom Corp. also grew at a 14% clip to reach $961 million in revenue.
Other companies reporting healthy growth are CSG Systems, Inc., growing 20% to reach $477 million in revenue, and Jack Henry & Associates, growing 52% to reach $235 million. CSG focuses on billing for the communications sector, while Jack Henry concentrates on a range of applications serving banks. Pivotal Corp., reporting 80% growth to reach $95 million, concentrates on CRM for mid-sized companies. Pegasystems, with its business rules focus, saw 14% growth to reach $92 million, and Chordiant, with its mission to bridge CRM across different customer channels, saw success with 126% growth to $76 million in software and services revenue.
Also reporting impressive growth were Delano Technology Corp. with 220% growth to $30.4 million, and RightNow Technologies, with 86% growth to $21 million. Delano, which is in the process of being acquired by divnine, inc., offers products supporting intelligent interactions of multiple parties, while Right Now puts a premium on out-of-the-box CRM functionality for mid-market firms.
ERPCompanies in the sector serving manufacturing companies with packaged applications did well compared to many others in the industry. Leaders Peoplesoft, Intentia, Lawson, IFS and Unit 4 Agresso all reported strong positive increases in software and services revenue. Intentia focuses on the collaborative enterprise with a range of applications,; IFS offers “application components” for medium and large enterprises; and Unit 4 Agresso targets professional services firms, higher education, engineering and local government.
The bigger companies appeared to take business away from their competitors however as many companies saw revenues decline in 2001. These include Geac Enterprise Solutions, down 14%, Epicor Software Corp., down 22%, MAPICS, down 9%, and Cincom Systems, down 13%.
Smaller company exceptions showing growth included Exact Software North America, up 15% to $95 million, Adonix of Sewickley, Pa., up 10% to $45 million; and Component Graphics, Inc., Roseville, Calif., up 50% to $11.1 million.
SecurityThe sector that should be a no-brainer in an era of heightened awareness of all types of security threats, the strongest companies showed positive results in 2001. The leaders are Symantec, VeriSign, Network Associates, Check Point Software and RSA Security, all reporting positive or flat software and services revenue growth for 2001.
Companies not doing well in the security category ion 2001 included: Entrust, down 21% in software and services revenue; BindView, down 18%; Rainbow Technologies, down 34%; and SafeNet, down 50%.
Companies showing dramatic growth in security included: Netegrity of Waltham, Mass., 65% growth; McAfee.com Corp., showing 33% growth; Sophos of Lynnfield, Mass, 52% growth; ActivCard S.A. of Freemont, Calif., 73% growth; CyberGuard Corp, Fort Lauderdale, Fla., 30% growth; ValiCert, Inc., Mountain View, Calif., 105% growth; and Symark Software, Westlake Village, Calif., 26% growth.
Netegrity focuses on access, identify and portal management; McAfee and Sophos, on antivirus software; ActivCard, on smart card identification, especially to the military; CyberGuard, on appliance firewalls; ValiCert, on secure document delivery; and Symark, on security products for Unix platforms.
Supply ChainSupply chain software continues to be a healthy sector, with many companies in the category showing positive results. Leaders (over $50 million in software revenue) showing growth in 2001 software and services revenue include Aspect Technology, Manugistics Group, Manhattan Associates, Agile Software, Descartes Systems Group, and Vastera.
Aspen sells applications to help process manufacturers increase profitability; Manugistics is also trained on helping its customers get return on investment, with its Enterprise Profit Optimization approach with supplier relationship and supply chain management offerings; Manhattan Associates concentrates on supply chain execution with its x-SCE line, supporting real-time collaboration; Agile Software offers its Product Chain Management products, focused on collaboration, sourcing, service, and improvement; Descartes supports the extended supply chain through its Global Logistics Services Network; and Vastera, with a focus on global trade management, offers the TradeSphere Web-savvy application suite.
Companies below $50 million showing strong growth included Viewlocity, up 10%; PDF Solutions, up 76%; and HighJump Software, up 50%.
Viewlocity offers products in support of supply chain event management; PDF Solutions helps integrated circuit manufacturers increase their yield; and HighJump offer applications supporting warehouse, yard, and transportation management.
Business IntelligenceAnalyzing vast amounts of data continues to be a required activity and as such, players in the BI category held their own in 2001. Leaders (over $50 million) that showed growth in software and services revenue included Cognos, 6%; Business Objects, 19%; Informatica, 28%; Crystal Decisions, 30%; Brio, 14%; and Actuate, 17%.
Companies with less than $50M in revenue in the BI market that did well in 2001 included Insightful, 14% growth in software and services revenue; and ProClarity Corp., 107%.
Content/Document ManagementCompanies with different roots eye the opportunity to help organizations raise the management disciplines surrounding their Web sites, but results of the leaders were mixed for 2001. Those companies with over $50 million in revenue that saw software and service revenues decline included FileNet, 16% decrease, Vignette, 19% decrease; Documentum, 6% decrease; and Autonomy, 20% decrease.
Companies with over $50 million in revenue that saw increased business in 2001 included IDX Systems, 16% higher software and services revenues; Interwoven, 53% increase; Roxio, 21%; and Stellent, 198%.
Companies under $50 million in software and services revenue that saw growth in 2001 included SurfControl plc, with dramatic 196% growth; IManage, 30%; FormScape, 69%, QUMAS, 98%; and ACD Systems, 126%.
Vertical Industry ApplicationsCompanies offering application packages targeted at a specific industry, a new category this year broken out as a primary category, had mixed results. Leaders doing well were Per-Se Technologies (health care) with 6% higher software and services revenues; S1 Corp. (financial services) with a 21% revenue increase; JDA Software Group (retail), 21% increase; Peace Software (customer management for utilities and retail), 142% increase; Foliage Software Systems (software development and integration services for financial services, semiconductor, medical, and aviation industries), 8% increase; CES International (distribution utilities, such as gas and electric), 42% increase; MEDecision (health care, clinical decision support), 27% increase; T2 Systems (vehicle parking management software and services), 41% increase; and Brandt Information Services (development services to government with focus on Florida), a 35% increase.
WirelessCompanies identifying their primary software business category as wireless increased in number, from five last year to 13 this year, but the performances were volatile in this young category.
Those with improved software and services revenue included Openwave Systems, 218% growth; TeleCommunication Systems, 20% growth; Ulticom, 84% growth; Aether Systems, 68% growth; 724 Solutions, 106% growth; Catapult, 48% growth; Parthus Technologies, 87% growth; AvantGo, 47% growth; and Geoworks, 37% growth.
Openwave Systems provides boundary-free, multinetwork communications products to communication service providers, including wireline carriers, ISPs, and broadband providers; TeleCommunication Systems offers wireless messaging and location-based services; Ulticom sells service-enabling software applications to network equipment and service providers; Aether Systems seeks to empower the mobile workforce; 724 Solutions offers mobile Internet solutions for financial institutions and mobile operators; Catapult targets the telecommunications industry with testing products; Parthus develops and licenses hardware and software platforms for next-generation mobile Internet devices, including games, PDAs, and automobiles; AvantGo targets the mobile enterprise with a range of applications; and Geoworks offers software design and engineering services to the mobile and handheld device industry.
Industry Under Fire: Top 10 CIO Concerns Shift
Throughout 2001, growth in the software and service industry was basically flat with mergers, layoffs, and bankruptcies littering the landscape. The tragedy of September 11 didn’t help matters any either. In fact, the day’s events put a stop to any glimmer of a recovery. The outlook for 2002 was more promising; however, we are well into the year and are aware that the economic future may not be any different. Except for a mighty few, the software market, in general, has gone from bad to worse. Each year, The Standish Group compiles the Top 10 Concerns of CIOs. Many of these concerns drive the software market. This year’s Top 10 concerns are:
1. Disaster Management: CIOs are getting increased pressure from presidents, CEOs, CFOs and other corporate executives. Disaster Management is on the agenda for most board meetings, and auditors, trade groups and government watchdog agencies are carefully looking at corporate disaster recovery plans. Funding for better disaster recovery solutions is being done through off-budget allocation and canceling lower priority projects. Last year, disaster recovery was not even on the list.
2. Security Management: For the last two years security management has been in the third slot. It is also linked closely to disaster recovery in the minds of executives. “We never know if we are doing it right,” seemed to echo the frustrations of CIOs as viruses, break-ins and internal mischief hit many. CIOs plan to close as many entry points as possible, keep their protection up-to-date, work on better intrusion detection and beef up physical security.
3. Money Management: Last year money management was the number one issue. CIOs are becoming more conformable with smaller budgets and are either doing more with less or just doing without. Many CIOs say they are negotiating to get better deals from vendors. They complain about having no money to try new things or experiment with new technology. All projects must have a hard dollar ROI to get funded and this ROI needs to be less than 24 months.
4. Personnel Management: Two years ago personnel management issues were number one, but this issue has placed fourth both this year and last year. Getting and keeping personnel is not the issue; the issue has become training and having the skills needed to cover multiple activities. Specialization is becoming a thing of the past and staff is now required to do more types of activities. The money squeeze is causing training to be either delayed or canceled. Older staff is retiring and replacement and succession planning is coming to the forefront.
5. Project Management: With controlled budgets and tight spending, one would assume that there would be an ease of pressure to complete projects. That is not the case. While there are now fewer and smaller projects, the timeframes for the projects given the go-ahead are getting shorter and shorter. In a lot cases this is good, because fast, small projects have a greater chance of success. However, since there is lack of skilled resources it compounds the issue of managing projects. This, of course, is coupled with a multiple product mix with multiple upgrades. Most firms are implementing software packages and/or small development projects. Very few have big in-house development projects.
6. Network/Internet Management: Wireless is on the top of the CIO’s gadget wish list. Some had on-going wireless projects using PDAs, BlackBerries, and other wireless devices. CIOs said that bandwidth is insatiable -- the more they get the more they use. While the number two issue in 2000 was eBusiness, it did not show up on the list in 2001. This year, it has shown up again with companies trying to complete and improve ongoing projects. Many had internal employee web programs. Most were concerned with web access security.
7. Modernization Management: This is a real worry for many CIOs. With decreased budgets they are very concerned that they will not be able to properly maintain, upgrade and replace current technologies and applications. The CIOs said they are also faced with not being able to bring in new products that might improve their infrastructure (or if brought in products they cannot implement them appropriately) because training budgets have been cut. Since many of their system components have multiple and conflicting upgrade times, many CIOs were concerned about introducing new problems into their environment because of these conflicts.
8. Integration Management: Linking new and old applications together is a constant battle and for several years integration management has been on the list of top ten concerns for CIOs. These integration challenges have only increased since many embarked on a server and database consolidation program. This issue is coupled with the need to link partners and even competitors into an eBusiness program.
9. Goals Management: Managing expectations and aligning IT with the business has always been an issue for the CIO. The problem has only been amplified with the uncertainty of the business climate and the market upheaval. This uncertainty causes the goals of the business to change – and some of these changes can be a total reversal in direction. This brings about what we are calling “Bi-Polar IT investment strategy.” The root cause of this Bi-Polar IT investment strategy is the fact that company executives do not know if the monies put into IT are costs or investments. If CIOs could concretely point to returns of investments then company executives could make better IT decisions.
10. Vendor Management: Many CIOs are incensed with the strong-arm tactics used by software vendors to get more revenue for their accounts. The CIOs are especially unhappy with new pricing policies from the likes of Microsoft, Oracle and PeopleSoft in particular. Iffy pricing policies are expected from Computer Associates. Another concern dealt with the longevity of software companies. They feel that no software company, even Microsoft, is safe from extinction if the market turns.
With all this negative talk, why not just pack up and move to Iowa and start a goat cheese farm? The tragedies of today are the well springs of tomorrow. Because this is the greatest industry in the world with $.5 trillion a year in revenue. Because the potential is so vast and opportunities so many that the future can only be bright. We are in the threshold of a new software beginning – one that we have never seen before. The pain of today will give way to make the industry stronger and even more beneficial to mankind.
By Jim Johnson, Chairman, The Standish Group
jim@standishgroup.com |
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