Smart people can debate a long time about how to segment the software and services industry. IT computer and financial-analyst firms spend a lot of time doing it. The Software 500 ranking starts out based on revenue, from software license sales and from services. EDS gets 100% of its revenue from services. Microsoft, by contrast gets nearly 100% of revenue from software license sales.

We also ask each responding company to cite its primary software business sector. We began offering 34 options this year. We then fine-tuned based on those results and added a few more categories: business process management (BPM), healthcare and retail among them. We now have 38 categories.

The biggest category movement in this year’s survey from last year’s was away from e-business applications/services/tools (35 companies in 2002; 17 in 2003) and more into system integration services (a revised category in 2003, with 27 companies). [Editor’s Note: We do update the categories every year.]

Overall market conditions were challenging again in 2002. Some 46% of respondents reported declining revenue, compared to only 34% in last year’s Software 500 listing.

Overall, the 2003 Software 500 reported $289.7 billion in revenue, compared to $301.8 billion in the 2002 Software 500. That’s a decline of 4%—unusual in the history of this ranking. The number of people employed in the Software 500 was 2,173,941, which represents a reduction of 18%.

Here is a look at selected primary business categories in the 2003 Software 500.

Infrastructure/Network/Performance Management

Computer Associates maintained the top position in the category, despite a revenue decline of 29% for the period. Other leaders in the category also had challenging years. BMC reported a 27% decline, MicroMuse a 39% decline, Keynote a 17% decline and Tarantella a 64% decline.

Those reporting positive revenue growth included: Mercury Interactive, 11% increase in revenues; NetIQ, up 37% with a strong security and systems-management focus; Novadigm, up 24%; Opnet Technologies, up 36%; System Management ARTS, Inc., up 80%; ON Technology, up 49%; and IntelliReach Corp., building on e-mail management to move up 98% in revenue. (ON Technology was acquired by Symantec for $100 million in cash in October; that merger is not reflected in these results.)

The critically important infrastructure-management segment will be closely watched in 2004.

Application Development/Testing/Lifecycle Tools

Companies doing well include: Borland, up 10%, with its application lifecycle focus and strength in the Java development community; ASG, with its focus across a range of IT concern areas including applications, security, operations and infrastructure; Precise Software (acquired by Veritas in July 2003), up 37% for the period; Wise Solutions, a software-installation package supplier, up 58%. (Wise was acquired by Altiris Inc. in December 2003 for approximately $43 million.)

Financial Applications

The sector saw positive growth in revenue from SunGard Data Systems, up 35%; Misys plc, which targets select vertical markets, up 24% in revenues; Sage Group plc, targeting small and medium-sized businesses, up 21%; Intuit, maker of QuickBooks, up 10%; SS&C Technologies, which targets seven vertical financial-services markets, up 11%; Verso Technologies, targeting enterprise and carrier networks, up 50%; and Necho Systems, targeting expense management, up 50%.

Security

Many companies had positive growth in a sector fueled by the need for companies to comply with a range of new government regulations governing privacy and financial reporting, and by the need to combat the increasing sophistication of hackers who are extending their attacks beyond networks and systems software to applications.

Highlights in the sector include Symantec, which saw revenues increase 31% in 2002 on the strength of its diversifying beyond its strengths in antivirus and firewall software; SuftControl, up 39% on the strength of its spam- and e-mail-filtering thrust; NetScreen, up 60% in revenue on the strength of its integrated security product approach and its hardware appliances; ActivCard, up 78% on the strength of its identity-management product line and drive to consolidate multiple credentials into a single one; SafeNet, up 58% with its VPN product line; Guidance Sofrtware, up 23% on the strength of forensics software; V-One Corp., up 40%, also on VPN products; and Citadel Security Software, up 116% with its automated vulnerability-remediation and policy-enforcement products.

Customer Relationship Management

It was not an up year for the CRM sector. Exceptions were Axcion Corp., up 11% with its blend of data, technology and services for customer and information management; Witness Systems, up 8% with support for customers across multiple channels; SupportSoft, up 35% with its real-time service-management approach; Firstwave Technologies, up 118% on its Web-based “customer-first” CRM position; and Valassis, up 64% with its relationship management for retail and consumer industries.

System Integration Services

The category has a mix of results. Companies reporting strong positive revenue growth included: Atos Origin, up 19% with its full-service approach covering design, build and operations; Affiliated Computer Services, up 48% with a focus on business process outsourcing; Level 3 Communications, up 102% on the strength of its move into IT infrastructure outsourcing; Infosys Technologies, up 32% with its global delivery model and highly-disciplined software development process; Cognizant Technology Solutions, up 29% with its application and business-process outsourcing strengths; and Kanbay, up 19% with its focus on the card-services, banking, insurance and securities markets.

Supply Chain

In the supply chain business, Manugistics did well with a 16% increase in revenue, on the strength of its demand and supply chain products and its focus on aerospace and defense industries; Manhattan Associates grew 13% with its trading-partner, transportation and warehouse-management products; Descarte Systems saw 19% from its focus on real-time control of inventory and strength in the packaged consumer-goods industry; Vastera grew 18% with its global trade management focus; Verticalnet Software was up 21% in revenue with its spending-analysis approach; Camstar Systems was up 29% on the strength of its manufacturing execution and performance products; HighJump Software was up 39% thanks to its supply chain products enabled with radio frequency identification features; Viewlocity’s revenue was up 50% on its adaptable supply chain approach; Avexus was up 95% due to its focus on the manufacture and maintenance of complex assets; and Profile Systems was up 111% with its catalog and vendor-managed inventory offerings.

Content/Document Management

In the content/document management market, Documentum had a strong performance, with revenues increasing 21%. The company made several acquisitions in 2002 to round out its product line—for instance, expanding into digital asset management. In October 2003, EMC announced the acquisition of Documentum. ScanSoftware was up 67% with its optical-scanning and speech-recognition focus. Kofax posted an increase of 36% with its scanning and document-capture approach; QUMAS was up 26% with its focus on compliance management; activePDF was up 49%, finding success with its server-side PDF tools; and Paperclip Software’s revenues increased by 16% on the strength of its cost-effective, PC-based document-management products.

Collaboration/Project Management

The collaboration and project-management sector made some gains in 2002—perhaps in the case of collaboration software due to businesses trying to save time and money on travel. The big winner was Webex Communcations, which saw its revenue grow 72% from sales of its Web conferencing and online meeting services. Also doing well was PlaceWare, now a Microsoft company, with revenues up 42% on the strength of its Microsoft Office Live Meeting Web conferencing product. Liberate Technologies’ revenues were up 77% from its online meeting-collaboration software. Forgent Networks made inroads with its meeting-management software focus, started in 2002. Another company that did well was VCON, up 22% with its videoconferencing products.

Companies in the project-management space held their own, with Primavera Systems dipping only 3% in revenues and Artemis International Solutions showing 2% revenue growth. Both companies offer products supporting enterprise project portfolio management.

Healthcare

Companies in the healthcare software and services segment showed positive results in the 2003 Software 500. The largest is Cerner, with $617 million in 2002 software and services revenue and revenue growth of 40% from the previous year. Cerner focuses on efficient healthcare delivery and business management. Others doing well were: IDX, up 22%; Trizetto Group, up 22%; iSOFT Group plc, up 96% to $88 million in revenue; and Landacorp, up 45% with its population-focused health-management product.

Business Process Management

Hyperion is the leader in this segment, at $501.7 million in revenue—a mere 1% decline from the previous year’s revenue. Next is Pegasystems, up 2% in revenue. Pegasystems recently was cited by Gartner Group as a visionary leader in the “pure play” BPM market. Logical Apps was up 39% with its business-rule and process-rule engine products.

John P. Desmond is editorial director of Softwaremag.com. He can be reached at jdesmond@softwaremag.com.