Text 6. Development Trends in Software Industry

As financial institutions are by far the largest customer segment for the software industry, generating an estimated 30% of all software industry income, the credit crisis impacted software companies around the globe. However the impact was not as severe as some analysts expected.
The general assumption that the software industry is a very cyclical industry implies that software companies would see a decline even bigger than the financial industry, but that assumption is wrong. Software companies nowadays depend mostly on recurring subscription, support and maintenance revenue streams. The maintenance/subscription revenue stream is generally based on multi-year contracts and hence a very stable source of income. This explains why the credit crisis did not cause much mayhem among the Software Top 100, although there were many instances of modest single digit revenue declines due to decreased license sales.

With a looming dollar crisis ahead, a similar financial picture is expected in the coming two years as it was during the credit crisis. During the past 12 months we've seen an increase in software patent deals and software patent battles. As most of the new patent requests being filed at the US Patent Office are software patents, patents have become a business themselves.

As the industry has matured, and innovation has become incremental instead of disruptive, new patents generally have less meaning then the ones posted in the early days. Hence the patent war has shifted from filing as many patents as possible to buying as many patents as possible. Recent multi-billion dollar patent deals can be seen in this light, and they are expected to be only the beginning. Buying patents will become a regular item in the software industry, and it will be a major cash outflow in coming years. As patents are seen as investments, they will not have an immediate effect on company profits, however in the long term this effect will be undeniable.

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