SIC 7372

PREPACKAGED SOFTWARE

This industry classification covers establishments primarily engaged in
the design, development, and production of prepackaged computer software.
Important products include operating, utility, and application programs.
Establishments of this industry may also engage in services such as
preparation of software documentation, installation of software, and
training users in the use of software. Businesses primarily engaged in
preparing software documentation or installing software on a contract or
fee basis are classified under

SIC 7379: Computer Related Services, Not Elsewhere Classified.

Businesses primarily engaged in training users in the use of computer
software are classified in

SIC 8243: Data Processing Schools.

Those primarily engaged in buying and selling prepackaged software are
classified in trade industries; those offering custom computer programming
services are classified under

SIC 7371: Computer Programming Services

; those developing custom computer integrated systems are classified in

SIC 7373: Computer Integrated Systems Design.

NAICS Code(s)

511210 (Software Publishers)

334611 (Software Reproducing)

Industry Snapshot

The packaged software industry is a key growth engine in the information
economy—and the U.S. economy in general. After roaring through the
latter half of the 1990s with annual growth rates of 15 percent, this
rapid pace began to slow down in late 2000. In 2001 a worsening economy
was exacerbated by the terrorist attacks of September 11, 2001. Together
these conditions translated into an environment of uncertainty and reduced
technology spending in the corporate sector that continued through 2002,
at which time industry revenues were approximately $150 billion. Although
International Data Corp. (IDC) expected a more favorable overall
information technology (IT) climate in 2003, the company forecast weak
spending on software. However, Value Line predicted that spending on
software and services would rise 7 percent in 2003, followed by slightly
stronger growth during the following three years.

Factors Influencing Growth.

Software demand has risen steadily, as computer hardware and software
innovations have improved business productivity and information
management. Sales of desktop computers and higher-end hardware directly
fuel new demand for packaged software. Strong PC shipments, for instance,
create a fertile market for standard desktop software packages like
operating systems and productivity suites.

New product categories, especially ones aimed at the business market, can
also stimulate brisk growth. Emerging business software categories include
Web-based service applications companies can customize to meet their
individual needs, as well as supply chain management, customer
relationship management (CRM), sales force automation, knowledge
management, security, and e-commerce suites.

Meanwhile, version upgrades drive repeat sales. Microsoft’s release
of Windows 2000, the most comprehensive overhaul of the operating system
since 1995, ushered in a new wave of upgrade sales, particularly by
corporate users. In addition, Microsoft changed the way it
markets volume licenses (a significant source of its revenue) to
companies in 2001 in an effort to simplify the upgrade process and
generate more sales in this area.

New Delivery and Pricing Options.

The most fundamental changes in the software industry, however, will be
how and when end users obtain new software—and under what pricing
terms.

Software for rent, delivered by so-called application service providers
(ASPs) over the Internet, poses a serious challenge to conventional
software distribution and pricing. Instead of buying a static version of a
program to run on their own computers, users log onto networkbased
applications that reside on the ASP’s hardware. This means the
current version is always on tap, and users are not saddled with
installation and maintenance chores. What’s more, rather than
paying a fixed license cost, users pay either a flat monthly fee or a
per-use fee. By some estimates, renting can save 20 percent or more over
conventional licensing. These savings can be found not only in less money
and time put into owning the software itself, but also in reduced or
eliminated costs of buying and maintaining servers to run network
applications. By 2002 the ASP market had still not blossomed, as some
analysts had expected. However, according to Standard &
Poor’s, IDC predicted revenues in this sector would climb from a
mere $1 billion in 2000 to an estimated $24 billion by 2005.

Organization and Structure

Software Categories.

Packaged software is a major segment of the broader software industry,
which also includes custom software development and systems integration
services. The term “packaged” is thus in contrast to
customized software. It is typically mass-produced with standard
functionalities that are expected to work across a given class of
computers, such as PCs running Windows XP or network servers running Unix.
Some high-end business software straddles the packaged and custom
classifications; it comes with standard functions and interfaces, but
requires customization for a particular company’s needs.

From a functional standpoint, there are three basic types of software:

• operating systems software, which controls how a computer operates;
• applications software, such as word processing or spreadsheet programs;
  and
• utility software, designed to perform support tasks for operating
  systems or applications.

Many software companies sell products in each of these categories.

Software Markets.

In broadest terms, the software industry serves two markets, consumers
and businesses. There’s some overlap, though, particularly between
consumers and small, home-based businesses. Productivity suites and
operating systems, for example, are common to both homes and businesses.

The U.S. consumer market represents less than 10 percent of industry
sales. Important subcategories within it include operating systems,
financial and tax applications, games (including ones for game consoles
like Microsoft’s Xbox, Nintendo’s GameBoy, and Sony’s
Playstation), educational software, and virus detection utilities.

Much larger and more fragmented, the business market is the software
industry’s bread and butter. Aside from the ubiquitous desktop
operating systems and productivity packages, business software includes
categories such as:

• application development software
• systems management utilities
• network operating systems and utilities
• database management systems
• storage management systems
• workgroup applications (groupware)
• function-oriented applications for areas such as finance, sales,
  manufacturing, logistics, and human resources

Leading vendors in these areas include BMC Software, Computer Associates,
IBM, Oracle, PeopleSoft, and SAP.

Background and Development

The packaged software industry has its origins in a 1969 U.S. Justice
Department settlement that forced IBM to sell software for its mainframe
computers separately from the hardware. IBM had included basic software
with the computer, and additional programming was generally done in-house.
With this decision, individual entrepreneurs were finally able to compete
with IBM. Small software companies sprang up, usually to offer a single
program or utility. Most mainframe software was leased, however, rather
than sold.

Early Products Flourish.

The rise of the packaged software industry was a direct result of the
appetite for software for personal computers. PCs got off the ground in
the late 1970s, as computer enthusiasts bought machines by Apple Computer,
Inc., Tandy Corporation, Atari, and Commodore. Software publishers such as
Microsoft emerged to write programming languages for them, and soon these
languages were being sold to the public through retail outlets. By the end
of 1979, Microsoft had already sold one million copies of its version of
the BASIC programming language. Primitive spread-sheets and other
applications began to appear as well, all of them created by small,
relatively unknown companies.

At this stage packaged software was something of a cottage industry, with
programs often written by individuals at home in their spare time. Because
authoring software requires little equipment, people who wrote software
programs risked only their own time and stood to gain $200,000 to $1
million if the program proved successful, as perhaps 1 percent were, as

Forbes

reported in 1983. These small companies were encouraged by hardware
manufacturers, particularly Apple, because software innovations helped
sell hardware.

Considered revolutionary, Visicalc, the first spread-sheet for
microcomputers, was introduced in 1979. Visicalc’s popularity sold
many Apple computers and raised the public awareness level of PCs in
general.

In 1981 IBM introduced its version of the personal computer and chose
Microsoft’s DOS as its standard operating system. Other hardware
manufacturers, with the notable exception of Apple, began making their
hardware compatible with the IBM system, providing standardization for the
industry. Standardization meant that software running on one
manufacturer’s equipment would run on all with minimal
modification.

IBM’s prestige also changed the image of the PC in the business
world from that of a toy to that of serious equipment, and sales of
software and hardware rose accordingly. In 1980 some 300,000 people owned
micro-computers; by 1983 nearly ten times that number did.

More than 21,000 PC software packages were available by 1983. Packaged
software had garnered about $2.7 billion worth of retail sales a year as
early as 1981, and the industry grew at a rate of nearly 50 percent a
year. Given this record of tremendous growth, the packaged software
industry and PCs began to attract a great deal of attention from the press
and investors, and a number of successful software firms soon went public.
Over $180 million in venture capital was raised by about 90 software firms
in 1983, and 20 firms went public. As the computer hardware business
became less profitable, many investors switched to software companies.

By the end of 1983, some 500,000 copies of MSDOS had been sold, carrying
Microsoft’s annual sales to $69 million. Other software publishers
picked up steam as well. Lotus Development Corporation introduced its
1-2-3 spreadsheet in 1983 and was immediately successful; some businesses
even bought computer hardware just so they could run the Lotus software.
Software houses that had been tiny entities only a few years earlier
racked up huge sales.

One of the most frequent complaints about early software was that it was
too hard to use. Making software easier to use became an important goal. A
defining advance came in 1984, when Apple introduced the Macintosh. It was
the first popular system to employ a graphical user interface (GUI), a
computing environment that relies heavily on images and visual tasks
rather than text-based commands and keywords to control the computer.
Apple also issued rules for companies writing Macintosh software to ensure
all software for Apple systems would look and behave similarly.

Microsoft followed in 1985 with its first release of Windows, a GUI that
ran on top of MS-DOS. Early versions were slow and cumbersome; sales were
poor. Microsoft worked to upgrade Windows, but it and IBM also began work
on an operating system to replace the aging DOS. Called OS/2, the new
operating system was envisioned as a more powerful graphical interface
than Windows. Other software developers began adapting their applications
for OS/2, but few of these versions were ready by the time OS/2 was
released at the end of 1987. Initial reviews and sales of OS/2 were
disappointing. By the mid-1990s IBM all but abandoned OS/2, as Windows
grew firmly entrenched as the dominant PC operating system, commanding as
much as 90 percent market share.

Competition Mounts.

With sales of PC software booming, software developers quickly branched
into new markets and ratcheted up competition. It became much harder to
launch new companies on a shoestring. Prices fell wherever similar
programs existed, while the cost of marketing new software rose
dramatically. VisiCorp, which had introduced Visicalc in 1978 on a $500
budget, spent more than $10 million by 1984 developing its VisiOn
computing environment.

Meanwhile, competition mounted as software packages for spreadsheets, word
processing, databases, and graphics proliferated. Software companies
escalated the competitive frenzy by offering discounts as well as upgrade
and trade-in deals. To make switching brands easier, software publishers
introduced conversion utilities that could read competitors’ file
formats. Some even offered on-screen tutorials specifically aimed at
migrating users from a competitor’s program, as when Microsoft Word
added special help screens tailored for WordPerfect users.

Competition also led to a price war—the first in an industry that
had been largely immune to serious pricing battles. Some observers groused
that prices of individual productivity applications, which could easily
reach $500 per user, were exorbitant. Packaged software prices were also
hard to justify given the falling prices of computer hardware; no one
wanted to spend $500 on an application for a $1,000 computer. Discounting,
often tied to attempts to win over customers from competitors’
programs, resulted in savings of as much as 80 percent off a
package’s list price. Larger publishers like Lotus and Microsoft
also introduced collections of three or four
programs, known as suites, at a much lower per-unit price. Some industry
analysts took the price war as a sign that the packaged software business
was beginning to mature.

Businesses Connect.

As corporations invested in personal computers instead of mainframes and
minicomputers, methods for linking computers to share information became
increasingly important. Packaged software could often be shared only when
the computers all ran the same operating system, but businesses often
wanted to link computers that used different operating systems. This
forced software companies to make heavy use of consultants and, sometimes,
to design custom solutions. Networking forced software firms accustomed to
mass production of software to pay increasing attention to service. As
market growth for PC software slowed to 15 percent by 1990, down from 40
percent in 1988, network applications, which run on network servers and
facilitate sharing of storage space and resources such as network
printers, also provided a new and lucrative niche for software publishers.

Until the mid-1990s, Novell, Inc.’s NetWare dominated the PC
networking market without close rival. However, as elsewhere, Microsoft
began edging market share away from Novell with its 1993 launch of Windows
NT. Windows NT gained ground quickly by having the power of
Microsoft’s immense marketing engine behind it, by integrating
easily with other Microsoft products, and by embracing innovations and new
technologies. For example, Microsoft beat Novell by almost a year in
adding Internet technology and a World Wide Web server to its network
platform.

Alternatives to Windows.

Tight integration with its ubiquitous DOS and Windows operating systems,
and aggressive marketing and distribution tactics enabled Microsoft to
dominate the applications and operating-system market, but other firms
cast about for ways to break that hold.

IBM tried with OS/2 and failed. In a separate effort, Apple and IBM
announced in 1991 an alliance to create the next-generation operating
system, running on newer, more powerful hardware. Dubbed the PowerPC, the
move was an attempt to win market share from Microsoft, but also had
potential to finally unite the IBM and Apple platforms. IBM floundered,
however, and delayed promoting the product and developing software for it.
This left its future almost entirely in Apple’s hands. By the time
the PowerPC was released in the mid-1990s, Apple was far too weak to
compete head-on against Windows. Instead of becoming the next-generation
PC, it quietly became the next-generation Macintosh.

In the meantime, Unix had proven a more viable alternative to Windows in
some contexts. Originally designed in the 1960s by AT&T for
telecommunications networks, Unix gradually became the standard for
highpowered scientific and technical computers working on networks. As
workstations from Sun Microsystems and Silicon Graphics caught on in the
1980s, Unix slowly entered the mainstream. Among its strengths was the
ability to run several programs simultaneously and display them on large
monitors with crisp graphics. Indeed, few operating systems matched
Unix’s power and stability.

One disadvantage of Unix, though, was a lack of standardization. Many
companies had released variations on it, and often applications written
for one version did not work on another. Moreover, while a great deal of
Unix software existed for science and engineering applications, few
packages were available for the wider market.

In 1991 AT&T created Unix Systems Laboratories (USL) to manage the
Unix operating system. The following year Novell bought USL from
AT&T in a bid to take control of Unix. Another salvo in
Novell’s growing battle with Microsoft, the acquisition gave Novell
an operating system of its own. Novell quickly moved to widen the
program’s appeal, trying to standardize its competing versions and
link it with NetWare.

Fearing Microsoft’s impending release of NT, a half dozen major
Unix companies—IBM, Hewlett-Packard, Sun Microsystems, Santa Cruz
Operation, USL, and Univel—agreed in 1993 on a standardization
scheme. The alliance released specifications for the Unix interface and
other key elements of the operating system, while allowing companies to
pursue their own variations. In the months leading up to Windows
NT’s debut, many of these companies released new versions of Unix.

Despite such countermeasures, Windows NT enjoyed qualified success. It
failed to displace Unix and other networking platforms, but developed a
user base on small and medium-sized networks. The workstation version
likewise generated modest sales as a more robust and stable flavor of
Windows for desktop machines. By 1998 some market watchers estimated that
NT was the operating system of choice on more than a third of new servers.
Still, worldwide it was believed to hold less than 14 percent of the
server market, where Unix versions continued to prevail.

Internet Changes Industry.

While Windows NT made headway in corporate information technology (IT)
departments in the mid-1990s, a vastly more visible contest emerged over
the Internet. The public computer network stemmed from a 1969 project of
the U.S. Defense Department, and had been used by scientists and
researchers for years. The Internet gained popularity with its ease of
exchanging text messages and files, and more importantly,
with its expansive collection of linked graphical pages known as the
World Wide Web.

It all required software. In 1994 Netscape Navigator was released as the
first commercial Web browser. Developed by Marc Andreesson, a computer
science undergraduate who masterminded the non-commercial Mosaic browser,
Netscape was distributed mostly as a free download. This proved a shrewd
tactic to gain market share and draw attention to the fledgling
company’s Web server products. Within a year, Netscape controlled
some 80 percent of the burgeoning browser market. Other firms, including
many start-ups, released software for Internet tasks like managing e-mail,
browsing news groups, and authoring Web pages.

Microsoft countered Netscape in 1995 with the launch of its Internet
Explorer, based primarily on licensed Mosaic code. Like Netscape, Internet
Explorer was given away online and bundled free with other Microsoft
programs. Widely seen as an inferior product, Explorer caught on slowly at
first. Six months into its release, it held just 7 percent of the market.

Then, in a stunning feat, Microsoft reached an accord in 1996 with America
Online, the largest online consumer service, to feature Internet Explorer
as AOL’s preferred browser. The deal surprised most observers
because AOL already had an alliance with Netscape. AOL’s
collaboration and Microsoft’s clout with PC makers helped the
software giant pry its way into the browser market, claiming 20 percent at
the end of 1996. It went on to capture more than 40 percent by late 1998,
when, in another unexpected turn, AOL agreed to buy Netscape.

Elsewhere in the industry, Internet functions were increasingly integrated
into many types of applications. On the simplest level, developers made
common programs like word processors and spreadsheets more Internet
friendly by allowing Web content to be imported and exported. More
profoundly, heavy-duty corporate packages like databases and enterprise
applications were infused with e-commerce capabilities.

In the late 1990s, enterprise resource planning (ERP) software—used
by large companies to integrate diverse business functions like finance,
logistics, and human resources, under a common, powerful, Internet-enabled
interface—was one of the fastest-growing industry categories. These
packages improved corporate information management and provided timely,
high-level, organization-wide information for top management. However, in
1999 ERP sales faltered. Growth that year slipped to 12.5 percent, an
otherwise healthy level for many industries, while individual
companies’ revenues and profits sank well below expectation. Some
observers pronounced ERP dead. That was premature, but ERP, despite its
promise, was notorious for long, problematic implementation cycles before
executives could bask in the real-time corporate intelligence these
systems were supposed to deliver. Fears about computer glitches in the
changeover to the year 2000 only aggravated ERP’s problems. By the
early 2000s, this category was still relatively strong, especially in the
manufacturing sector. However, ERP’s woes demonstrated the software
market’s rising aversion to uncertainty and imperfection.

Current Conditions

Technological advances and changing market sensibilities continue to
recast this ever-changing industry. For consumer and business market
alike, software publishers increasingly strive to deliver smart,
integrated solutions that protect and empower users, and make them more
productive—while minimizing or eliminating the hassles associated
with ramping up new software applications.

Among the leading software categories in the early 2000s were security
software and middleware.

Security Software.

By summer 2001 revenues in the security software sector already were
experiencing strong growth. According to IDC, the worldwide market for
security software totaled approximately $5 billion in 2000, a 33 percent
increase from the previous year. By late 2002 security was an extremely
hot topic across many industries. In the wake of the terrorist attacks
that took place on September 11, 2001, and a number of subsequent,
undefined threats, companies were implementing various measures to protect
their electronic data and systems. IDC predicts revenues for this category
could reach $14 billion by 2005, with more than half attributed to North
America. In addition to firewall applications, security software also
includes encryption and antivirus programs. With more than 7,000 new
viruses, Trojan horses, and worms found in 2002, these types of
applications remain a necessity for computer users who share files or use
the Internet.

Middleware.

Middleware was an emerging software category in the early 2000s that
enabled communication between a company’s disparate network of
computer systems. For example, some firms use middleware to enable older
legacy systems for Web use, especially in the e-commerce arena. In many
ways middleware works as a translator in these situations. As business
processes become more and more Web centric, corporate clients turn to
solutions like middleware instead of scrapping systems in which they have
made significant investments over the years. Some analysts are predicting
explosive growth in this category by 2005.

Application Service Providers.

The Internet continues to have a major influence on the software
industry. A growing number of applications being distributed via the
Internet instead of through older, more traditional distribution
channels, impacting the industry’s business model. Application
service providers (ASPs) continue to represent a major shift for software
buyers and sellers alike. ASPs are expected to upset the software
industry’s status quo by pushing software distribution and hosting
to the Internet and by overturning pricing conventions. The end result:
software applications, especially for business, will likely be cheaper and
easier to manage.

Under the traditional model, users buy software licenses at a set price
per user and install the programs, typically from CD-ROM, on their
machines. Usually licenses cover only the current version; when a new
version comes out, the cycle begins anew.

The shift toward ASPs is happening gradually. Microsoft, which previously
derided the ASP model, served as a catalyst of sorts in 1999 when it
announced guarded intentions to offer its market-leading Office suite for
rent. The software giant has favored electronic distribution of
conventional licenses. By 2002 ASPs were achieving much success with Web
native applications, especially so-called Web services software, which
companies use to facilitate communication among disparate Web-based
applications. According to IDC, e-marketplaces represented an especially
lucrative market for ASPs. The company forecast spending on Web native
ASPs would reach $1.5 billion by 2006, increasing significantly from $200
million in 2001.

Linux.

Beginning in the mid-1990s a swell of attention was given to the Linux
operating system. It has achieved much of its popularity simply by being
an alternative to Microsoft’s operating systems—an
alternative that undermined Microsoft’s traditional closed-code
licensing paradigm. Inspired by Unix, Linux is an open-source (public
domain) operating system for individual PCs and network servers. As such,
different Linux packages are offered by a number of vendors, and the
software is inexpensive or even free. This means Linux generally is not
subject to the same kinds of licensing restrictions as most commercial
programs.

Although the idea of a Linux-Windows horse race may be compelling, in
business settings Linux is not likely to be a full replacement for
Windows. According to a study conducted by Zona Research, by the early
2000s the operating system was still being harnessed for lightweight jobs
like departmental networking and lowvolume Web serving. Linux performs
well in these settings and can save thousands of dollars even in a small
deployment. Corporate IT departments in fact have grown used to running
multiple operating systems for different functions. Just as NT often
proved to supplement, rather than supplant, NetWare and Unix systems, so
too is Linux likely to find a place alongside one or more other operating
systems in a typical company network. By late 2002 a report from OneStat
revealed that Linux accounted for a mere 0.26 percent of operating systems
worldwide, compared to Apple (1.43 percent) and Microsoft Windows (97.46
percent).

Industry Leaders

Although monopoly allegations have captured countless headlines, the
industry as a whole is non-etheless fairly fragmented. In one of the most
comprehensive studies of its kind, each year

Software Magazine

ranks the world’s leading 500 software producers by their
estimated software revenues (thereby excluding sales of hardware,
integration services, and other non-software products and services). Based
on the 2002 results (calendar 2001 sales), several figures illustrate the
industry’s competitive breadth. Of the top 25 firms:

• Three boasted more than $20 billion in annual software sales
• Three boasted sales between $10 billion and $13.3 billion
• Nineteen reported sales between $2 billion and $7.7 billion In addition,
  about 62 percent of the 500 companies listed had revenues less than $100
  million, and more than one-third reported a decline in revenue from
  2000.

According to

Software Magazine

‘s report, among the five largest software vendors were Microsoft
Corp., IBM Corp., Electronic Data Systems Corp., Accenture Ltd., and
Oracle Corp. In 2001 these producers collectively sold more than $118
billion in software worldwide.

Below are profiles of some of these and other companies that have led
various segments of the U.S. software industry either in sales or in
influence.

Microsoft.

The world’s largest software company, Microsoft was founded in
1975 by Bill Gates and Paul Allen. The software leviathan got its first
major break in 1981, when IBM chose it to supply an operating system
(MS-DOS) for IBM’s pathbreaking first PC. As IBM’s desktop
computer became accepted as the industry standard, so did
Microsoft’s operating system. Microsoft quickly began offering
application packages as well, and became a major player in the Macintosh
software market during the 1980s. Microsoft’s Windows graphical
interface, which partly emulated the Macintosh interface, became another
standard in the IBM-compatible market, lifting the firm’s sales to
$1 billion by 1990. As Microsoft shored up its applications software line,
which would eventually be united under its flagship Office productivity
suite, the firm grew increasingly aggressive with hardware manufacturers
about licensing its software according to its exacting terms. This later
became fodder for the antitrust litigation that dogged Microsoft.

Microsoft’s aggressive tactics and phenomenal profit margins during
the early and mid-1990s kept it lumbering forward in the software markets.
The company developed a knack for neutralizing competitors through a
combination of product innovations, application integration and bundling,
strategic alliances, and marketing prowess.

By 1998 Microsoft had unseated IBM as the world’s largest software
maker and held a commanding lead in the markets for PC operating systems,
desktop productivity applications, and Internet browsers, and was zeroing
in on categories like software development applications, e-mail
applications, and business diagramming applications. In calendar 1998 it
recorded an estimated $16.3 billion in software sales, which included a
tantalizing 31 percent profit margin. For its fiscal year ending June
2002, Microsoft’s corporate revenues topped $28.4 billion, with the
vast majority coming from applications and operating systems.

In spite of its being declared a de facto monopoly by the judge in its
antitrust case and despite widespread rumors it would be broken up,
Microsoft lunged ahead in 2000 with ambitious plans to release new
versions of a few of its most popular programs, most notably its Windows
2000 upgrade, in a bid to unify its divergent Windows NT and 95/98
operating systems and stave off new competition from Linux. By late 2002,
the future looked very bright for the company. In addition to a host of
new products, including Windows XP, the Xbox game system, and mobile
computing platforms like the Tablet PC, Microsoft finally settled its
antitrust suit in November, although the company still faced government
scrutiny abroad.

IBM.

Historically the world’s largest packaged software producer,
venerable IBM fell to second place in 1998, as it redirected its strategic
focus and as Microsoft’s sales steamed ahead full throttle. In 2001
software represented about 15 percent, or $12.9 billion, of the computer
giant’s $85.9 billion in global revenues. Big Blue’s main
packaged software offerings include operating systems for its popular
S/390 mainframes and AS/400 midrange systems; DB2 and IMS database
management systems and other packages for transaction processing and
system management (including Tivoli Systems); and groupware and desktop
applications from its Lotus division, including Lotus Notes and Domino.

Oracle.

Oracle Corporation, incorporated in 1977, is among the world’s
largest vendors of database management systems software, which is used to
run high-end corporate data systems. Oracle recorded sales of $9.7 billion
in 2002, at which time its database applications were growing at an annual
rate of approximately 15 percent. In this area of the software industry,
IBM and Microsoft are among its database software competitors.
Oracle’s products also include customer relationship management
software and other large enterprise-oriented packages, where it competes
with vendors such as SAP and PeopleSoft. The firm is also noteworthy for
its outspoken CEO, Larry Ellison, a sharp-tongued critic of Microsoft.

Computer Associates International Inc.

Computer Associates International Inc. began offering utilities for
mainframes in 1976 and grew by buying programs from other software firms.
In the mid-1980s it pushed into the market for PC applications software.
At the beginning of the 1990s, the firm, best known for its Unicenter
system management package, beefed up customer support and began
implementing a plan to link different types of computer systems and allow
all its programs to communicate with each other. By 2002 the company was
especially focused on e-business applications. That year sales totaled
almost $3 billion, 75 percent of which was attributable to software sales.

Sun Microsystems.

Best-known for its speedy workstations and low-end servers, Sun is both a
sizable producer of packaged software and, since the mid-1990s, a rising
force for change in the industry. Headed by Chief Executive Scott McNealy,
another would-be Microsoft slayer, Sun has embarked on a multi-tiered
attack on conventional industry practices.

In 1996 it introduced the Java programming language, geared toward
delivering platform-independent programs and functions over the Internet.
In theory this would make operating systems and even Web browsers
irrelevant details because Java programs would be compatible with all
kinds of systems and devices, including non-computing devices.

In a bolder foray, Sun bought Star Division in 1999, a relatively minor
business productivity software vendor. The significance was this: Sun
planned to distribute the Star Office suite freely over the
Internet—broadsiding the pricing and distribution paradigm
Microsoft thrived on. In the early 2000s, software represented about 20
percent of Sun’s annual revenue, which totaled $12.5 billion in
2002.

PeopleSoft.

PeopleSoft is one of the top three major enterprise resource planning
(ERP) vendors. ERP packages like PeopleSoft’s, which came into
vogue in the latter half of the 1990s, automate and integrate diverse
organizational functions at large companies under a common software
umbrella. Such functions might include finance and human resources,
operations, and supply chain management. As corporate interest in ERP
systems surged in the mid-to late 1990s, PeopleSoft’s revenue more
than doubled. By the early 2000s many of PeopleSoft’s applications
were Web based. At this time, the company was developing some applications
for clients in
specific industries like education and health care. In 2001
PeopleSoft’s annual revenues exceeded $2 billion.

Compuware.

Software testing and implementation are Compuware’s specialty, as
it offers applications to assist developers of high-end applications in
mainframe and client/server environments. Compuware’s core products
help software developers identify errors and debug software, but it also
provides software for high-end file and data management. The firm has
capitalized on recent trends in the high-end corporate market by
positioning its products as complements to large companies’
deployment of ERP and e-commerce applications. The company’s
revenues more than doubled between fiscal years 1996 and 1998, and by 2002
totaled $1.73 billion.

Adobe Systems Inc.

Adobe Systems Inc. is a leading provider of desktop graphics and document
publishing software. Among its best-known titles are Illustrator,
PhotoShop, and PageMaker, which supported overall 2001 sales of $1.2
billion. Adobe is also known for its ubiquitous Acrobat Reader, which
displays and prints highly formatted documents, and its PageMill Web
authoring suite. In 1999 Adobe launched a major new desktop publishing
title, In Design, aimed squarely at the high-end market dominated by Quark
Inc.’s QuarkXpress.

Workforce

The packaged software industry’s vibrant growth has demanded a
steady influx of new employees. Indeed, industry employment nearly tripled
during the 1990s. On average, according to government figures, the
industry boosted its labor ranks by about 12 percent each year from 1990
to 1999.

Software engineers (or programmers) represent a major occupational group
within the industry. In 2001 approximately 361,660 application software
engineers were employed in the United States, making an average of $72,370
per year. Working in systems software were 261,520 engineers, earning an
average annual salary of $74,490. Other major occupational groups in the
software industry include project/product managers, graphic designers,
technical writers and editors, and technical support staff. In addition to
its regular employees, the industry also relies heavily on contract
programmers and technical consultants, whose work may be classified under
other industries for statistical purposes.

The industry’s fast expansion, coupled with a tight labor market,
has also yielded above average compensation for many of its workers, who
tend to be highly skilled and educated. Still, pay varies considerably by
workers’ experience and skills, as well as by what kind of company
they work for.

In addition to financial compensation, employees at publicly traded
software companies, especially small firms, may also receive shares of
company stock or stock options as compensation. This practice is famous
for making young and relatively low-level employees wealthy, if the firm
does well in the stock market. Wellfunded start-ups may likewise offer
more generous salaries to attract top talent from established outfits,
whereas large companies tend to splurge more on benefits packages, on-site
amenities, and other kinds of perks.

Working conditions for programmers and other industry employees are
generally good. Because they require concentration do to their jobs, most
programmers work in quiet office settings and work alone. However, as in
other professions, programmers are working increasingly out of their
homes. The hours at some firms are the traditional nine-to-five, but from
its earliest days, the software industry has been known for its long
hours.