The Industry Handbook: Software Industry

Software is differentiated from hardware as the set of rules that allow computing services to be conducted on the physical device—the hardware. The software industry is really only a small part of the overall computer programming activity that takes place in the technology industry sector.

Not all software is created or traded between software producers and software end consumers. Many software programs created in-house for very specific uses are never sold outside of the company.

Since the industry’s beginning in the 1950s, it has gone through a number of revolutionary changes, from simple punch-card programming services offered to those few companies that had computers in 1955 to revolutionary trends such as software as a service (SaaS), device programming for the Internet of Things (IoT) and open-source alternatives acceptance by major companies.

Software Sectors

The software industry can be separated into four main categories:

1. Programming services
2. System services
3. Open source
4. SaaS

The following describes the categories of business software used in the industry.

Programming Services

The programming services sector has historically been the largest sector and includes names such as Microsoft Corporation (MSFT), Automatic Data Processing, Inc. (ADP), Oracle Corporation (ORCL), and SDC Technologies, Inc. These companies often pioneered solutions to needs by businesses to analyze data, store and organize data, or provide programs to run machinery.

System Services

Although programming was the largest software sector early in computer history, system services grew rapidly through the 1960s and 1970s and then exploded in the 1980s with the rise of personal computers (PCs) and the need for an encompassing operating system such as Microsoft’s original disk operating system (DOS) that was launched in 1981.

Open Source

Programming or software engineering has become a huge in-demand profession with the growth of the Internet, cloud systems, and businesses willing to venture more willingly into open-source environments such as the Linux operating system. Open source refers to a code base that was created and is free to acquire. However, most businesses require changes to be made to the code bases to suit their needs. Another open-source code base is the Android operating system.

Software as a Service (SaaS)

With the rise of cloud computing and the movement of most businesses large and small to the cloud, SaaS has become more popular than system software to suit businesses' specific needs. This software is kept on the creators' servers and clients access the software through the Internet, also referred to as the cloud. All upgrades, patches, and issues are handled on the creator side with a subscription-based model for the client.

The SaaS sector is forecast for continuous growth over the next decade, representing a CAGR of almost 11% by 2025. By the end of 2026, businesses will increase "public cloud spending" by over 45% and will incorporate at least one component of cloud computing within their information technology (IT) infrastructures, such as infrastructure as a service (IaaS), platform as a service (PaaS) or business process as a service (BPaaS).

Market Share for SaaS

SaaS providers are vying for market share by trying to provide the most services within their offerings to cater to as many situations as possible. Zoho’s suite of apps and Oracle’s software modules are great examples of how software companies are developing into massive modular-based systems where businesses can plug in the necessary components for their situation. The model is attractive to businesses of all sizes as a business only needs to pay for the modules, such as programs and apps, it requires to run its business, and most of these SaaS products are almost instantly scalable if the business needs to grow.

Future of the Industry

With the advent of the Internet and cloud computing, the computer software industry has radically changed how companies interact with, develop and use the software. Once, software was a product that was purchased, installed, and maintained on-site.

A growing software trend is hyper-automation, which allows companies to rapidly identify, vet, and automate as many processes as possible." A 2021 report predicts that hyper-automation will decrease operational costs by at least 30% when combined with designed operational processes. In 2020, hyper-automation technology generated over $480 billion and is expected to reach almost $600 billion by the end of 2022.