Dollar SignLeading software-as-a-service (SaaS) vendors enjoyed a banner year in 2012 as revenues leaped 60% year over year to reach $20 billion, according to PwC’s latest “Global 100 Software Leaders” report. Overall, revenues for the world’s top software companies totaled $255 billion in 2012, “a modest 5% increase.”

“As markets and resources expand globally, the demographics for the Global 100 Software Leaders have begun to transform—and it’s not out of the realm of possibility we may see non-traditional companies enter future Global 100 rankings,” PwC global software leader Mark McCaffrey was quoted in a press release.

“Boundaries between hardware and software are blurring as technology products are being commoditized and companies are looking to the value of software to act as a differentiator. While challenging, as competition over innovation increases, we’ve entered a period of great opportunity for those who plan and act strategically.”

Key takeaways in PwC’s latest “Global 100 Software Leaders” report include:

  • User friendly apps offered in the cloud: Software companies are moving away from developing complex products and towards ‘easier to use’ applications that can be offered as a service in the cloud or installed and run on computers in the building of the person or organization using the software, rather than at a remote facility.
  • Hardware companies add software to their offerings: To combat a price competitive device environment, hardware companies are delivering value added software to gain a competitive edge.
  • Digitization becomes the norm: Non-technology companies are now digitizing their products and services with software to entice customers. Clothing companies, for example, are delivering health and fitness information to customers by analyzing information obtained from sensors embedded into garments.

Ongoing advances in mobile and cloud services technology is reinventing the information and communications sectors, and agile, adaptable software companies stand to benefit, according to PwC. Evidence of this, key trends among the top 100 software companies include:

  • Software companies are reinventing themselves to provide SaaS
  • Hardware companies are entering the Software 100 rankings as they add software to their offerings
  • Software vendors are embracing hardware in an attempt to reposition themselves as devices and services companies

PwC analysts identify two trend-drivers leading software companies to overhaul existing business models. The first, they say, is “increased competitiveness for total available markets (TAMs).
“Previously, technology companies had clear, delineated lines of what kinds of products and services they sold and what markets were served. There was a distinct server market, storage market, enterprise software market and so forth. Today, companies offer a wider variety of products and services that fall outside of their previous scope.”

Originating outside the technology sector, the second driver centers on non-technology companies expanding the use of digital networking technology throughout their businesses, which is changing the way they buy from tech companies. “Companies are now relying on software and online services for more than just marketing,” PwC states.

“Instead, software is now being embedded into products as a valuable capability and as a competitive differentiator. As technology companies move from being ‘pure play’ operations, their entire development, sales and distribution models will be upended.”

Added McCaffrey, “The blurring of TAMs and the shift in the way companies buy technology has created a tipping point for the technology sector. The era of the ‘pure play’ in this sector is over.

“Technology companies need to decide what function they want to play and in what markets. Those who capitalize on increased digitalization will have huge growth opportunities, and those who don’t run the risk of getting lost in the shuffle.”

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