software industry internet players things technology leading
Must-know: Why the software industry is cyclicalWhy the software industry is cyclicalTechnology, spending budgets, and growth in emerging markets are the keygrowth drivers of the software industry. Due to fierce competition in theindustry, companies invest heavily in research and development (or R&D), whichleads to revolutionary ideas, differentiated offerings, innovations, andconsequently “patents.” The software industry is highly concentrated with fewplayers contributing to the overall revenue of the industry. Technology is themost important external factor. When it’s combined with the competition, itpushes industry to change constantly. The emergence and adoption of disruptivetechnologies (social, mobile, application, and cloud computing) proves thisconstant change.Software industry dependent on the economyArticle continues below advertisementThe previous chart shows that the entire information technology (or IT) sectorfell during the 2007–2008 economic crisis. The financial crisis had a hugeimpact on the global economy. It led to shrinking consumption, lower consumerconfidence, growing unemployment, and falling gross domestic product (or GDP).Leading players in the industry follow the S&P 500 (SPX) very closely. Theytrack the stock markets’ and business cycles’ up and down swings because theirsoftware licensing caters to organizations. As a result, it shows the“cyclical” nature of the industry. The investment decisions of organizationsare largely dependent on the state of the economy. During recessionary times,organizations cut back on their technology spending. Lower consumer confidenceaffects the sale of personal computers (or PCs) that in turn impacts thesoftware sales, consequently impacting the industry.Cloud and “Internet of Things” gaining tractionAlthough leading players like Microsoft (MSFT), Oracle (ORCL) and IBM (IBM)account for a major share of enterprise software revenues, it’s the “cloud,”that’s substantially impacting the industry. The leading players either buy orbuild the technology to support the client’s cloud and the “Internet ofThings” projects.The “Internet of Things” is the network of physical objects, that connectsthem to the internet. It can be controlled from anywhere. It’s a concept whereday-to-day physical objects will have an online presence because of theirconnection to the internet. It includes sensor and wireless technologies. Itexcludes PCs, tablets, and smartphones. According to Gartner, the Internet ofThings installed base is expected to grow to 26 billion units by 2020. Leadingsoftware players like Microsoft (MSFT), CISCO (CSCO), and IBM Corp. (IBM)announced plans to increase their Internet of Things capabilities. Thisindicates its growing presence. It’s a threat to the software securityindustry. Industry experts think that current anti-spam, anti-virus and anti-malware infrastructures won’t be sufficient enough to protect theirorganizations from the new endpoints created by the Internet of Things.