Software gloom likely to continue til 2007

The software market continued shrinking last year and is unlikely to recover in real terms until 2007, according to a report from research group Ovum.

In its annual Global Software Survey, Ovum said the $152bn (£97bn) software market declined five per cent in 2002, and although the rate of decline is slowing, it will continue falling till at least 2005.

The research indicates "small growth" is likely in 2005, but the author admits that this is misleading because of currency fluctuations: "(The) currency shift flatters 2003 spending because the dollar has fallen 15 per cent against the euro since December 2002, so the 2003 decline is actually one or two per cent worse," said Julian Hewett, chief analyst at Ovum, in a statement.

But the news is even more gloomy when inflation is taken into account. "In real terms, it's unlikely that the market will grow again until 2007," he said.

Although the market will not be growing, Ovum expects it to continue changing, with a shift in the structure of enterprise-software delivery. Hewett believes that web services is a "disruptive technology", which may cause enterprises to move away from buying independent software products and instead move to a "services-based architecture", which improves the outlook for outsourcing and ASPs.

Security, business intelligence, portals and content management are bucking the trend. For example, business intelligence company Cognos has seen its revenues increase by 25 per cent this year, the report said. Meanwhile, companies that support mobile workers and wireless products are "beginning to attract serious interest".

Consolidation is common in industries where too many companies are trying to increase their share in a shrinking market, which explains the current Oracle/PeopleSoft/JD Edwards 'love triangle'. Ovum sees this trend continuing, especially with software infrastructure: "EMC's acquisition of Legato has started the ball rolling," said Hewett.

The top five software vendors last year, in terms of revenue were, Microsoft in first place ($25.9bn), followed by IBM ($13.1bn), Oracle ($6.9bn), SAP ($6.8bn) and Hewlett-Packard ($2.6bn).

Munir Kotadia writes for ZDNet UK