Invest Computer Software >> USA

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Invest Computer Software Sector

Market Overview

Software is generally divided into (1) packaged or shrink-wrapped programs that are published and marketed for mass consumption, and (2) custom software that is written for particular customers. Custom software developers are usually included in the IT services sector and may write programs for new applications or code that improves, integrates, and supports existing systems.

The U.S. software market is the largest in the world. Domestic demand for packaged software exceeded $126 billion in 2007 and is expected to increase at a robust compound annual growth rate (CAGR) of 7.2 percent to $178 billion by 2012, according to International Data Corporation (IDC) estimates. Spending on applications development tools will grow the fastest (9.1 percent CAGR) followed by systems infrastructure software (operating systems, operating system enhancements, and data center management) at 7.8 percent annual growth, and applications packages (5.8 percent CAGR) during this period. IDC does not break out custom software development in its IT services market data. It is important to note, however, that some custom software development has been moving offshore for several years as U.S. companies outsource programming to lower cost countries. India is the main supplier of these services, although countries in Eastern Europe, Russia, China, Ireland, and Israel are also competing for this work.

The U.S. Government supports the software industry through substantial investment in research and development, particularly the Networking and Information Technology Research and Development (NITRD) program, and vigorous enforcement of intellectual property rights laws.

FDI Potential: Bureau of Economic Analysis data shows that foreign direct investment in the U.S. packaged software industry was stagnant from 2000 to 2002, but picked up sharply thereafter and reached $10.9 billion by 2006 as the industry recovered from the “dotcom bust” and the U.S. economy improved. Foreign entities have been involved in a significant number of major U.S. software acquisitions ranging in value from $500 million to several billion dollars over the past ten years. Most of these investors were European, particularly from the United Kingdom, France, and Germany. The U.S. packaged software industry is strong overall, and niche areas such as process control and automation, telecommunications and enterprise applications, embedded software, speech recognition, and Internet infrastructure software offer attractive opportunities for foreign investment.

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