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Contents
Brief overview of the study Overview of the Finnish Software and IT Services Sector General Results of the Software Industry Survey 2012 Nokias situation and the cushioning role of software SMEs Platforms used in software development: Current state and trends
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Cooperating universities
TU Darmstadt currently running a similar study in Gemany (softwareindustrysurvey.de) Fraunhofer Institute, survey in Austria in Autumn 2012
Special thanks
Index
1
2002
2004
2006
2008
2010
2012
Revenue
Source: Eurostat. Industry code 62
2010. There is a stark contrast with the consulting services (6202) that have steadily increase their revenue through 2007-2010. Also, pure consulting companies tend to be more productiv i.e. one person working in this industry generates about 15-20% more revenue than a perso working in the software industry. This difference is puzzling considering that software produ business is often characterized as high margins activity 7 .
IT companies in Helsinki Stock Exchange had a challenging year with varying results
Two companies are being delisted
Tekla was acquired by Trimble Aldata was acquired by Symphony Technology Group
Finland has one of the largest software and IT services sector in Europe
Lithuania Cyprus Latvia Croatia Romania Poland Austria Portugal Italy Slovakia Spain Norway Bulgaria Estonia Slovenia Hungary Germany Finland Czech Republic Belgium Netherlands Denmark United Kingdom Sweden Cyprus Romania Lithuania Poland Latvia Croatia Slovakia Portugal Bulgaria Austria Spain Italy Estonia Slovenia Czech Republic Germany Hungary Belgium Norway Denmark Finland United Kingdom Netherlands Sweden
1%
2%
3%
4%
1%
2%
Revenue / GDP
Employed / Workforce
Source: EuroStat
In the 2000s the growth of the Finnish ICT markets has been steady
400
Bulgaria
300
Lithuania Romania
200
Poland Hungary Luxembourg Norway Cyprus Czech Republic Finland Belgium Slovenia France Spain Netherlands Malta United Kingdom Germany Sweden Austria Italy Portugal
75
100
125 150
Ireland Greece
50
2002
2004
2006
2008
2010
2012
Source: EuroStat. Industry code 62. 2011 are estimates. Y axis on log scale
Source: EuroStat
Conclusions
Overall, the Finnish software and IT services industry grew 8% in 2011 The public listed companies had a challenging year
Lost business from Nokia Tekla and Aldata are being delisted Only about one in four companies reported mostly positive results
Growth of revenue, %
Realized growth Revenue < 1Meur Revenue 1-10Meur Revenue >10Meur Expected growth Revenue < 1Meur Revenue 1-10Meur Revenue >10Meur
-10
2007
10
2008
2009
2010
2011
2012
Year
0.00
1.00
2.00
3.00
4.00
5.00
6.00
2007
2008
2009
2010
2011
Year
N=5793 (247 extreme observations removed)
14% 9% 8% 10% 3%
3% 14% 1% 7%
Sources of revenue
3rd party software licenses ASP and SaaS Content and ads Deployment project Development project Hardware Maintenance Not software related Other software related Own software licenses
32%
N=414
Signicant international revenue Minor international operations Signicant international revenue to internationalize Plans Minor international operations currently relevant Not Have previously had Plans to internationalize
International operations
40%
22%
2007 2008 2009 2010 2011
20%
25%
Year
N=469
N=2844
Firms that do not see internationalization as relevant are mainly service firms
Signicant international revenue
22% 2% 11% 1% 8%
Plans to internationalize
16%2% 20% 8% 7% 8% 3% 2% 5% 29%
Sources of revenue
3rd party software licenses Hardware ASP and SaaS Maintenance Content and ads Not software related Deployment project Other software related Development project Own software licenses
N=414
East Asia has been rising as an export market, East Europe also increasing
30%
35%
0%
5%
10%
15%
Seeking external nancing during the next two years Has had trouble obtaining external nancing
20%
25%
2007 N=1204
2008
2009
2010
2011
Year
Ideal size in five years: Very few companies predict rapid growth
10,000,000
95% 90% 75% 50%
1,000,000
1,000
25% 10% 5%
100
100,000
50%
10,000
25% 10%
1,000
5% 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011
Year
N=2677 (136 extreme observations removed) N=2482 (98 extreme observations removed)
Year
Number of competitors
5%
25%
30%
39%
29%
52%
51%
27%
Not unique Not unique, but differentiated Unique in target market Unique in the world
Not novel Not novel, but something new The rst to target particularly this customer segment Entirely new for this customer segment
Geographical markets
20% 9%
33%
Under 1 million euro 1-50 million euro 50 million-1 billion euro Over 1 billion euro
N=420
Conclusions
Year 2011 seems to have been a good year for Finnish software SMEs.
Growth rates are up, returning to the pre-recession levels. Profitability levels are up and approaching the pre-recession levels. Most firm predict their growth in 2012 to exceed the 2011 growth.
Firms pursuing fast international growth with unique products seem to be rare.
More than half of the companies address only the domestic markets. Very few companies think that they can grow beyond 100 employees Very few firms say that they have a truly unique or novel product or service.
Background
While large software firms have had a modest year at best, and foreign firms enter slowly, attention turns to the hiring capacity of Finnish SMEs
I.e. firms with <250 employees and <50M revenue
Our 2011 survey concluded that Finnish software SMEs are mainly unaffected by Nokias situation, and that there is broad but not universal interest toward former Nokia/subcontractor employees. This year we repeated most of the 2011 questions Changes in perceptions are mainly minor, and most fall within the error margin (about 5 % pts.).
We estimate that Finnish software SMEs have hired 650-850 laid off Nokia/subcontractor employees* recently
Share of firms
Evenly per age class Bigger hire more, but about 0,043 hires per existing employee across different size classes
19% of responding firms report hiring at least one former Nokia/subcon. Employee.
.1
.2
.3
.4
*) This number divides about evenly between former Nokia employees and former Nokia subcontractor employees
tseeydmhmegyrotce rotnnuooubun/rkoNoemmfrrobode0auD tseeydmiihmegyrotce rotnnuooubun/rkoNoemmfrrobode0auD........ aht selrp if e noma rstcarcn c s/aaiko Nr rnom ufrieberihh aht selrp if e noma rstcarcn c s/aaiko Nr rnom ufrieberihh o r s e o pm a t o t b c g s i i h f e roitff f rtm i1 o r s e ollpm a t o t b c g s i i ii h f e roitff f rtm i1 s io s io r 6=N r 6=N s 02 s 02 02 02 80 80 60 60 4N 4N 2S 2S 4 4 3 3 2 2 1 1 1 1 1 1 1 1 1 1 8 8 6 6 4 4
0 N=60 2 4 6 8 10 12 14
Distribution of hiring counts among firms that hired former Nokia/subcontractor employees
16
18
20
Conclusions
Changes in software SMEs perceptions about the impact of Nokias situation were minor.
The slight decreases in interest toward former Nokia/subcon. employees can also be taken as a sign of demand-size robustness
43% of firms that planned to hire former Nokia/subcon. employees in 2011 report to have realized these plans.
However, it does not alone address the job need for about 3.400 former Nokia/subcontractor employees, plus the recent 500 job cuts announced by Tieto. More research is needed on the absorbing role of entrepreneurship and software work outside the software industry (e.g. mechanical engineering, financial services etc.) to understand the broader job market dynamics.
Platforms for which companies developed software for in 2011 and plans for 2013
Server and desktop platforms have a steady lead Mobile and cloud expected to continue growth Mobile to catch up to desktop platform development after 2013?
Server platforms
66.6% 67.9%
Desktop platforms
59.9%
60.8%
Mobile platforms
34.5%
52.3%
Cloud platforms
26.5%
37.6%
Embedded platforms
12.7%
14.9%
8.7%
11.1%
0.9%
2.0%
0%
25%
50%
Platforms for which companies developed software for in 2010 and 2011
Android narrowly overtakes iOS, but the platforms are virtually tied (16.5% vs. 15.5%) Windows Phone overtakes Symbian iPad development reaching iPhone development Symbian / Meego showing resilience
Realized Mobile Platform Use
6.7%
Android
16.5%
8.2%
iOS (iPhone)
12.2%
4.5%
iOS (iPad)
10.7%
4.1%
Windows Mobile/Phone
10.5%
7.7%
Symbian
6.9%
3.7%
Meego 0% 5%
5.1%
10%
5%
10%
Platforms for which plan to develop software for in 2012 and 2013*
Plans to use WP going even higher Though WP is growing fast, there may be a Finnish peer pressure effect to report WP plans Symbian / Meego set to reduce rapidly
Planned Mobile Platform Use
Windows Mobile/Phone
23.8% 34.1%
Android
23.6%
33.4%
iOS (iPad)
13.9%
26.3%
iOS (iPhone)
16.3%
24.3%
Meego
5.4%
2.2%
4.7%
2.2%
10%
0%
10%
20%
30%
*) 2012 plans are from the 2011 survey, and 2013 plans are from the 2012 survey
Platforms for which plan to develop software for in 2012 and 2013*
Plans to use WP going even higher Though WP is growing fast, there may be a Finnish peer pressure effect to report WP plans Symbian / Meego set to reduce rapidly
Planned Mobile Platform Use
Windows Mobile/Phone
23.8% 34.1%
Android
23.6%
33.4%
iOS (iPad)
13.9%
26.3%
iOS (iPhone)
16.3%
24.3%
Meego
5.4%
2.2%
4.7%
2.2%
10%
0%
10%
20%
30%
*) 2012 plans are from the 2011 survey, and 2013 plans are from the 2012 survey
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%34.1 %5 2 98 6 77 7 24 5 05 0 49 1.33 5
Perceived impact of Nokia's new strategy on firms developing for different software platforms
30.0% 13.3%
The firm develops for Windows Phone/Mobile The firm develops for iOS The firm develops for Android The firm develops for Microsoft server products The firm develops for Symbian The firm develops for Meego Average firm The firm develops for Windows (desktop) 50%
28.6%
17.1%
27.7%
14.9%
22.5%
7.5%
20.0%
45.0%
14.3%
50.0%
14.1%
9.4%
13.3%
10.1%
25%
0%
25%
50%
Lost sales
Game or entertainment
Android iOS iOS (iPad) Windows Symbian MeeGo 50% 30% 10% 10% 30% 50% 50%
Consumer application
Android iOS iOS (iPad) Windows Symbian MeeGo 30% 10% 10% 30% 50% 50%
Business application
Android iOS iOS (iPad) Windows Symbian MeeGo 30% 10% 10% 30% 50%
No products
Android iOS iOS (iPad) Windows Symbian MeeGo 10% 10% 30% 50%
Used in 2011
N=435
40%
Geographical markets
Local International N=429 Whole Finland Global
Firms that develop for mobile are typically grasping broader and more lucrative markets, and consider themselves better differentiated 36% of these firms also see that if everything goes according to plan, they will create a well-known success story (compared to 29% in non-mobile firms) 40% of non-mobile firms would settle for creating a small profitable business compared to 25% developing for mobile.
Conclusions
Mobile platform development growing and catching up to desktop development. Android most popular mobile platform, but virtually tied with iOS. Windows Phone making strong gains at number 3, but some future expectations in adoption may be overstatements. Firms clearly see opportunities in mobile, and missing out may divide firms into more and less successful ones.
Contact information
http://www.softwareindustrysurvey.fi Mikko Rnkk, Research Manager Email: mikko.ronkko@aalto.fi Tel.: +358 50 387 8155 Juhana Peltonen, Researcher Email: juhana.peltonen@aalto.fi Tel.: +358 40 508 4020
www.softwareindustr ysurvey.org
employees valuable, 28% ended up recruiting at least one person belonging to this group.
Appendix: (Partial) extrapolation Table 3.2: Summary of calculations to estimate the number of Nokia and subcontractor employprocedure on recruitment ees recruited by the software rms
Recruited personnel Total personnel Size class ... 4 5... 9 10... 19 20... 49 50... 99 100... 249 Total All rms, estim. 3293 1953 2641 3757 2281 3720 17644 Resp. rms 324 374 526 1151 821 515 3711 Sample coverage 9.8% 19.1% 19.9% 30.6% 36.0% 13.8% From Nokia Resp. rms 12 8 16 27 21 6 90 All rms, estim. 122 42 80 88 58 43 434 From subcontractors Resp. rms 4 7 22 20 20 15 88 All rms, estim. 41 37 110 65 56 108 417 Estim. total 163 78 191 153 114 152 851
Summary of calculations used to estimate the number of people laid off by Nokia and its subcontractors that were recruited by software companies. More detailed calculations available from the authors.
What can we say about the total absorbing role of Finnish software SMEs? Extrapolating the likely marco level numbers for survey data has its inaccuracies, but we can arrive an estimate that gives us some direction. As a reference point for our extrapolation, we use the total employment of Finnish companies under NACE codes 6201 (computer programming activities) and 6202 (computer consultancy activities) that employ less than 250 people, and use this as a proxy group for software SMEs. Using only these industry codes provides a slightly narrow representation of the software industry (e.g. some game rms are left out as discussed in Chap-