Packaged Software
SIC 7372
NAICS 511210
The packaged software industry designs, develops, and publishes computer software programs for retail and wholesale distribution. Though some are marketed for specialized or technical end uses—and some may be distributed electronically rather than in literal packages—these products are known as packaged or off-the-shelf software, in contrast to custom programs written for a specific customer. Important industry products include operating system software, system utilities, and application tools and solutions. For a description and analysis of the custom programming business and related computer services, see also Information Technology Services.
Prepackaged software falls into two main categories: system infrastructure software, which includes operating system software, system utilities, and program compilers; and application software. The industry was plagued by a sluggish economy in Europe and Asia in 2002, preceded by an equally woeful U.S. economy and even more woeful software portrait in 2001. However, the situation seemed to have improved for the industry by 2003, with worldwide sales of software exceeding US$200 billion, an amount that also exceeded expectations. Most of the largest firms showed very positive growth rates in 2004, with several showing net incomes after several years of net losses. Analyst and industry participants expected growth to continue, with China pegged for explosive growth.
Three markets—the United States, Western Europe, and Japan—accounted for roughly 90 percent of global sales, but as these markets matured, more-rapid growth was expected to come from emerging markets in Asia, especially China. In general, the volatility of the packaged software industry encourages competition and provides more choices for consumers by forcing software makers to create better products at lower cost. India has emerged as the country where offshoring of software development most often occurs as it provides an educated, English-speaking labor force that is still low cost compared to that in other countries.
A major factor influencing the industry has been the market's continuing trend away from large, expensive, non-standardized (closed or proprietary) mainframes to smaller, cheaper, standardized (open) computer systems. In the mainframe arena, much of the software used was custom developed and often took months from initial planning to final implementation. In some cases, the backlog of software development was so great that by the time the software was installed, it was outdated. This differed greatly from smaller open systems, which provided a means for businesses to use prepackaged software. Prepackaged software was cheaper and took less time to implement because it did not need to be created from ground zero, and as a result worldwide prepackaged software sales increased. However, because copying prepackaged software was easy for the unethical, piracy remained a major issue in the 2000s. Piracy cost software producers billions of dollars in lost revenues from consumers making copies of programs for friends to unscrupulous companies mass-producing illegal copies. The Software Publishers Association estimated that half of all business applications installed in the late 1990s were pirated copies. In mid-2004, software piracy remained a concern to the industry, with 2003 industry losses pegged at US$29 billion, according to research from the Business Software Alliance (BSA) and research firm IDC, cited in InternetWeek.
Prepackaged software can be divided into two main categories: system infrastructure software and application software. System software, which manages computer resources and organizes data, can be further divided into three main areas: operating system software, which controls the operations of a computer; system utilities, which manage system resources and data; and program compilers, which act as interpreters of programming languages. Operating systems help the various components of a computer—disk drive, a monitor or monitors, and keyboard—work as a unified whole. The best-known operating system (OS), the Microsoft Disk Operating System (MS-DOS), was produced by U.S. software giant Microsoft Corporation and was ubiquitous on IBM-compatible personal computers (PCs) until the mid-1990s when it was eclipsed by Microsoft's Windows OS. System utilities, while they can be part of an operating system, enhance and increase the performance of computers and monitor resources (e.g., determining how much memory is in use and how much space remains on a disk drive). Program compilers convert programming languages that are readable to users into a form that a computer can process as instructions. The systems software market worldwide generated revenues of US$35.1 billion in 1997, a 13.2 percent increase from 1996. In 2001 Microsoft released a Windows operating system version, Windows XP, that possessed a simpler interface for desktop operations by home and office users. Another popular, and free, operating system is Linux, a Unix-related system created by Linus Torvalds and cohorts. Another powerful Unix-related system with an easier interface than Linux, sold by Apple, is the Mac OS X, a super-modern operating system that combines the power and stability of UNIX with customizable tools for programmers, graphic designers, and other creative occupations.
Application software can be divided into two types: application tools and application solutions. Application tools are software packages that enable access, manipulation, and retrieval of data, and include programming applications that are used to develop other software programs. Application solutions are software packages that perform specific functions, such as word processing and accounting. In 1997 the application tools market worldwide was US$31 billion. The application solutions market that same year was US$56 billion. Growth in application software slowed dramatically in 2001 but was expected to regain momentum in 2003.
In 2003, system-related software accounted for 30 percent of global consumption, while the application sector could be divided into 48 percent consumption of applications and 22 percent for software used in the development and deployment of applications.
One software market to experience particularly rapid growth during the late 1990s was the consumer category, and in 2002, with corporate sales stalled, the industry welcomed individual buyers whose spending helped software sales rebound. In 1997 this segment of the industry grew 15.3 percent to US$5.5 billion. Major purchase areas included educational products ("edutainment"), computer games, and home management software, such as budgeting and tax preparation programs. The edutainment segment of this market was expected to grow rapidly through the late 1990s and 2000s, particularly as universities competed for students choosing distance education options.
Due to the disparities in international copyright and licensing laws and standards in developing, implementing, and maintaining software various international organizations and agreements were made. These organizations and agreements helped to provide some standardization in the industry and to decrease fraud and piracy. In 1987 the Joint Technical Committee 1 (JTC1) was created by the International Organization of Standardization (ISO) and the International Electrotechnical Commission (IEC). It was created to develop standards for information technology. SC7, a subcommittee of JTC1 with 19 countries as voting members, was also created. Its main objective was to develop and adapt standards to improve software engineering processes and commercial transactions, with particular focus on quality assurance standards (internationally accepted practices used in the development of software), life cycle processes (the procurement, creation, operation, and maintenance of software in contracts), and software processes.
One of the main issues addressed by regulatory agencies during the 1990s was software piracy. According to the Business Software Alliance's (BSA) most recent statement, the income from software that pirates take annually is about US$12 billion. The BSA says that 83 percent of the thievery hurts software corporations in North America, Asia, and Western Europe—with the United States the biggest loser of pirated work. A BSA study estimates that Vietnam, China, and Russia have more pirated software in use by corporations than software obtained legally.
As provided for under the 1974 Trade Act of the United States, and amended by the Special 301 provisions of the 1988 Omnibus Trade and Competitiveness Act, United States Trade Representatives (USTR) gained the right to investigate infringements of intellectual property rights worldwide. Countries that did not provide adequate protection of intellectual property rights were placed on a priority list. Countries that had priority status faced possible trade sanctions and restrictions. Countries that did not meet all the requirements to be placed on priority status could instead be placed on the priority watch list or on the lesser watch list. However, to improve the progress of intellectual property rights agreements, "out-of-cycle" reviews and "immediate-action-plans" were implemented to give countries more opportunities to be taken off the priority lists in the mid-1990s. Countries...
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