Software Industry Survey
Content
Software Industry Survey 2012
Mikko Rönkkö Juhana Peltonen Aalto University
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
Contents
• • • • Brief overview of the study Overview of the Finnish Software and IT Services Sector General Results of the Software Industry Survey 2012 Nokia’s situation and the cushioning role of software SMEs • Platforms used in software development: Current state and trends
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
Software Industry Survey
• Run in Finland since 1997 • 2012 marks the 15th survey • The longest running software industry survey in the world • Provides annual overview of the industry • Changing research themes
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Software Industry Survey 2012 – www.softwareindustrysurvey.fi
Survey in the 2012
• Data collection in spring and early summer • Covers the whole software industry
– Product and services firms – In 2012, 421 responding companies
• Cooperating universities
– TU Darmstadt currently running a similar study in Gemany (softwareindustrysurvey.de) – Fraunhofer Institute, survey in Austria in Autumn 2012
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
Special thanks
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
Overview of the Finnish Software and IT Services Sector
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
The Finnish Software and IT services grew 8% in 2011
• Eurostat estimates that the Finnish software and IT services sector grew 8% in 2011, up form 5% in 2010 • There have been discussion about entrepreneurship boom, but this is not visible in founding rates
6
10.8 9.8 -3.4 4.9
Growth of Finnish software and IT services industry
8.2
5
7.4 9.0 2.9 5.7
Index
1
2002
2
3
4
2004
2006
2008
2010
2012
Revenue
Source: Eurostat. Industry code 62
Table 1.2: Official statistics on industry dynamics
Year 2007 2008 2009 2010 2011 Firms started 929 1050 969 1009 993 Starting rate 13.4% 14.3% 12.8% 12.8% Closed down 592 753 664 515 Exit rate 8.6% 10.3% 8.8% 6.5% Number of companies 6909 7345 7559 7903 Change 6.3% 2.9% 4.6%
Source: Statistics Finland. Industry code 62.
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
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
• Three companies are downsizing because of lost business from Nokia
– Digia, Ixonos, Tieto
• About half firms had a challenging year 2011
– E.g. Basware, Comptel, Electrobit, Solteq, Tecnotree, Tectia, Trainers house
• Some firms reported positive results
– Affecto, F-Secure, Innofactor, Stonesoft, QPR
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
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. Industry code 62 in 2010
Source: EuroStat
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
In the 2000’s the growth of the Finnish ICT markets has been steady
400
Bulgaria
300
Lithuania Romania
Slovakia Turkey Latvia Estonia
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
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
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
• Finland places well on the European benchmarks
– Software and IT industry 4th in employment and 7th in revenue – The industry is growing at the same speed as the comparison markets
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
General Results of the Software Industry Survey 2012
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
Firm level growth and growth expectations back on normal levels
30 20
Growth of revenue, %
Realized growth Revenue < 1Meur Revenue 1-10Meur Revenue >10Meur Expected growth Revenue < 1Meur Revenue 1-10Meur Revenue >10Meur
-10
2007
0
10
2008
2009
2010
2011
2012
Year
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
Profitability is increasing and approaching pre-recession levels
8.00 9.00 7.00
7.15 6.53 6.42 5.39 4.76
Median profitability (%)
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)
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
Sources of revenue remain stable
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
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
Increasing trend: Almost half of the companies have international revenue
5% 21% 27%
60% 80% 100%
Significant international revenue Minor international operations Significant 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%
Not currently relevant Have previously had
Year
N=469
N=2844
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
Firms that do not see internationalization as relevant are mainly service firms
Significant international revenue
22% 2% 11% 1% 8%
Minor international operations
12%5% 15% 6% 1% 12% 7% 11% 3% 28%
12% 22% 5% 11%6%
Plans to internationalize
16%2% 20% 8% 7% 8% 3% 2% 5% 29%
Not currently relevant
2% 6% 10% 12% 1% 8% 6% 9% 1% 46%
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
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
East Asia has been rising as an export market, East Europe also increasing
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
Finance seeking is back to normal levels
45% 40%
41% 39% 35% 32% 39%
30%
35%
19% 17% 14%
0%
5%
10%
15%
Seeking external financing during the next two years Has had trouble obtaining external financing
20%
25%
2007 N=1204
2008
2009
2010
2011
Year
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
Ideal size in five years: Very few companies predict rapid growth
10,000,000
95% 90% 75% 50%
Targeted amount of personnel
Targeted amount of revenue
1,000,000
1,000
25% 10% 5%
100
95% 90% 75%
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
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
Only a few companies are pursuing a great opportunity
Product or service uniqueness
7% 16%
Novelty for main customer segment
6% 13%
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 first to target particularly this customer segment Entirely new for this customer segment
None 1-3 4-9 10 or more
Geographical markets
20% 9%
Total size of the market
20% 8%
Most likely outcome
11% 31%
34% 25% 47% 38% 24%
33%
Local Whole Finland International Global
Under 1 million euro 1-50 million euro 50 million-1 billion euro Over 1 billion euro
A small business Profitable small business Growth firm Lucrative success story
N=420
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
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.
• Internationalization continues to be more and more relevant to a larger number of companies.
– The number of firms that have international revenue is steadily increasing. – East Asia and Eastern Europe are increasingly common target markets
• 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.
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
Nokia’s situation and the cushioning role of software SMEs
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
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 Nokia’s 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.).
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
Differences in perceptions: 2011 vs. 2012
• Firms that considered to be “unharmed” by Nokia’s situation are more sure about it Some 5% of firms experienced unexpected negative consequences, which apparently are not business-threatening Firms also perceive fewer new business opportunities arising
•
•
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
Differences in perceptions: 2011 vs. 2012
• Small, stat. insignificant decrease in willingness to hire former Nokia/subcon. employees (20% vs. 23%) A moderate and stat. significant drop in perceived value of exNokia skills. Firms divided between what Nokia’s situation will bring to the Finnish software industry
•
•
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
•
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.
0
.1
.2
These people seem to be “mixing” quite evenly into the workforce:
.3
.4
*) This number divides about evenly between former Nokia employees and former Nokia subcontractor employees
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
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
Recruitment from Nokia and its subcontractors
Distribution of hiring counts among firms that hired former Nokia/subcontractor employees
Number of former Nokia/subcontractor employees hired
16
18
20
Conclusions
• Changes in software SMEs’ perceptions about the impact of Nokia’s 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.
• • •
650-850 software jobs is very positive news
– Recruiting will probably continue, but at a slower pace
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.
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
Platforms used in software development: Current state and forecasts
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
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%
Social media platforms
8.7%
11.1%
Game consoles 50% 25%
0.9%
2.0%
0%
25%
50%
Platforms used in 2011
N=449
Platforms to be used in 2013
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
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 used in 2010
N(2010)=534, N(2011)=449
Platforms used in 2011
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
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%
Symbian 30% 20%
4.7%
2.2%
10%
0%
10%
20%
30%
Planned use in 2012
N(2012)=534, N(2013)=449
Planned use in 2013
*) 2012 plans are from the 2011 survey, and 2013 plans are from the 2012 survey
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
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%
Symbian 30% 20%
4.7%
2.2%
10%
0%
10%
20%
30%
Planned use in 2012
N(2012)=534, N(2013)=449
Planned use in 2013
*) 2012 plans are from the 2011 survey, and 2013 plans are from the 2012 survey
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
Implications of Nokia’s situation in 2012
• WP, iOS, and Android developing firms see benefits most often from Nokia’s situation MS server developers (e.g. Sharepoint) have most upside compared to downside Unsurprisingly, Symbian and Meego developers had most downside compared to upside
•
•
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
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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%
Grasped new business opportunities
N=298
Lost sales
Platform use per category of main product
• Game, consumer application and business application developers already do lots of development on mobile, and set to increase Game companies seem to finally embrace WP Surprising presence of Symbian/Meego in consumer apps.
50% 30% 10%
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%
•
Portal or web service
Android iOS iOS (iPad) Windows Symbian MeeGo 10% 30% 50% 50%
Other type of product
Android iOS iOS (iPad) Windows Symbian MeeGo 30% 10% 10% 30% 50% 50% 30%
No products
Android iOS iOS (iPad) Windows Symbian MeeGo 10% 10% 30% 50%
•
Used in 2011
N=435
Plans to use in 2013
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
Development for mobile and business opportunities
No mobile development Develops for mobile
15% 10% 27% 7%
24% 51% 25%
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.
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
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.
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
Contact information
• http://www.softwareindustrysurvey.fi • Mikko Rönkkö, Research Manager Email: [email protected] Tel.: +358 50 387 8155 • Juhana Peltonen, Researcher Email: [email protected] Tel.: +358 40 508 4020
www.softwareindustr ysurvey.org
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
employees valuable, 28% ended up recruiting at least one person belonging to this group.
Extrapolating total recruitment from survey data
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 firms
Recruited personnel Total personnel Size class ... 4 5... 9 10... 19 20... 49 50... 99 100... 249 Total All firms, estim. 3293 1953 2641 3757 2281 3720 17644 Resp. firms 324 374 526 1151 821 515 3711 Sample coverage 9.8% 19.1% 19.9% 30.6% 36.0% 13.8% From Nokia Resp. firms 12 8 16 27 21 6 90 All firms, estim. 122 42 80 88 58 43 434 From subcontractors Resp. firms 4 7 22 20 20 15 88 All firms, 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 firms are left out as discussed in Chap-
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
Mikko Rönkkö Juhana Peltonen Aalto University
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
Contents
• • • • Brief overview of the study Overview of the Finnish Software and IT Services Sector General Results of the Software Industry Survey 2012 Nokia’s situation and the cushioning role of software SMEs • Platforms used in software development: Current state and trends
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
Software Industry Survey
• Run in Finland since 1997 • 2012 marks the 15th survey • The longest running software industry survey in the world • Provides annual overview of the industry • Changing research themes
The image cannot be displayed. Your computer may not have enough memory to open the image, or the image may have been corrupted. Restart your computer, and then open the file again. If the red x still appears, you may have to delete the image and then insert it again.
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
Survey in the 2012
• Data collection in spring and early summer • Covers the whole software industry
– Product and services firms – In 2012, 421 responding companies
• Cooperating universities
– TU Darmstadt currently running a similar study in Gemany (softwareindustrysurvey.de) – Fraunhofer Institute, survey in Austria in Autumn 2012
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
Special thanks
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
Overview of the Finnish Software and IT Services Sector
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
The Finnish Software and IT services grew 8% in 2011
• Eurostat estimates that the Finnish software and IT services sector grew 8% in 2011, up form 5% in 2010 • There have been discussion about entrepreneurship boom, but this is not visible in founding rates
6
10.8 9.8 -3.4 4.9
Growth of Finnish software and IT services industry
8.2
5
7.4 9.0 2.9 5.7
Index
1
2002
2
3
4
2004
2006
2008
2010
2012
Revenue
Source: Eurostat. Industry code 62
Table 1.2: Official statistics on industry dynamics
Year 2007 2008 2009 2010 2011 Firms started 929 1050 969 1009 993 Starting rate 13.4% 14.3% 12.8% 12.8% Closed down 592 753 664 515 Exit rate 8.6% 10.3% 8.8% 6.5% Number of companies 6909 7345 7559 7903 Change 6.3% 2.9% 4.6%
Source: Statistics Finland. Industry code 62.
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
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
• Three companies are downsizing because of lost business from Nokia
– Digia, Ixonos, Tieto
• About half firms had a challenging year 2011
– E.g. Basware, Comptel, Electrobit, Solteq, Tecnotree, Tectia, Trainers house
• Some firms reported positive results
– Affecto, F-Secure, Innofactor, Stonesoft, QPR
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
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. Industry code 62 in 2010
Source: EuroStat
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
In the 2000’s the growth of the Finnish ICT markets has been steady
400
Bulgaria
300
Lithuania Romania
Slovakia Turkey Latvia Estonia
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
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
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
• Finland places well on the European benchmarks
– Software and IT industry 4th in employment and 7th in revenue – The industry is growing at the same speed as the comparison markets
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
General Results of the Software Industry Survey 2012
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
Firm level growth and growth expectations back on normal levels
30 20
Growth of revenue, %
Realized growth Revenue < 1Meur Revenue 1-10Meur Revenue >10Meur Expected growth Revenue < 1Meur Revenue 1-10Meur Revenue >10Meur
-10
2007
0
10
2008
2009
2010
2011
2012
Year
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
Profitability is increasing and approaching pre-recession levels
8.00 9.00 7.00
7.15 6.53 6.42 5.39 4.76
Median profitability (%)
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)
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
Sources of revenue remain stable
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
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
Increasing trend: Almost half of the companies have international revenue
5% 21% 27%
60% 80% 100%
Significant international revenue Minor international operations Significant 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%
Not currently relevant Have previously had
Year
N=469
N=2844
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
Firms that do not see internationalization as relevant are mainly service firms
Significant international revenue
22% 2% 11% 1% 8%
Minor international operations
12%5% 15% 6% 1% 12% 7% 11% 3% 28%
12% 22% 5% 11%6%
Plans to internationalize
16%2% 20% 8% 7% 8% 3% 2% 5% 29%
Not currently relevant
2% 6% 10% 12% 1% 8% 6% 9% 1% 46%
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
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
East Asia has been rising as an export market, East Europe also increasing
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
Finance seeking is back to normal levels
45% 40%
41% 39% 35% 32% 39%
30%
35%
19% 17% 14%
0%
5%
10%
15%
Seeking external financing during the next two years Has had trouble obtaining external financing
20%
25%
2007 N=1204
2008
2009
2010
2011
Year
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
Ideal size in five years: Very few companies predict rapid growth
10,000,000
95% 90% 75% 50%
Targeted amount of personnel
Targeted amount of revenue
1,000,000
1,000
25% 10% 5%
100
95% 90% 75%
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
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
Only a few companies are pursuing a great opportunity
Product or service uniqueness
7% 16%
Novelty for main customer segment
6% 13%
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 first to target particularly this customer segment Entirely new for this customer segment
None 1-3 4-9 10 or more
Geographical markets
20% 9%
Total size of the market
20% 8%
Most likely outcome
11% 31%
34% 25% 47% 38% 24%
33%
Local Whole Finland International Global
Under 1 million euro 1-50 million euro 50 million-1 billion euro Over 1 billion euro
A small business Profitable small business Growth firm Lucrative success story
N=420
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
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.
• Internationalization continues to be more and more relevant to a larger number of companies.
– The number of firms that have international revenue is steadily increasing. – East Asia and Eastern Europe are increasingly common target markets
• 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.
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
Nokia’s situation and the cushioning role of software SMEs
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
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 Nokia’s 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.).
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
Differences in perceptions: 2011 vs. 2012
• Firms that considered to be “unharmed” by Nokia’s situation are more sure about it Some 5% of firms experienced unexpected negative consequences, which apparently are not business-threatening Firms also perceive fewer new business opportunities arising
•
•
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
Differences in perceptions: 2011 vs. 2012
• Small, stat. insignificant decrease in willingness to hire former Nokia/subcon. employees (20% vs. 23%) A moderate and stat. significant drop in perceived value of exNokia skills. Firms divided between what Nokia’s situation will bring to the Finnish software industry
•
•
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
•
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.
0
.1
.2
These people seem to be “mixing” quite evenly into the workforce:
.3
.4
*) This number divides about evenly between former Nokia employees and former Nokia subcontractor employees
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
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
Recruitment from Nokia and its subcontractors
Distribution of hiring counts among firms that hired former Nokia/subcontractor employees
Number of former Nokia/subcontractor employees hired
16
18
20
Conclusions
• Changes in software SMEs’ perceptions about the impact of Nokia’s 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.
• • •
650-850 software jobs is very positive news
– Recruiting will probably continue, but at a slower pace
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.
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
Platforms used in software development: Current state and forecasts
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
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%
Social media platforms
8.7%
11.1%
Game consoles 50% 25%
0.9%
2.0%
0%
25%
50%
Platforms used in 2011
N=449
Platforms to be used in 2013
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
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 used in 2010
N(2010)=534, N(2011)=449
Platforms used in 2011
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
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%
Symbian 30% 20%
4.7%
2.2%
10%
0%
10%
20%
30%
Planned use in 2012
N(2012)=534, N(2013)=449
Planned use in 2013
*) 2012 plans are from the 2011 survey, and 2013 plans are from the 2012 survey
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
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%
Symbian 30% 20%
4.7%
2.2%
10%
0%
10%
20%
30%
Planned use in 2012
N(2012)=534, N(2013)=449
Planned use in 2013
*) 2012 plans are from the 2011 survey, and 2013 plans are from the 2012 survey
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
Implications of Nokia’s situation in 2012
• WP, iOS, and Android developing firms see benefits most often from Nokia’s situation MS server developers (e.g. Sharepoint) have most upside compared to downside Unsurprisingly, Symbian and Meego developers had most downside compared to upside
•
•
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
ygetarts tnenetf'flebooripoteknroedsPpsmsdmeiOesvfedoesvmwicv9%%P w er sscsadMruNrohp( tnoiobrsdSnWitmbsp eefrvdarrptir2=o e dit por tv e fsfwiscnilSi rali w rs egeer fnhN u i i) n/os g napraf o pdle a e 8 f eL i k f ootioroyn u m in eldas f sos d oe M g eA cp i m t ao05 sAe52 rGT 0
%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%
Grasped new business opportunities
N=298
Lost sales
Platform use per category of main product
• Game, consumer application and business application developers already do lots of development on mobile, and set to increase Game companies seem to finally embrace WP Surprising presence of Symbian/Meego in consumer apps.
50% 30% 10%
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%
•
Portal or web service
Android iOS iOS (iPad) Windows Symbian MeeGo 10% 30% 50% 50%
Other type of product
Android iOS iOS (iPad) Windows Symbian MeeGo 30% 10% 10% 30% 50% 50% 30%
No products
Android iOS iOS (iPad) Windows Symbian MeeGo 10% 10% 30% 50%
•
Used in 2011
N=435
Plans to use in 2013
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
Development for mobile and business opportunities
No mobile development Develops for mobile
15% 10% 27% 7%
24% 51% 25%
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.
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
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.
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
Contact information
• http://www.softwareindustrysurvey.fi • Mikko Rönkkö, Research Manager Email: [email protected] Tel.: +358 50 387 8155 • Juhana Peltonen, Researcher Email: [email protected] Tel.: +358 40 508 4020
www.softwareindustr ysurvey.org
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
employees valuable, 28% ended up recruiting at least one person belonging to this group.
Extrapolating total recruitment from survey data
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 firms
Recruited personnel Total personnel Size class ... 4 5... 9 10... 19 20... 49 50... 99 100... 249 Total All firms, estim. 3293 1953 2641 3757 2281 3720 17644 Resp. firms 324 374 526 1151 821 515 3711 Sample coverage 9.8% 19.1% 19.9% 30.6% 36.0% 13.8% From Nokia Resp. firms 12 8 16 27 21 6 90 All firms, estim. 122 42 80 88 58 43 434 From subcontractors Resp. firms 4 7 22 20 20 15 88 All firms, 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 firms are left out as discussed in Chap-
Software Industry Survey 2012 – www.softwareindustrysurvey.fi
