The software market booms in 2021 – $1.4b revenue, 11% growth, 24% profitability

The software market is the smallest if the four categories in the IT and communications market. In 2021 it accounted for $1.4 billion in revenues, $337 billion in net profit and employed 11.3 million. Of the seven constituent offerings, application software was by far the largest (36.6%), followed by SaaS (25.3%), operating system (16.3%), custom (10.6%), database (8.3%) and analytics (3.0%). I show the spending trends in each offering in the Figure above. However spending alone doesn’t tell the whole story, as the widespread use of open source code not only fuels the business, but is also the foundation of huge financially immeasurable activities.

The software market has lower barriers to entry than the hardware, telecom or IT service categories and thereby has many more suppliers. The top seven suppliers in 2021 accounted for just 4.3% of the total market (see the right-hand side of my Figure above). Microsoft was the leader in the year – its $80 billion revenues represented 5.6% of the whole market (39.4% of the revenues of the top seven). Other vendors generating more than 1% of the total market were Oracle (2.2%, 15.2% of the top seven), IBM (including Red Hat, 1.8%, 12.7%), Apple (1.7%, 11.8%), Salesforce (1.4%, 9.7%) and Sony (1.0%, 6.7%). Dell accounted for 0.7% of the total market (4.6%), excluding Vmware.

Looking at the top seven suppliers over time (see my Figure above), we can see that Microsoft has expanded its leading position every year since 2016. Oracle and IBM reported similar revenues each year since 2013. Apple, Salesforce and Sony have been increasing their sales each year, while Dell improved its business in 2021 following three years of slight decline.

Although it’s the smallest category of the ITC market, software has much higher profitability (measured as net profit as a proportion of revenue) than the others. This lead has also expanded significantly since 2018, growing to 24% in 2021.
I expect the software market to remain strong for the foreseeable future.