Key performance indicators for software (median value), 1Q11
Note: sales, operating income, R&D, levered free cash flow and capital expenditures are reported on a trailing 12-months basis. Percentage values noted above may differ due to rounding. Source: Ernst & Young analysis of Capital IQ data, accessed 13 June 2011.
While the shift from traditional licensing models to SaaS and "app store" paradigms will continue to create challenges for the sector, mobile, social, SaaS and big data analytics will open up new opportunities as well.
The nature of software continued to morph in 1Q 2011, from programs typically loaded and served on the same device to applications increasingly provided via software as a service (SaaS) models. Software ranging from enterprise applications to "lightweight," single-function mobile apps is being served to a variety of devices — not just PCs but mobile smartphones and tablets, too.
"Big data" = big future for software sector?
The data stemming from this proliferation of applications has resulted in growing business databases and an increase in the difficulty of analyzing them, especially when interactions via social networks are included.
The major trends that drove the software sector in 1Q 2011, therefore, were the growth of social, mobile and cloud technologies, all of which are combining to form a mass of data (aka "big data") that has led to a promising market for applications that can make business sense of it all.
This opportunity may be one reason why the software sector saw a 26% YOY increase in market value in 1Q 2011 (as seen in the accompanying chart) — second only to the internet sector. The software sector also had the highest median operating margin of any sector (26.5%) and the highest median free cash flow ($1.2 billion), and was the only sector to improve return on invested capital (by 14% to 13.5%).
Outlook for software
While the shift from traditional licensing models to SaaS and "app store" paradigms will continue to create challenges for the sector, mobile, social, SaaS and big data analytics will open up new opportunities as well. The sector's 1Q 2011 KPIs are better than we saw in 2010, and we expect that improvement to continue.
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