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    Software Industry Survey 2012 www.softwareindustrysurvey.fi

    Software Industry Survey 2012

    Mikko Rnkk

    Juhana Peltonen

    Aalto University

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    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

    Nokias situation and the cushioning role of softwareSMEs

    Platforms used in software development: Current stateand trends

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    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. Yourcomputer may not have enough memoryto open the image, or the image mayhave been corrupted. Restart your

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    Software Industry Survey 2012 www.softwareindustrysurvey.fi

    Survey in the 2012

    Data collection in spring andearly summer

    Covers the whole softwareindustry

    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 inAustria in Autumn 2012

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    Special thanks

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    Software Industry Survey 2012 www.softwareindustrysurvey.fi

    Overview of the Finnish Software and IT

    Services Sector

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    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 discussionabout entrepreneurship boom,

    but this is not visible in

    founding ratesTable 1.2: Official statistics on industry dynamics

    Firms Starting Closed Exit Number ofYear started rate down rate companies Change

    2007 929 13.4% 592 8.6% 69092008 1050 14.3% 753 10.3% 7345 6.3%2009 969 12.8% 664 8.8% 7559 2.9%2010 1009 12.8% 515 6.5% 7903 4.6%2011 993

    Source: Statistics Finland. Industry code 62.

    2.95.7

    9.07.4

    9.8

    10.8-3.4

    4.9

    8.2

    1

    2

    3

    4

    5

    6

    Index

    2002 2004 2006 2008 2010 2012

    Revenue

    Source: Eurostat. Industry code 62

    Growth of Finnish software and IT services industry

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    IT companies in Helsinki Stock Exchangehad 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 lostbusiness 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

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    Finland has one of the largest software

    and IT services sector in Europe

    Sweden

    United Kingdom

    Denmark

    Netherlands

    Belgium

    Czech Republic

    Finland

    Germany

    Hungary

    Slovenia

    Estonia

    Bulgaria

    Norway

    Spain

    Slovakia

    Italy

    Portugal

    Austria

    Poland

    Romania

    Croatia

    Latvia

    Cyprus

    Lithuania

    1% 2% 3% 4%

    Revenue / GDP

    Sweden

    Netherlands

    United Kingdom

    Finland

    Denmark

    Norway

    Belgium

    Hungary

    Germany

    Czech Republic

    Slovenia

    Estonia

    Italy

    Spain

    Austria

    Bulgaria

    Portugal

    Slovakia

    Croatia

    Latvia

    Poland

    Lithuania

    Romania

    Cyprus

    1% 2%

    Employed / Workforce

    Source: EuroStat. Industry code 62 in 2010

    Source: EuroStat

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    In the 2000s the growth of the Finnish

    ICT markets has been steady

    Austria

    Turkey

    Greece

    Latvia

    Norway

    Estonia

    Slovakia

    RomaniaLithuania

    Netherlands

    FranceSpain

    Belgium

    Malta

    Poland

    Slovenia

    Czech Republic

    Hungary

    Sweden

    Cyprus

    United Kingdom

    Bulgaria

    Finland

    Germany

    Luxembourg

    Italy

    Ireland

    Portugal

    50

    75

    100

    125

    150

    200

    300

    400

    2002 2004 2006 2008 2010 2012

    Source: EuroStat. Industry code 62. 2011 are estimates. Y axis on log scale

    Source: EuroStat

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    Conclusions

    Overall, the Finnish software and IT services industrygrew 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

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    General Results of the Software

    Industry Survey 2012

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    Firm level growth and growth

    expectations back on normal levels

    -10

    0

    10

    20

    30

    Growthofrevenue,

    %

    2007 2008 2009 2010 2011 2012

    Year

    Realized growth

    Revenue < 1Meur

    Revenue 1-10Meur

    Revenue >10Meur

    Expected growth

    Revenue < 1Meur

    Revenue 1-10Meur

    Revenue >10Meur

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    Profitability is increasing and

    approaching pre-recession levels

    7.15

    6.53

    4.76

    5.39

    6.42

    0.00

    1.0

    0

    2.0

    0

    3.0

    0

    4.0

    0

    5.00

    6.0

    0

    7.0

    0

    8.0

    0

    9.0

    0

    Medianprofita

    bility(%)

    2007 2008 2009 2010 2011

    Year

    N=5793 (247 extreme observations removed)

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    Sources of revenue remain stable

    3%14%

    1%

    7%

    32%3%

    10%

    8%

    9%

    14% 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

    Sources of revenue

    N=414

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    Increasing trend: Almost half of the

    companies have international revenue

    21%

    25%

    22%

    27%

    5%

    Significant international revenueMinor international operations

    Plans to internationalize

    Not currently relevant

    Have previously had

    Internationaloperations

    N=469

    20%

    40%

    60%

    80%

    100%

    2007 2008 2009 2010 2011Year

    Significant international revenue

    Minor international operations

    Plans to internationalizeNot currently relevant

    Have previously had

    N=2844

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    Firms that do not see internationalization

    as relevant are mainly service firms

    2%11%1%8%

    22%

    6%11%5%

    12%

    22%5%

    15%

    1%7%

    28%3%11%

    12%

    6%12%

    2%20%

    2%5%

    29%3%8%

    7%

    8%

    16% 2%10%1%8%

    46%

    1%9%

    6%

    12%6%

    Significant international revenue Minor international operations

    Plans to internationalize Not currently relevant

    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

    Sources of revenue

    N=414

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    East Asia has been rising as an export

    market, East Europe also increasing

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    Finance seeking is back to normal levels

    35%

    41%

    32%

    39% 39%

    14%

    19%

    17%

    0%

    5%

    10%

    15%

    20%

    25

    %

    30%

    35%

    40%

    45%

    2007 2008 2009 2010 2011

    Year

    Seeking externalfinancing during thenext two years

    Has had troubleobtaining externalfinancing

    N=1204

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    Ideal size in five years: Very few

    companies predict rapid growth

    5%

    10%

    25%

    50%

    75%

    90%

    95%

    1,0

    00

    10,0

    00

    100,0

    00

    1

    ,000,0

    00

    10,0

    00,0

    00

    2007 2008 2009 2010 2011

    Targetedamounto

    frevenue

    YearN=2677 (136 extreme observations removed)

    5%

    10%

    25%

    50%

    75%

    90%95%

    1,0

    00

    100

    2007 2008 2009 2010 2011

    Targetedamountof

    personnel

    YearN=2482 (98 extreme observations removed)

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    Only a few companies are pursuing a

    great opportunity

    25%

    52%

    16%

    7%

    Not unique

    Not unique, but differentiated

    Unique in target market

    Unique in the world

    Product or service uniqueness

    30%

    51%

    13%6%

    Not novel

    Not novel, but something new

    The first to target particularly this customer segment

    Entirely new for this customer segment

    Novelty for main customer segment

    5%

    29%

    27%

    39%

    None

    1-3

    4-9

    10 or more

    Number of competitors

    9%

    47%25%

    20%

    Local

    Whole Finland

    International

    Global

    Geographical markets

    8%

    34%

    38%

    20%

    Under 1 million euro

    1-50 million euro

    50 million-1 billion euro

    Over 1 billion euro

    Total size of the market

    11%

    33%

    24%

    31%

    A small business

    Profitable small business

    Growth firm

    Lucrative success story

    Most likely outcome

    N=420

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    Conclusions

    Year 2011 seems to have been a good year for Finnish softwareSMEs. 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 alarger 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 seemto 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.

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    Nokias situation and the cushioning

    role of software SMEs

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    Background

    While large software firms have had a modest yearat best, and foreign firms enter slowly, attentionturns to the hiring capacity of Finnish SMEs

    I.e. firms with

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    Differences in perceptions: 2011 vs. 2012

    Firms that consideredto be unharmed byNokias situation aremore sure about it

    Some 5% of firmsexperienced

    unexpected negativeconsequences, whichapparently are notbusiness-threatening

    Firms also perceivefewer new businessopportunities arising

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    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 inperceived value of ex-

    Nokia skills.

    Firms divided betweenwhat Nokias situation

    will bring to the Finnishsoftware industry

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    Software Industry Survey 2012 www.softwareindustrysurvey.fi

    0

    .1

    .2

    .3

    .4

    Shareoffirms

    0 2 4 6 8 10 12 14 16 18 20

    Number of former Nokia/subcontractor employees hiredN=60

    Distribution of hiring counts among firms thathired former Nokia/subcontractor employees

    Recruitment from Nokia and its

    subcontractors We estimate that Finnishsoftware SMEs have

    hired 650-850 laid offNokia/subcontractoremployees* recently

    These people seem tobe mixing quite evenly

    into the workforce: Evenly per age class Bigger hire more, but about

    0,043 hires per existingemployee across differentsize classes

    19% of responding firmsreport hiring at least oneformer Nokia/subcon.Employee.

    *) This number divides about evenly between former Nokia employees and former Nokiasubcontractor employees

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    Conclusions

    Changes in software SMEs perceptions about the impact of Nokiassituation 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 formerNokia/subcontractor employees, plus the recent 500 job cutsannounced by Tieto.

    More research is needed on the absorbing role of entrepreneurshipand software work outside the software industry (e.g. mechanicalengineering, financial services etc.) to understand the broader jobmarket dynamics.

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    Platforms used in software

    development: Current state and

    forecasts

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    Platforms for which companies developedsoftware for in 2011 and plans for 2013

    Server and desktopplatforms have a

    steady lead

    Mobile and cloudexpected to continue

    growth Mobile to catch up to

    desktop platformdevelopment after

    2013?Game consoles

    Social media platforms

    Embedded platforms

    Cloud platforms

    Mobile platforms

    Desktop platforms

    Server platforms

    0.9%

    8.7%

    12.7%

    26.5%

    34.5%

    59.9%

    66.6%

    2.0%

    11.1%

    14.9%

    37.6%

    52.3%

    60.8%

    67.9%

    50% 25% 0% 25% 50%

    Platforms used in 2011 Platforms to be used in 2013

    N=449

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    Software Industry Survey 2012 www.softwareindustrysurvey.fi

    Platforms for which companies

    developed software for in 2010 and 2011

    Android narrowlyovertakes iOS, butthe platforms arevirtually tied (16.5%vs. 15.5%)

    Windows Phoneovertakes Symbian

    iPad developmentreaching iPhonedevelopment

    Symbian / Meegoshowing resilience

    Meego

    Symbian

    Windows Mobile/Phone

    iOS (iPad)

    iOS (iPhone)

    Android

    3.7%

    7.7%

    4.1%

    4.5%

    8.2%

    6.7%

    5.1%

    6.9%

    10.5%

    10.7%

    12.2%

    16.5

    10% 5% 0% 5% 10%

    Platforms used in 2010 Platforms used in 2011N(2010)=534, N(2011)=449

    Realized Mobile Platform Use

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    Software Industry Survey 2012 www.softwareindustrysurvey.fi

    Platforms for which plan to develop

    software for in 2012 and 2013*

    Plans to use WP goingeven higher

    Though WP is growingfast, there may be a

    Finnish peer pressureeffect to report WP

    plans

    Symbian / Meego set toreduce rapidly

    Symbian

    Meego

    iOS (iPhone)

    iOS (iPad)

    Android

    Windows Mobile/Phone

    4.7%

    5.4%

    16.3%

    13.9%

    23.6%

    23.8%

    2.2%

    2.2%

    24.3%

    26.3%

    33.4%

    34.1

    30% 20% 10% 0% 10% 20% 30%

    Planned use in 2012 Planned use in 2013

    N(2012)=534, N(2013)=449

    Planned Mobile Platform Use

    *) 2012 plans are from the 2011 survey, and 2013 plans are from the 2012 survey

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    Software Industry Survey 2012 www.softwareindustrysurvey.fi

    Platforms for which plan to develop

    software for in 2012 and 2013*

    Plans to use WP goingeven higher

    Though WP is growingfast, there may be a

    Finnish peer pressureeffect to report WP

    plans

    Symbian / Meego set toreduce rapidly

    Symbian

    Meego

    iOS (iPhone)

    iOS (iPad)

    Android

    Windows Mobile/Phone

    4.7%

    5.4%

    16.3%

    13.9%

    23.6%

    23.8%

    2.2%

    2.2%

    24.3%

    26.3%

    33.4%

    34.1

    30% 20% 10% 0% 10% 20% 30%

    Planned use in 2012 Planned use in 2013

    N(2012)=534, N(2013)=449

    Planned Mobile Platform Use

    *) 2012 plans are from the 2011 survey, and 2013 plans are from the 2012 survey

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    Software Industry Survey 2012 www.softwareindustrysurvey.fi

    Implications of Nokias situation in 2012

    WP, iOS, and Androiddeveloping firms seebenefits most often

    from Nokias situation

    MS server developers(e.g. Sharepoint) have

    most upside

    compared todownside

    Unsurprisingly,Symbian and Meego

    developers had most

    downside compared

    to upside

    The firm develops for Windows (desktop)

    Average firm

    The firm develops for Meego

    The firm develops for Symbian

    The firm develops for Microsoft server products

    The firm develops for Android

    The firm develops for iOS

    The firm develops for Windows Phone/Mobile

    13.3%

    14.1%

    14.3%

    20.0%

    22.5%

    27.7%

    28.6%

    30.0%

    10.1%

    9.4%

    50.0%

    45.0%

    7.5%

    14.9%

    17.1%

    13.3%

    50% 25% 0% 25% 50%

    Grasped new business opportunities Lost sales

    N=298

    Perceived impact of Nokia's new strategyon firms developing for different

    software platforms

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    Software Industry Survey 2012 www.softwareindustrysurvey.fi

    Platform use per category of main product

    Android

    MeeGo

    Symbian

    Windows

    iOS

    iOS (iPad)

    50% 30% 10% 10% 30% 50%

    Game or entertainment

    Android

    MeeGo

    Symbian

    Windows

    iOS

    iOS (iPad)

    50% 30% 10% 10% 30% 50%

    Consumer application

    Android

    MeeGo

    Symbian

    Windows

    iOS

    iOS (iPad)

    50% 30% 10% 10% 30% 50%

    Business application

    Android

    MeeGo

    Symbian

    Windows

    iOS

    iOS (iPad)

    50% 30% 10% 10% 30% 50%

    Portal or web service

    Android

    MeeGo

    Symbian

    Windows

    iOS

    iOS (iPad)

    50% 30% 10% 10% 30% 50%

    Other type of product

    Android

    MeeGo

    Symbian

    Windows

    iOS

    iOS (iPad)

    50% 30% 10% 10% 30% 50%

    No products

    N=435

    Used in 2011 Plans to use in 2013

    Game, consumerapplication andbusiness application

    developers already do

    lots of development

    on mobile, and set to

    increase

    Game companiesseem to finally

    embrace WP

    Surprising presence ofSymbian/Meego in

    consumer apps.

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    Software Industry Survey 2012 www.softwareindustrysurvey.fi

    Development for mobile and businessopportunities

    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 awell-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.

    10%

    51%

    24%

    15%7%

    40%

    25%

    27%

    No mobile development Develops for mobile

    Local Whole Finland

    Internat ional Global

    Geographical markets

    N=429

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    Conclusions

    Mobile platform development growing andcatching up to desktop development.

    Android most popular mobile platform, butvirtually tied with iOS.

    Windows Phone making strong gains at number3, but some future expectations in adoption maybe overstatements.

    Firms clearly see opportunities in mobile, andmissing out may divide firms into more and less

    successful ones.

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    Software Industry Survey 2012 www.softwareindustrysurvey.fi

    Contact information

    http://www.softwareindustrysurvey.fi Mikko Rnkk, Research Manager

    Email: mikko.ronkko@aalto.fi

    Tel.: +358 50 387 8155

    Juhana Peltonen, ResearcherEmail: juhana.peltonen@aalto.fiTel.: +358 40 508 4020

    www.softwareindustrysurvey.org

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    Appendix: (Partial) extrapolation

    procedure on recruitment

    Recruited personnel

    Total personnel From Nokia From subcontractors

    Size All firms, Resp. Sample Resp. All firms, Resp. All firms, Estim.class estim. firms coverage firms estim. firms estim. total

    ... 4 3293 324 9.8% 12 122 4 41 163

    5... 9 1953 374 19.1% 8 42 7 37 7810... 19 2641 526 19.9% 16 80 22 110 19120... 49 3757 1151 30.6% 27 88 20 65 15350... 99 2281 821 36.0% 21 58 20 56 114100... 249 3720 515 13.8% 6 43 15 108 152

    Total 17644 3711 90 434 88 417 851

    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.