The software industry includes businesses involved in the development, maintenance and publication of computer software using any business model. The industry also includes software services, such as training, documentation, and consulting.
The largest and most profitable of software companies are located in the United States. As of 2008, the client software industry is dominated by Microsoft. Software Magazine's 500 list in 2005 shows the total amount of revenue brought in by software companies per locale, with the highest being California due to Silicon Valley and the number of Fortune 500 software companies residing in that area.
There are several types of businesses in the software industry. The largest and most profitable publish horizontal proprietary software such as Microsoft, SAP AG, Oracle Corporation, and Adobe. Others develop vertical-market software intended for a particular sector or niche in the economy such as finance, health care, insurance, retail, automotive manufacturing, and so on. A great deal of specialized software is produced for various niches. Other companies do contract programming to develop unique software for one particular client company, or focus on configuring and customizing suites from large vendors such as SAP or Oracle. And a few companies publish or support open source software. Developing proprietary software involves software licensing and the need to protect the software from cracking and piracy.
The software industry started in the early 1960s when universities and businesses first began to use computers and to seek out programs to do certain computing tasks. Many of these programs were written in-house by full-time staff programmers. Some were distributed freely between users of a particular machine for no charge. But others were done on a commercial basis, and the very first standalone software firms started in the United States in 1959-1960.
The industry expanded greatly with the rise of the personal computer in the mid-1970s, which created a growing market for games, applications, and utilities. And gradually the concept that software should be bought and paid for took hold. One of the earliest proponents of this view was Bill Gates, founder of Microsoft.
In the early years of the 21st century, another successful business model has arisen for hosted software, called software as a service, or SaaS; this was at least the third time this model had been attempted. SaaS reduces the concerns about software piracy, since it can only be accessed through the Web, and by definition no client software is loaded onto the end user's PC.
Size of the industry
Software Magazines' Software 500 survey can be used to gauge the value of the commercial software industry. The Software 500 survey consists of data from the largest 500 public and private software companies, as ranked by Software Magazine. Total worldwide revenues in 2007 for companies in the Software 500 list were $451.8 billion, up 14.7% from 2006, when total Software 500 revenue was $394 billion.