The 1995 Soft-Letter 100.

Long ago in 1984 (at least it seems long ago, in software years) we put together our very first Soft*letter 100 rankings. It didn't take much in those days to break into the top ranks of this fledgling business: The smallest company on the list, Cimarron Software, reported annual sales of just $300,000, hardly a decent garage shop operation by today's standards. Many of the companies we contacted were amazed by the notion that anyone would reveal sales figures, and a few (we later discovered) simply pulled numbers out of thin air. But it was a start.

Today, a little more than a decade later, personal computer software has become a good deal more serious. Our top hundred companies--drawn from a universe of more than 3,000 independent publishers and developers--now include several billion-dollar corporations; more than a quarter of the companies in our rankings generate at least $50 million in annual revenues. In calendar 1994, Soft*letter 100 companies earned more than $13 billion in total revenues and employed 55,407 people. And almost half of our top 100 have already gone public--another sign of industry maturity.

One consequence of the industry's rapid growth is that the Soft*letter 100 itself has taken on a new role. Our rankings started as a simple yardstick of sales success, but increasingly the blizzard of data we collect has become a source of useful benchmarks about everything from comparative growth rates and employee productivity to Microsoft's (alleged) monopolization of the marketplace. Often, this data helps answer big-picture questions that are more interesting than the appearance or disappearance of particular companies on each year's list:

* Where are the hottest growth opportunities these days?

Overall, personal computer software continues to be an extraordinary engine for growth. The median growth rate for this year's individual top 100 companies is a hefty 21%, up from last year's median rate of 18%. (This method of calculating growth treats all companies as equal data points, regardless of their size. An alternate method--which gives proportionately greater weight to larger companies-- is to compare this year's total Soft*letter 100 revenues of $13.209 billion against last year's $11.063, which yields an industry-wide growth rate of 19%.)

But the more interesting issue is where this growth is occurring. This year's numbers suggest several answers:

* Microsoft is a high-growth segment by itself: Microsoft's $5.266 billion in revenues currently accounts for two-fifths of all 1995 Soft*letter 100 revenues, and the Microsoft "segment" of the market is growing significantly faster--28%--than the rest of the industry. Even though Microsoft's growth has slowed somewhat as a result of the Windows 95 delay, moreover, the company has managed to sustain an average year-to-year growth rate of 41% over the past five years. That's better than the rest of the industry's five-year average of 24% growth--and much better than the rest of the industry's ten largest companies, whose median growth in 1994 was a rather lackluster 7%.

* Communications and consumer software are the hot niches: Most software companies don't break out sales or growth rates for individual product lines, but the data we collect on best-selling titles provides a reasonably accurate way to measure growth rates by market segment. Not Surprisingly, companies with a primary emphasis on communications products (e-mail, networking, groupware, and PC-to-host connectivity) were the growth leaders last year, with an average growth rate of 83% for 14 companies in this category.

Another segment that continued its above-average growth was consumer and entertainment software. Here, the average growth for 17 companies in this category was 70% (compared to 12% average growth for 20 companies in the general business category and 22% for 19 companies in the vertical and job-specific category).

* Is there a massive shakeout under way that will end with a marketplace dominated by just a handful of companies?

This question--which lately seems to engender almost as much national press coverage as the O.J. trial--has no easy answers. Last year we witnessed an extraordinary number of mergers and acquisitions among major Soft*letter 100 companies. WordPerfect, Aldus, Central Point, Software Toolworks, and Peachtree all ceased to exist as independent companies during 1994, while several others--notably Intuit-- announced but haven't yet inked final merger deals.

The other side of the coin of these departures is the flow of new companies into the PC software marketplace, often in emerging categories that larger firms have been slow to exploit. Usually these newcomers are entrepreneurial startups--but just as important is the migration of well-established companies from enterprise and workstation software, hardware, and high-end vertical markets. Many of these newcomers are companies like Computer Associates, Apple, H&R Block, ADP, and Oracle, whose PC software businesses are often surprisingly robust.

In the final analysis, however, there are signs that the software marketplace in fact has begun to lose much of its traditional diversity. Over the past few years, smaller developers have given up a good deal of market share to Microsoft and a few other industry giants (see chart). In calendar 1994, for example, Microsoft's $5 billion in sales repesented 39.9% off total Soft*letter 100 revenues, up from 37.1% in calendar 1993 and 35.1% in calendar 1992. The nine other Top Ten publishers controlled another 41% of total Soft*letter 100 revenues, leaving less than 19% for the remaining 90 companies. If this trend continues--and we suspect it will--small, independent software companies will certainly survive, but they will play an increasingly marginalized role in mainstream software markets.

* What's the news on the productivity front?

Last year was a banner year for efficiency. At the end of calendar 1994, Soft*letter 100 companies employed a total of 55,399 people, up 10% from the previous year's 50,398. Since overall sales increased at a faster rate than headcount, the result was another healthy increase in productivity. Overall, the 100 companies on our list averaged $238,578 in sales per employee, compared to a calendar 1993 benchmark of $219,504.

Not surprisingly, most of the industry's employees (74%) work for the ten largest companies on our list; Microsoft alone employs 30%. But, with a few exceptions, the top ten generally aren't the most productive. Instead, the real efficiency champions tend to be smaller firms, often those that focus on the consumer segment or OEM markets (see chart).

And once again, Microsoft's long-term performance offers depressing news for its rivals. Year by year, the industry's largest company has pushed its productivity trendline steadily upward:

  Calendar 1994 sales/employee:  $321,509  Gain: +15.3%
  Calendar 1993 sales/employee:  $278,822  Gain: + 8.9%
  Calendar 1992 sales/employee:  $256,063  Gain: +12.6%
  Calendar 1991 sales/employee:  $227,500  Gain: + 6.4%
  Calendar 1990 sales/employee:  $213,884  Gain: + 7.5%

* Any surprises on the international front?

Overseas markets continue to be big money-makers for the industry's ten largest companies, which last year generated an average of 39% of their revenues from the international market. But the more interesting trend occurred among smaller companies, many of whom dramatically stepped up their export activities. Reflecting this heightened activity, the median export percentage for all Soft*letter 100 companies jumped from 15% in calendar 1993 to 20% in calendar 1994.

  1995 Growth Leaders

   1. 7th Level (#92)                  398%
   2. MicroHelp (#55)                  299
   3. ConnectSoft (#78)                243
   4. Campbell Software (#99)          169
   5. Attachmate (#6)                  169
   6. ON Technology (#40)              166
   7. Insignia Solutions (#30)         113
   8. Maxis(#32)                       102
   9. Citrix (#66)                     101
  10. Nova Logic (#70)                  93

  1995 Productivity Champions

   1. MicroHelp (#55)                $478,667
   2. Activision (#31)(**)           $414,478
   3. Amer. Small Bus. (#60) (**)    $395,143
   4. Adobe (#4)(**)                 $377,350
   5. Nova Logic (#70)               $353,407
   6. FormGen (#67)                  $323,065
   7. Microsoft (#1)(*)              $321,509
   8. Broderbund (#11)               $293,484
   9. Interplay (#23)(*)             $284,995
  10. Maxis (#32)                    $274,684

(*) Ranked among the 1994 top 10 productivity leaders.

(**) Ranked among the 1992-94 productivity leaders.

  1995 International
   Sales Leaders

   1. DataEase (#50)          62%
   2. Data Access (#74)       61%
   3. Autodesk (#5)           60%
   4. Micrografx (#22)        59%
   5. Cheyenne (#13)          52%