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The 1991 Soft Letter 100.

* THE 1991 SOFT*LETTER 100 As this year's Soft*letter 100 goes to press, the Federal Trade Commission is in the early stages of an antitrust investigation aimed at Microsoft, a company that has dominated the top position in our annual rankings for the past four years. Whatever the ultimate outcome of the FTC's case, the investigation underscores an increasingly troubling question: Is Microsoft likely to end up with a near-monopoly of the software marketplace?

Clearly, this year's Soft*letter 100 suggests that there are reasons for concern. During 1990, Microsoft's revenues reached $1.447 billion, equal to 25.4% of the $5.704 billion generated by the industry's 100 largest independent personal computer software companies. Moreover, that percentage is rising at about 2% a year: In 1989, Microsoft generated 22.5% of total Soft*letter 100 revenues, up from 21.3% in 1988. Employment statistics show a similar pattern: Microsoft's year-end headcount was 6,769, which represents 22% of the 30,870 people who work for Soft*letter 100 firms.

And the gap seems to be widening. Microsoft's sales increased by 52% in 1990, compared to a combined growth rate for all Soft*letter 100 companies of 34%. At the same time, Microsoft's employment base expanded by 41% during 1990, while Soft*letter 100 employment as a whole grew by a more modest 34%. If Microsoft can sustain this rate of growth for another three years--a scenario that's not entirely far-fetched--its 1993 revenues will exceed $5 billion and its payroll will top 18,000. (At that point, rather than compile the 1994 Soft*letter 100, we may just send our subscribers copies of Microsoft's annual report.)

But a Microsoft takeover of the software industry is by no means a done deal. Personal computer software remains a remarkably volatile business, with plenty of opportunity for challengers and upsets. In addition to Microsoft, there are now 11 companies with annual revenues in excess of $100 million each, virtually all of whom compete--often in a highly focused fashion--with Microsoft's various business segments. Seven of these companies did not even exist before 1982; most have undergone cycles of extraordinarily rapid growth, and are well positioned to surge ahead again, given the right combination of product strategy and market opportunity. If the history of the Soft*letter 100 proves anything, it's that simple straight-line growth projections are almost always wrong.

In fact, one of the recurring themes of our annual Soft*letter 100 rankings is the instability of a high-growth marketplace. Over the years, we have seen dozens of companies displaced by more agile competitors, by sudden product obsolescence, or by classic foot-shooting mistakes. Software is fundamentally a niche business, where new companies can stake out positions in segments that are virtually free of competition. By the time traditional market leaders begin to take these new niches seriously, the pioneers typically have established themselves as well-entrenched market standards.

Moreover, the software marketplace tends to reward generously those companies that break ground for new channels and innovative marketing strategies. This year, for example, we began collecting data on international sales--and found a small group of companies that have quietly built substantial overseas sales (worth 50%-90% of total company revenues). Similarly, many of this year's highest-growth companies are either newcomers to our rankings or successful players in niches that usually aren't considered part of the personal computing mainstream. Regardless of the fate of Microsoft and other companies at the high end of our rankings, we're convinced that the Soft*letter 100 will continue to see new companies based on emerging markets, leading-edge technologies, and fresh approaches to marketing and management.

Growth leaders: Overall, the software industry in 1990 grew at its usual healthy pace. The Software Publishers Association (which tracks retail sales of 150 software companies) reported 26% growth in North American applications software sales. Soft*letter 100 companies, which include developers of system-level products as well as applications, grew at an even faster rate. In the aggregate, our top 100 companies reported 34% growth for the calendar year (total 1990 sales vs. total 1989 sales for the same companies). The average growth rate for individual companies (unweighted by size) was 40%. A total of 84 companies recorded growth rates of 2% to 420%; 15 companies saw a decline in sales, from -3% to -51%%; and one, Microrim, experienced 0% sales growth.

Here's how the ten fastest-growing companies on our list performed during 1990:

Employment and productivity: Two-thirds of the 30,870 people employed by Soft*letter 100 firms work for the ten largest companies on our list, whose year-end headcount ranged from 690 (Adobe, #8) to 6,769 (Microsoft, #1). However, Soft*letter 100 firms are typically much smaller organizations. Median employment for the group as a whole was 84 employees, up slightly from last year's median of 0. The smallest company on our list, Delta Technology (#99), employed eight people.

Software companies may be relatively small employers, but they remain among the most productive of any industry. Average sales per employee for Soft*letter 100 companies is currently $151,957. Size confers some productivity advantages: Average sales per employee for the top 25 firms on our list is $198,065, compated to $118,046 for the 25 smallest. (Microsoft, which ranks #16 in sales productivity, generates $213,884 from each employee, which is not significantly different than the productivity levels achieved by such smaller rivals as Lotus ($210,309) or Borland ($218,047).

Often, there's no magic to these high levels of productivity. For example, companies with large OEM accounts (like Adobe) tend to be exceptionally productive. Entertainment software companies, especially those with Nintendo products and affiliated label agreements (Mediagenic, Electronic Arts, Software Toolworks), also generate high sales volumes with relatively small in-house staffing. But just as often the reason for exceptional sales productivity is more elusive--and probably reflects tight management as much as any other explanation. Whatever the reason, sales productivity seems to be a repeatable phenomenon: Six of this year's top ten productivity superstars appeared on last year's productivity leaders list.

International: Sofware is becoming an increasing global industry. Although some Soft letter 100 companies still do not produce much revenue from sales outside the U.S., our top hundred firms generated 395 of total revenues in 1990 from overseas sources. To be sure, that percentage is influenced heavily by the international activities of a few large companies (our top 25 companies averaged 34% in international sales, compared to 14% for all others). But the average for individual companies is still a fairly high 19%--and that number is certainly rising.

Ranked by percentage of non-U.S. sales, here are this year's top ten exporters:

International Sales Leaders

Software Products International (#32) 91% Digital Research (#17) 78% Ashton-Tate (#6) 62% Data Access Corp. (#59) 60% Nantucket (#22) 57% Autodesk (#5) 56% Microsoft (#1) 55% Blyth Software (#87) 53% WordStar (#19) 52% Wordtech Systems (#89) 50%

Development platforms: For the third year, we compiled statistics on the various development platforms supported by Soft*letter 100 companies. Soft*letter 100 companies as a group represent the largest part of the personal computer software world, so these statistics are an important indicator of the overall penetration of various platforms. Not surprisingly, 93% of companies continue to market DOS-based products. Both Windows (31%) an the Macintosh (54%) gained ground last year, while OS/2 dropped sharply (from 35% to 24%). At the high end, Unix (29%) and VAX/VMS (12%) continue to be popular options. Among consumer and entertainment software companies, we see a continuing trend away from traditional platforms--the Apple II, Commodore 64/128, Atari, and Amiga. To a large extent, these numbers highlight the fact that most companies have adopted multi-platform development strategies, but we note that 18 developers on our list still support only one platform.

Geography: California continues to lead as the favorite home base for Soft*letter 100 companies, with 41 firms. New England holds second place, with 13 (nine in Massachusetts, two each in Connecticut and New Hampshire). Washington State, with seven companies, is the industry's third most popular headquarters choice.

Public & private: Although many of the industry's largest companies are now publically owned, the Soft*letter 100 continues to be dominated by privately held companies. Currently, 73 firms are private, and 27 are public (up from 22 last year).

Departures: This year, 21 companies from last year's Soft*letter 100 did not return to the 1991 rankings, a dropout rate that is typical of our annual rankings. (Because of this turnover, year-to-year comparisons of Soft*letter 100 data aren't always meaningful.) Eight failed to provide current data, six were disqualified (see the discussion of eligibility requirements under "Notes on Methodology"), five were acquired (a rate consistent with previous trends), one ceased operations, and one reported sales below this year's cutoff.


Logitech (#7 last year) No longer qualifies Index Technology (#18) No longer qualifies Softbridge (#20) No longer qualifies Peter Norton Computing (#24) Acquired (Symantec) IMRS (#32) No longer qualifies Microway (#34) No longer qualifies Samna (#47) Acquired (Lotus) Quadratron (#48) No longer qualifies Silicon Beach (#50) Acquired (Aldus) The Learning Company (#53) No current data Matrix (#68) Out of business Rightsoft (#77) Acquired (Macmillan) Executive Systems/XTree (#70) No current data Gold Hill (#81) No current data Softsync (#82) Acquired (BLOC) Olduvai (#84) Below cutoff Computer Aided Management (#86) No current data Chronos (#87) No current data GeoWorks (formerly Berkeley) (#93) No current data Enertronics (#99) No current data Zenographics (#99) No current data


The Soft*letter 100, first published in 1984, is now older than a dozen of the companies that have earned places on our current list. During that time, our eligibility rules have evolved with the industry itself. Our basic standard remains unchanged: To be ranked, a candidate must be an independent U.S.-based company (subsidiaries do not qualify) that generates at least 50% of its revenues from personal computer software development or publishing. But what exactly is "personal computer software"? Clearly, hardware (that is, a class of machines called "microcomputers") no longer defines the industry in any meaningful way. Nor do we get much guidance these days from operating systems or--in an increasingly networked world--from single-user vs. multi-user support. Even such criteria as sales channels, customization, and pricing don't help much, because vendors of high- and low-ebd systems are rapidly converging on a hybrid marketing and support model that borrows from both ends of the product spectrum.

Still, we believe there is a genuine distinction between "personal" software and software that supports enterprise-wide "organizational" purposes. Among the criteria we find useful are ownership (who owns the software, the task it performs, and the data?), buying patterns (is the product usually bought by individuals or by MIS groups; is it advertised and reviewed in publications aimed at end users or MIS managers?), and integration (does the software function as part of open end-user systems or is it tightly tied into enterprise systems?).

The most difficult test of these criteria has been in the area of CASE and knowledge-based tools. Typically, companies in these markets--which include companies we've previously included in our rankings, such as Index, Softbridge, and IMRS--sell relatively high-priced products that use PCs to create (or access) applications for larger systems. For the moment, we've decided these aren't "personal software" companies--but we'll try to keep an open mind about this issue, and perhaps the boundaries will shift in the future. (To further complicate this issue, we decided this year to include networking companies whose products primarily support personal applications; thus Novell belatedly joins the Soft*letter 100 in the #3 position.)

Another category we exclude is software for dedicated or single-purpose hardware platforms. That rule is particularly relevant at the low end of the market, where videogame software has generated enormous sales. We recognize that videogame machines will probably evolve into true personal computers within the next few years, but for the moment companies that develop primarily for Nintendo and related systems aren't eligible for Soft*letter 100 ranking.

Finally, Soft*letter 100 readers will also notice that our rankings don't include several major industry players, some of which are private (and who choose not to provide data about sales) and others that are subsidiaries of larger companies, such as IBM, Apple, Tandy, and Xerox (none of which breaks out sales data on subsidiaries). As part of our research process, we accept only data that has been supplied on the record by companies themselves; thus, for the sake of consistency and accountability, we've chosen not to fill in the gaps with analysts' estimates or anonymous sources.

Electronic editions: Copies of the 1991 Soft*letter 100 are available in several disk-based worksheet formats, including Lotus 1-2-3 (3.5" and 5.25") and Excel (Macintosh), for an additional $50 charge (prepaid only). In addition, we publish received over the past four years, available for $145.
COPYRIGHT 1991 Soft-letter
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1991, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:listing of top 100 software vendors in U.S.
Date:Apr 16, 1991
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