Printer Friendly

The 1992 Soft Letter 100.

* THE 1992 SOFT-LETTER 100

Back in 1986, we began paying attention to a new financial ratio for Soft*letter 100 companies--sales per employee. This ratio has turned out to be a remarkably useful yardstick for measuring productivity and management performance. During last year's Borland-Tate merger, for example, Philippe Kahn relied heavily on sales-per-employee comparisons to show how Borland's "barbarian" management gave his company an edge over the Ashton-Tate bureaucracy. Similarly, Lotus based a year-end decision to trim 400 employees on its own declining sales productivity numbers. For better or worse, sales-per-employee ratios seem to be driving more high-level management decisions than ever before.

If we use sales productivity as a yardstick of performance, it's clear that the personal computer software industry as a whole is a paragon of productivity. This year's Soft*letter 100 companies--the software industry's 100 largest independent firms -- generated $7.582 billion in calendar 1991 revenue and employed 39,063 people, equal to an average sales-per-employee ratio of $194,085. That's a level of sales productivity that outstrips almost every Fortune 500 high-technology industry segment, including computers and office equipment ($154,988), electronics ($127,148), and scientific and photographic equipment ($135,184).

But what these aggregate numbers don't show is the wide variation in productivity among individual companies. In general (as the chart on this page suggests), larger software companies tend to be productivity leaders. Microsoft, our perennial revenue champion, this year produced $227,500 in revenue for each of its 10,000 employees. Likewise, the top ten companies in our list (who now account for almost 70% of total Soft*letter 100 staffing) averaged $212,911 in sales per employee. The higher productivity of large firms also shows up when we look at the quartile statistics:


However, size alone doesn't create automatic economies of scale for software companies. When we look at the top 10 productivity leaders this year, it's interesting to note how many relatively small companies appear on this list:


At the same time, it's clear from this list that sales productivity metrics don't always tell a complete story about a company's performance relative to its competitors. Activision tops this year's productivity rankings chiefly because of year-end layoffs (we count employees as of Dec. 31); Adobe shows up well because of its substantial OEM business; and others have "outsourced" such people-intensive functions as manufacturing and sales. (One of the problems with sales-per-employee comparisons is that a $500,000 chief executive and a $15,000 support technician count equally as employees, so that companies can make their productivity numbers look better simply by replacing low-paid employees with outside contractors.)

It's also significant to note that there seems to be a modest upward trend in sales-per-employee statistics. In 1990, the aggregate average for Soft*letter 100 companies was $184,775 in sales per employee; this year, the number has risen by 5% to $194,085. Most of this gain comes from greater productivity among the industry's largest employers--though four of the firms in this group actually showed productivity declines during the year: TABULAR DATA OMITTED

Growth leaders: once again, the industry's top hundred companies reported dramatically high growth rates. There are a variety of ways to calculate growth for a group of companies like the Soft*letter 100 (which seems to cause endless confusion for people who like simple USA Today-style statistics), but the different methods all yield roughly similar results--annual growth in a 30%-35% range:

* The year-to-year growth rate, which compares this year's total Soft*letter 100 revenues of $7.582 billion to last year's $5.704 billion, was 33%. This rate also shows total marketplace growth trends, but it is skewed somewhat by turnover in the group of companies that make up each year's list. (Last year, year-to-year growth was 41%, based on calendar 1989 revenues of $4.053 billion.)

* The weighted average growth rate, which we calculate by comparing total 1991 Soft*letter 100 sales to 1990 sales for the same companies, was 32%. This weighted average is strongly influenced by the performance of a few large companies--in particular, Microsoft-- but it is one of the best measures of total growth in the software marketplace. (Last year's weighted average growth was 34%.)

* The unweighted average growth rate, which treats small and large company growth rates as equal data points, was 35%. This rate, along with the median rate, is usually the most appropriate measure for managers who want to compare their own company's growth against an overall industry benchmark. (Last year, the unweighted average growth for Soft*letter 100 companies was 40%.)

* The median growth rate, which reflects the midpoint between 1991's highest and lowest growth rate numbers, was 28%. Eighty-two companies reported positive growth rates; three had flat years, and 15 declined. (Last year's Soft*letter 100 median growth rate was 31%) When we look at the relationship between growth rates and company size, we see that smaller and larger companies experienced very similar rates of growth: TABULAR DATA OMITTED

Finally, here's how the ten fastest-growing companies on our list performed: TABULAR DATA OMITTED

International: U.S. software companies continue to derive a substantial part of their revenues from global markets. International sales contributed 16% of revenues (median) for Soft*letter 100 companies as a whole, but large companies continue to have a much greater lead in overseas markets. The top 10 in this year's Soft*letter 100 generated an average of 46% of their revenues from overseas sales (up from 39% last year), compared to an average of 14% for the bottom 50 companies on the list. Ranked by percentage of non-U.S. sales, here are this year's top exporters: TABULAR DATA OMITTED

The Microsoft Watch: In 1991, Microsoft captured 30.0% of total Soft*letter 100 revenues. That's a substantial gain over 1990's 25.4% share, and it also represents a significant escalation in the average 2%/year revenue share growth we've seen over the past several years. (In 1988, Microsoft's Soft*letter 100 revenue share was 21.3%; in 1989, 22.5%.)

Public and private: The 1992 Soft*letter 100 include 31 public companies (up from 27 last year and 22 the year before) and 69 that are privately held. In terms of total revenues, however, public companies now dominate the industry: This year, 79% of all Soft*letter 100 revenues were generated by public companies.

Departures: Nineteen companies from last year's Soft*letter 100 vanished from this year's list, a dropout rate that's fairly typical of the turnover we see in our annual rankings. Five were acquired (including Ashton-Tate, once one of the industry's "Big Three"), four reported sales below our cutoff point, six failed to provide current data, and four were disqualified (see the discussion of eligibility requirements under "Notes on Methodology"). TABULAR DATA OMITTED


The Soft*letter 100, published annually since 1984, is defined formally as "a ranking of the top 100 personal computer software companies in the U.S., based on calendar year revenues." That definition (which continues to evolve along with the industry itself) helps explain why some companies appear on our list, and why others are excluded.

Our basic eligibility rules are simple: To be ranked, a company 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. For the great majority of companies we review, eligibility is a straightforward issue. But every year we are challenged by several dozen more difficult cases that we try--not always to everyone's satisfaction--to treat logically and consistently.

Perhaps the biggest problem is creating a workable definition of -personal computing." Traditionally, personal computer software was any product that ran on a microcomputer-based machine. That definition has become increasingly obsolete, however, now that microcomputer architectures (and micro-based operating systems) have taken over large portions of the server, workstation, and minicomputer markets. Hardware platforms and operating systems simply do not tell us much any more about the nature of the software they support.

So what does define "personal" software? In determining eligibility, we now look at several issues: patterns of use (does the user perform personal tasks or operate as part of a workgroup or enterprise-wide system?), pricing (is the price level appropriate for personal or enterprise-wide applications?), distribution channels (in particular, is the product marketed to individual end users or MIS managers?), and the local computing environment (does the product function in an open, multi-product world or only as part of a closed and centralized system?).

Even with these criteria, we're left with several borderline cases, especially "front end" applications and tools for client-server systems that are often priced and distributed as enterprise-wide products but which nevertheless deliver a high degree of personal computing power to individual end users. We keep trying to come to grips with the eligibility of these products and their developers, because we believe that such hybrids (for example, Lotus Notes) represent an important model for the rest of the software industry.

On another front, we don't include companies that create software for dedicated or single-purpose hardware platforms. This rule primarily applies to the videogame segment, where the basic platforms as yet don't support general purpose applications.

Finally, our rankings only include companies that supply data on the record. To insure accountability, we don't accept estimates from analysts or other sources; thus, several privately held firms do not appear in our rankings because they declined to provide us with revenue data--though we're pleased to note that the number of holdouts continues to shrink every year.


Electronic editions: Copies of the 1992 Soft*letter 100 are available in several disk-based formats, including Lotus 1-2-3 (3.5" and 5.2511 disks) and Excel (macintosh), for an additional $50 charge (prepaid orders only). We also publish a master database that contains all the Soft*letter 100 questionnaire responses we've received over the past five years, available prepaid for $145.
COPYRIGHT 1992 Soft-letter
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

Article Details
Printer friendly Cite/link Email Feedback
Title Annotation:listing of top 100 software publishers
Date:Apr 7, 1992
Previous Article:Lotus.
Next Article:The next frontier: service automation.

Related Articles
The 1990 Soft-letter 100.
The 1991 Soft Letter 100.
Is consolidation just a myth?
High growth, low productivity?
The 1993 Soft Letter 100.
Financial ratios: "doubtful accounts."
The 1994 Soft*letter 100.
The 1995 Soft-Letter 100.
The 1996 Soft*Letter 100.

Terms of use | Copyright © 2016 Farlex, Inc. | Feedback | For webmasters