U.S. Software Market Posts Best Performance in 7 Years

By Peter Galli  |  Posted 2008-01-31 Print this article Print

The dollar volume growth from Windows and Office represented about 80 percent of the volume growth for the entire PC software retail market, an analyst says.

The non-games software market in the United States reported its best performance since 1999 last year, in large part due to the release of Windows Vista and Office 2007, and in smaller part due to releases from Apple and Adobe.

U.S. software sales rose 15 percent in 2007 to $3.3 billion from sales of $2.9 billion in 2006, spurred by what consumer and retail information company NPD Group described in a report as a "perfect storm" of new product releases.

This spike in sales growth comes after a period of relative flatness for the non-games market between 2000 and the end of 2006, where there was a compound annual growth rate of about 2 percent, Chris Swenson, director of software industry analysis at NPD, told eWEEK.

Also, as previously reported by eWEEK, Microsoft Office led the pack with year-over-year growth of 50 percent, accounting for 17 percent of all dollar volume in the U.S. retail PC software market.

"The combined year-over-year dollar volume growth from Windows and Office is roughly 80 percent of the volume growth for the entire PC software retail market over the year," Swenson said.

As such, operating system software led the charge, rising 58 percent in dollar terms year over year, he said, noting that Windows Vista was a large contributor to these gains.

In fact, a Microsoft-sponsored NPD study, which is currently underway, asked a sample of people who had bought a Vista PC in 2007 if they were satisfied with the operating system. "The vast majority said yes, with 70 percent being either satisfied or very satisfied," Swenson said.

But the findings also indicate that Microsoft really has to work with software companies and peripheral manufacturers to make sure third-party applications and devices work seamlessly with Vista, he said.

"I'm sure Vista SP1 will take care of much of this. But the notion that few U.S. consumers are happy with the Vista experience is just not supported by the evidence," Swenson said.

Despite these numbers, Vista has had a slow start with businesses, many of which have decided to wait until after Vista Service Pack 1 is released later this quarter before considering an upgrade to the latest edition of Windows.

Has Microsoft disavowed Vista? Click here to read more.

With regard to other software sales, business software was up 41 percent in dollar terms year over year, while finance software gained 13 percent.

Imaging and graphics software rose 10 percent over 2006 on the back of the release of Adobe's Creative Suite, along with all of the leading tools in its suite of products. This new version sold some 80 percent more units than the previous one over the same period of time, Swenson said.

While security software posted a 16 percent sales rise in dollar terms over the year, sales of security suite software rocketed 55 percent, with Symantec, McAfee, Trend Micro and Microsoft all experiencing year-over-year dollar volume gains in 2007. "The main driver is the move away from individual point tools towards integrated solution," he said.

Tax software publishers Intuit and H&R Block also had a banner year after working to make their premium products more attractive to users in 2007, and eliminating rebates and state tax SKUs, which caused year-over-year retail tax software sales to drop in 2006, Swenson said.

Not all sectors posted increases, however, with personal productivity software seeing a year-over-year 18 percent decline in dollar terms, and educational software falling 17 percent over the same time period.

Peter Galli has been a financial/technology reporter for 12 years at leading publications in South Africa, the UK and the US. He has been Investment Editor of South Africa's Business Day Newspaper, the sister publication of the Financial Times of London.

He was also Group Financial Communications Manager for First National Bank, the second largest banking group in South Africa before moving on to become Executive News Editor of Business Report, the largest daily financial newspaper in South Africa, owned by the global Independent Newspapers group.

He was responsible for a national reporting team of 20 based in four bureaus. He also edited and contributed to its weekly technology page, and launched a financial and technology radio service supplying daily news bulletins to the national broadcaster, the South African Broadcasting Corporation, which were then distributed to some 50 radio stations across the country.

He was then transferred to San Francisco as Business Report's U.S. Correspondent to cover Silicon Valley, trade and finance between the US, Europe and emerging markets like South Africa. After serving that role for more than two years, he joined eWeek as a Senior Editor, covering software platforms in August 2000.

He has comprehensively covered Microsoft and its Windows and .Net platforms, as well as the many legal challenges it has faced. He has also focused on Sun Microsystems and its Solaris operating environment, Java and Unix offerings. He covers developments in the open source community, particularly around the Linux kernel and the effects it will have on the enterprise.

He has written extensively about new products for the Linux and Unix platforms, the development of open standards and critically looked at the potential Linux has to offer an alternative operating system and platform to Windows, .Net and Unix-based solutions like Solaris.

His interviews with senior industry executives include Microsoft CEO Steve Ballmer, Linus Torvalds, the original developer of the Linux operating system, Sun CEO Scot McNealy, and Bill Zeitler, a senior vice president at IBM.

For numerous examples of his writing you can search under his name at the eWEEK Website at www.eweek.com.


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