The enterprise software market is shrinking – and old stars ain’t shining

I am off to CES in less than 3 hours, so I’ll make it quick: Bill Burnham has a series of great posts regarding the Internet and Enterprise software sectors of the public market, particularly:

In a nutshell, and I recommend taking a look at the compilation of data points and analysis work done by Bill: 4 software IPOs in 2005, a lot of Web 1.0 software darlings are in the list of worst performers for 2005, and the aggregate valuation of the Software sector has shrunk  by 10% in 2005 – to compare with a modest 1.4% growth of the Nasdaq and a nice uplift of 14.4% of the Internet sector.

Bill lists five reasons behind this systemic decrease of the sector, which does not look too good for 2006:

  1. Software is moving from “growth” to “value”
  2. Open Source and Software as a Service
  3. No big platform transition.
  4. Networking companies are encroaching on software company turf
  5. Being public ain’t so great

I would also add that the consolidation of the Software sector around IBM, Oracle, SAP, Microsoft and a few others is leading to limited M&A premiums – both for public and private companies.

There are exceptions though such as the $375M acquisition of Wily Technologies by CA, a 6X multiple on revenues and a nice payoff for VC investors who put in $37M.


  • Kedar

    I was just reading GS report for 2006 and beyond. According to them enterprise spending is gone increase where as consumer spending is gone decrease (which in turn decreases advertising for social internet stuff).
    It is quite amazing to get two different opinions in a single day.

  • http://dumbmba.wordpress.com/2006/01/06/the-incredibly-shrinking-software-industry/ Dumb MBA

    Software Industry We Will Not Miss You

    The post on the Shrinking Software Industry has triggered posts from Mr. Burnhams colleagues. Software Only, Paul Kedroskys Infectious Greed, and Occams Razor. These are all good follow up post supporting the Shrinkage of the Softw…