The press (and I assume the blogosphere) is picking up on Steve Ballmer’s comment at the Microsoft (MSFT) financial analyst day Thursday July 24 that Microsoft is “close to declaring” itself the leader in enterprise software. I found Ballmer’s statement so strange when I heard it that I didn’t consider writing this blog until I noted the press attention to the remark.
If Microsoft is only “close to declaring” such leadership then the company must define the words enterprise and software differently than the English-language meanings of the word. Or there must be some interesting Microsoft marketing blitz on the horizon.
Overall, “software” is a $250-billion-plus-or-minus market worldwide according to publicly released IDC data. IDC—and I believe Gartner Dataquest—include perpetual and more limited right to use (RTU) license revenue and “other license-related” fees to estimate that overall number. The quant houses do not include professional services revenues for training and implementation of the software and similar one-time revenue. For IDC—at least for the almost 10 years I worked there ending in May 2006—“other license-related” revenue includes estimates of the value of software bundled into services such as ADP (ADP) payroll processing and estimates of the value of the software bundled into other fees such as the ad revenue that supports Google’s (GOOG) publishing/advertising-industry application. But annual subscription maintenance fees assessed on users the second and subsequent years after paying for a RTU license, if the licensee so chooses, represent about 60% of the $250 billion in software revenue. “Maintenance” typically is twice RTU license revenue and “other” that is not “maintenance” is probably less than 10% of the pie.
Overall Microsoft is three times larger than the second place software-market player, the IBM (IBM) Software Group. Oracle (ORCL) is third and closing on IBM followed by SAP (SAP) and Google or vice versa depending on whether you count Google’s TAC revenue. I don’t think you should count Google TAC; I don’t know how IDC estimates Google’s market share because Google was not a factor three short years ago when I was last involved.
Assuming “enterprise software” means software sold to an enterprise, if only 33% of Microsoft’s revenue meets that definition it is already the leader over the others whose totals are definitely all enterprise software. If enterprise software means software that can be used by an enterprise (no matter who buys it), Microsoft’s dominance is even larger. I use the latter method and estimate that Microsoft is already doing $30 to $40 billion in enterprise software sales vs. the IBM Software Group’s $20 billion or so.
But if there is some marketing advantage in just now declaring that leadership, it’s going to be interesting to see what it is