Microsoft paid leading market-researcher IDC to draw up a major report of the economic impact of the IT industry — and Microsoft’s share of it — on the global economy.
The big takeaway, no suprise: IT drives a big part of the global economy, and software in particular has a disproportionately large impact.
After studying 82 countries and regions, IDC found that $1.2 trillion, or 2.5 percent of 2007 global gross domestic product, can be traced back to the IT industry. That share is expected to grow to 2.75 percent by 2011.
The report gives Microsoft and its “ecosystem” — described as “hardware, software, services, and channel firms as well as end user organizations running Microsoft software” — credit for $400 billion in 2007 revenues and 42 percent of IT employment globally.
Pamela Passman, Microsoft’s vice president of global corporate affairs, said the report is useful to the company in talks with government officials.
“What’s most interesting about this are the trends that we see and for the audiences that we want to talk to about this, which is significantly policy makers,” she said. “It’s important for them to understand the trends, as they think about how they make resource allocation decisions.”
Packaged software — Microsoft’s bread and butter, also the stuff provided to big enterprise customers by IBM, Oracle and SAP — represents 21 percent of IT spending. But this sub-category of the industry generates half of all the IT jobs.
IDC chief researcher John Gantz explained why software has an out-sized impact on employment in the industry.
“For every dollar of software sold there’s $1.25 of services around that software to be sold,” Gantz said. Those services include training, installing, integrating, and working with software and also the software distribution channel, he said.
What about software’s share of IT spending vs. hardware and services?
“In general, the software market is growing faster than the hardware market so over time that share will go up,” said Gantz. He added that software’s growth has slowed since the late 1990s — hardware growth has slowed more — when software spending was in the 15 to 20 percent range.
Today, software is growing about 6 to 8 percent a year. So what’s causing the slow down?
“We call it basically the software complexity crisis,” Gantz said. “It’s fundamentally that so much of the software has to be integrated with older software that it slows the adoption down.” (That also creates plenty of jobs for IT pros who can integrate the latest and greatest with legacy systems.)
How might the trend toward software as a service or, in Microsoft’s terms, software plus services, affect growth of this part of the IT industry?
Right now, Gantz said, software as a service is counted by IDC as a service, and despite all the attention it’s getting, “actually there’s not enough of it to really make a difference.
“It’s Microsoft Office Live, Dynamics Live, Salesforce.com, and out of $220 billion for a total software market, there’s not all that much activity,” Gantz said. “It’s the wave of the future, but the amount today is not that high.”