Software Market Share Methodology and Best Practices Gartner Dataquest Guide Publication Date: 21 July 2003
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Software Market Share Methodology and Best Practices Gartner Dataquest Guide Publication Date: 21 July 2003
Authors Colleen Graham Norma Schroder Joanne M. Correia This document has been published to the following Marketplace codes: SOFT-WW-GU-0009 For More Information... In North America and Latin America: +1-203-316-1111 In Europe, the Middle East and Africa: +44 1784 267770 In Asia/Pacific: +61-7-3405-2582 In Japan: +81-3-3481-3670 Worldwide via gartner.com: www.gartner.com Entire contents 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. Reproduction of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice. 116253
Table of Contents Page 1. Software Market Overview... 1 Sector Size and Vendor Market Share Methodology... 2 Research Process... 2 Gartner Dataquest Perspective... 3 Appendix A Glossary of Terms... 5 List of Tables Table Page A-1 Report Glossary...5 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. iii
iv Software Market Share Methodology and Best Practices 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. 21 July 2003
Chapter 1 Software Market Overview Research Gartner annually publishes software market share reports available to Gartner Dataquest software Cluster clients. Following a methodology that is objectively applied to all vendors, the software market analysts work individually and as a team to produce the most accurate estimates of vendor market share possible. While performing the research necessary to produce a market share report, Gartner Dataquest collects, estimates and classifies vendors' software revenue in terms of license, maintenance, subscription and other services that is, the revenue received by the maker, as opposed to the price paid by the end buyer of the software, which may include additional costs by value-added resellers (VARs), systems integrators (SIs) or other third parties. Gartner Dataquest's software research covers software vendors worldwide by selected software categories. Software revenue is analyzed to provide market intelligence to vendors, investment professionals and other clients. Software category definitions are revised, altered or expanded each year to reflect changes in software technologies and the software marketplace. Data is not published for every product category defined, but all categories are identified to separate and exclude products revenue from the revenue of categories that are sized and published. Gartner Dataquest focuses on enterprise/business software, not consumer products. Software industry sectors that are sized and published in 2003 include but are not limited to: Application development (AD) tools Application integration and middleware (AIM) Back office/enterprise resource planning (ERP) Business intelligence (BI) infrastructure Collaboration and Knowledge Management Database management systems (DBMS) Desktop business applications Front office/customer relationship management (CRM) Network and systems management (NSM) Operating systems Project portfolio management (PPM) Security Supply chain management (SCM) 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. 1
2 Software Market Share Methodology and Best Practices Sector Size and Vendor Market Share Methodology Research Process Gartner's vendor market share methodology combines primary and secondary sources to produce the Gartner Dataquest Market Statistics reports. Gartner interviews all major vendors in covered product categories within the software industry in the Asia/Pacific, Europe, Japan, North America and Latin America regions. This primary research is supplemented with additional research to verify market size. Sources of data used by Gartner include but are not limited to: Interviews with the channel including manufacturers, distributors and resellers Information published by major industry participants Estimates made by reliable industry spokespersons Government data or trade association data Published product literature and price lists Relevant economic data Articles in both the general and trade press Published company financial reports Reports from financial analysts Information and data from online and CD-ROM data banks Demand-side (end-user) surveys One particularly significant resource is information published by vendors to the Securities and Exchange Commission (SEC) or other non-u.s. government agencies. The data is used by Gartner Dataquest to prevent "double-counting" revenue in more than one segment. Information filed with the SEC and other government agencies is used to cross-reference analyst estimates and is the final check point as separate segment and market estimates are rolled up. For more information on this process, see the "Research Process" section. Gartner believes its market share data is the most accurate and meaningful available. Despite the care taken in gathering, analyzing and categorizing the data, careful attention must be paid to the definitions and assumptions, as various companies, government agencies and trade associations may use slightly different definitions of product categories and regional groupings, or they may include different companies in their summaries. These differences should be kept in mind when making comparisons between data and numbers provided by Gartner and those provided by other research organizations. At least annually, Gartner Dataquest Software analysts review the lists of vendors and the software segments that will be researched. This review allows for new vendors to be added, defunct vendors to be removed and any adjustments that need to be made for mergers and acquisitions. The same is true for the software product categories as emerging software segments can be added or outdated segments can removed from the research agendas. A company model is updated for all vendors, large or small, but it is most critical for large vendors that participate in multiple software sectors (such as Microsoft) or multiple industries (such as IBM). The company model divides the revenue the vendor reports to the SEC (or non-u.s. government agencies) into manageable and logical segments, usually by division or business unit. Then the business unit revenue estimate is further broken down to the product level in collaboration with multiple analysts as necessary. 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. 21 July 2003
Software Market Overview 3 Gartner Dataquest Perspective By creating a single-company model, Gartner Dataquest Software analysts ensure that no double-counting of revenue occurs. All analysts' detailed estimates of product, service, maintenance and other revenue must add to the same revenue number that the vendor files with either the SEC or other non- U.S. government agencies. While estimating vendors' product-level new license revenue, Software analysts will use the means outlined in the "Methodology" section to crosscheck and verify their estimates are as accurate and reflective of market activities as possible. Once product-level new license revenue has been estimated, the data will undergo a series of reviews and revisions with other Gartner analysts covering the market. Once consensus has been reached, the data is published. For more details on vendor license revenue, see "Software Revenue Components and Licensing Models," SOFT-WW-GU-0010. Gartner has a long history of providing vendor clients with independent and unbiased data to help them plan for new products, identify new partners and evaluate their market performance relative to their competitors. Gartner's research assesses vendor market share based on new license revenue. We believe new license revenue can show vendor clients the inflection points in market trends faster than total license revenue total revenue (which includes update revenue) because the demand peaks and valleys get hidden in longterm contracts. Gartner has a long history of providing end-user clients with independent research on products, vendors and technology trends. Vendor share measures provide some partial but interesting insights into the health and viability of particular software vendors. However, end users should realize that vendor share is not the complete story, as other factors contribute to a vendor's viability. End users should base their vendor selections on a range of criteria, including the requirements of the applications they are running, and the size and growth of the vendor's installed base as well as the vendor's innovation, research and development, scalability, third-party software support, and execution. If you are selecting a vendor and a product, consult the relevant Magic Quadrant and Datapro product notes. 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. 21 July 2003
4 Software Market Share Methodology and Best Practices 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. 21 July 2003
Appendix A Glossary of Terms Table A-1 lists the definitions of the acronyms and abbreviations that appear in this report. Table A-1 Report Glossary Acronym/Abbreviation AD AIM BI CRM DBMS ERP NSM PPM SCM SEC SI VAR Source: Gartner Dataquest (July 2003) Definition application development application integration and middleware business intelligence customer relationship management database management system enterprise resource planning network and systems management project portfolio management supply chain management Securities and Exchange Commission systems integrator value-added reseller 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. 5
6 Software Market Share Methodology and Best Practices 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. 21 July 2003