and David L . Parnas

The software industry has existed since the mid-1950s, but until about 1970 very little attention was paid to it, largely because the industry was too small to merit detailed analysis other than as an unquantified sector of the overall computer business. As late as 1970, the annual turnover of all U.S. software firms was less than $1/2 billion – about 3.7 percent per cent of the total computer business. The software industry began to grow significantly in the 1970s, first following IBM’s unbundling decision of 1969, and towards the end of the decade from the rise of the personal computer. By 1979 annual sales of U.S. software firms were about $2 billion. The 1980s saw dramatic growth rates in the software industry of 20 per cent a year or more, so that the annual revenues of U.S. firms had grown to $10 billion by 1982, and $25 billion by 1985 – over ten times the 1979 figure. Today the global sales of software exceed $100 billion. This paper attempts to develop a model of the software industry based on historical principles. Software firms are classified into three sectors, based on their historical evolution: 1 Software contractors 2 The packaged-software industry 3 The personal-computer software industry The software contractors were the first programming firms, the earliest dating from the mid1950s. The role of the software contractor was to develop one-of-a-kind programs for computer users and manufacturers. The ethos of the software contractor was analogous to that of a civil engineering contractor in terms of its corporate culture, organizational capabilities, and relationships with customers. The second group of firms, the suppliers of packaged software, evolved in the 1960s to develop program products for computer users in public and private sector organizations. The packaged software suppliers operated in direct competition with computer manufacturers; and like them they have evolved the characteristics of firms in the capital goods sector. The third group, the personal-computer software suppliers, became a significant sector in the late 1970s. Virtually all of the personal-computer software firms developed outside the established software industry; in some cases there was a background in developing hobby or games software, and a “techie” computer culture. This background has profoundly affected the shape of the personal-computer software industry and its products. Even though most personalcomputer software is now sold to corporate users, the ethos of the industry is more akin to publishing or consumer products than to capital goods. For example, the search for a “hit” product is paramount, and this has led to analogies being drawn with the pop music business, or the Hollywood movie industry.