Accusing opposition Republicans of pushing bankrupt economic policies and putting politics ahead of national welfare, President Barack Obama has vowed to end Bush era tax cuts encouraging companies to create jobs and profits in other countries. I think if we're going to give tax breaks to companies, they should go to companies that create jobs in America - not that create jobs overseas, he said on a mid-term campaign in the perennial swing state of Ohio. Well this statement is like just talking about one side of the coin, lets see the other side here- Sometime in the past the Software industry seems to be entering the Golden Age, effecting & changing almost every part of our lives. You name any upcoming thing & it will have an association of software with them. Despite this explosion of new software emergence today it seems that the software industry itself is shrinking. What then is responsible for the software sector's precipitous market decline? Like most complex systems, there is no one single factor driving this trend, but a combination of factors. The software industry is no longer preferred from an investment perspective; it is skeptically viewed as a lucrative, high growth industry by many investors. This change has led to what Wall Street calls 'investor rotation' as 'growth managers' are replaced by 'value managers'. This change is felt on daily basis from the movements of the market. In the past, much of the market trend was about license growth and new products, now it seems to center around maintenance pricing and services revenues. Generally, an IT/ITeS company's average profitability increase tends to be constant, but the dynamics has changed with global slowdown, rising employee retention cost, currency fluctuation and the flat world competition. Shrinking margins would effect salary increments that experienced employees get & provide more oppurtunities to less demanding freshers. The significant salary hikes given when people in the IT industry change jobs would certainly see a decline in the coming years. The variable pays within companies will be seen increasing. The rupee's strength against the euro/dollar has long been the bane of information technology companies because although the bulk of sales are made in euro/dollars, their expenses are incurred in rupees this squeezes their margins. Since the beginning of this year, euro has lost around 13.5% against the dollar. Europe is the second-largest market for the Indian IT industry accounting for approximately $15 billion worth of exports. The European debt crisis and a weakening currency in the region are twin worries for India's $60-billion export-focused IT sector, which has only just recovered from the fallout of the US slowdown. The euro has fallen to its lowest since the Lehman Brothers collapse and while the dollar has strengthened against the euro, it has not strengthened against the rupee to the same extent. In situations like these controlling costs is the ultimate option chosen by CIOs globally. CFOs do play an important role with currency hedging, however when talked of controlling costs we are actually not cutting down budgets but looking at smarter ways of cost saving. This is the time when CIO think of adopting smarter ways like cloud computing, virtualisation, SaaS & choosing Open Source technologies to traditional license ones. The modern software market was built on the backs of large one-time perpetual license sales. Charging significant up-front fees for access to proprietary source code not only allowed companies to post huge profit margins, but enabled successful software companies to delight investors by very rapidly growing revenues and earnings. Sure the whole thing crashed when the company ran out of new licensees, but it was a fun ride for everyone in the market while it lasted. Unfortunately two major trends are conspiring to make it increasingly difficult to grow revenues quickly: Open Source and SaaS. Open Source basically flips the revenue model: it gives away the source code up-front and tries to make money on the back-end by charging for support. Open Source has already put tremendous pressure on revenue growth in areas such as web servers, application servers, and databases, and threatens to do the same in several other places. In response, many traditional "closed source" vendors have reduced their upfront license fees and increased their maintenance charges. SaaS (Software as a Service) allows companies to purchase software "on demand" over the web. As a result, SaaS requires little or no up front investment from a customer and is often purchased on a short term subscription plan. Lack of large up-front payments makes it difficult to grow SaaS revenues quickly, but companies gain with volumes and quick setup. As Open Source and SaaS gain prominence it's becoming increasingly clear to investors that the good old days of sky high revenue growth & uncompromising gross margins are gone and stock multiples are responding by heading south. CIOs always have the concerns with rising costs and distance. This has been a challenge to the outsourcing software vendors to acquire and or retain businesses from the third world countries. Rising distance brings along many questions from counting on the proficiency in technology to the associated legal complexity. To this a lot of companies now have come up with the one size fits all solution which put an end to all questions, near shoring. In contrast to off-shoring, near-shoring offers virtual development teams that have the ability to collaborate with internal staff in the same or similar time zones and in local language. This means that easy fixes do not have to wait for an isolated team to take a day-and-a-half to turn around a solution. By eliminating the time difference problem, near-shoring providers can offer optimum time-to-market schedules for new projects and new products. From the point of view of the clients, working in the same time zone also leads to more satisfied and stable workforces-including those of the outsourcers. Aside from the problems caused by the time difference, the geographical advantages of near-shoring can allow a company's internal staff and external developers to meet in person. The great distances between off-shoring providers and their clients make frequent trips rare and expensive. Thus there is very little face-time between project managers and off-shored staff, which often results in misunderstandings about the direction a project is taking. Being public software company in these days is not easy, especially a software company that lavished options on its employees and played it a little loose with revenue recognition from time to time. Like most tech companies, software companies are seeing their margins hurt by higher compliance costs and steep charges for options. Because software companies have relatively high margins on low revenues, these incremental operating expenses tend to have a bigger impact on overall margins. Despite these trends, the software industry will still survive and may, at some point, begin to thrive again. Areas such as web services, mobile computing & banking, systematic analysis, Storage management, social networking, virtualized/cloud computing hold significant promise for future growth, but that growth will have to occur despite the long-term headwinds posed by the trends outlined above. They say - 'Change we Believe in' We say 'Let us Grow Together!'
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