Consumer Software Spending 2010

Recently, I have started writing a number of posts on market size.Why? To bring context into discussions of attractive technology segments. If you are given an opportunity to invest, where will you? How much do enterprises spend on IT? How much do consumers spend on IT? How much do consumers spend on the internet?

My first post was on US Business IT Market which is a $749B market. My second post was on Online Advertisement Spending which is approximately a $22B market. Now, did you ever wonder how much US consumers spend on software? i.e. PC software and Mobile applications combined. Take a Guess!

It’s a meager $5.7B market in 2010. My best estimate for the PC software market is $4.1B. Add the Yankee mobile application spending estimate of $1.6B to that.

How did I come to the PC software market estimate?

According to this forrester study, an US online adult with a PC at home spent on average $101 in 2007. I don’t expect this has changed significantly in the last few years. Add to that, this study which says there is 82% penetration of PCs among US households. Now, multiplying 82%x50Mx$101 = $4.1B market. The forrester study also says that US online adults buys software twice a year and most of the software packages have long shelf lives. Majority of this market is dominated by Microsoft, Apple and Adobe.

Now, according to Yankee, US mobile application market in 2010 is $1.6B. There will be 6 billion app downloads (I presume around 75% of the downloads will be primarily in US) globally  with majority of the downloads attributed to Apple:

While total downloads will grow, revenues will decline by 2012, the effect of market forces continuing to drive prices lower. In addition to falling costs, ABI predicts that more “must have” apps will be available in free or ad-supported versions, as well as provided in handset bundles.

With 4 billion app downloads in US and a $1.6B market, the per app download revenue comes to around 40 cents. Think 65,000 applications all fighting for this small market, it will be be extremely cut-throat.

So now you see my argument, which I have propounded many many times on this blog: Building a business model around consumer paying for services online or offline is not prudent since it is a small and competitive market. And building a model on advertisement revenues, after taking out Google’s share, is just a $11B market. All the big sharks are fighting for its share – Where’s the attractiveness?

Filed under: technology, consumer software, mobile apps

US Advertising Market 2009

The US advertising market is a $159B market with internet spending at $22.7B (14%). If you compare the first 15 years of internet advertising growth (1995-2009) versus Broadcast TV advertising growth (1949-1963) or Cable TV advertising growth (1980-1994); it far outpaces them both in current inflation adjusted dollars.

Now if you look at the breakdown of the internet advertising dollars:

• Search is a whopping 47% of the market. It grew 1% from $10.5B in 2008 to $10.7B in 2009. One thing to note: the internet advertising spending shrunk from $23.4B in 2008 to $22.7B in 2009.
• Display related advertising is 35% of the market (add display ads+digital video+sponsorship+rich media). It grew 4% from $7.6B in 2008 to $8B in 2009.
• Email Revenues went down significantly to $292M in 2009 from $405M in 2008. We all know how effective email marketing is
• If you do the math, Google’s 2009 advertising revenue was $22.8B of which almost 50% was US; so Google holds almost 50% of the US Internet advertising market of which predominantly is search.
• Top 10 ad selling companies accounted for 72% of the market – wow!!

Source: IAB-Ad-Revenue-Full-Year-2009

Filed under: technology, online advertising, search, us advertising

US and Global IT Market 2010

If you have always wondered how big is the US IT market, it is a whopping $741B market in 2010. Some notable numbers:

• PC is a $39B market vs Applications which is a $88B market. Now you know why everyone wants to get into software
• Enterprise and SMBs spend significantly more ($74B) on communications equipment vs Telcos ($35B). This is a major turf for battle between Cisco and Juniper.
• Systems Integration Project work is $52B market. Now you know why IBM just wants to focus on IT services.
• This wheel should tell you why all major Fortune 500 tech companies want to go into software and services

Another interesting thing to observe is how the hardware component is a shrinking component of the entire pie. It was 38.5% of the entire IT market in 2004 whereas in 2010, it is only 35%, whereas the market grew 22% from 2004 to 2010. It seems like the computers and peripheral market is going to do a comeback in 2010 growing at almost 11% (good news for HP & Dell). The IT outsourcing market was unaffected by the recession in 2009:

Interestingly enough, US and Canada will lead the growth of IT product and services in 2010. All those huge growth numbers from the emerging markets in the previous years – we will not see that in 2010, but I expect it to bounce back probably in 2011 or 2012. So, we will see a lot of Fortune 500s redirecting their investments from developing to developed countries in 2010. US is still going to be a huge spender – almost 1/3 rd of the global market.

Overall, a good news for the US economy. 2010, I am excited

Source: Forrester Research

Filed under: technology, Global IT, market size