Software companies booming: we ain't afraid of no cloud

The fastest-growing software vendors grew by almost 150 percent this past year, up from a mere 100 percent the year before. Hiring is also up.

There has been some trepidation about the fate of the software industry as it makes its shift from up-front licensing fees to subscription-based cloud models.

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Photo: Joe McKendrick

It seems those fears can be put to rest.

A recent analysis of 100 software vendors shows that over the past 12 months, they have seen the largest revenue gains since the recession of 2008 -- with even greater acceleration in topline growth.

The report -- the product of a joint collaboration between the Software & Information Industry Association (SIIA) and OPEXEngine, an aggregator of financial and operating benchmarks for small- and mid-sized software companies -- also shows that small- and mid-sized software companies plan to increase hiring faster than they have in previous years. The study is based on primarily private (22 percent are public) business-to-business software and SaaS (Software as a Service) companies with revenues between $3 million and $300 million.

Overall, private software firms reported annual average growth of 55 percent for 2014, an increase over the previous year's report of 42 percent growth. Firms in the top 25 percentile report close to 150 percent growth, up from a mere 100 percent the previous year.

With all this success comes job opportunities. Software firms plan to boost hiring by an average of 32 percent, up from 26 percent a year ago. The fastest-growing companies plan to increase employee headcount by 43 percent, an increase from last year's 38 percent planned increase. More opportunities are seen in West Coast companies , who are taking in close to three times as much investment capital as their East Coast counterparts.

So what's behind the good times in the industry? The SIIA-OPEXEngine report cites greater success tied to increased sales and marketing budgets, as well as greater volumes of venture capital money flowing to enterprise software vendors. But that's the result, not the cause.

While not explored in the report, it appears the industry is handling the transition from on-premises licensing to cloud-based delivery quite smoothly. Among enterprises, there is incredible, insatiable demand for tools, platforms, applications and skills that will boost organizations to the next step of becoming digital enterprises with all the perks -- analytic-driven decisions, intelligent channels to customers, and rapid, inexpensive innovation.

Despite economic conditions or uncertainty, it appears to be full steam ahead when it comes to IT investments. A new Deloitte survey finds that among mid-market enterprises, for example, two-thirds (67 percent) say their companies' technology spend is higher than last year (compared to 58 percent in 2014).