You could make a strong case that Apple's phenomenal success with the iPad and iPhone make iOS the most-valuable software franchise in the world, particularly since the massive growth both products experienced in 2010 will likely be dwarfed by their performances in 2011.
Or you could make the case that SAP's sprawling network of global enterprise applications, which manage or at least touch about 75% of the global economy's transactions, represent more value than any other type of software.
And what about IBM's vast installations of middleware, connecting and integrating disparate systems around the globe? What it might lack in glamor, it surely makes up for in volume and strategic necessity.
Then there's the Oracle's database business, still growing steadily on its own while also getting a boost from the relatively new Exadata Database Machine system, whose first-year revenue is expected to top $1 billion.
Who's the fairest of them all? Which one encompasses the greatest value on the open market today?
Or, turn the questions around a bit: who the heck cares? Why waste time on this theoretical posturing?
Well, while I'll admit that there's a bit of sorcery that goes into these evaluations from investment-analysis firm Trefis.com, I'll also say that for business executives pinning their hopes to multiyear technology decisions to which their companies' fortunes will be tied very directly, it surely wouldn't hurt to know how the stock market is rewarding (or not) those various high-profile software franchises.
In that context, it's probably worth at least a quick look to see if the core software products to which you're hitching your corporate wagon are among those that investors are choosing for long-term viability and growth.
According to a blog post from Trefis on forbes.com, here are the top 6 most-valuable software franchises in the world.
(Psst: if you picked any of the four candidates at the top of this column, you'd be wrong, wrong, wrong, and wrong):
THE TOP SIX SOFTWARE FRANCHISES, RANKED BY TREFIS.COM
1) Microsoft Windows OS. Dec. 2010 estimated value: $110 billion. Dec. 2009 est. value: $101 billion.
2) IBM Middleware. Dec. 2010 est. value: $107 billion. Dec. 2009 est. value: $103 billion.
3) Microsoft Office. Dec. 2010 est. value: $86 billion. Dec. 2009 est. value: $83 billion.
4) Oracle Database. Dec. 2010 est. value: $69 billion. Dec. 2009 est. value: $67 billion.
5) Oracle Middleware. Dec. 2010 est. value: $44 billion. Dec. 2009 est. value: $41 billion.
6) EMC Storage Software. Dec. 2010 est. value: $23 billion. Dec. 2009 est. value: $21 billion.
As Trefis wrote in the blog post, "While most of the businesses continued to retain their position, Microsoft’s Windows Operating System emerged as the single most valuable software business segment in 2010. Microsoft Windows Operating System (at $110 billion) surpassed IBM’s Middleware, which at $107 billion now stands at a comfortable second. Microsoft Office managed to retain the third position at $86 billion.
"Trefis estimates a price of $177 for IBM’s stock, which is 22% above its market price, with Middleware Software constituting 46% of it. For Microsoft, we have a price estimate of $31.60 which is 16% above the market price. Windows Operating System is the largest segment for Microsoft, making up about 41% of Microsoft’s stock, followed by Microsoft Office which contributes 32% to the company value."
Now, here's where the sorcery bit comes in: Trefis says its expertise lies in its ability to help investors "understand how a company's products, that you touch, read, or hear about everyday, impact its stock price." Fair enough.
But let's take a look at one example of a Trefis analysis to get a picture of how those breakdowns work: in this case, highlighted on the Trefis website, it's Apple.
Trefis' Apple breakdown lists the current market price for Apple stock at $321, and also shows that Trefis projects the share's underlying value at $418. Here's how Trefis breaks out the contributions to Apple's stock price made by its various product lines (and when you see the product line called "iOS," shout out "Let's Go Steelers!"):
Apps for iPhone, iPad, iPod: 2.4%
Apple TV: 0.4%
Cash (minus debt): 13.1%
So, I don't think I heard anybody rooting for the Steelers—could that be because the iOS, Apple's mobile operating system, wasn't listed? And Trefis would therefore have us believe that the Windows OS is worth $110 billion, but Apple's iOS—powering the most disruptive and influential mobile tech devices in the world—is worth squadoosh?
I'm just not buying that—no way, no how. That dog don't hunt and that pig don't fly, and no less an authority than Steve Jobs himself recently explained that Apple is a software platform company, as analyzed in our recent column called Global CIO: Inside Steve Jobs' Head: The Supremacy Of Software:
First, on the absolutely essential need for Apple to see itself as and behave as a software company, not a hardware company:
"You're looking at it wrong. You're looking at it as a hardware person in a fragmented world. You're looking it as a hardware manufacturer that doesn't really know much about software, who doesn't think about an integrated product, but assumes the software will somehow take care of itself. . . . And you assume that the software will somehow just come alive on this product that you're dreaming of, but it won't."
And then this perspective on why he expects Apple will pull away from RIM and its Blackberry: " 'We've now passed RIM, and I don't seem them catching up with us in the foreseeable future,' Jobs said during the analysts call. 'They must move beyond their areas of strength and comfort and enter the unfamiliar territory of trying to become a software-platform company.
" 'I think it's going to be a real challenge for them to create a competitive platform and also convince developers to create apps for yet a third software platform—and that's after iOS and Android,' Jobs said.
" 'With 300,000 apps in Apple's App Store, RIM has a high mountain ahead of themselves to climb.' "
I admire Trefis for their imaginative leap in trying to assess and establish the world's most-valuable software franchises, but I think they need to look at their work and rethink it for quite a while. If they totally overlooked the significance Apple's iOS in their showcase example of their product-contribution model, what else have they missed?
Nevertheless, their list is a nice conversation-starter. If Trefis is willing to tear it apart and start over again and infuse much more rigor and comprehensive thinking into the model, it could prove to be a very valuable tool for CIOs. But until then, it's mostly just a fairly interesting hypothetical scenario.
Bob Evans is senior VP and director of
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