The European Software Industry

D2 – The European Software Industry

Economic and Social Impact of Software & Software-Based Services Smart 2009/0041

Pierre Audoin Consultants SAS (PAC) 23, rue de Cronstadt 75015 Paris – France Tel: + 33 (0)1 56 56 63 33 Fax: + 33 (0)1 48 28 41 06 www.pac-online.com

July 30, 2009

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Consultants Contributing to This Report Frederic Giron – Pierre Audoin Consultants (PAC) Mathieu Poujol – Pierre Audoin Consultants (PAC) Eric Ménard – Pierre Audoin Consultants (PAC) Vincent Bonneau – IDATE Timo Leimbach – Fraunhofer ISI Michaël Friedewald – Fraunhofer ISI Pau Salsas – London Economics

Latest update: 30th July 2009

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FOREWORD

This report is about the potential economic and social impacts of software and software-based services (SSBS) in Europe. This industry is undergoing some major shifts both in terms of technology and in terms of business models.

Evolution of the software industry

Traditionally, the software sector was segmented around three main task streams: system software, applications software, and software-maintenance services. Progressively, software has also become an important tool for middleware and communication between computers as computers have been progressively connected to networks and when industrial products have incorporated electronics in their main operation.

Today, software is increasingly part of modern life. This is through visible aspects (computers, games, smartphones, internet appliances, GPS and fast developing online services) but also through a less visible presence (in the management information systems of companies from start-ups to large enterprises and administrations) but with a significant contribution to productivity and efficiency. Finally, other forms of software (such as embedded software) enable the continuous improvement of products in the transportation, medical, energy sectors.

Software technologies will undergo major changes over the next few years, especially in relation to the five following streams:

• Internet – the strong development of Internet in recent years has triggered the demand for new online services (or Software Based Services such as SaaS, Cloud Computing…) and has also enabled the growth of new software development models such as FLOSS (Free / Libre Open Source Software). New business models (usage based pricing, online advertising) as well as new distribution models enabled by the Internet will indeed radically transform the software market and industry.

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• Convergence of IT, telecom and media and the emerging concept of the Future Internet are having tremendous impact on the software sector and are expected to transform the whole software and services markets. For example, Web 2.0 has grown in the past three years into one of the major phenomena of the Web, well illustrated by the development of social networking players like MySpace and Facebook, which have become prime destinations on the Internet. Also, many consumer web applications like Google search engine are nothing else than software made available as a web service through a client software (generally a browser or a widget runtime environment). Those web applications are generally not using the traditional business models of software (with paid licences from the end-user), but rely most of the time on some form of advertising (display with banners or rich media or sponsored contextualized links), which represents more than 80% of revenues for Internet services (not including e-commerce). Telecom providers such as France Telecom, British Telecom, and Deutsche Telekom are increasingly making inroads in the IT industry approaching enterprise information systems via the network and the IT infrastructure. These giant players and their strategies will have an impact on the future of ICT and of software and software based services in particular. • Pervasive computing – M2M and the Internet of Things – advanced products include millions of lines of coded software, and now these machines are getting connected and are communicating with each other. Software is playing a key role in the development of those new markets, as an enabler in machines (embedded software) but also most importantly with the middleware required to integrate the data collected in existing information systems. • Mobility and Mobile Internet services – The PC is not anymore the only device to connect to the Internet. The mobile phone is taking an increasing role to browse the web and has integrated computer-like features. Even if development in the mobile environment is still complex due to the fragmented ecosystem, the potential impact for the software market is considerable. • SOA (Service Oriented Architecture) – The next IT architectural wave where processes, user interfaces, logical and data layers are independents. SOA consists in logical standardized (web services standards) blocks

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(services) that can be assembled to support business processes. It allows for reuse, openness, agility and a better IT / Business alignment.

Research study scope and objectives

The associated research study is conducted on behalf of the European Commission (DG Information Society and Media, Unit D3) by a consortium including PAC, IDATE, London Economics and Fraunhofer ISI bringing the different complementary expertises and skills required (expertises of software and Internet markets, market data and forecasts, economic analysis, policies analysis, prospective skills).

IDATE PAC Internet & IT point of view Telecom point of view

Validation process

London Fraunhofer ISI Economics Policies Macroeconomic point of view point of view

Validation process

This study is part of a plan for the development of a European Software Strategy, and is accompanied by other parallel activities. It is conducted in parallel with an external consultation of some stakeholders led directly by the European Commission and with an internal consultation within the European Commission.

The overarching aim of the present study is to:

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• Evaluate the potential economic and social contribution of the EU software and software- based services industry in Europe, • Identify the elements that are determinant for its growth and competitiveness and the main market trends, • Identify the current barriers to the competitiveness of the EU Software and Software Based Services (SSBS) industry and the actions needed to remove those barriers • Assess the economic and social impact of different policy actions to improve the competitiveness of the EU SSBS industry • Provide policy recommendations to foster market and business development.

This study will also be put in perspective with discussions on the follow-up to the i2010 initiative for the next decade, and to the Future Internet.

The research and the associated reports are organized in four phases aimed at addressing the different objectives of the study:

• Phase 1 (deliverable D2): definition of SSBS and analysis of its current state (economical and social), with data and forecasts for the SSBS industry and international comparisons and assessment of economic and social contributions to the EU. • Phase 2 (deliverable D3): scenarios of evolution of the SSBS industry if no new policies are implemented, with in depth analysis of SSBS market trends and technology trends, short term and prospective long term scenarios for the SSBS industry in the EU and assessment of future economic and social contributions to the EU based on the multiple scenarios • Phase 3 (deliverable D3): barriers of development of the SSBS industry and potential policy actions • Phase 4 (deliverable D4): subsequent economical and social impact analysis of the policy actions and policy recommendations

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Workshops

Phase 1: Current Situation Phase 4: Impacts & Phase 3: Policy - Definitions & Phase 2: Baseline recommendations actions Characteristics - Economic model - Impact analysis of - Current barriers - SSBS Indicators - Future market each policy - Importance of - Current contributions trends - Policy barriers and risks - Growth scenarios recommendations - Current policies Proposed policy Future Contribution Workshop & actions D2: European SW dissemination industry

Interviews

Project’s four phases

The study will be conducted during a period of 15 months between April 2009 and July 2010 and will include:

• 55-stakeholder interviews; • An expert workshop organised by the consortium (during Phase 3) and the participation to another expert workshop organised by the EC; • An extensive review of the EU and global existing studies on the SSBS industry, their contribution to the economy and society, as well as existing policy actions and their impacts on this industry; • A discussion of the study findings and recommendations with the stakeholders during a final workshop

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Table of contents

FOREWORD...... 3 EXECUTIVE SUMMARY ...... 11 CHAPTER 1 DEFINING THE SSBS INDUSTRY ...... 24

1. INTRODUCTION ...... 24 2. DEFINITIONS...... 27 CHAPTER 2 SSBS MARKET ANALYSIS...... 39

1. INTRODUCTION ...... 39 2. SSBS MARKET ...... 39 3. APPLICATION SOFTWARE ...... 45 4. TOOLS ...... 57 5. SYSTEM INFRASTRUCTURE SOFTWARE ...... 60 6. GAMES...... 65 7. HARDWARE RELATED SERVICES...... 69 8. POSITION OF THE EUROPEAN SSBS INDUSTRY ...... 70 9. RISKS OF OUTSOURCING ...... 79 CHAPTER 3 FOCUS ON EMERGING SEGMENTS...... 92

1. INTRODUCTION ...... 92 2. CLOUD COMPUTING ...... 92 3. OPEN SOURCE SOFTWARE ...... 103 4. SERVICE ORIENTED ARCHITECTURE ...... 111 5. MOBILE SOFTWARE ...... 119 6. INTERNET OF THINGS (IOT) ...... 126 7. MACHINE TO MACHINE (M2M)...... 134 8. WEB 2.0...... 143 9. ONLINE ADVERTISING...... 151 CHAPTER 4 ECONOMIC CONTRIBUTION...... 160

1. SSBS CONTRIBUTION TO EU ECONOMY ...... 160 2. SSBS CONTRIBUTION TO PRODUCTIVITY ...... 165 3. EXPENDITURES IN R&D BY LARGE SSBS FIRMS ...... 169 4. INVISIBLE PART OF THE SOFTWARE INDUSTRY...... 171 CHAPTER 5 SOCIAL CONTRIBUTIONS...... 178

1. INTRODUCTION ...... 178 2. EDUCATION ...... 179 3. E-GOVERNMENT...... 180 4. HEALTH...... 181 5. OPTIMIZATION OF ECONOMIC PROCESSES ...... 183 6. TRANSPORT ...... 185 7. SUSTAINABLE DEVELOPMENT ...... 187 8. E-INCLUSION...... 188 9. SECURITY...... 190 10. CONCLUSION: HORIZONTAL VS. VERTICAL APPROACHES ...... 192 CHAPTER 6 POLICY OVERVIEW ...... 196

1. POLICIES IN SUPPORT OF THE SSBS SECTOR ...... 196 2. THE ANALYTICAL FRAMEWORK FOR ASSESSING NATIONAL POLICIES ...... 199 3. SYNTHESIS REPORT...... 204

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ANNEX 1 METHODOLOGY FOR THE QUANTIT. ASSESSMENT OF THE SSBS INDUSTRY ... 226 ANNEX 2 COUNTRY REPORTS ...... 236

1. AUSTRIA...... 236 2. BULGARIA...... 240 3. CZECH REPUBLIC ...... 243 4. DENMARK...... 245 5. ESTONIA ...... 251 6. FINLAND...... 254 7. FRANCE ...... 263 8. GERMANY ...... 268 9. GREECE...... 278 10. IRELAND...... 281 11. ITALY...... 286 12. MALTA ...... 290 13. NETHERLANDS...... 293 14. POLAND ...... 300 15. PORTUGAL ...... 303 16. ROMANIA...... 307 17. SPAIN ...... 309 18. SLOVAKIA...... 312 19. SWEDEN ...... 314 20. UNITED KINGDOM...... 319 21. REFERENCES ...... 326 ANNEX 3 ADDITIONAL MARKET DATA ...... 328

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Table of Figures

Figure 1: SSBS definition ...... 15 Figure 2: SSBS market – EU27 – by software types ...... 15 Figure 3 : Market size and development of 8 emerging segments in the EU27 ...... 17 Figure 4: PAC’s IT Segmentation...... 26 Figure 5: SSBS definition ...... 37 Figure 6 : Cloud Computing and Internet of Things perimeters ...... 38 Figure 7: SSBS market – EU27 – by software types ...... 40 Figure 8: SSBS market – EU27 – by revenue models ...... 41 Figure 9: Software spending by employee and company size (DE+FR+UK average – 2007) ...... 43 Figure 10: Application software market – EU27...... 45 Figure 11: Tools software market – EU27...... 57 Figure 12: System infrastructure software market – EU27 ...... 61 Figure 13: Gaming software market – EU27...... 65 Figure 14: Hardware related market - EU27 ...... 70 Figure 15: Cloud computing segments...... 94 Figure 16: Cloud Computing market – EU27 ...... 97 Figure 17: Open Source Software market in EU27...... 106 Figure 18: Services Oriented Architecture market – EU27 ...... 115 Figure 19: Top Social Media Sites (WW million unique visitors, Nov. 2008) ...... 147 Figure 20: Social networking growth by worldwide region (WW million unique visitors)...... 147 Figure 21 : Worldwide top 10 properties ...... 155 Figure 22 : Global share of total searches ...... 155 Figure 23: CARA contribution to EU27 economy (2006) ...... 161 Figure 24: Employment and value added of different sectors (2006) ...... 161 Figure 25: Size of CARA in different Member States (2006) ...... 162 Figure 26: CARA contribution as a share of HIK (2006) ...... 163 Figure 27: EU27 growth by sectors (2000-2006) ...... 163 Figure 28: Employment and value added growth EU27 (by sectors, 2000-2006) ...... 164 Figure 29: CARA growth by top 6 Member States (2000-2006) ...... 165 Figure 30: EU R&D Expenditure by economic subsectors: total (MEUR) and as % of sales (2006).. 170 Figure 31: R&D Expenditure in Software (K7221) by jurisdictions (2006) ...... 170 Figure 32: Sub-sector Profitability and size (EU, 2006) ...... 171 Figure 33: Information Technology Policy Matrix (Hanna et al. 1995) ...... 200 Figure 34: Taxonomy of ICT policies (adapted from OECD 2008) ...... 201 Figure 35: PAC’s research process and methodology...... 227

List of Tables

Table 1: Estimates for 2007 of software R&D effort worldwide...... 173 Table 2: Estimates for 2007 of software R&D effort worldwide...... 174 Table 3: Classification of EU member states ...... 203 Table 4: Initial Classification of Policies in EU member states...... 208 Table 5: Distribution of policy modalities per country group and policy type ...... 215 Table 6: Different subsections under section 72 (NACE Rev 1.1) ...... 232 Table 7: Main SSBS indicators based on PAC and IDATE data...... 234 Table 8: Main SSBS indicators based on Eurostat data ...... 235 -

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EXECUTIVE SUMMARY

What is the Software and Software Based Services (SSBS) industry?

Many sources1 exist when it comes to defining what software is. The consortium has based its own SSBS definition on these sources as well as PAC’s software and IT Services taxonomy2. As a result we have selected two axes to define the SSBS industry: software types and revenue models.

Software types

There are four main software types:

• Applications – Software applications are used directly by information workers and end-users. There are as many types of applications as processes in companies and public organizations. The main role of these applications is to structure and bring some level of automation to the business processes of companies and public organizations (cf. “Optimization of Economic Processes” page 183). The delivery models of application software products are dramatically changing with the advent of the cloud computing and the SaaS models. This category includes: o Business applications are process-oriented applications that include horizontal applications such as financials, HRM, CRM, SCM as well as industry-specific solutions such as billing (telecom, utilities), core banking systems, etc. o Technical applications include graphical software, and other technical software (simulation, CAD/CAM…). o The office automation software market is generally dominated in all segments by Microsoft with Office, including word-processing, data spreadsheet, and presentation software. Other major productivity

1 The OECD provides an interesting definition in its report « Innovation in the Software Sector » DSTI/IND(2009)4 2 https://www.pac-online.com/pac/pac/live/pac_world/sitsi_market_research/methodology/index.html

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software applications are WordPerfect Office (Corel), for instance, as well as open-source initiatives such as OpenOffice.org and StarOffice (SUN). • Tools – Tools represent that software where one models, plans, tests, deploys, executes and optimizes business applications and processes. They stand between System Infrastructure Software (SIS) and application software. Lately, with the advent of service orientation, they have become increasingly important in software based value creation as they allow for the composition, integration, agility, reuse and optimization of software applications. According to PAC’s taxonomy, the tools segment is divided in 4 sub-segments according to their goals: o Portal and Collaboration, the user interface (GUI) infrastructure; o Information Management, for the data layer (structured and unstructured); o Modelling and development tools, where is defined application logic; o Execution and Integration platforms, where the application logic is executed and optimized. • System infrastructure software – System Infrastructure Software (SIS) represents the foundation of software stacks; it links, secures and manages hardware, network and software. It rarely is industry- or function-specific software. It is the infrastructure part of the middleware layer. SIS includes the Operating Systems (OS) and the virtualization layer with products such as z-OS (IBM’s mainframes), Microsoft’s Windows, Linux or Nokia’s Symbian. It is the interface between hardware and the other software layers. The OS is responsible for the management and coordination of activities and the sharing of the limited resources of the computer. The OS acts as a host for the software that is run on the machine. It is present on the server and the client hardware. SIS also includes the infrastructure software that manages, runs and optimizes network, storage, security and the IT system. It is increasingly important as the systems become more and more critical and complex. It provides all the utilities for the applications to run efficiently. Anti-virus, archiving systems and network management consoles are examples of this type of software.

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• Games – The video game market refers to any form of electronic game involving interaction with a user interface offering some visual feedback on a video display. It includes both paid and ad-funded games.

The case of Hardware

As far as hardware is concerned, hardware products are of course not included in the SSBS definitions. However, associated infrastructure-related IT services, computing power and storage available via paid web-based services or advertising – given their tight relationship to emerging software segments such as cloud computing – are part of the SSBS definition.

By definition, the value generated by cloud computing services indeed includes some value originating from the software used (applications and/or tools), and the remainder coming from the systems that lie underneath the applications and tools layers, namely the system infrastructure software (SIS) and IT equipment / hardware.

Therefore, considering cloud computing as part of the SSBS market means that some hardware-related value is included in the overall SSBS market value.

Hence, while hardware is not part of the visible software industry per se, a large part of the emerging software-based services segments, such as SaaS or cloud computing, relates to IT equipment / hardware products.

Software revenue models

The Consortium has retained four significant3 revenue models:

• License + standard ISV (Independent Software Vendor) maintenance – perpetual license or “rent” – the end-user of the software products (or the company he/she is working for) pays a license fee to own the right to use the software. This license fee is usually accompanied by annual maintenance fees.

3 There is a diverse number of revenue models on the market today as presented in the OECD report on « Innovation in the Software Sector » DSTI/IND(2009)4. PAC believes that these four revenue models make up for most of the revenue models available today and in the foreseeable future.

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• Associated IT Services – This revenue model includes the payment of the human efforts necessary to build, implement and run/maintain the software. Custom software development is part of this segment. These services are provided by external IT services providers such as IBM, EDS, Fujitsu, Capgemini and Atos Origin. • Paid-Web-Based – This revenue model mixes in fact a revenue model and a delivery model. It is leveraged in the cloud computing segments (SaaS, PaaS, IaaS – cf. cloud computing profile p.92). The revenue model consists of a “pay-as-you-use” model, usually on a monthly basis. The delivery model is also important: o Software is accessed through a Web browser; o Multi-tenant architecture: a single application instance that serves all customers. This category also includes the paid web-based revenues generated by emerging segments, such as mobile applications, M2M and Internet of things. • Online advertising – Online advertising in the context of the SBSS industry is taking account of all forms of software and activities that were offered previously in an offline version, but excludes all online activities that are still accounted within their original market segment like content (video, game, press, music, etc…) or e-commerce. For this study, online advertising is therefore only accounted when related only to some services of the Web like communication, search or other software based services.

SSBS definition

The following table summarizes the different components / sub-segments and differentiates between those that are relevant to the SSBS market and those that are excluded from the SSBS market (irrelevant or component not included in the SSBS definition).

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Revenue Model License + Online Associated ITS PWB Product Type Maintenance Advertising Application Software 3 333 Tools 3 333 System Infrastructure Software 3 333 Hardware 2 333 Games 3233 ©PAC, 2009

3 Included in the SSBS definition (business model) 2 Non relevant / not included

Figure 1: SSBS definition In summary SSBS = applications + tools + SIS + hardware related services4 + games

How large is the SSBS industry in Europe?

The overall SSBS market – 228.6 billion Euros in 2008 – is expected to grow at a 3.7% CAGR by 2012 to reach 264.8 billion Euros.

SSBS - EU27

300 000 Games

250 000 HW-associated IT services, PWB and advertising 200 000 Total SIS

150 000 Total Applications M€

100 000 Total Tools

50 000

0 2007 2008 2009 2010 2011 2012

Figure 2: SSBS market – EU27 – by software types

4 Hardware related services = hardware associated IT services + hardware related PWB + hardware related online advertsing

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The above chart shows the forecast development of the SSBS market in Europe (EU27) for the 2007-2012 period.

The following table summarizes the main development characteristics of the SSBS market by revenue models for the 2007-2012 period.

Market Market Structure Structure CAGR 08/12 2008 2012 Licenses + standard 29.0% 26.7% 1.9% Maintenance Associated IT 66.9% 63.9% 2.8% services Paid web-based 2.1% 4.2% 18.7% Advertising 2.0% 5.3% 23.6% Total SSBS 100% 100% 3.7%

The development of the paid web-based and advertising models will have a major impact on the structure of the SSBS market in the next few years, their market share doubling in only four years! The associated IT services market should also grow faster than the license + standard maintenance market.

Focus on Emerging Segments

As presented in the parts above, the SSBS can take several forms. In order to illustrate some of these forms, the consortium has decided to give a special focus on 8 emerging segments that are part of the SSBS industry (p. 92). These segments were selected based on the Consortium’s own expertise on the SSBS market and based on assumptions that these segments will have major impacts on the structure and evolution of the SSBS market in the short- to mid-term period:

• Cloud Computing • Open Source Software • Service Oriented Architecture • Mobile Software • Internet of Things (IoT) • Machine to Machine (M2M)

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• Web 2.0 • Online advertising

It is important to note that these segments are part of the SSBS industry, but are composed of different sub-segments that are sometimes overlapping and as such are not complementary to the SSBS market but rather represent an illustration of specific segments of the SSBS market. In fact these segments cannot easily be added to show their growth contribution to the growth of the whole SSBS market.

The following figure compares the relative size of these emerging segments in 2008 and their expected development until 2012.

Emerging segments - EU27

7 000 +70%

6 000 +60% +60%

5 000 +50% +48% 4 000 +40% +36% Market value 08 +33% CAGR 08/12 3 000 +30% +24% +24% 2 000 +19% +20% +14% Market size (2008 - Meuros) 1 000 +10%

0 +0%

g M T ing ility tin 2 Io is b SOA OSS rt u M e p v Mo m Web 2.0 d o C d ne a u li lo On C

Figure 3 : Market size and development of 8 emerging segments in the EU27

All these segments had market shares smaller than 3% in the SSBS segment in 2008.

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Initial recommendations on a Cloud Computing policy in Europe

The consortium has analyzed (p. 79) the potential risks related to the strong development of the Cloud Computing models in Europe. PAC would like to propose a few recommendations that could be the first building blocks of a European cloud computing policy:

• Cloud Education: foster initiatives to make sure European countries are investing to build solid and deep cloud computing expertise across Europe • Cloud Venture Capital: make sure that European investors and entrepreneurs can work together to boost innovation in partnership with R&D financing organizations • Cloud Ecosystem: support European initiatives so cloud players and users can share their experience and voice their concerns in front of US bodies • Cloud R&D: propose financial incentives to promote investments in cloud technologies in Europe • Cloud Framework: build a flexible privacy and legal European framework for cloud computing to balance US regulations. • Cloud Standardization: make sure that the European Union is one of leaders in cloud standardization initiatives to balance the power of the major US vendors.

SSBS Contributions to the EU Economy

The SSBS sector (measured using NACE Rev 1.1 classification) accounts for 2.7 million employees and €180 billion in value added. This is a similar size to the post and communication sectors, the support of transport activities or real estate activities (in terms of employment); or the support of transport activities sector, hotels and restaurants or land transport (in terms of value added).

Not surprisingly, the size of SSBS is very different across Member States, in fact, the top four Member States (UK, DE, FR and IT) account for more than 70% and 60% of total EU27 value added and employees, respectively in 2006. The top seven countries account for 83% and 78%.

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Nevertheless, the contribution of SSBS to the total economy shows a very different pattern, and for some countries (UK, SE, FI and IE) it contributes to more than 10% of the service economy's value added (excluding financial services).

The contribution of SSBS to the EU27 service economy is quite substantial, but more importantly, this has seen an important increase in recent years, both in terms of employment and value added. The increase experienced has, nevertheless, been quite different in the different Member States. In the period 2000 to 2006, SSBS employment grew more than 50% in DE, FR, and IT, while it doubled in ES.

Total expenditure in R&D in the software sector is small due to its small size compared to other sectors. However, the importance of R&D expenditures becomes apparent when measured as a percentage of sales: with 14% the software sector is by far the sector investing most in R&D. Despite that, EU R&D expenditures remain significantly behind other jurisdictions (especially with respect to the US), when measured in absolute terms and as per employee or as a percentage of sales.

SSBS Contributions to the EU Society

This report provides a first level of analysis of the current impact of software and services industry on social aspects in Europe in eight important domains in today’s society. The goal of this work is to present concrete examples of the role of SSBS in these domains: how SSBS improves the situation in these domains, what is made possible by SSBS in the current situation…

• Education • Security • e-Government • Optimisation of economic processes • Transport / Mobility

• Health • Sustainable development • e-Inclusion

The role of ICT and SSBS in particular in all these domains is becoming critical to improve the current situation at national and European levels. The next phases of

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the project, and the interview process in particular, will focus on how the development of the SSBS industry will impact these domains (indirect impact).

What can be noted so far is that there are two types of approaches in the computerization of the European society:

• A vertical approach: e-government, health, transport, education • A horizontal approach: e-inclusion, optimization of economic processes, sustainable development, security

The vertical computerization approach, even if it remains a strong trend on the market, shows considerable limitations:

• It prioritizes short-term goals and operational choices, whereas the computerization strategy of a sector or a company should include a long-term vision of the evolution of societies and their environment. • It is ill adapted when it comes to dealing with transverse issues, which appear in common areas of different vertical approaches. This is due to the lack of control bodies having the mission and above all the power to handle these IT governance issues (master IT plans at territory, sector, etc. level).

The horizontal computerization approach also has some risks:

• Law of “Socialization”: How can the individual be protected against the existing danger of turning personal information into profit for large organizations, which control the entirety of the data given by the individual, and enclosing them within a system to make them passive prisoners (polemics on the right of usage of personal data brought online)? • Law of “Globalization”: This law makes it necessary to question regional and national spaces to the advantage of a global space with the Internet being the only structuring element. The problem is that there is no legislative or regulatory power for defining the basic rules for the functioning of this space.

Policy Overview

Although the European SSBS industry as a major part of the European ICT industry is in general one important segment of the European economy, the persistent wide

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variation between Member States with respect both to the production and distribution has always been a major concern for policy-makers in the European Union. Several European countries are situated at the forefront of the ICT and especially SSBS development and application, but most have much less prominent positions or lagging significantly behind the average. One consequence was the introduction of the i2010 Strategy for a European Information Society. Therefore it is no surprise that nearly all EU member states now pursue a national Information Society (IS) policy, which refers to the i2010 strategy. Normally these overall policies address and integrate both the supply side (i.e. ICT or SSBS R&D or industry programs etc.) as well as the demand side (i.e. e-skills for user, broadband availability, etc.).

Besides general challenges for policies in support of the SSBS sector that all policy- makers are facing, the interdependencies between the European and national level as well as between supply and demand side policies required a more detailed analysis of the different national policies. Therefore the EU member states were classified into three groups: independent, intermediary, and dependent countries. This classification considered several factors, such as the size and importance of the SSBS and the ICT sector, the diffusion of ICT, R&D intensity, the existence of major industrial players, etc. The policy-analysis shows that there are still great differences among the EU member states in respect of policies supporting the ICT/SSBS sector. First of all, we can state that no EU member state has an explicit national software strategy. Most of the national initiatives were still of the horizontal and quasi-horizontal type that spanned sector boundaries as well as many of them were aimed at integrating ICT goods and services into other sectors, which is not surprising given the merit good characteristics of ICT.

In dependent countries there is a focus on horizontal policies, aiming mainly to increase ICT diffusion and infrastructure development and quasi-horizontal policies focussing on high technology sectors in general, Intermediary and independent countries are increasingly implementing vertical initiatives that address the ICT or in particular the SSBS sector. Interestingly there is a tendency within the group of intermediaries to implement vertical policies for the ICT and partly SSBS sector or at least to support existing quasi-horizontal policies, which aim at high technologies in general. These policies also support particular areas of the SSBS sector.

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Independent countries with significant software sectors or major software companies not only raised the number of vertical programs in support of the ICT sector in general, they also recently launched some programs that address the SSBS sector in specific

In a further step we analysed to which extent the countries already reflect current and future changes in the global SSBS sector. The analysis showed that only a small number of Independents or Intermediates with a strong SSBS sector or producers launched supporting activities for that development, while the Dependents did not implement any measures that are aimed at profit from it though many of them recognise the SSBS sector as an important area of growth. Most of the programs implemented by the Independents and Intermediates also only support R&D for those technologies that enable the ongoing changes. Reasons for this are very diverse; partly they are out of the scope of national politics as in the case of international standardization and interoperability or cross-border data protection issues. Hence we also analysed certain developments outside the EU. We found the same broad scope of ICT/SSBS-policies as in EU member states. While countries like the US, Canada or Japan pursue comparable policies like similar countries within the EU (e.g. Germany or United Kingdom), there are considerable differences to the approaches pursued in economies with established or emerging SSBS sectors. Partly countries like India and Israel pursue horizontal initiatives, aiming to create and maintain a favourable business environment, which are comparable to those in the European intermediary countries, while other countries like South Korea or Japan also pursue overall Information Society/Economy programs. Within these different types there are often specific elements like the venture capital in Israel or the focus on specific SSBS sector directed policies in South Korea that are comparable to the variety in Europe.

In summary there is relatively little activity in European Member State governments targeted specifically at fostering SSBS producers. However, as a result of the EU strategies eEurope 2005 and i2010 virtually all member states have implemented policies to foster the development towards an Information Society. This is at least an improvement compared to recent years, when adoption, diffusion and application of ICT was taken for granted, although there was always a strong merit goods association for ICT products in national economic strategies. However, this state of

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affairs likely reflects evolving boundary issues, both between national and EU levels of administration and between producers and user sectors.

In the next step the resulting barriers as well as all other barriers should be identified and assessed with regard to their importance. Based on this a set of policy actions should be developed that are directed to remove these barriers.

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CHAPTER 1 DEFINING THE SSBS INDUSTRY

1. INTRODUCTION

The goal of this part is to present the framework in which the whole project will take place and in particular to:

• Define the SSBS industry, its composing segments and the respective perimeters; • Explain the relations between the different segments – this will be critical in order to understand the different assumptions on which scenarios will be based as part of phase 2; • Present the metrics, indicators and related methodologies used to measure the SSBS industry and its individual sub-segments.

Important reminder: the scope of this project focuses quite exclusively on the visible part of the software industry, i.e. it excludes software, which is produced in-house, by IT departments and R&D departments. In the Inception Report (p. 10) the consortium explained the main reasons for this choice.

The SSBS being a complex market with diverse interacting segments (cf. tentative definition provided in the Inception Report), the Consortium decided to start with the overall IT market and to break it down into its main components or sub-segments and identify which sub-segments would be part of a representative SSBS definition.

During phase 1 of the project, many questions arose concerning the scope and perimeter of the SSBS market and its segments and sub-segments:

• Should software products in the SSBS market only account for license and maintenance fees? But then, how are custom software development activities

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taken into consideration? In conclusion, custom software development and the related project services market should be included in the SSBS market. • Are implementation and customization services considered as SSBS activities? Software vendors provide a lot of these services to implement and integrate their own software products into their clients’ information systems. It is a growing part of their activities (cf. OECD Japan). Yet, we should also consider similar services provided by external IT services providers. • Are outsourcing services also considered as SSBS? First, cloud computing is considered as an outsourcing activity by PAC, and more precisely as application outsourcing. Then, custom software development or software integration activities can also be found embedded in application management or complete outsourcing engagements. • Finally should the value generated by IT equipment, such as servers, PCs, etc., be included in the SSBS definition? This is not a trivial question. Software technologies cannot be used without an up and running hardware equipment – be it a server, a pc, a smartphone, etc. This might be sufficient enough to consider ITE as part of SSBS. On the other hand, hardware is a very different industry than software…

The following figure outlines PAC’s segmentation of the IT market.

Level 1 Level 2 Level 3

Software

Application Software

Tools

Systems Software

Games

IT Services

Project Services

IT Consulting (ITC)

Systems Integration

IT Training

Outsourcing Services

Cloud Computing

Other Outsourcing Services

Hardware Maintenance Hardware

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Figure 4: PAC’s IT Segmentation As a result of this work, and based on PAC’s Software and IT Services taxonomy5, the consortium has decided to retain two axes for the definition and analysis of the SSBS industry:

• Software types: there are four main software types: applications, tools, system infrastructure software and games. 6 • Revenue models: we have retained four significant revenue models: License + standard ISV (Independent Software Vendor) maintenance, Associated IT Services, Paid-Web-Based and Online advertising.

5 https://www.pac-online.com/pac/pac/live/pac_world/sitsi_market_research/methodology/index.html 6 There is a diverse number of revenue models on the market today as presented in the OECD report on « Innovation in the Software Sector » DSTI/IND(2009)4. PAC believes that these four revenue models make up for most of the revenue models available today and in the foreseeable future.

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2. DEFINITIONS

2.1. Software types As presented above, there are four types of software products, which can usually be related to the type of software users:

• Application software products – the end-user; • Tools – the developer; • System Infrastructure Software – system administrators; • Games – players.

Software types can be found in several forms:

• Packaged software – this term is employed to designate software that is ready to use – or in most cases “almost” ready to use. Today’s main software categories come in packaged software forms, including application software, tools and SIS, which are the three main types of software that can be found in information systems. Added to these, gaming software or games – mostly a B2C market – complete the four main types of software that can be found in the software industry. This market is primarily the software vendor companies’ private ground7. Gaming software can only be found in the packaged form and is always ready to use. Except for the gaming software category, associated IT services such as customization, implementation and integration services are not dissociable from the packaged software form. These services can be provided directly by the software vendors or ISVs that packaged the software product or by external IT services providers. Software appliances (software bundled with a hardware platform), open-source software (OSS) or commodity software are also considered as packaged software – as ready- or almost- ready-to-use software. • Custom software – in opposition to packaged software, custom or bespoke software is an IT project the goal of which is to develop a software “to-order” based on specific requirements from the software end-user. There is usually only one client for this software project. This kind of IT project is usually provided by external IT services providers, even though some Independent

7 One can also find some IT services companies, such as Sopra Group in France or msg systems in Germany having packaged software activities taken into consideration in this segment.

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Software Vendors (ISVs) are able to provide such services on top of their packaged software products as part of the customization of their own products.

2.1.1. Applications Software applications are used directly by information workers and end-users. There are as many types of applications as processes in companies and public organizations. The main role of these applications is to structure and bring some level of automation to the business processes of companies and public organizations (cf. “Optimization of Economic Processes” page 183).

The existing application portfolio of end-user companies can vary strongly from custom software that was developed internally or by using external service providers to packaged applications from different software vendors. The delivery models of application software products are dramatically changing with the advent of cloud computing and the SaaS model.

Packaged vs. custom application software

The computerization of firms was in the initial design of components and programs. The rationalization of these activities and the standardization of equipments allowed for the emergence of a genuine software industry with the advent of reusable programs, or packages to be put on the market as software products meeting the needs of a large number of different clients.

Today packaged application software providers are specialists focusing on processes or functions (pay, purchasing, supply chain, customer relationships, finance & accounting…) or vertical domains (pharmaceutical, real estate…). They are not the mere data processing providers that operated a few decades ago.

On the other hand, IT services companies providing customer software development services tend to specialize more on technologies rather than on vertical industries or processes, even though it is becoming more and more the case as end-users’ requirements are closer to their business specificities.

Another key differentiating element of the packaged software industry is the standardization of functionalities provided by the application software whereas, by

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definition, custom software development is tailored to one, unique customer’s needs. This standardization element is also key in the SaaS model.

Packaged software products, be them applications or tools or System Infrastructure Software, also answer to a logic of product development: from the R&D phase, to the prototyping, the marketing and sales, the many evolutions and versions that the software product can have in its lifecycle and after sales support. This lifecycle is of course managed by the software provider, the management of numerous existing versions for different customers having sometimes a heavy burden on R&D costs. (As presented in the Cloud Computing profile, this burden does not exist in the SaaS model, thus reducing R&D effort for the software vendor.)

As far as custom software development is concerned, there are generally no R&D processes involved, and the maintenance of the software over its life course is in most cases performed by an external services provider (usually the one that has developed the software) through an outsourcing model.

Companies sometimes prefer to recruit external service providers to develop their own applications than make the choice of a packaged software for different reason: cultural, they want to remain independent from a software vendor (lock-in phenomenon), or because the process to “computerize” is considered too specific or too strategic to be addressed by a packaged software product.

Functions and processes covered by software applications

One of the primary goals of software applications lies in the automation of an organization’s functional and/or technical tasks. As an example from a purely functional point of view, software applications covering the accounting and finance processes have largely automated tasks originally performed "by hand" and allowed for increased productivity.

If a software implementation can be seen first as a cost, increased productivity resulting from the usage of this software promotes lower costs of producing goods and services. In other words, the development of software is beneficial for both business and consumers. It is interesting to note however that improvements in terms of productivity or value added remain very difficult to measure as the way software is used within a given organization varies tremendously according to

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diverse factors such as the maturity of existing processes, education and training of the end-users, vertical sector…

The application software category includes office automation, business (horizontal and vertical) applications and technical applications.

• Office Automation, which includes software used to interact with office information needed for accomplishing basic tasks and goals. It includes word- processing, data spreadsheet, presentation software… • Horizontal business applications are process-oriented applications covering the different functions of public and private organizations: finance and accounting, human resources, customer relationship management, supply chain management... These processes are usually similar from one company to the other and one industry to the other. The industrial and standardized business model of application software products / packaged application is therefore highly present in this category. • Vertical business applications cover industry-specific solutions such as billing (telecom, utilities), core-banking systems, and reservation systems in the travel industry… As this category is strongly related to the vertical industry in which the company is operating and to its own activities, vertical business applications are usually considered as strategic and can sometimes be considered as a competitive advantage by the end-user company. This characteristic explains the higher proportion of custom developed applications than the rate observed in the horizontal business applications category. Another consequence of this is that these solutions require a higher amount of customization efforts, and as such are usually not eligible to the SaaS delivery model. • Technical applications - Most of the time, this category is related to the design and creation phases of a product, which can be a very complex and sensitive process. These applications are typically used by technicians and engineers and require thorough training processes. Such technical applications have to manage large amounts of real time data to operate the production or graphical systems to design and fabricate a product. The Product Lifecycle Management (PLM) segment is the main segment included in this category, also including the PLM components: Product Data

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Management (PDM), Computer Aided Design/Computer Aided Manufacturing (CAD/CAM), virtual factory, and simulation.

Mobile applications that differ mostly from a technical and platform stand-point fall also in this application software category.

2.1.2. Tools Tools represent that software where one models, plans, tests, deploys, executes and optimizes business applications and processes. They stand between System Infrastructure Software (SIS) and application software. Tools are the upper layer of the middleware. The tools layer is not highly verticalized or specialized by solutions, but much more than the SIS layer. Software-based IT services are also more important in tools projects than in SIS and hardware related projects.

Lately, with the advent of service orientation, they have become increasingly important in software based value creation as they allow for the composition, integration, agility, reuse and optimization of software applications.

Tools are the foundations for the three core layers of an IT system: user interface, application logic, and data. The tools segment is divided in 4 sub-segments according to their goals:

• Portal and Collaboration, the user interface (GUI) infrastructure; • Information Management, for the data layer (structured and unstructured); • Modelling and development tools, where is defined application logic; • Execution and Integration platforms, where the application logic is executed and optimized.

Tools used to develop embedded systems are also included in this category. Middleware technologies that are part of embedded systems are part of this category.

2.1.3. System Infrastructure Software (SIS) System Infrastructure Software (SIS) represents the foundation of software stacks; it links, secures and manages hardware, network and software. It rarely is industry- or function-specific software. It is the infrastructure part of the middleware layer.

SIS includes the Operating Systems (OS) and the virtualization layer with products such as z-OS (IBM’s mainframes), Microsoft’s Windows, Linux or Nokia’s Symbian.

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It is the interface between hardware and software. The OS is responsible for the management and coordination of activities and the sharing of the limited resources of the computer. The OS acts as a host for the software that is run on the machine. It is present on the server and the client hardware.

SIS also includes the infrastructure software that manages, runs and optimizes network, storage, security and the IT system. It is increasingly important as the systems become more and more critical and complex. It provides all the utilities for the applications to run efficiently. Anti-virus, archiving systems and network management consoles are examples of this type of software.

This category also includes the embedded SIS category that is a major component of embedded systems.

2.1.4. Games While focused on consumer applications, the game software industry has also potential spill-overs on professional applications with for instance 3D engines used in serious gaming and e-learning solutions. The game software industry is also very a key market to analyze the shift of sales from physical sales to online sales.

The video game market refers to any form of electronic game involving interaction with a user interface offering some visual feedback on a video display. It includes both paid and ad-funded games.

The video game market value includes both online segment and physical segment.

Offline segment is based on volume of physical software sales (CD, DVD, cartridges) on:

• Home consoles (Sony's PS2 and PS3, Microsoft's Xbox and Xbox 360, Nintendo's Wii and GameCube) • Handheld consoles (Sony's PSP, Nintendo's DS and DSi) • Computers (PC and Apple computers).

Online segment is based on digital software sales on:

• Internet connected computers , • Cell phones.

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2.2. Hardware By definition, the value generated by cloud computing services includes some value originating from the software used (applications and/or tools), and the remainder coming from the systems that lie underneath the applications and tools layers, namely the system infrastructure software (SIS) and IT equipment / hardware.

One important aspect of the project will be related to the assessment (value generated, relative weight, market trends, etc.) of the different key components of the SSBS market and the analysis of the future evolution of these components in relation to the anticipated demand for such market segments. Phase 2 of the project will look at some of the major technological and market trends that are going to shape the SSBS industry in the future. Cloud computing is clearly one of them. In order to apprehend the value transfer from one traditional segment, such as hardware, to an X-as-a-Service segment, the IT equipment value definitely needs to be part of the project scope.

Therefore, considering cloud computing as part of the SSBS market means that some hardware-related value is included in the overall SSBS market value.

2.3. Software revenue models The second major axis used to differentiate between different types of software is the revenue model. PAC and IDATE have identified four different types of revenue model, which can be considered as different ways to monetize the right to use the software:

• License + standard ISV maintenance – perpetual license or “rent” – the end-user of the software products (or the company he/she is working for) pays a license fee to own the right to use the software. Mass distributed software is used by individuals or large organizations on personal computers or servers under license from the developer of that software. Such license is typically included in a more extensive end-user license agreement (EULA) entered into upon the installation of that software on a computer/server. Under a typical

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end-user license agreement, the user may install the software on a limited number of computers. Software companies often make special contracts with large businesses and government entities. They usually come with support contracts: for each year over the duration of the contract, users have to pay a percentage (typically in the 15-25% range) of the cost of the license in order to have access to the Hotline and to the product upgrades and releases. The license fee most of the times is an upfront payment made by the end-user (company or individual). This license fee can also be paid in monthly instalments – not to be mistaken with usage-based revenue models though. In the case of OSS or commodity software, the license can be null. • Associated IT services – This revenue model includes the payment of the human efforts necessary to build, implement and run/maintain the software. These services are usually provided on: ¾ A time & material basis – the client pays for x man days, and y units of materials, once the project is deemed complete; ¾ A fixed-price basis: the external service provider undertakes to deliver, for the price specified in the contract, the service that is set out by the client; respecting the timeframe and deliverables agreed upon. ¾ A mix of both. ¾ Outsourcing services – another important category of software- associated IT services. They are usually multi-year contracts associated with Service Level Agreements (SLAs).

Example: Application related IT Services

Application software products can be either out-of-the-box solutions, such as most productivity software products and business applications for the small office/ home office markets, or more complex/ process-oriented solutions that require implementation and customizing services, such as business applications for the mid-market and for large enterprises. Application software products are often sold as packaged solutions including hardware and services, including implementation services. The related revenues from implementation services (consulting, implementation/ customization, training) are booked as project services revenues and are included in the associated services segment. Many software publishers

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enter into agreements with IT services companies. In particular national actors are looking at international services companies that can assist their clients in:

- Guaranteeing consistency in terms of scope, time and cost

- Customizing the product to local specificities

- Attend daily client after the project ends with a geographical proximity

Custom development - in opposition to packaged software, custom or bespoke software is an IT project the goal of which is to develop a software “to-order” based on specific requirements from the software end-user. There is usually only one client for this software project. This kind of IT project is usually provided by external IT services providers, even though some Independent Software Vendors (ISVs) are able to provide such services on top of their packaged software products as part of the customization of their own products. Custom development services are also part of the project services category.

The management of custom developed or packaged applications can be performed by IT services companies. Application management (AM) describes the maintenance and enhancement of existing applications (custom development and/or customized software products), sometimes even their initial development, under a long-term (multi-year) contract with a commitment to fulfilling pre-defined service level agreements (SLAs) on a fixed-price basis. AM can be embedded in complete or application outsourcing deals, and in these cases the IT services provider also manages the infrastructure on which the software is installed.

• Paid Web-Based (PWB) – This revenue model mixes in fact a revenue model and a delivery model. It is leveraged in the cloud computing segments (SaaS, PaaS, IaaS – cf. Cloud Computing profile p.92). The revenue model consists of a “pay-as-you-use” model, usually on a monthly basis. The delivery model is also important: ¾ Software is accessed through a Web browser; ¾ Multi-tenant architecture: a single application instance that serves all customers. ¾ If the delivery models differ from these two characteristics, the revenue model is considered as outsourcing (associated IT services) and not

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paid web-based. This category also includes the paid web-based revenues generated by emerging segments, such as mobile applications, M2M and Internet of things. • Online advertising – This revenue model has been rapidly developing in recent years. The segment only includes advertising revenues generated by software-based services for web services (Internet browsing), mobile applications and services (mobile browsing, widget, etc…) and online and mobile game advertising. It excludes all forms of contents except games. It focuses on the following forms of advertising: ¾ Search engine marketing (sponsored links in search engine results) ¾ Display (banner ads, interstitial, video and rich media) on software- based services (webmail, IM, etc.)

2.4. Definition of the SSBS market As a conclusion, the consortium has retained two axes to analyze the SSBS market:

• Product type: applications, tools, system infrastructure software and part of hardware; • Revenue model: license + standard maintenance, associated IT services, paid web-based, advertising.

The analysis framework will consist in crossing these two axes to determine the different SSBS components, which correspond in fact to a business model. Some crossing points are not relevant or are simply not included in the SSBS definition:

• Games vs. associated IT services – games are ready-to-use packaged software and do not require associated IT services to be used. Serious gaming applications are part of the application software category. • As far as hardware is concerned, hardware products are of course not included in the SSBS definitions. However, associated infrastructure-related IT services, computing power and storage available via paid web-based services or advertising – given their tight relationship to emerging software segments such as cloud computing – are part of the SSBS definition.

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3 Included in the SSBS definition (business model) 2 Non relevant / not included

Figure 5: SSBS definition

2.5. SSBS Emerging segments As presented in the parts above, the SSBS can take several forms. In order to illustrate some of these forms, the consortium has decided to give a special focus on 8 emerging segments that are part of the SSBS industry. These segments were selected based on the Consortium’s own expertise on the SSBS market and based on assumptions that these segments will have major impacts on the structure and evolution of the SSBS market in the short- to mid-term period:

• Cloud Computing • Open Source Software • Service Oriented Architecture • Mobile Software • Internet of Things (IoT) • Machine to Machine (M2M) • Web 2.0 • Online advertising

It is important to note that these segments are part of the SSBS industry, but are composed of different segments sometimes overlapping and as such are not complementary to the SSBS market but rather represent an illustration of specific segments of the SSBS market.

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To illustrate this, the following figures present the respective perimeters of two different Emerging Segments (Cloud computing and Internet of Things) and show to which SSBS segment the particular emerging segment relates.

Cloud Computing (excl. Games)

Revenue Model License + Online Associated ITS PWB Product Type Maintenance Advertising Application Software 3 Tools 3 System Infrastructure Software 3 Hardware 3 Games ©PAC, 2009

Internet of Things

Revenue Model License + Online Associated ITS PWB Product Type Maintenance Advertising Application Software 333 Tools 333 System Infrastructure Software Hardware Games ©PAC, 2009

3 Emerging Segment is composed of these SSBS subsegments

Figure 6 : Cloud Computing and Internet of Things perimeters

The emerging segments are analyzed in Chapter 4.

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CHAPTER 2 SSBS MARKET ANALYSIS

1. INTRODUCTION

This part presents detailed analyses of the main segments composing the SSBS industry in Europe (applications software, tools, system infrastructure software, and games). The emerging segments are presented and analyzed as part of Chapter 4.

As part of the market analyses, we have tried to give a brief focus on the relationships in between segments (software types and revenue models) and in particular give a first overview of the value creation (new market created thanks to an innovative model, concept or offering) / transfer (market value transferred from on SSBS segment to another) / destruction (an innovative model, concept or offering leading to the reduction of a segment’s market size) phenomena that are related to the present and future evolutions of the different segments, and in particular the PWB and Online Advertising segments. These analyses will be used as part of the assumptions that will be developed in the Baseline Scenario of Phase 2.

2. SSBS MARKET

This part presents a first level of detail of the market figures for the SSBS market in the EU27 region.

IMPORTANT: all market figures have been updated in March and April 2009, and as such include the impact of the current economic crisis to a certain extent. Should the economy further deteriorate in the coming weeks / months, the consortium will update the figures in order to provide the most realistic analysis of the SSBS market.

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2.1. SSBS in the EU27 Market – by Software Types The overall SSBS market – 228.6 billion Euros in 2008 – is expected to grow at a 3.7% CAGR by 2012 to reach 264.8 billion Euros.

SSBS - EU27

300 000 Games

250 000 HW-associated IT services, PWB and advertising 200 000 Total SIS

150 000 Total Applications M€

100 000 Total Tools

50 000

0 2007 2008 2009 2010 2011 2012

Figure 7: SSBS market – EU27 – by software types

The above chart shows the forecast development of the SSBS market in Europe (EU27) for the 2007-2012 period.

The following table summarizes the main development characteristics of the SSBS market by type of software for the 2007-2012 period.

Market Market Structure Structure CAGR 08/12 2008 2012 Total applications 44.7% 45.3% 4.0% Total tools 11.2% 12% 5.2% Total SIS 10.7% 10.3% 2.8% HW-associated IT services, PWB, 28.5% 26.9% 2.7% advertising Games 4.9% 5.5% 5.5% Total SSBS 100% 100% 3.7%

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This axis of analysis does not show much different developments over the next few years. Compound average growth rates (CAGR) will remain in the 2-6% range.

2.2. SSBS in the EU27 Market – by Revenue Models

SSBS - EU27 300 000 PWB

250 000 Advertising

200 000 Associated IT Services 150 000 M€ Licenses + Standard 100 000 Maintenance

50 000

0 2007 2008 2009 2010 2011 2012

Figure 8: SSBS market – EU27 – by revenue models

The above chart shows the forecast development of the SSBS market in Europe (EU27) for the 2007-2012 period.

The following table summarizes the main development characteristics of the SSBS market by revenue models for the 2007-2012 period.

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2.3. SSBS spending by employee and company size SSBS spending vary from company to company and sector to sector based on the usage the companies make out of the software, the critical aspect of ICT and supporting software in their business activities, and other subjective criteria such as the culture of the company, its nationality, history…

Another interesting criteria that is interesting to look at concerns the differences in terms of software investments by company size. One way to look at it is to calculate the software spending (here applications + tools + system infrastructure software spending) by employee and to compare it by company size. The results are presented in the following graph8 (Figure 9).

8 Spending figures in Germany, France and the UK has been aggregated to obtain an average view of the three main European countries in terms of software spending. There are differences from country to country, although these are not the subject of this particular analysis.

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Software Spending by employee - DE+FR+UK average - 2007

350

300

250

200 ASWP SIS&Tools 150

100

0 >2000 500-2000 250-500 100-250 10-100 <10 Company size (# employees)

Figure 9: Software spending by employee and company size (DE+FR+UK average – 2007)

Non-surprisingly, the software spending varies greatly from large companies (>2 000 employees) which spent an average of about 600€ per employee en 2007 more than as much as very small companies (<10 employees) which spent an average of less than 250€ per employee in 2007.

Application software spending per employee is usually higher than SIS & Tools spending per employee, except for large companies, which spend more on tools software (large databases and complex middleware especially) than smaller companies.

2.4. Comparing EU27 and EU15 markets The geographic scope of the current project is the EU27 region. As presented in the Chapter 5, the policy overview will cover all EU27 countries. However, it is interesting to see that the SSBS market is much more developed in high-income mature economies (EU15 economies)9 that in middle-income converging economies (rest of the EU27 market)10.

9 EU15 countries include: France, Germany, the UK, Ireland, Denmark, Austria, Sweden, Finland, Belgium, Netherlands, Portugal, Spain, Italy, Greece, and Luxemburg. 10 Rest of EU27 region includes: Malta, Cyprus, Czech Republic, Slovakia, Slovenia, Bulgaria, Latvia, Lithuania, Romania, Poland, Estonia, and Hungary.

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Market Market Structure Structure CAGR 08/12 2008 2012 EU15 SSBS Market 95.7% 94.5% 3.5% Rest of EU 27 SSBS 4.3% 5.5% 9.9% market Total SSBS market 100% 100% 3.7% (EU27)

Not surprisingly, the SSBS market should experience the most growth in middle- income countries in Central and Eastern Europe, with a CAGR of about 3 times as important as in the EU15 countries over the 2008-12 period.

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3. APPLICATION SOFTWARE

3.1. Market Data More detailed market data on application software products by countries and regions are available in Annex 3.

Applications - EU27 Advertising 140 000

120 000 PWB 100 000 Associated IT Services 80 000 M€ 60 000 Licenses + Standard 40 000 Maintenance 20 000 0 2007 2008 2009 2010 2011 2012

Figure 10: Application software market – EU27

Market Market CAGR Structure Structure 08/12 2008 2012 Licenses + standard 30.3% 27.7% 2.2% Maintenance Associated IT services 67.1% 65.5% 3.1% Paid web-based 0.6% 1.5% 23.0% Advertising 1.9% 5.3% 25.5% Total SSBS 100% 100% 4.0%

Following years of buoyant growth, the traditional application software market (licences + services) will remain stable in 2009 and should continue its expansion in 2010, albeit at a rather slower pace compared to previous years. By geography, the Eastern European countries should experience faster developments of their internal markets compared to more mature markets in Western Europe.

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Another important characteristic is the pace of development of emerging business and delivery models such as Paid Web Based and Online advertising that represented less than 2% each in 2008 and that should grow at more than 20% per year on average. (A more detailed analysis of the Paid Web Based - SaaS model can be found further in this part on page 51).

3.2. Overall market analysis 3.2.1. Business and IT drivers Business drivers

Companies need application software to:

• Run their activities – software enables a company to structure its activities and implement processes that allow the company to concentrate more on its core business rather than on the management of these processes. In the end, application software provides the company with a coherent view of its activity. • Increase the productivity • Add a competitive advantage • Facilitate the relationship with partners (both suppliers and customers) • Increase sales • Manage and accelerate the international development

IT drivers

• More than seven years after the last strong investment cycle (Y2K and Euro), private and public organizations will have to enter a new period of equipment or "re-equipment" when the economic growth is back again. The public sector remains also under-equipped in most European countries. • In order to reduce IT costs, companies need to replace their legacy systems based on old technologies that are in most cases inefficient and very expensive to maintain. The IT “Grandpa Boom” also forces companies and public organizations to find ways to replace retiring IT professionals.

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• Legacy issues continue to be a driver in the applications software space as firms increasingly try to tackle rigid and disparate systems that prevent alignment between IT and the business strategy. • Further consolidation of the software industry can be a positive growth driver for software maintenance fees as vendors standardize maintenance contracts of the multiple products they are acquiring. • Migration to next generation of product: the “SOA wave”. The current consolidation phenomenon of the global software industry is the visible part of major product evolutions towards service-oriented architectures (SOA). One of the main objectives of this evolution is the componentization of the information system in reusable application software bricks aligned with the company’s business processes and sitting standardized technology platforms.

3.2.2. Trends by company size Large companies (>500 employees) have the highest IT and software spending per employee as they have invested heavily in their IT systems in the past. They still are investing in order to harmonize the different applications and infrastructures, to deploy at an international level or to implement new functionalities, or just leverage their IT systems to seize new growth opportunities though the development of innovative products and services. However, most of the growth opportunities for the application software market are with SMEs, which commonly are under-equipped in application software.

SMEs (<500 employees) increasingly have management requirements similar to those of large enterprises:

• They are subject to stringent regulatory standards (fiscal, social, quality...) both at local and European levels. • They have operational needs that can be as complex as those of larger companies • Their applications are becoming more closely linked to those of major groups (sub-contractors, suppliers...). In particular, they are impacted by IT accelerated customer-supplier relations (Customer Relationship Management) or "seamless" management of design chains, logistics, production of large enterprises (Supply Chain Management, Product Lifecycle Management...).

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• They face increased international competition that involves streamlining and competitiveness.

SMEs demand that their information systems help them address these challenges, but are usually facing significant constraints:

• Many of these companies are equipped with heterogeneous information systems in terms of functional and geographical coverage. • Medium-sized enterprises often have limited human and financial resources to devote to their IT projects. • Medium-sized enterprises search for simple tools, efficient, friendly, easy to implement, with a measurable return on investment.

3.2.3. Trends by function / process The degree of adoption of the different application software depends on the software segments. Companies are for instance very mature in their usage of core functionalities such as Finance, Payroll or Production. However, they continue to acquire solutions to complement traditional management software (for instance: cash governance, risk and compliance; talent management; maintenance, repair & overhaul...) and to extend the scope of their information system to their customers and suppliers, respectively, through software Customer Relationship Management or Supply Chain Management. Companies are also investing in business intelligence solutions, which allow managers to better exploit internal and external data in order to make the right decision.

It is important to note that core functionalities of large companies (in banking, retail, etc) are frequently still legacy systems that traditional software vendors have begun to replace by packaged software.

In the Business Application market, one of the main trend since the 90s is the adoption of ERP (Enterprise Resource Planning) systems. An ERP system is defined as a group of software modules linked to a single database. Such a system must cover at least three of the main corporate functions: Production, Finance, Logistics / Procurement, Sales / Marketing and Human Resources. Choosing to implement an ERP system provides a coherent corporate information system, which is organized around a common set of reference criteria.

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Such an integrated approach is attractive for Medium-sized Enterprises because it guarantees a better fit between the quality of coverage of corporate functions and price. The term “price” is synonymous here with Total Cost of Ownership (purchase, implementation and application maintenance).

In the 1990s, large corporations began to purchase integrated software or ERP systems in order to meet data coherence requirements within the company. Such products spread gradually to various sized companies, reaching SMEs in the period 1995-2000.

Today, most large corporations have an ERP system, but the percentage of firms with such systems diminishes with company size. In the operational world, it is very rare that a company can be satisfied for its information system to use an ERP. In most cases, the company integrates different solutions to respond to operational needs.

3.2.3.1. Horizontal applications

Accounting

The accounting market is mature. The market is bolstered by some changes in regulations and the wave of re-investment valid for all software packages. The major players in the sector are trying to develop complete and integrated offers, with a particular interest in Corporate Performance Management (Business Intelligence). CPM is a field of investment for large and small companies, as managers want to drive their companies in real time.

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Payroll & Human Resources

With the IT Grandpa boom, large and medium sized companies invest in HR tools in order to manage this challenging transition. The payroll market is obviously mature. However, there are still payroll projects aimed at renewing old Human Resources Information Systems. Furthermore, the market is experiencing a new cycle of investments in some specific verticals such as the Public Sector. Major issues are now focused on "qualitative" HR software solutions. These solutions include recruitment solutions, career management solutions and Business Intelligence solutions for HR.

CRM

The customer relationship management (CRM) market consists of Sales Force Automation, Marketing and customer services. Basically, two markets can be distinguished: on the one hand, there is the second generation CRM market, where large clients are more mature about ROI and what they expect from CRM solutions; on the other, there is the mid-market with no CRM solutions at all or hand-made solutions that need to be replaced. Vertical offerings have also more interest for customers (Life sciences, public…).

SCM

The Supply Chain Market is dominated by ERP vendors. Companies invest more in Supply Chain Execution System (Warehouse or Transport management) with a faster ROI than in Supply Chain Planning. Solutions are adapted by sectors (Retail, Transport, etc.).

3.2.3.2. Technical applications

Companies are increasingly turning to tools to digitize their product or view information related to geography in a graphical way. These tools save time & money. The software is also increasingly used to manage real-time systems to meet current production demands in terms of flexibility and quality. The growth will also be sustained by the integration between Technical IT and IT Management.

PLM introduces products on the market with optimal cost and timeframes. PLM has become an essential tool to support companies’ innovation processes.

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Manufacturing Execution Software (MES) has further gained importance in the manufacturing industry. On one hand, manufacturers are under increasing pressure to coordinate manufacturing planning across a global supply chain, to ensure the delivery of fast-moving products with short lead times, and to improve operational efficiency and quality while guaranteeing regulatory compliance. On the other hand, there is a highly heterogeneous landscape of numerous, different shop and plant floor systems that are often not even linked to enterprise systems (e.g. ERP). As MES solutions have existed for more than 20 years, numerous players have already been active on this market. Diversity and complexity are high in the manufacturing sector (varying requirements from pharmaceuticals to automotive), which means that there are a lot of specialized players.

3.2.3.3. Office automation

The market for office automation is clearly dominated by one player. Growth in this area is limited, as the current office automation products have already reached a high level of maturity. Additionally, office automation software products are often not affected by legislative changes, which also allows companies to use older versions (contrary to accounting or HR application software).

The market is currently characterized by an increasing process and collaboration orientation of the solutions. Moreover, the integration of office automation solutions and business applications becomes increasingly important. This will also represent a major motivating factor for customers to buy the newest versions in order to increase the benefit of their business applications. PAC also expects an increase in open source applications and online solutions (from online advertising and paid web based), offered not only by established vendors and service providers but also by new players. Even though this will not have a major impact on the market in this being, customers in certain segments and industries will be more open to have a look into these offerings, e.g. in the service industries.

3.2.4. Trends by revenue models Since the beginning of the 90s, there has been a clear evolution towards packaged application software in the major European markets (the UK, Germany, France…). Legacy systems implemented before this productization wave were mostly based on

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bespoke software. Companies were then attracted by the value proposition of packaged software including: cost reduction and ease of maintenance through the standardization of the solution.

Today, clients’ interest for custom development is increasing again due to the rapid development of low-cost concepts such as the offshore delivery models and open source. In this period of economic slowdown, companies have to keep on investing in order to maintain their IT systems. The competitive value propositions of custom development combined with offshore or open source is becoming enticing again for these companies.

This phenomenon has been witnessed since the beginning of the economic downturn back in September 2008 with a steep slowdown in the sales of application software licenses:

• Companies have drastically limited their investments in large application projects thus impacting strongly the sales of generalist application software products such as ERP. • Packaged software continues nonetheless to benefit somewhat from investments in specific software modules that complement the existing information system by adding new functionalities. • On the other hand, demand for open source based development and solutions have been resisting quite well over the same period (cf. OSS profile) • SaaS is also strongly benefiting from this low cost trend as companies value the flexible and lower cost approach to using certain types of software under this delivery model.

It is important to understand that SaaS revenues not only include value attached to the application software product in itself, but also the value of the tools, systems infrastructure software and hardware equipments needed to run the application distantly in a multi-tenant environment. Paid web based for application software therefore refers to the application software related value generated by the SaaS models.

The main value propositions of the SaaS model lie in the cost reduction and flexibility – paying a subscription per month (usually over a 3-year period) vs. paying a high upfront license fee – compared to traditional software models, which can also

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include important implementation services related costs. It should promote easier software adoption by a large proportion of companies and SMEs in particular. The development of the SaaS model will come at the expense of traditional models in CRM, HR and other horizontal business applications.

The traditional license fee will remain predominant for the foreseeable future even though online delivery models are developing very strongly. The SaaS model is typically used for the provisioning of additional modules (value creation or destruction). For the time being, for security and complexity reasons, the SaaS model is not convenient for core or critical applications.

Drivers for the SaaS adoption - From a customer stand-point

• Limited upfront investment compared to the license + implementation model 11 • Implementation costs can be decreased dramatically • From CAPEX to OPEX – better management of IT related expenses and alignment of these expenses on the actual activity of the company – usage based payment. • Access to the application everywhere including mobile terminals. • The company does not have to worry about IT complexity and software upgrades.

Drivers for the SaaS adoption - From a provider stand-point

• Reduced R&D costs – some pure players have acknowledged that it could reduce these costs ‘by as much as 50% (no management of multiple products versions for multiple platforms (OS, databases…), which means one version for all customers). • All R&D efforts can therefore be concentrated on new functionalities and new platforms rather than on heavy and costly non-regression testing processes. This also implies a better reliability of the software

11 http://www.nytimes.com/external/gigaom/2009/06/24/24gigaom-private-clouds-it-operations-finally- meet-moores-l-7724.html

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• The installed based can act as a community that reacts through the Internet channel on new versions, new functionalities, user interface, evolution of needs… This can dramatically decrease the time to market of new software.

The SaaS model dramatically reduces the costs related to software distribution, product management, and planning. In the traditional software models, these activities are strongly woven into direct customer interaction.

The SaaS model can dramatically reduces the cost of marketing and selling the software. Indian companies better known for their IT Services activities have very few package software products providers. However, the advent of SaaS has enabled many entrepreneurs to get into the product business and develop application software products that are now used by many companies throughout the world, and this without any local offices in the customers’ countries12.

Barriers to the SaaS adoption

• Security & data confidentiality – the fact that the application is hosted on a distant server might lead to business continuity issues if/when the Internet connection is down. Compliance issues – some countries do not allow for certain types of data to be hosted outside of the country’s borders. On some low-end services, the integrity of the data is not guaranteed. • Integration with the rest of the company’s IT system – integration with existing critical processes can be complex or even impossible due to the fact that SaaS models are loosely coupled to the company’s IT systems and leverage standardized data referential and semantics whereas some critical processes require tight data integration with often complex data management situations (several firewalls, distant databases, specific referentials…). • Limited options for customization, limited functionalities – part of the value proposition of the SaaS model relies on the fact that companies use standardized software. Adding lots of custom development on top of it can jeopardize this value proposition.

12http://www.siliconindia.com/guestcontributor/guestarticle/94/Behold_the_Indian_SaaS_Entrepreneur _Sanjoy_Sanyal.html

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• Culture of “owning” the software – habits do not change overnight.

Value creation of emerging models (SaaS and Online Advertising)

“On-line” applications (paid web based or advertising financed13) create new value for the SSBS industry through the creation of new markets: the flexibility (mobility, etc) and the lower cost characteristics influence small companies to use applications they were previously reluctant to invest in. The access through the Internet dramatically increases the number of users. The decreased time-to-market enabled by the SaaS model combined with the Internet delivery model can also allow software providers to create new functionalities that could not have been easily developed and sold. SaaS based applications are indeed likely to develop quickly in areas where niche applications can be targeted at specific vertical sectors.

The more the application is standardized, the more it can be used in an online way. In particular, only applications with mass market potential can be monetized through advertising, meaning only a handful of the SBSS can be offered profitably this way, while niche applications will remain paid.

Value transfer and destruction

Value transfer and destruction related to the mainstream adoption of the SaaS model lie mainly in the deflationary impact of this lower cost business model compared to the traditional licensing + implementation model.

3.2.5. Competitiveness of Europe Production/R&D

The main software companies operating in Europe today are U.S. based companies. The true software leadership in Europe today is American.

However Europe holds strong positions in the software industry. The software and IT services sector is one of the most dynamic sectors in Europe in terms of company creation and entrepreneurship. Software in Europe like in other regions in

13 cf. Online advertising profile

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the world is synonymous of innovation and as such fosters entrepreneurship. The local particularities (regulations, industries) and the strong European economy have allowed for the emergence of a solid Application Software industry with mid-sized and niche players in different horizontal segments (finance, HR, etc) or in vertical segments: banking/finance, the public sector, PLM and many segments/niches – in those areas where the local particularities get in the way of concentration and internationalization.

There are also strong vertical sectors in Europe such as automotive, aerospace, telecom, energy, medical equipment... that will increasingly rely on software technologies to embed innovation in their new products and remain competitive on a global scale.

In the meantime, the harmonization of the regulation at a worldwide level and the globalization of the economy will decrease the barriers for the international providers. The R&D race in terms of technology and functionalities increase market concentration, which benefit to the non European providers.

Usage/sales (domestic market)

By country, the top 10 application software products markets worldwide in 2008 were the USA (36%), Germany (10%) followed by Japan, France and the UK (5%- 10% range), Canada, Italy and the Netherlands (2%-3% range), China and Spain (just below the 2% mark). Together, these 10 countries generated 77% of the worldwide software market. By comparison, the EU27 market generated 36% of the worldwide market, the equivalent of the U.S. application software market.

The application software market differs considerably from one country to the next in the EU, as it depends on the structure of the economy (the significance of manufacturing vs. services companies/ large vs. medium vs. small-sized firms, etc.).

The SaaS adoption is relatively low (less than 5% of the market) but the growth rates of this market should be close to 20% over the next few years.

The adoption of software will continue in Europe as a large proportion of the economy is driven by SMEs.

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4. TOOLS

4.1. Market Data More detailed market data on tools products by countries and regions are available in Annex 3.

Tools - EU27 Advertising 50 000 45 000 PWB 40 000 35 000 Associated IT Services 30 000 25 000 M€ 20 000 Licenses + Standard Maintenance 15 000 10 000 5 000 0 2007 2008 2009 2010 2011 2012

Figure 11: Tools software market – EU27

Market Market CAGR Structure Structure 08/12 2008 2012 Licenses + standard 33.4% 32.3% 3.0% Maintenance Associated IT 64.8% 62.9% 3.0% services Paid web-based 0.7% 1.7% 22.5% Advertising 1.1% 3.1% 26.2% Total SSBS 100% 100% 3.7%

4.2. Overall market analysis The tools market is a global and generalist market, which is also hit by commoditization and the current economic turmoil, but there is still an upward movement towards more value-added software. A very interesting trend is the growing standardization of this technological segment. A big part of the value of

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modern services-oriented applications lies in the tool layer. However, big differences between the sub-segments still exist.

Development tools is a rapidly shrinking market since the booming reach of Eclipse in the Java world and the arrival of the scripting languages such as PHP or Ruby, which are heavily connected to Open-Source Software (OSS). In the open systems, only the proprietary .Net (Microsoft) world has resisted the wave so far, even though prices have been falling sharply. Mainframe-based languages remain strong as the demand for automation is on the rise due to the decline of manpower in those technologies.

The ‘Portal and Collaboration’ segment is also facing the dual effect of open-source and Web 2.0 free software competition even if it proved more and more critical for today’s businesses. These two factors turn out to be more and more relevant and are shaking established software providers and monopolies.

The heavily concentrated Information Management sub-segment is moving up towards the integration of structured and unstructured data with business intelligence capacities. The market remains dynamic for master data management and data quality systems that help companies benefit best from their data. Low-level data end content management tools face stiff competition from OSS. Vendor lock-in is important in this market where migrations are very risky.

The integration and execution layer is less impacted by the market effects mentioned earlier because it is a key element of optimization and value creation for the business. This layer is key in the value creation for the application layer as it moves from application servers to Service-Oriented Architecture (SOA) platforms. SOA is the tool version of cloud computing and the intermediate layer between business and software, where business and IT alignment is done. SOA allows for services reuse, better integration through widely acknowledged SOA standards and agility in line with business needs. SOA also redefines the frontiers between build (the end-user company or an external IT services provider develops the information systems) and buy (the end-user acquires a software package) strategies as SOA promotes composite applications, which could be of either type (custom or packaged).

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This market traditionally is a one-shot license-driven market but OSS, such as the Eclipse environment or MySQL, are moving the lines. Subscription-based software is still in its infancy around products such as MySQL, Red Hat’s JBoss or Google’s Gmail, but the growth is impressive. Again, these models are valuable and used mainly in the lower end of the market, allowing for a better value allocation.

In tools projects, the professional service component is higher than with SIS and could be equal to the application related levels when it comes to SOA.

4.3. Competitiveness of Europe Usage/sales

American software companies, with the notable exceptions of Software AG, Axway and SAP’s NetWeaver, dominate the tools market, and Europe is mainly a client of this type of software. As with the SIS layer, Europe does not have a sizable worldwide player as the American providers’ dependency on the European markets prevent this to happen. With tools being heavily linked to the application value creation, this dependency is a significant problem, as some local application players depend on technology stacks that are developed by, mostly, American tools providers that can be at the same time their competitors. Microsoft is a very good example of this phenomenon: the company provides a major tool platform for numerous European application players, while at the same time competing with them with their Navision and Axapta offerings. Concentration on this market has been very important and it is another threat for Europe, as there are bigger and bigger companies with more and more power to dictate their own ways to the market.

Coincidently, Europe is the biggest user of OSS and a strong market for custom development. Open source providers are often American, but the communities around those products are often European.

Production/R&D

Europe has some strong points in the tools field with semantic engines (such as Ontology Systems), research engines (such as Sinequa) and Web 2.0 collaboration

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platforms (such as Bluekiwi). Development tools have always been important in Europe but are quickly being acquired by US companies, such as IBM (Ilog and Telelogic). In the mainframe field two actors remained: Software AG with Natural and Microfocus, which has just acquired Borland, and some activities from Compuware. The SOA field has some worldwide, albeit middle-sized European players: Axway, Software AG, SAP Netweaver or Cordys. Numerous small companies also exist but they struggle to attain critical size.

Standardization and open-source alternatives also help reduce this dependency. This is especially true for development environment and execution platforms with several big clients who are already running critical systems on OSS stacks. Collaboration systems are also largely open sourced and running Web 2.0 modes. This openness of the market allows for competition to continue playing its emulation role and trigger innovation in the and otherwise fairly concentrated market.

European providers’ main strengths are located at the business process level and the growing adoption of SOA is good news for them. SOA is the best tool for IT and business alignment and it concentrates added value on the management of processes while abstracting somewhat from the complexity of technology.

Certain non-software-oriented companies, such as IT services companies, telecom operators, but also manufacturing companies, are starting to offer SOA services.

5. SYSTEM INFRASTRUCTURE SOFTWARE

5.1. Market Data More detailed market data on tools products by countries and regions are available in Annex 3.

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SIS - EU27 Advertising 30 000 PWB 25 000

20 000 Associated IT Services

15 000 M€ Licenses + Standard 10 000 Maintenance

5 000

0 2007 2008 2009 2010 2011 2012

Figure 12: System infrastructure software market – EU27

Market Market CAGR Structure Structure 08/12 2008 2012

Licenses + standard 50.0% 45.4% 0.7% maintenance

Associated IT services 46.8% 47.0% 2.9%

Paid web-based 1.5% 3.2% 18.6%

Advertising 1.7% 4.4% 21.6%

Total SSBS 100% 100% 2.7%

5.2. Overall Market Analysis The system infrastructure software market is a truly global market with few geographical or vertical specificities. Being close to the hardware layer, SIS are used in different sectors, companies without major customization needs. Hence, SIS growth rates in the different areas are quite aligned with global IT spending growth. It is a mature market, which is nonetheless experiencing major changes and evolutions with the advent of virtualization, open source and mobility.

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The SIS market is strongly linked to the hardware market, and as such, it will suffer from the current economic downturn. Operating system sales are shrinking under the effects of the adoption of Linux and the tidal wave of virtualization (nearly 1 out of 2 servers is now shipped for virtualized systems). Linux is the most successful Open-Source Software (OSS) and is quickly replacing mainly Unix systems, but also some other OS, with a very good Total Cost of Ownership (TCO). OSS provides practical accessibility to a software source code.

Virtualization separates the OS from the hardware with an intermediate layer called the hypervisor. Virtualization permits hardware consolidation and hardware independency (Linux, too, albeit to a lesser extent). It could be applied to any infrastructure software: network, OS, security, storage, browser, etc. Virtualization and cloud computing-related software are booming under the rule of an undisputed leader, VMware. Linux and other infrastructure-related OSS are experiencing strong growth, but this is often free of charge and relies on subscription-based services that are less important in value.

Commoditization and optimization are main trends in these quite oligopolistic and mature markets segments, but so are flexibility and agility as virtualization and OSS allow for more choice on the software, better resources allocation and better value: you do not invest in the OS anymore – you invest in what adds value to the business.

Security will continue to experience good growth, except for software that is linked to PC sales, such as anti-virus or anti-spam software on the client side. Server- oriented security offers, such as ID management, single sign-on or data loss prevention, will continue to grow. Security software for mobile usage is a hot segment, too. On the higher end security tends to be more and more integrated in the rest of the administration software as it has become a critical factor. On the lower end security tends to be delivered in the form of appliances, such as UTM (Unified Thread Management).

Storage had experienced strong growth up to the current economic downturn. Even if the explosion of data will keep the needs up, storage will see its development hampered by cloud computing, or online storage, which is growing extremely fast on

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the lower end of the market. Storage is often delivered in the form of a complete hardware and software stack.

Network systems are getting closer to IT, especially in data centres where Cisco or HP are mixing the two approaches for better value (and also more lock-in).

The increasing complexity of modern IT systems as well as the focus on optimization and shared services will continue to sustain the growth of systems management software.

As an evolution from virtualization, cloud computing-oriented systems, where you pay as you use the systems maintained by third-party providers on the Web, will be driving and structuring the offer in the IT landscape. But these systems will require strong upfront investment:

For the third-party providers,

For the companies to use cloud computing for their critical systems and processes.

These companies will have to prepare internally their infrastructure for the usage of cloud computing. These “private clouds” will be the next wave of developments that are very intensive in IT services but also in software that can manage both virtual and physical systems.

The revenue stream in this market has always been strongly one-shot license- driven. Since it requires fewer customization services, the size of the SIS Associated IT Services market is relatively small compared to the equivalent in tools and applications. Moreover, with the advent of Linux and OSS more and more revenues are becoming subscription-oriented. The services part became more important with storage, system and security management, especially with the high- end service-oriented management tools. Subscription around OSS or cloud computing is still a very small revenue stream, but that will increase dramatically at the expense of traditional software licensing. Certain companies, such as CA, are also offering subscription-based contracts on clients’ requests.

5.3. Competitiveness of Europe Usage/sales

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Europe is mainly a user in this market segment, which is hugely dominated by American companies, with only a handful of European internationally acting players. One of the rare exceptions is security where European companies have been able to thrive on national interests around security. Customer usage is not that different across Europe reflecting their respective economy’s degree of maturity. SIS markets are already mature markets, with their growth being fuelled by the adoption of CMDB (configuration management database), shared services, IT business alignment (IT service management) and the needs around virtualization (and soon cloud computing) and managing SI complexity.

End-to-end security solutions are a big necessity in increasingly open and distributed organizations. The booming mobility market also calls for innovative security solutions.

Two further emerging trends are green computing, already a strong backing for virtualization, and the advent of appliances, ready-to-use software and hardware combos, around solutions such as portals, BI, and e-business.

Production/R&D

OSS and cloud computing could be game changers. Commoditization and the current economic crisis will drive the adoption of more cost-conscious buying habits. Europe has only a few specialists in SIS, essentially around security (and often built largely with OSS) with companies such as Sophos, Panda or Arkoon.

Europe is largely the biggest OSS contributor; this approach could help Europe to lower entry barriers to this market and gives its companies easy access to these technologies. OSS has a flourishing ecosystem of new companies, especially in certain countries, such as France and Germany. While Europe has few SIS specialists, OSS is a good way to get back value (with cheaper prices and value- added services) around the solutions and control on this layer.

Cloud computing, a capital-intensive, network-based market segment, is a perfect playground for Europe’s telecom giants and its strong IT services industry. Their experience in networks, outsourcing and professional services could help them gain a worldwide standing while investing a lot in European data centres, thus limiting the technological dependency and value transfer from the US. Cloud computing is also

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preparing the ground for new European start-ups that could play a role in tomorrow’s IT landscape. Storage for SMB obtained from the cloud is already growing very quickly.

6. GAMES

6.1. Market Data

Games - EU27

16 000 Advertising (Games, 14 000 Tools, SIS, HW) 12 000 PWB (Games, Tools, SIS, HW) 10 000 Associated IT Services 8 000 M€ 6 000 One-shot Licenses 4 000 2 000 0 2007 2008 2009 2010 2011 2012

Figure 13: Gaming software market – EU27

Market Market CAGR Structure 2008 Structure 2012 08/12 Hardware spending 81.9% 64.8% 0.8% Associated IT services N/A N/A N/A Paid web-based 16.2% 28.9% 17.7% Advertising 1.9% 6.3% 29.6% Total SSBS 100% 100% 5.7%

6.2. Overall Market analysis 6.2.1. Drivers There are three things that help confirm that the video game is in the midst of a propitious time.

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• The video game market has entered into a period of prosperity, triggered by the release of the latest generation of consoles. This cyclical momentum is benefitting the players in the console value chain directly, as well as breathing new life into the industry as a whole. For the past five to six years, the gaming software market has been enjoying remarkable growth rates. • The “new” market segments are (re)gaining in popularity amongst PC gamers and moving to the console. Mobile games are clearly a success, as are massively multiplayer games, persistent universes, serious gaming applications and casual games, especially those distributed over the Web to home consoles and computers. • And, finally, video games are now recognised as a form of digital entertainment unto itself. Gamer categories continue to be segmented and, by extension, categories of game as well. As a result, the gamer population is expanding to include former gamers who had stopped playing as they no longer found games suited to their tastes.

6.2.2. Barriers But the economic crisis begins to influence customer behaviour. The research firm NPD Group reported only $1.03 billion in April retail sales of non-PC hardware, software, and accessories, a decline of 17 percent - the same percentage as in March. Gamers could swap their habit toward second-hand market and forsake expensive software.

6.2.3. Major trends in the game industry Digital distribution

The dematerialization of content is the natural outcome of ubiquitous Internet access, and now a natural fact for the users of digital devices, home consoles, handheld consoles, mobile phones, portable media players and, of course, computers. Aside from massively multiplayer games, a number of initiatives are telling of the new direction that the video game distribution and marketing industry is taking. Naturally, this direction – which is new for consoles and pre-existing for PCs – appeals to developers as business models based on revenue sharing will mean a

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share of earnings that is more beneficial to them than the physical distribution model.

Massively Multiplayer Video Game

When we speak of “dematerialization”, we should mention the many remarkable initiatives coming out of design studios that gambled on self-publishing and self- distributing massively multiplayer games.

With respect to massively multiplayer games, we need to remember that they constitute not only a new genre, but also new business and pricing models.

For the past three years, and spurred by South Korea’s online gaming industry, and a handful of experiments in the West, we have witnessed a shift in pricing models which is gradually steering us towards a Free-to-play model, with revenue generated by item selling and advertising.

Wireless Games

With close to three billion individuals equipped around the globe, the mobile phone constitutes a potentially incomparable market for gaming.

Mobile gaming is poised to undergo considerable development with the arrival of the mobile Internet, coupled with unlimited flat rates priced the same as flat rate voice call offers. This will allow users to surf the Web without counting the seconds, and to reproduce on the mobile what they have been doing on their computer since the start of the decade: video game matchmaking, ranking, sharing videos, game social networking, IM and, massively multiplayer games…

Moreover this year a great challenge appears regarding the creation of entertainment content on Apple's iPhone. The device allows a large scale of gameplay lead by an effective 3D management system. iPhone could be the new favourite handheld platform for gamers and the best competitor of Nintendo and Sony. Given to its business model that can be compared to Microsoft Live Arcade or Sony Playstation Network, iPhone adds a nomad dimension to its capabilities. It introduces the new paradigm related to content distribution on mobile devices.

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Value creation/destruction

From the point of view of the software industry, the game software industry is clearly creating some new value. Some of the value generated by video games is coming from transfers from other entertainment industries like media or traditional toys, as users are more and more spending time on video games. Also, the video game industry has positive impacts on other software markets as some of its technologies (especially around 3D) can be reused for multimedia components integrated into other applications (professional or consumer).

6.3. Competitiveness of Europe Usage/Market

Europe is already the larger market in the world for video games, ahead of North America and Asia Pacific (even though Japan is the leading country on a per capita basis), and should keep its leadership position in the coming years. Driven by emerging markets like China, AsiaPacific should still become in the long term the number one market, as the video game is more developed into the culture in Japan, South Korea and China.

Production/R&D

No European company is a console manufacturer. This lack is a weakness in a sector where almost 50% of its revenues – according product life cycle – come from home consoles segment (hardware + software). Except this, European video game industry is involved along the video game value chain: middleware providers, video game developers, publishers, distributors, on every game platform (consoles, computer, cell phones, and television).

European strengths are about content creation and technological innovation dedicated to games and serious games. But competition is more and more caustic between Europe, Asia Pacific and North America. In 2007, only 4 of the best 20 publishers in the world came from Europe: Ubisoft (Fr), Vivendi Games (Fr), Codemasters (UK), Eidos (UK). In 2008, Vivendi Game and Activision (USA) have

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merged to form Activision-Blizzard managed by Activision team; Eidos have been purchased by Square Enix (JP).

Furthermore, competition is distorted regarding some country policy towards video game companies. Policy is mainly based on job support program and refundable tax credit. The policy response from the Canada government, which early had identified the growth potential of video game software, was pivotal to creating a critical mass and gave Canada an international reputation in the industry. For instance, in Quebec, 30% of labour expenditures (+ 7.5% for French title) is refundable by Government to publishers.

Nevertheless European industrials are great competitors in few segments related to Networks, which are the emerging markets: digital distribution, massively multiplayer video games developing and publishing, wireless games developing and publishing. Europe could leverage its advanced position regarding fibre and ultra high speed broadband networks to deliver and design more advanced games requiring more performances implying huge amounts of bandwidth or very low latency. A few solutions are already trying to offer client/server approaches on which most of the processing is done at the server level and then the game content elements are streamed like a video. Most of the power and intelligence would then shift within the network. Telcos have then indirect impacts through the broadband offerings and the platform they could offer to game developers for direct delivery and advanced features (QoS), rather than direct impacts with involvements into game creation. Only a few of them have tried to position into that area.

7. HARDWARE RELATED SERVICES

Obviously, hardware is not part of the software industry. However, taking into consideration the evolution of Hardware Associated IT Services such as hosting, or infrastructure outsourcing is important to forecast the evolution of markets such as Infrastructure-as-a-Service (IaaS). More over, Cloud Computing associated revenue models as well as Online Advertising include a part that values the IT equipment on which the applications, tools and SIS are running.

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HW - EU27 Advertising

160 000 140 000 PWB 120 000 100 000 Associated IT Services 80 000 M€ 60 000 40 000 Hardware (incl. for 20 000 Standard Warranty Maintenance) [0] 0 2007 2008 2009 2010 2011 2012

Figure 14: Hardware related market - EU27

Market Market CAGR 08/12 Structure 2008 Structure 2012 Hardware spending 64.8% 60.1% -1% Associated IT services 33.0% 34.6% 1.6% Paid web-based 1.1% 2.4% 17.0% Advertising 1.1% 2.9% 19.5% Total SSBS 100% 100% 0.6% Out of the 4 segments presented in the table above only three are of interest in the analysis of the SSBS market: Associates IT Services, Paid Web Based and Online Advertising.

8. POSITION OF THE EUROPEAN SSBS INDUSTRY

Important remark: The following analysis is based on PAC’s software and IT services market scope and is not including online advertising and games. The positioning of Europe on these two markets is developed in the respective parts already developed above in this document.

8.1. Analysis by segment The weight of the different countries and regions in the worldwide IT market strongly evolved in 2008, however, mainly due to changes in currency rates (average

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currency rates vs. EUR; among others, South Korea/ KRW -20%, South Africa/ ZAR -20%, UK/ GBP -14%, India/ INR -12%, USA/ USD -7%, Australia/ AUD -6%, Russia/ RUB -4%, Japan/ JPY +6%, Poland/ PLN +8%, Czech Republic/ CZK +11%).

In constant currency, the Western European IT services market grew at a similar pace as the worldwide market (+4.5% vs. +5%), while the software market was slightly slower (4% vs. 5.5%). Western Europe generated 32.5% (€57bn) of the worldwide software market and 35% (€157bn) of the worldwide IT services market in 2008 and has remained the second marketplace after North America (39% resp. 43%) and far ahead of APAC (19% resp. 16%); by comparison, the shares of Eastern Europe were 3.6% (€6bn; software) resp. 2.2% (€10bn; IT services). While Eastern Europe, Latin America, the Middle-East/ Africa and APAC (excl. Japan) grew disproportionably, Japan and the USA were slightly below the worldwide average.

Looking ahead, this development is expected to go on, with Western Europe and North America growing by approx. 1% below the worldwide average. Eastern Europe is expected to grow by approx. 2% faster than the average, while MEA, Latin America and APAC (excl. Japan) are expected to grow by 4%-6%, faster than the worldwide average. Thus, the share of Western Europe will slightly decrease until 2012, to 30.5% (software) resp. 34.5% (IT services), while the share of Eastern Europe will rise to 4% resp. 2.5%.

Regarding the current market situation, it is important to consider the economic environment: one year ago, the Western European economies had been supposed to grow by 1%-2% in 2009 and the Eastern European economies by 4%-6%. Now, one year later, the Western European economies are expected to decrease by 3%- 6% in 2009 and the Eastern European economies are performing just a little bit better. Similar trends are noticeable in nearly all other countries, demonstrating the globalization of the economy.

For sure, the economic crisis is also affecting the IT market, particularly the software and IT services market. Although companies are still willing to invest in IT to increase their efficiency, the current crisis is putting IT costs – like all other costs – under pressure. Additionally, the ongoing worsening of the economic environment

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and the uncertainties regarding the depth and the length of the crisis intensify the cautiousness of decision makers, resulting in a focus on "precautionary measures" rather than in real decisions, and, moreover, in a postponement of decisions.

Several measures have been taken by the governments in many (mainly large) countries, first of all in order to avoid cascades of bankruptcies. Some measures have an indirect impact on the IT market (e.g., supporting investments including an IT component), a few of them have a direct impact on IT investment, however, at large, the impact of these plans – maybe with the exception of the USA – is expected to be limited. Additionally, in many cases the expected impact is partly annihilated by the expected shortage of tax incomes, which will force public institutions to make additional savings – and thus to reduce their IT investments.

At large, the main drivers for the software and IT services markets remain on the one hand the willingness of companies and institutions to invest in IT (with two aims: making IT more efficient/ decreasing TCO; and making IT better support the overall organization and processes resulting in improved competitiveness for the company), on the other hand the sourcing policy (in-house versus subcontracting/ outsourcing or purchase of software products). While the current economic (and cash!) situation forces many companies to postpone investments, business models like outsourcing, on-demand/ utility computing or SaaS (Software as a Service) help them bring their IT forward with limited cash out.

What does all this mean for the European IT market? The software market is expected to slightly contract in 2009 (-1.5%; stronger decrease in licenses balanced by a slight growth of maintenance fees) and the IT services market to remain slightly growing (+0.5%, substantial decrease in project services balanced by sustained growth in outsourcing). The situation in Eastern Europe is expected to be similar with -1% (software) resp. 0% (IT services). Interestingly, the Eastern European region seems to be very strongly affected by the crisis and, after two-digit growth rates in past years, companies are very reluctant to invest today. While the situation in the USA or Japan is similar or even worse than in Western Europe, other emerging markets like APAC (excl. Japan), the Middle-East/ Africa or Latin America are still doing quite well with growth rates in the 4%-8% range.

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Software

Taking a look at the software market in Western Europe (€57bn in 2008), tools was the fastest growing segment (+5%; boosted by information access & decision tools/ BI [Business Intelligence], integration platforms & middleware/ SOA [Software- Oriented Architecture], and collaboration & content) ahead of application software (+4%; boosted by CRM [Customer-Relationship Management], PLM [Product Lifecycle Management] and vertical solutions; however, there was a dramatic decrease of ERP [Enterprise Resource Planning] licenses sales in Q4 2008) and Systems Infrastructure Software (+3%; boosted by network and systems management).

While medium-term prospects for growth remain quite good for the software market (as the use of state-of-the-art software products helps companies develop and run their IT more efficiently), short-term prospects are definitely tough. Licenses sales for operating systems, office and complex ERP systems are strongly decreasing, while best-of-breed business application software licenses as well as tools and systems management licenses, expected to generate a short-term ROI, remain nearly stable. Last, maintenance fees are still growing. All in all, the systems infrastructure software market is expected to decrease by 2%-3% in 2009, application software by 1%-2% and tools to remain more or less stable.

By country, the top 10 software markets worldwide in 2008 were the USA (36%), Japan (11%) followed by Germany, the UK and France (5%-10% range), Canada, Italy and China (2%-3% range), Spain and the Netherlands (just below the 2% mark). Together, these 10 countries generated 78% of the worldwide software market.

While other mature economies like the USA or Japan are expected to grow at similar rates, the real locomotives of growth are India, China and, to a lesser extent, further countries in MEA, Latam (among others Brazil) and APAC.

In the long term, software sales will more and more shift to the XaaS (Everything-as- a-Service) model (starting with the SaaS model). However, while growing at a strong pace (over 20% per year) the Western European SaaS market represented just €1.5bn in 2008, i.e., less than 3% of the software market.

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IT Services

Regarding the IT services segment in Western Europe (€157bn in 2008), outsourcing was the fastest growing segment (+6%) ahead of project services (+4.5%; in spite of a noticeable slow-down in selected segments and countries in Q4 2008) while hardware maintenance decreased further (-1%).

While the pace on the hardware maintenance market is expected to remain more or less the same in 2009 and 2010, the project services market is expected to decrease substantially in 2009 (-3%) and not to recover before 2011. Selected segments (like large ERP roll-out projects or training) and industries (like automotive) are in a bad shape, while some others (such as infrastructure optimization/ integration or the public sector) are still doing well. However, the intensified price pressure will affect nearly every segment on the market. Outsourcing will both enjoy a reinforced interest and numerous new deals on the one hand and suffer from decreasing prices and volumes in the existing business on the other. At large, this will result in a more or less flat market in 2009, with some countries like Italy decreasing by up to 4% and the bulk of the European countries in a range from -2% to +2%.

By country, the top 10 IT services markets worldwide in 2008 were the USA (40%), Japan, the UK, Germany and France (all in the 5%-10% range), ahead of Canada, Italy, Australia, the Netherlands and Spain (in the 2%-3% range). Together, these 10 countries generated 82% of the worldwide IT services market.

8.2. The Telecom point of view While Europe is lagging behind North America for traditional software and software- based services, Europe is the leading market regarding telecommunications with 268 billion EUR in 2008 (EU27), ahead of Asia Pacific (257 billion EUR in 2008) and North America (228 billion EUR in 2008). In the coming years, Europe should be more and more challenged by Asia Pacific, boosted by the development of China and few other emerging countries. Europe is a very competitive market with strong

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adoption of mobile technologies and first developments in the ultra-broadband space.

Regarding wired technologies, Europe has long been trailing North America, which was faster to adopt the Internet, launched at first in the United States and benefiting from more adapted billing structure (flat rates) and higher penetration of computer equipment. Western Europe has progressively caught up for Internet usage and subscription with North America, as prices have fallen due to intense competition and regulation (wholesale agreements, unbundling, etc…). However, the most advanced countries for ultra-broadband are not in Europe neither in North America but in Asia (Japan, South Korea). Europe is also still behind for over-the-top Internet services, as their development is mostly based on the advertising business model, which is more developed in general (all formats) in the USA. But Europe has been able to develop very fast for convergent services based on IP associated to some equipment (VoIP, IPTV).

On the mobile market segment, Europe has clearly benefited from its standardized initiative around the GSM, which has translated into the most developed penetration of mobile voice subscriptions of all major regional markets. But Europe is behind Japan regarding many of the most recent mobile markets (mobile Internet, mobile payments, etc…) that should grab most of the future growth of this industry. North America should also catch up very fast on the mobile Internet markets, as this market is developing from adaptation of PC-based services and online advertising. Among the emerging mobile technologies markets, Europe has really been able to keep the lead only on M2M.

Telcos, especially incumbents, are generally powerhouses, as they have huge financial power. As their revenues for their traditional activities are flattening in advanced countries, they have looked to diversification to generate new revenue streams. They are transforming their architectures into IP-based infrastructures over which can be offered the new services. Telcos are now active within the media industry with IPTV and digital content.

Concerning SSBS, telcos have taken numerous initiatives that can position them as potential flagship players in the future SSBS market:

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• IT services: telcos offer communication and collaboration tools to professionals and corporate users, which integrate more and more software features (VoIP, email, IM, etc…) • Cloud computing: telcos can build on their network pipes and their existing infrastructure to develop at least in the IaaS space, which will enable most of the future software solutions online • Web: with numerous services associated to their telecom services, telcos are operating leading portals and some of them have now their own online advertising network that could be easily extended for mobile services. • Mobility: with a strong control of the device (via subsidies) and people not used to updates of mobile phones, telcos could accelerate the diffusion of mobile software • Internet of Things: telcos are developing first platforms that will aggregate the data to be associated with objects and things

With many applications and services moving online, the value of many industries (including the SSBS industry) could shift to the network, either at the core or at the access level. In the first case, differentiation will come from the data and therefore the infrastructure within the future networks, via hardware (data centres) and software (databases, virtualization, parallel computing). In the second case, differentiation will come from performance of network pipes themselves (speed, latency, QoS), especially if resources are constrained. In both cases, and especially in the second one, telcos have a key role to play.

8.3. SWOT analysis 8.3.1. Europe

Strengths Weaknesses

- Large and growing market - Only a few significant players in the packaged software - Public sector fosters competitiveness - Only a few significant European players on - Highly skilled professionals the Web (local leaders are generally US- - European customers’ requirements need based) localised understanding - Lack of Global players (a few in North - Strong IT Services industry with large America, very few in APAC or MEA) regional players - Lack of infrastructure suppliers - Numerous small size software players (infrastructure software, i.e. SIS and Tools,

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catering to local needs and hardware, even if less crucial) - Limited network fragmentation (same - High manpower cost standards) - Fragmented market and fragmented - Large telecom players on oligopolistic industry markets - Lack of powerful governance bodies - More advanced on M2M, thanks to specific - Lack of SSBS specific supporting policies vertical regulations - Lack of support in SSBS innovation : R&D - Strong R&D support program and activities is not duly bridged to innovation in embedded software

Opportunities Threats

- One of the largest SSBS market in the - Risks related to outsourcing World - Insufficient supply of rightly skilled IT - Leverage the leadership on the telecom professionals market - Lack of European standardisation in the - Emerging segments and especially cloud SSBS market computing - Poor availability of funds to finance - High growth Eastern European market innovation and development of smaller - Promote collaboration amongst SME firms SSBS players - Open Source Software - Global economic situation - Nearshore vs. Offshore - Focus on high value added IT services – architecture, complex system integration…

8.3.2. USA

Strengths Weaknesses

- Control of the Internet through numerous - Embedded software related services governance bodies (ICANN, W3C, etc…) industry has a low visibility compared to EU and Japan - Advanced advertising markets - Mobile penetration is still low compared to - Concentrates most of the innovation of the other countries web (Web 2.0, semantic Web, etc..), thanks to VC money and advanced universities and - Limited bandwidth for wired access clusters networks - Well ahead in the IaaS space - SMBs are adopting software faster than anywhere else - Proximity of Hollywood for video game industry

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8.3.3. Japan

Strengths Weaknesses

- Leader on video games (usage and - No spill-overs of Japanese software production) development beyond Japan footprint, except for video games - Leader on mobile data (usage and revenues) - Japanese software and IT services players very dependant of the domestic market, very - Fibre networks penetration, supported by weak business abroad (sole exception: government Fujitsu services, mainly in Europe)

8.3.4. China

Strengths Weaknesses

- National specific standardization favouring - Production in local language (at least on Chinese players for their internal market the web) - Strong level of economic growth combined - Lacks of large firms dedicated to software with huge volume opportunities, translating outsourcing in an attractive internal market - Weak IP protection - Very strong telcos, especially on mobile - Lack of management skills - Local leaders on the web (Baidu, Sina, - Chinese software and IT services players Tencent, …) very dependant of the domestic market, very - Advanced advertising for an emerging weak business abroad (sole exception: market Huawei, mainly telecom equipment) - Very fast growth in all types of hardware, including telecom equipment with ZTE and Huawei - Lower labour costs than India or Europe - Large talent pools

8.3.5. India

Strengths Weaknesses

- IT services behemoths - Complex bureaucracy - Human resources at low cost with high - Geopolitics quality - Local telecom markets are not very

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- Experience in software development advanced and should develop slowly - Policy initiatives play a significant role in - Weak packaged software industry fostering the national software sector. - Weak advertising market - Tier 1 telecom providers with Tata and - Inadequate infrastructure in terms of road, Reliance that are used to operate in capital power and buildings. intensive and low margin businesses - International business still very dependant - Flexible and adaptable models on the USA and the UK

9. RISKS OF OUTSOURCING

9.1. The Risks & Challenges of Cloud Computing Cloud computing (SaaS, PaaS and SaaS) is an emerging concept that is completely related to globalization. In fact, cloud applications, cloud middleware or cloud infrastructures can be located literally anywhere in the world. It means the cloud users have limited control (if any) on the location of the servers they will use. They are locked in and depend on the data centres of their cloud provider. Most of the time, these data centres are located overseas, mainly in the US (even if some providers are trying to expand their geographic scope with new centres established in Europe14 or Asia Pacific15).

First of all, this part will not focus on the technological or cultural barriers facing cloud adoption for end-users (cf. Cloud Computing page 92) but will deal with the main risks of cloud computing from economic and societal perspectives. Indeed, the loss of geographical control implied by cloud computing presents many risks for the European Union. The global nature of networks, hardware, software and services related to cloud computing could even reinforce the current U.S. dominance within the technology industry.

9.1.1. Cloud computing = mainframe = horizontal concentration? Cloud computing could be seen as a next step for information technology leveraging the power of the Internet within a globalized economy. It includes many

14 Microsoft is building a data center for its Azure strategy in Ireland: http://microsoftireland.spaces.live.com/Blog/cns!1024FF975ACC773B!250.entry 15 Salesforce.com is building a data center in Singapore: http://www.salesforce.com/company/news- press/press-releases/2008/05/080521-1.jsp

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improvements and aggregates different technology stacks but is the history repeating itself? Can we dare to say that cloud computing is just a more advanced form of the old mainframe architecture (dating back from the late 1950s) that would integrate the Internet? Of course, it is not that simple… but there is no question that cloud computing is based on more centralized resources (i.e. data centres), just like the mainframe was at the core of legacy architectures.

This centralization has a direct consequence for the IT market and its structure: today, there is a clear trend toward horizontal concentration and integration. The larger players are trying to control most of the technology stack (if not all) in order to strengthen their position and dominance. The most recent examples are IBM16, Microsoft17, HP18 or Oracle19 who are on shopping sprees to build very impressive technology stacks encompassing hardware, software and services. On one side, it means more efficiency because by controlling the whole value chain these vendors can provide seamless offerings in theory. But, on the other side, it also means that end-users have fewer choices and could depend more and more on a few vendors. There is no question that this trend reinforces concentration and centralization.

Because cloud computing regroups network, hardware, software and services components in a very effective way, it means that the vendors who can best control all the components of the technology stack will be the future winners of cloud computing. The more horizontal, the more concentrated, and the best chance they will have to provide cutting-edge cloud technologies.

It is very ironic that as cloud computing is emerging and is bringing many new possibilities, the technology vendors are going back to past business models much more centralized and integrated. It has been 40 years since IBM unbundled software and services from hardware units20!

Therefore, it is highly important that European companies have enough resources to follow this trend and execute successful horizontal strategies. Within the IT industry, the larger European player is SAP and as of today, the company (despite the

16 http://en.wikipedia.org/wiki/List_of_IBM_acquisitions_and_spinoffs 17 http://en.wikipedia.org/wiki/List_of_companies_acquired_by_Microsoft_Corporation 18 http://en.wikipedia.org/wiki/List_of_acquisitions_by_Hewlett-Packard 19 http://en.wikipedia.org/wiki/List_of_Oracle_acquisitions 20 http://www-03.ibm.com/ibm/history/history/year_1969.html

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acquisition of Business Objects) does not seem to follow this path and is losing ground fast on the market in terms of cloud innovation. We are only at a very early stage, so it is not too late but any significant gap could jeopardize the future and reinforce the dominance of US players.

In this horizontal integration, software code is king and cloud computing represents the jobs of tomorrow!

PAC cannot put enough stress on the fact that software expertise (“writing lines of code”) is at the core of innovation today (within the technology industry but also well beyond). The leading innovation powerhouses such as Microsoft, Google, IBM, and Apple have all one common trait: they have very deep expertise in software coding fighting to hire and retain the best developers in the world.

Even if cloud computing spreads across the technology stack, software is its utmost critical component. Not only it is the glue to link all components together but that’s where the most intelligence resides too. It is a focal point and key competitive factor. In software history, beyond coding languages, there are many cultural breaks in computing models (mainframe, client/server, the Internet, etc.) and cloud computing is another phase of software coding. It does not mean that cloud is going to replace everything in the future but it will propose a model of its own surpassing (and leveraging) past computing models. Cloud developers will create their own methodologies, will have their own priorities and constraints, will use their own development environments, etc.

As a result, cloud computing savvy developers will play a decisive role in the technology industry in the future. The countries that will understand this and push in that direction will be winners. Not only do countries need to have the best cloud developers but they will need to have them in sufficient volume too to position themselves in the global marketplace. There is no question that it is going to be a cutthroat competition, especially with offshore countries such as India or China expanding fast

Education is thus a very important topic to make sure the right skills and expertise are trained today for tomorrow. Companies like IBM and Google have already put in place several initiatives to make sure that the next generation of developers are

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familiar with their own cloud technologies and vision21. There is no question that the European Union can play a key role to foster similar initiatives.

9.1.2. Cloud computing and its economic value In addition to job creation, the emergence of cloud computing should generate a large ecosystem of companies working together. Today, it is still difficult to size the exact footprint of such an ecosystem but it is realistic to assume it could be very significant by 2015.

In the US, beyond the current cloud suppliers, the very first wave of start-ups born from the cloud could be seen: from IT services providers such as Appirio to infrastructure vendors like rPath. It means that a sizeable cloud economy should emerge within the next 5 years. As of today, it seems that the US venture capital has already made the cloud space a priority for investments.

Without the right expertise, skill set and investments, the biggest risk the European Union could face is missing a large opportunity within the technology world. There is a potential loss of economic value, if the US are left alone to lead the pack. Of course, R&D is going to play a crucial role and many start-ups could emerge from and with the proper investments.

9.1.3. US interference, cloudy legal and privacy framework… The potential loss of control of the data centres involved in cloud computing have direct consequences on privacy and legal issues, especially as far as data is concerned. Where is my data? How can I be sure that my data is safe and sound? Am I the only one to be able to access my information? Many questions that remain either not answered or partially answered by cloud vendors. In addition, to these privacy issues, we have to add the legal issues related to having servers computing your data outside your own country. The laws could be very different and enforcing your rights might be more problematic than on your home turf.

21 http://www-03.ibm.com/press/us/en/pressrelease/22414.wss

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Actually, because most cloud providers are based in the US, it means that rules and laws applicable are driven by US regulations and public entities. As far as the European Union is concerned, it could be a good opportunity to build the proper legal and privacy framework, so European cloud entrepreneurs and users could benefit from a less US-centric environment to protect them.

9.1.4. Open Clouds: more choice for customers soon? From a technical standpoint, the current leaders of cloud computing have developed their own infrastructures and platforms. They tried to build the most efficient technologies to support their computing goals. But, the problem is that today, each vendor is proposing its very own cloud solution, not taking into account challenges such as interoperability, portability and governance. In fact, cloud vendors jealousy keeps their IPs behind closed doors because they are their main differentiators.

It is still a very immature market and PAC believes this will change, as cloud will become more mainstream. As cloud adoption will increase, end-users will put more pressure on vendors to address their interoperability, portability and governance issues. It's all about more choice, increase flexibility and agility down the road. As of today, there are a couple of initiatives to expand the "open cloud" movement (the Cloud Manifesto by IBM, Eucalyptus System and its Open Source approach) but none of them is a major one yet.

Therefore, based on its standardization expertise, the European Union could play a major role in cloud standardization in the future. Of course, it is quite a complex domain because it involves many different layers (technology, process, etc.) but it could be a way to balance the US power in the cloud computing space.

9.1.5. What’s next for the European Union as far as cloud computing is concerned? It is very obvious that there are many risks and challenges for cloud computing but PAC would like to use the following analogy outside software technology: for years, most corporations have been outsourcing their payroll to third-party providers in the US and in Europe. There is no question that this process involves a lot of highly sensitive information (employee details, salaries, taxes, etc.). But, with the right and

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proper framework in place, the actual risk can be decreased and the benefits for corporations are greater than the remaining risks. As of today, the vast majority of companies do not put into question outsourcing their payroll.

Going back to cloud, PAC just like many experts in the market strongly believe that cloud computing is going to transform many aspects of the information technology world. The concept is still in its infancy but it has very strong potential. For sure, it will evolve again many times before mainstream adoption to solve its current problems and evolve. Today, the right environment is not in place and, the European Union could play a crucial role to establish the right setting for cloud computing. Potential losses of both value added and competitiveness are at stake.

As a summary, PAC would like to propose a few recommendations that could be the first building blocks of a European cloud computing policy:

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9.2. Risks of Offshoring The outsourcing of IT and other business functions to low-cost ‘offshore’ locations has long been a controversial subject, but the current economic downturn has brought it into an even sharper focus in Europe in 2009.

Private sector and government organisations are looking to drive down operating costs, in some cases to ensure their long-term survival, and the cost benefits offered by countries such as India, the Philippines, the Czech Republic, Romania, and Morocco are highly attractive in the current business environment.

But with unemployment rising in most European countries, many within the political community, media and labour unions, are strongly opposing any corporate restructuring that leads to headcount reductions.

Government bodies such as the European Union need to weigh up the potential benefits of offshore sourcing in terms of improving the competitiveness of the region’s businesses, while ensuring that it is not at the detriment of its skills base.

Offshore delivery has become a standard component of IT and other business services contracts in mature European services markets such as the UK and the Benelux region, and is gaining in popularity in the Nordic countries, France and Germany.

The five largest suppliers specializing in sourcing IT skills from India (TCS, Infosys, Wipro, HCL and Cognizant) accounted for a share of 2.3% of the €157bn spent on IT services in Western Europe in 2008, representing a slight increase over a share of 2.2% in the previous year.

However, this does not represent the full impact of outsourcing on the European IT services market, as much of the work that are delivered from low-cost locations is now performed by the offshore delivery centres of Western services providers.

France’s Capgemini more than doubled the size of its workforce in the Asia Pacific region from 8,000 to more than 22,000 between 2006 and 2008, while its European workforce grew by 15% to 61,000 during the same period. London-based Logica and Paris-based Steria currently have more than 12% and 30% of their respective headcounts based in low-cost sourcing locations.

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9.2.1. Impact on Domestic Employment The impact on local employment is the most contentious issue within offshore sourcing, and the current economic climate has only heightened its sensitivity.

Offshore sourcing usually leads to a direct reduction in the headcount at the client’s domestic operation, as they seek to maximise cost savings from labour arbitrage. Barclays revealed plans last year to cut 1,800 IT jobs in the UK, while increasing the number of workers at offshore locations, and research group Forrester expects 1.2 million European jobs to move offshore between 2004 and 201222.

But it is important to note that offshoring does not always mean job cuts. For example, an organisation may use an offshore team to support a new business venture, or domestic staff may be transferred to a different role within the organisation. At the same time as Logica added nearly 1,000 programmers and support desk operatives in India to work on UK projects, the company highlighted that it also recruited several hundred additional business consultants, project managers and system architects in the UK as its activities expanded.

Some European companies also use offshore skills to help fill in the gaps in their internal teams, where they find it difficult to recruit the right skills in their local market. In the UK, the National Computing Centre identified an IT skills shortage at a national level of 6.8% (source: NCC Benchmark of Skills, Feb 2008), and there remains a shortage across Europe in key skills areas such as SAP consulting in specific domains such as Business Intelligence.

Another challenge facing Europe’s IT market is to replace the ageing part of the workforce, which will take with them into retirement, key skills around legacy systems that will remain in use for many years to come. In Germany, the recent trend has been for companies to re-hire retired employees due to a lack of qualified employees (source: Der Spiegel, May 21, 2007). Again, offshore resources can help to plug these gaps.

There is also an argument that offshoring can help buyers to remain more competitive in a global context. To return to the earlier example of Capgemini, the company has replaced some positions in Western Europe with staff in lower-cost

22 Two-Speed Europe; Parker; Aug 2004

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locations, but it arguable that it would not have been sufficiently price competitive to win many of its recent deals had it not done so, which may have forced an even greater headcount reduction in its domestic region.

But the longer-term impact of global delivery on the European IT skills market needs assessing, particularly in terms of the effect it has on the early career paths of European technology graduates. There remains a shortage of technology skills in the region that will become all the more apparent when the economy recovers, and future generations need to be assured that IT still represents an attractive career option. This underlines the importance of the successful implementation of the European Union’s ‘E-Skills Agenda.’

9.2.2. Cost Benefits Cost reduction is the main driver behind offshore sourcing initiatives, but clients need to be aware of the ‘hidden’’ costs that can add as much as 57% on top of the basic value of the contract (source: ‘The Hidden Costs of Offshore Outsourcing’ - CIO Magazine - Overby, July 2003).

These costs can include charges associated with the vendor selection process (including potentially high transport and communications costs), implementing redundancies with the onshore workforce, and lost productivity that may result during the transition process as work is handed over to the offshore workforce.

Offshore delivery poses new challenges to the customer in terms of how they manage the transition of work to a team that may have a limited understanding of the business drivers behind the engagement, have a very different working culture, and be located in a different time zone.

With these extra costs taken into account, some argue that the perceived financial benefits of offshoring are highly overrated (source: ‘The Economic, Technological, and National Security Risks of Offshore Outsourcing” - Journal of Global Business Issues – July 2007 – Modarress, Batoul; Ansari, Al).

There is also a risk that the labour arbitrage advantages that the client expects from an offshore sourcing engagement may dissipate over time. The labour market has become highly competitive in mature Indian sourcing locations such as Mumbai and

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Bangalore, which has led to salary inflation that is expected to reach 10.8% in 2009 (source: ICA Survey, April 2009).

Many European companies are now looking beyond India in search of cheaper staff rates, in locations such as Egypt, China, Vietnam and former Soviet States. However, these countries currently lack the scale of technical and linguistic experts that India boasts, and salary rates in these locations will also rise as the local talent pool increases its utilization rate.

9.2.3. Knowledge Retention In addition to information technology, one function that European companies are sourcing from offshore partners is research and development (R&D) services.

Most of the major Indian IT services providers have developed fast-growing business units that take run R&D services for manufacturers, technology providers and pharmaceutical companies.

For example, SAP, Europe’s largest software developer, is in the process of expanding its team in India to 7,000 by 2010, while auto maker Renault has R&D centres in Turkey, Romania and Russia. But this trend could present a long-term risk for European governments who want to ensure that the region remains a centre for technological innovation.

The risks related to decentralization of R&D tasks mainly concern intellectual property theft and loss of control over innovation processes. While having strict regulations and rules on how to manage IP within the company can help address the first challenge, the second one seems to be more difficult to tackle and potentially more risky as it can have important consequences on a large scales over the competitiveness of the companies’ home countries. Losing control over R&D and innovation processes can mean losing important parts of the country’s productive industries and the related added value.

Another risk for Western European countries is that they miss out on developing skills bases to support the latest technological evolutions. Global companies such as IBM, Microsoft, Cisco and SAP have a strong impact on the future of technology standards and platforms thanks to their large installed bases. Their marketing and sales power can also make emerging technologies widespread in a matter of

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months. Not having a sufficient number of skilled engineers will certainly make our industries miss important technological developments.

9.2.4. Data Security Issues One of the main concerns voiced about the practice of offshore sourcing is the perceived threat of data loss or theft.

The UK Financial Services Authority warned in April 2009 that firms with offshore call centres pose a “high financial crime risk” as a result of poor staff vetting. The regulator found that some contact centre operators allowed staff to access more data than they needed to do their job, had high attrition rates, and that staff vetting procedures were inconsistent (Source: Financial Times, April 28, 2009).

However, it can be argued that many of the risks associated with offshoring are inherent any model in which services are delivered by a third party based in the client’s domestic country.

There have been a number of examples of data theft on offshoring engagements. In June 2006, a worker at an Indian contact centre in India was arrested for selling information that was used to defraud £233,000 from customer accounts (BBC News, June 28, 2006).

But while Ernst & Young found in a survey of European corporate managers that almost two thirds expected to encounter more fraud in emerging markets than at home, some 75% of fraud occurred in developed markets (source: Ernst & Young Ninth Global Fraud Survey, June 2006)

9.2.5. Political Stability and National Security One further risk of offshoring that has been brought into an increasing focus in recent months has been political instability and the threat of terrorism in some of the most established global delivery hubs.

The terrorist attacks in Mumbai in November 2008, as well as the heightened conflict in Sri Lanka have underlined the importance of clients performing a thorough risk assessment of potential sourcing locations.

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According to research from Brown-Wilson Group in December 2008, eight Indian states rank among the world's 25 riskiest locations for offshoring on concerns such as terrorism, pollution, and geopolitical issues. The National Capital Region (NCR), including Delhi, Gurgaon, and Noida, have been ranked as the worst offshoring locations, Mumbai as the second-most risky location, and Kolkata as the least risky location.

Singapore ranked first among the 25 safest locations followed by Dublin, Santiago, Krakow/Warsaw, and Toronto/Montreal. The survey used various parameters to arrive at the rankings, such as high terrorist or rebel target threats, uncontrolled environment waste and pollution, corruption and organized crime, unstable currency, geopolitical conditions, and unsecured networks and technology.

9.2.6. Conclusions Global delivery presents a highly attractive solution to ease the pressure on their cost base during the current economic downturn.

However, the European Union must continue to monitor and take a pro-active role in managing the longer-term impact on the domestic labour market. Offshore sourcing can deliver the cost savings need to ensure that many European business need to ensure their short-term survival and long-term international competitiveness.

But the EU must ensure that buyers look beyond the rate cards offered by offshore suppliers and make a thorough assessment of the political, security, economic and quality risks that are part of any offshore engagement.

9.2.7. Links: European offshore job losses:

http://www.forrester.com/Research/Document/Excerpt/0,7211,35212,00.html

German seniors return to work:

http://www.spiegel.de/international/business/0,1518,484835,00.html

Hidden costs of offshoring:

www.cio.com/article/29654/The_Hidden_Costs_of_Offshore_Outsourcing

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Offshoring business benefits overrated:

http://www.encyclopedia.com/doc/1P3-1336315891.html

Indian salary inflation:

http://consultingnetwork.co.in/india-salary-hikes-will-be-highest-in-region/630/

Indian data theft: http://news.bbc.co.uk/1/hi/business/5122886.stm

E&Y fraud survey: http://www.eubankers.net/eu_free_fullstory.php?articleid=38

UK skills shortage:

http://www.ncc.co.uk/aboutncc/press_rel/IT_skills_shortages.cfm

Highest risk offshore locations:

http://www.workforce.com/section/00/article/26/02/97.php

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CHAPTER 3 FOCUS ON EMERGING SEGMENTS

1. INTRODUCTION

The consortium has identified 8 emerging segments that should have a major impact on the SSBS industry in the future:

• Some of them are based on disruptive innovations (Web 2.0, SOA, M2M, IoT, mobility…) • Some of them propose new delivery and/or business models (Cloud Computing, SaaS, Online Advertising, Open Source Software…) • All experience very strong growth and as such their share of the SSBS market is growing fast.

2. CLOUD COMPUTING

2.1. Definition “Cloud computing is a style of computing in which dynamically scalable and often virtualized resources are provided as a service over the Internet. Users need not have knowledge of, expertise in, or control over the technology infrastructure in the "cloud" that supports them. The concept incorporates infrastructure as a service (IaaS), platform as a service (PaaS) and software as a service (SaaS) as well as other recent technology trends that have the common theme of reliance on the Internet for satisfying the computing needs of the users. Cloud computing services usually provide common business applications online that are accessed from a web browser, while the software and data are stored on the servers.”23

23 From Wikipedia – « Cloud computing » - http://en.wikipedia.org/wiki/Cloud_computing

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IaaS or Infrastructure as a Service “is the delivery of computer infrastructure (typically a platform virtualization environment) as a service (…). Rather than purchasing servers, software, data center space or network equipment, clients instead buy those resources as a fully outsourced service. The service is typically billed on a utility computing basis and amount of resources consumed (and therefore the cost) will typically reflect the level of activity. It is an evolution of web hosting and virtual private server offerings.”24

IaaS could be used by system administrators, network architects and applications architects as additional IT resources.

“Platform as a service (PaaS) is the delivery of a computing platform and solution stack as a service. It facilitates deployment of applications without the cost and complexity of buying and managing the underlying hardware and software layers, providing all of the facilities required to support the complete life cycle of building and delivering web applications and services entirely available from the Internet – with no software downloads or installation for developers, IT managers or end-users (…).

PaaS offerings include workflow facilities for application design, application development, testing, deployment and hosting as well as application services such as team collaboration, web service integration and marshalling, database integration, security, scalability, storage, persistence, state management, application versioning, application instrumentation and developer community facilitation. These services are provisioned as an integrated solution over the web”25

PaaS could be used by application developers.

“SaaS” or Software-as-a-Service” is a model of software deployment whereby a provider licenses an application to customers for use as a service on demand. SaaS software vendors may host the application on their own web servers or download the application to the consumer device, disabling it after use or after the on-demand contract expires. The on-demand function may be handled internally to share

24 From Wikipedia – « IaaS» - http://en.wikipedia.org/wiki/Infrastructure_as_a_service 25 From Wikipedia – « PaaS» - http://en.wikipedia.org/wiki/Platform_as_a_service

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licenses within a firm or by a third-party application service provider (ASP) sharing licenses between firms.”26

SaaS could be directly used by information workers and end-users as traditional applications.

With IaaS being the infrastructure side of Cloud computing, PaaS the middleware side, SaaS, is the application side of Cloud computing. It provides application services over the Internet. SaaS is an evolution of the Application Service Provider (ASP) concept that relies on a more efficient infrastructure (Cloud computing oriented data centres) and standardized delivery (Web services over IP).

Cloud Computing

SaaS Salesforce.com, Gmail, Google Apps, GotoMeeting, Run My ProcessÉ

PaaS Google App engine, Salesforce Force.com, QuotiumÉ

Amazon EC2, Mozy, NirvanixÉ IaaS

Figure 15: Cloud computing segments

The cloud computing concept can also be referred to as “utility computing”, where end-users can access IT resources as easily as they access electricity or water. It can be private (internal to the organisation’s information system) or public (external). In its external form it can be looked as a new way of outsourcing parts of an organisation’s information system, the model being strongly focused on capital investments and full automation. Hence public clouds (Google, Microsoft, Amazon…) are just a new form of outsourcing that is included in the Application Outsourcing segment (cf. Associated IT Services profile). The private cloud is an architectural concept along which end-user organisations build the next generation data centres, in an optimized and virtualized way.

26 From Wikipedia – « SaaS» - http://en.wikipedia.org/wiki/Software_as_a_service

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2.2. Scope & relations with the other segments Important remark: the Paid Web Based category of the Games type of software is not part of this analysis. It is described as part of the “Games” market profile.

Cloud computing is one of the key elements, with Open Source and Service Oriented Architecture (SOA), of the “industrial” revolution of software. Cloud computing has emerged from the proliferation of virtualized systems for non- mainframes servers (mid-range and X86 servers). This evolution enabled to dissociate or de-couple applications software from the hardware platforms. As a result, and as part of the infrastructure layer, the operating software layer has been largely commoditised.

To some extent, Cloud computing could be seen as the new evolution of data centres. It integrates many recent technologies (such as virtualization, many stacks from the Internet, green IT) and latest trends (globalization, smart grids) to push the data centre concept further. Could we dare to say that cloud is the best of both world mixing data centre, the Internet and the mainframe architecture?

This evolution was made possible in the tools layer or intermediation layer, which permitted to dynamically allocate hardware resources depending on the application needs, without having the application sitting on dedicated physical IT equipment.

Being a concept makes Cloud Computing pervasive in all the Information System, but it is mainly connected to:

• The software infrastructure and tools layers in terms of software types – the value of cloud computing is indeed related to the provisioning of computing resources that can either be used as pure computing power (IaaS) or as a development environment or platform (PaaS). • Outsourcing services in terms of delivery mode. Even in its private form, the cloud computing should rely on quality of service metrics and therefore can be assimilated to the provisioning of outsourcing services to “internal” clients be them system administrators in the case of IaaS, system developers using PaaS or information workers and end-users in the case of SaaS. • SaaS providers base their delivery centres on Cloud computing data centres.

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PAC expects that outsourcing will have big chunk of its activities that will move to Cloud Computing as the concepts enables cost reductions through the optimisation, consolidation and virtualisation of the IT infrastructure, an important element of IT outsourcing services.

Cloud computing will also dramatically change the storage and hosting services space as it offers these capacities for a very low price tag compared to dedicated offerings. Amazon‘s EC2 is rapidly becoming one on the main worldwide IT storage “facilities”.

The availability of computing power and resources over the Internet will also enable the leverage of thin-client technologies that will access the “Cloud” to complement their own, limited (by definition) resources with the resources (computing power, storage) available in the Cloud. It opens new opportunities as for example, the YuuWaa offer from Gemalto, a unified secure storage hybrid that combines an USB key and Cloud computing back-end.

Open Source Software (OSS) thrives well with Cloud Computing as most of those platforms are built with OSS components. OSS is therefore an enabler of the Cloud Computing model. Even though, this does not mean that the resulting cloud computing offering is Open Source!

Finally, Cloud Computing also goes along very well with SOA (Services oriented Architectures) as it is the other face of the same IT coin. Cloud computing is the intermediation layer between hardware and software, SOA between software and business needs.

2.3. Market Data Market Value by region (all in EUR 2008 constant)

Area 2007 2008 2009 2010 2011 2012

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EU 27 2 762 3 397 4 072 4 867 5 820 6 917

Annual market growth

Area 2007 2008 2009 2010 2011 2012

EU 27 - 23,0% 19,9% 19,5% 19,6% 18,9%

Cloud Computing - EU27

8 000 SaaS Total 7 000 6 000 5 000 PaaS Total 4 000 M€ 3 000 2 000 IaaS Total 1 000 0 2007 2008 2009 2010 2011 2012

Figure 16: Cloud Computing market – EU27

Market Market CAGR structure structure 08/12 2008 2012

SaaS 49.8% 49.0% 19.6%

PaaS 0.3% 1.8% 77.0%

IaaS 49.9% 49.2% 18.5%

Cloud Computing 100% 100% 19.5%

2.4. Overall Market Analysis Cloud Computing is the new IT delivery mode and as such its development pace has experienced a steep acceleration in recent months/years and it should continue to thrive in the future as it addresses key issues from companies in terms of optimisation, efficiency and cost cutting (especially as large vendors such as Microsoft, Oracle/Sun, EMC or IBM are starting to launch their cloud offers in the

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US). As a cloud computing tool, virtualisation adoption has been quite fast in Europe, but Cloud Computing itself remain in its infancy. Nevertheless, prospects are important.

2.4.1. Drivers/Barriers Several factors will fuel the demand for the cloud computing model, the main ones being cost efficiency, flexibility, simplicity and the capacity for end-users to move part of there outlays from capital expenditure (CAPEX) to operating expenses (OPEX). This development, however, is not without major problems or issues.

Security & Data Confidentiality/Privacy – One of the main problems with Cloud Computing is that the users loose the control over its data. It poses several legal (compliances rules in certain countries / certain vertical sectors such as the banking industry in Luxembourg) and security issues (please cf. the Risk of Outsourcing part). Adding on this is the fact that most Cloud Computing centres are not located in Europe and/or not managed by European companies. A lot of software businesses are at the risk of being strongly dependant from the providers of those clouds, which have very strong lock-in issues: specific languages that could prevent migration towards other PaaS (Salesforce.com, Google, Microsoft…). OSS on the Cloud could be a solution to prevent lock-in, like the enhanced FP7’s “Reservoir Project”27 that provides on demand resources and services platform based on acknowledged standards. As already explained in this document, most Cloud Computing companies use OSS to build their cloud offerings but then render those offerings “closed source”. Several companies (Zimory, Eucalyptus, RigthScale…) have already use to its full extend the OSS model and deliver Cloud “OSS” compliant software that helps companies to prevent lock-in.

Upfront investments - Cloud computing promises utmost efficiency for data centres and software delivery but needs large investments from IT Services players. The importance of investments needed to build Cloud Computing centres are at the level of heavy-manufacturing (asset intensive industry) industries and only an

27 http://www.reservoir-fp7.eu/

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handful of European players can qualify on the long run, traditional outsourcers (T- Systems, Capgemini, Atos Origin…) and telecoms operators (Orange Business Services, BT Global Services, DT…) being the most eligible companies. Another barrier is that the quality of Cloud Computing services is strongly linked to the quality of the network. Cloud computing services supported by the high quality European network infrastructure should provide better quality of service.

Guaranteed Quality of Service – Cloud computing offerings rarely provide enterprise class Service Level Agreements (SLA) to guarantee defined level of quality of service (QoS), or when they do, these SLA are very weak. To address this issue Private Clouds have appeared Except for non-critical storage and some non- strategic client applications such as office software or utilities applications, the absence of SLAs should not be a major issue. However, for a real development of the cloud model as part of organisations’ information systems, SLAs and QoS will have to be reinforced. Hence the creation of “Private Clouds” aimed at securing and guaranteeing QoS for the end-user. This trend should foster important investments in the area of IT systems architecture.

2.4.2. Value creation & destruction Cloud Computing is a game changer, like industrialisation, which wipes out most of the craftsmanship. It emphasises Schumpeter’s theory of creative destruction. This major evolution is in the making and so Europe must be ready to measure the impact of this change and be part of it. Cloud computing will slowly gain traction, first on non-core activities (storage, development environment, testing environment…) or even on applications that can be core activities (CRM, HR…). Being an outsourcing like model, its development pattern will likely follow the one of outsourcing: the will model will soon encompass higher added value processes (application outsourcing, business process outsourcing…). And like outsourcing it will meet its limits in the value it gives to the client, depending on the criticality of the systems and the business processes’ nature.

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But Enterprise grade Cloud computing will generate high level consulting and IT services to build private and public cloud Computing centres, to asses what to put in the cloud, to evaluate security…

Value destruction

The Cloud Computing model is a heavily mutualised and industrialized model that relies on economies of scale and as such it should have a downward impact on the evolution of prices of computing resources.

Value creation

Enables the creation of new revenues through new usages.

Value transfer

For the end-user, the value transfer occurs from Hardware and IT equipment expenditures to services spendings (CAPEX to OPEX). Which means that the value transfer is beneficial to the SSBS industry.

The generalization of the cloud model will certainly have also impacts on other areas of the IT function and especially within the invisible part of the SSBS: IT administrators have traditionally organized themselves into server, storage, network and application functions. Cloud through virtualization will dramatically reduce the cost of IT operations. But it will also require exceptional levels of standardization, specialization and automation across these traditional administrative functions.

2.4.3. Competitiveness of Europe Usages/sales

Cloud is currently used as non-critical storage and for SaaS around certain specific applications such as office productivity software (Google), CRM (Salesforce.com) but also increasingly human resources (HR).

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Some traditional businesses are moving towards this type of software delivery like Amadeus (Airline booking) or IBM who provides computing power for deep analytics with its new System S.

Some telecoms operators are half-way towards cloud computing like Orange Business Services, which delivers a full computing environment from its data centres even if it is not multi-tenant yet.

T-Systems the IT Services and outsourcing arm of Deutsch Telekom as well as IBM have recently put together public and private cloud offerings.

Google, Amazon, Microsoft and Salesforce are also providing cloud computing services, but it is limited to certain specific needs that are remain of non-critical aspects.

Production/R&D

Europe is lagging behind the U.S. in Cloud Computing, especially because the current leading players are all based in the US: from former start-ups like Salesforce.com or Google to traditional technology player such as IBM or Oracle/Sun. First of all, US companies were the first ones to embrace globalization and the cloud was a natural fit for them in line with global strategies. Second, there is no question that the cloud pioneers were created in the US thanks to the VC money raised before and after the e-business craze. It might be provoking to say that the Cloud computing has been built on the ashes of the e-business world; this time, technology ventures taking a more pragmatic view of the possibilities raised by the Internet.

On the other hand, Europe definitely has strong assets thanks to its leading telecommunications industry. Cloud computing is based on volumes and low margin sales delivered from a data centres trough the Internet. This model is therefore well suited to the telecom operator existing business models. However these players face major challenges as they have to master the software code before they can thrive in this domain. Google, Apple, Amazon, IBM, Microsoft… all have tremendous software development capabilities that they leverage to build their cloud offerings.

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Telecom operators’ domains of expertise remain today mostly around networks, security, servers…

In the automation aspect enabled by this model, cloud computing replaces workforce by capital investment, which maps the evolution model of advanced economies in classical economic theories. Europe has capital and an expensive workforce in some countries (Western Europe). The impact of the development of the cloud computing model on the European SSBS industry could have similar impacts than automation trends that took place in manufacturing industries (such as the automotive industry) in recent history to lower the cost of producing manufactured goods. Cloud computing is following the same trend as it enables the automation of computing resources production processes (computing power, platforms and applications).

Localisation of business processes and regulations are important barriers that will benefit to the European players. A new ecosystem of start-ups is growing around those technologies.

A new ecosystem of start-ups is developing around Cloud Computing models

Following is a list of companies that were created in the last few years in Europe proposing cloud computing related services:

* TioLive / ERP5 (FR): complete OSS ERP solution delivered in SaaS. Some ( IaaS and PaaS capabilities. * CommonIT (FR): Hosted Virtual Desktop, the Client of Cloud computing ( (created in 2009)

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* Systancia (FR): Virtual desktop and Virtual appliances * Itricity (NL): IT and hosting services provider based on IBM’s Blue Cloud * Cordys (NL): Cloud computing enabled SOA platform * Zimory (DE): Software Platform to connect and manage different Clouds ( (created in 2007) * ThinPrint (DE): Cloud Computing based printing solutions * Good Data (CZ): On demand BI through a Cloud platform (created in 2007) * EyeOS (SP): Web based OSS Cloud OS (created in 2007) * Abiquo (SP): OSS platform to connect and manage different cloud platforms (created in 2006) * Zeus (UK): Software to manage Web based Platforms

Importance of education and training – Google and IBM invest massively in curricula in the U.S. in order to make sure that the fresh engineers and developers know how to develop in the cloud28.

3. OPEN SOURCE SOFTWARE

3.1. Reasons for inclusion Open Source « applications are first, second or third-rung products in terms of market share in several markets, including web servers, server operating systems, desktop operating systems, web browsers, databases, e-mail and other ICT infrastructure systems. The OSS market share higher is in Europe than in the US for

28 http://www.google.com/intl/en/press/pressrel/20071008_ibm_univ.html

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operating systems and PCs, followed by Asia. These market shares have seen considerable growth in the past five years. »29

Open source is increasingly paying an important role in the software industry:

• It can be considered as a viable alternative to traditional software products for which the code is not open source on some low value, commoditized software layers (some office automation products, development environment tools…). There, its main value is cost-related. • It is also playing an important role in the customization of information systems enabling services providers to better address their customers’ needs with value added solutions. There its main value lies in its collaborative aspects.

3.2. Definition “Open source is an approach to the design, development, and distribution of software, offering practical accessibility to a software's source code. (…) The term open source gained popularity with the rise of the Internet, which provided access to diverse production models, communication paths, and interactive communities.“30

There are several definitions of the open source. One of the most important characteristics is that the code source is open or available to anyone. The right to use and modify this code is subject to a system of licences with varying degrees of permissiveness. Once the user complies with the software licence, the usage is free of charge.

Open Source software is usually based on a system of communities that link together users and contributors (developers) of a specific Open Source Software (OSS). This model emphasises value creation around collaboration and common goals.

Most businesses that have activities around OSS are professional services providers, providing maintenance & support subscription services and/or

29 « Economic impact of open source software on innovation and the competitiveness of the Information and Communication Technologies (ICT) sector in the EU », UNU-MERIT - November 2006.

30 From Wikipedia – « Open Source » http://en.wikipedia.org/wiki/Open_source

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development and integration services on specific non-open source adds-on to an OSS component.

3.3. Scope & relations with the other segments As presented in the above definition, the OSS model is a way of producing and distributing software. As a consequence, its scope can be very wide depending on customer needs. However, due to its origins (research and education) and the realities of the software market – companies or vertical industries (banking, telecoms…) can consider parts of their software stacks as strong elements of differentiation, and therefore will not use OSS in such areas – OSS remains mainly confined to technical needs of the IT system. Its strongest influence domain is with Linux on the operating systems layer where it has become a viable and reliable alternative to proprietary operating systems. The same is also true for Apache Web Server, Firefox Web Browser and increasingly MySQL Database and Open Office – all these OSS have become mainstream software in recent years.

The OSS model is having major impacts on two SSBS segments: commodity software – part of the licence and maintenance segment, and custom development segments, part of the associated IT services segment:

• OSS has been destroying value in the commodity software segment, and has put pressure on software licences prices for nearly all software segments except maybe for high-end solutions – mostly in the application software product space). • There also has been a value transfer phenomenon from the licence and maintenance segment to the associated IT services segment, as OSS requires more IT services such as development and integration services.

OSS is also having a strong impact some emerging segments. For instance, Web 2.0 solutions are deeply OSS oriented as they were built on OSS platforms, even if some have “relocked” their code.

The software development market has undergone major evolutions with the advent of the OSS model. The software value has moved up towards high-end solutions (applications), whereas collaboration is bigger than ever on the lower layers of the software stack and on development environments in particular. Even competitors

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such as Airbus and Boeing are now working together, along with their suppliers and partners, on the creation of common development environments based on Eclipse – project Topcased.

In the custom development segment, OSS has been a driving force in lowering the cost of custom development trough OSS concepts such as reuse, collaboration and code sharing. The openness of the code permits to better manage maintenance over long lasting maintenances and for critical software in particular. Due to its low cost and the openness of its code OSS has been a well used toolbox and is an important component of a lot of traditional, proprietary software.

OSS lowers the risk related to the perennity of the software player. It renders software less sensible to software company failures or market concentration as the core of the software is open and belongs to the community. For instance, in the case of the recent Sun acquisition by Oracle. One could have feared that MySQL, one of the OSS products managed by Sun and a strong competitor of Oracle on the database segment, would disappear. But Oracle will most likely only affect the business (services) part of MySQL whereas the source code and the community will stay alive outside of Oracle’s reach.

3.4. Market Data

OSS market in EU27 Meuros 14000

12000

10000 Other EU27

8000

6000 UK

4000 Germany

2000 France 0 2007 2008 2009 2010 2011 2012 '@PAC 2009

Figure 17: Open Source Software market in EU27

Market Value by region (all in EUR 2008 constant)

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Area 2007 2008 2009 2010 2011 2012

EU 27 2 211 3 487 5 125 7 384 9 621 12 058

Annual market growth

Area 2007 2008 2009 2010 2011 2012

EU 27 - 57,7% 47,0% 44,1% 30,3% 25,3%

Market Value by country (all in EUR 2008 constant)

Area 2007 2008 2009 2010 2011 2012

France 730 1103 1470 1939 2401 2884

Germany 444 697 1029 1530 2031 2519

UK 448 707 1040 1507 1984 2536

Other 589 980 1587 2409 3204 4119 EU27

Annual market growth

Area 2007 2008 2009 2010 2011 2012

France - 51,1% 33,3% 31,9% 23,8% 20,1%

Germany - 57,0% 47,7% 48,7% 32,7% 24,0%

UK - 57,8% 47,0% 44,9% 31,7% 27,8%

Other - 66,4% 61,9% 51,8% 33,0% 28,6% EU27

3.5. Overall Market analysis It has been about a decade since OSS has begun its development outside the research community. Its growth has been tremendous and seems to a large extent not being affected by the current economic crisis. OSS is perceived by the market and the end-users as a very cost efficient software delivery mode, which is a real advantage in these troubled times.

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3.5.1. Drivers & barriers As mentioned earlier, the OSS model is particularly present in the commodity software segment and in the custom development segment. Companies increasingly focus on lowering the cost of their information systems leveraging commodity software when possible, while they invest in and try to differentiate themselves more leveraging custom solutions.

As part of the commoditisation of software, OSS has grown as a clear alternative for simple solutions and has changed monopolistic and oligopolistic markets by bringing new reliable and viable alternatives. For instance, more than 20% of companies in France have already deployed Open Office. The majority of Web- oriented applications in Europe are developed and run on OSS middleware: the now famous LAMP stack (Linux OS, Apache Web Server, MySQL database and PHP programming language). Other examples include Linux, which now has a significant market share in data centres’ operating systems and Eclipse, the de facto standard for Java development.

In the custom development space, OSS enables companies to get good value out of software development, especially when leveraging service oriented architectures (SOA) to industrialise the development process. The OSS model has been leveraged in similar fashion by the Defence and Aerospace industries long before the concept got mainstream. The openness of the code permits competitors and partners to work more efficiently on software development projects. Northrop Grumman and Thales Group, two fierce competitors, provide their clients with CardaMOM, a software bus they co-developed without fearing the lock-in phenomenon from one of them. This openness also allows for deeper customisation, an interesting characteristic appreciated in the security and safety of critical systems. Staying in the aerospace sector, having already developed middleware allows companies to concentrate their investments only on the critical added-value software such as avionics or traffic management systems, while the middleware cost remains limited. This explains in particular why OSS has achieved a strong penetration in the Scientific, Technical, Industrial and Embedded (STIE) IT systems.

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On the other hand, OSS penetration remains limited in the consumer market as PCs are usually sold with most of their proprietary software already installed, and except in very rare cases such as the Asus Net-books, this software is not OSS and mainly of Microsoft origin.

OSS in the commodity software segment is widespread across all countries and industries in Europe. However, on application software for SMEs in particular, OSS faces strong competition from cost efficient SaaS offerings. Contrary to OSS, SaaS comes in ready to use for SMEs, which is a critical characteristic for companies that do not have enough IT skills to build IT systems from scratch. OSS is more widely deployed in combination with added-value systems by companies that have sizable IT teams.

3.5.2. Value creation & destruction This market based its revenues on the value made from sharing software, providing professional services (development, integration and maintenance). OSS has a negative impact on licence prices in general and on commoditized software in particular.

It also transfers value from the traditional software segment (Licence + maintenance) to the associated IT services segment, but this transfer is far from being integral. Ultimately it permits end-users to better allocate their financial resources to the more strategic IT investments.

It also creates value by giving access to certain technologies to companies that could not afford such technologies previously.

3.5.3. Competitiveness of Europe Usage/sales

Europe is the first contributor to the OSS community across the world and is the region where it is the most widely deployed. A large number of projects and communities are led by Europeans. In certain European countries such as France, Germany or Spain, there are a sizable numbers of OSS competencies. As the European software industry is relatively weak on the production of tools and

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systems infrastructure software, OSS is a valuable means to reposition European companies in those markets as OSS lowers entry barriers.

OSS gets its strength from the size and dynamism of communities. It is therefore critical for European companies to be influential in those communities, for instance providing key developers/contributors, so that in exchange they can be assured that the community will take care of their OSS needs. On some domains such as middleware for e-government, it is also strategic for Europe to have its own OSS communities (OW2 for instance).

OSS also helps new software companies to start-up quickly their activities without having to pay for software licences for the middleware stacks (development environment for instance).

Production/R&D

Unfortunately, even though OSS holds an important role in the Europe software industry, most of the OSS software players are American, with the exception of companies such as Alfresco or Talend.

OSS business models, which rely on low margins and high volumes, are difficult to execute.

In Europe, successful OSS players mainly come from the IT services industry. This business model is gaining weight in Europe as traditional IT Services companies, many of which are European, benefit from the value transfer coming from the traditional packaged software segment, especially in the middleware layer.

In conclusion the OSS model can bring a lot of value to end-users. However, they have to be conscious of the limitations and constrains of this model, or they could face many challenges with difficult to maintain custom systems… SaaS should also be evaluated by SMEs: Open office can replace Microsoft Office, but so Google applications.

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4. SERVICE ORIENTED ARCHITECTURE

4.1. Reason for inclusion/analysis The SOA market is one of the most dynamic market segments in the Software and Software Based Services (SSBS) industry. Although small in terms of market value, its pace of development is rapid as it represents a major evolution in the way information systems are designed, built and operated. The value proposition of this concept lies in the fact that it promotes reuse of individual services, flexibility (services could be built on the fly) and standards (for services interoperability). They could be compared to Lego® systems, each service being a brick. One can assemble those different bricks according to its business processes requirements to create different systems.

4.2. Definition The concept of Service Oriented Architectures (SOA) is to build applications out of software services.

Such services include individual, “loosely coupled units of functionality that have no calls to each other embedded in them. Each service implements one action, such as filling out an online application for an account, viewing an online bank-statement, or placing an online booking or airline ticket order. Instead of services embedding calls to each other in their source code, they use defined protocols that describe how one or more services can "talk" to each other.”31

Some SOA-related case studies exist, for example in the European e-business Market Watch Egg case study published in 2008: “Great emphasis is put on ensuring that the business strategy is not hampered by an inflexible IT-system. SoA gave Egg this possibility, as the architecture of platforms and series of loosely coupled services enabled the bank to react quickly and take advantage of the changing market conditions."32

SOA indeed acts as an intermediation layer of the information systems, a “clutch” between business needs and software applications. It allows the business

31 From Wikipedia – « Service-oriented architecture » - http://en.wikipedia.org/wiki/Service- oriented_architecture 32 E-business Market W@tch - http://www.ebusiness- watch.org/studies/case_studies/documents/Case%20Studies%202008/CS08_Banking_Egg.pdf

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processes to be independent from the application logic, thus giving them more flexibility to be changed without impacting the application layer.

SOA projects combine a package approach – the service or brick can be as important as a full ERP system – with custom software development as the bricks are assembled and customized according to the business needs. The resulting applications composed of different services are called “composite applications”. They mix “build” (custom development) with “buy” (packages) approaches of information systems conception, trying to get the best of both worlds. By design, SOA could be implemented by iterations, around small operational projects, even if they require a systemic view.

SOA architectures are build on SOA platforms that should include an enterprise service bus (ESB) – the middleware part of the architecture – to connect and orchestrate the services, and the services themselves – the web services – that respect certain standards (SOAP, WSDL,...). To qualify as a SOA project, the project should also include at least one of the following: business process management (BPM), Business activity Monitoring (BAM) or Master Data Management (MDM).

SOA will require more consulting, architecture and high-end IT services and than traditional approaches as it promotes flexible systems and IT alignment with business processes. Its proximity with the business requires new talents with dual IT and business competences.

4.3. Scope & relations with the other segments SOA is one of the key elements, with Open Source and Cloud Computing, of the “industrial” revolution of software. As a major architectural shift, it could be compared to the one that occurred in the late 80’s beginning of the 90’s when mainframe architectures were gradually replaced by Client/server architecture.

Being an architecture makes SOA pervasive in all the Information System. However its technological role is mostly related to the middleware layer, which is part of the Tools layer in the SSBS taxonomy. SOA has increased strongly the added value of

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the middleware layer by making it the place where the company’s business processes and its interactions with the Information Systems are managed.

Historically, SOA as evolved from the application integration software (EAI) market segment – also part of the Tools segment – and the leading software platforms for SOA still come from this world: IBM’s WebSphere, Oracle’s BEA, SAP’s Netveawer, Software AG’s WebMethods…

There is a strong interaction in between the application software product layer with the tools layer as major business applications are increasingly migrating towards SOA to gain flexibility, adaptability and integration capacities. According to SAP and Oracle, their entire software stack will be SOA-compliant by 2012.

SOA impacts other layers such as:

• Data management – with the advent of SOA, master data management (MDM)33 has become a must have. • Development was impacted as SOA relies more on composition than on development. The value is in the way services are assembled, not in the way they are built. Those software bricks being less complex, the value related to the software development has shrunken. On the other hand, the value related to the integration of the bricks has increased. • Infrastructure management systems have also been positively impacted: SOA architectures need dynamic allocations of IT resources and more control and governance of these resources.

SOA and SaaS

One of the most important and concrete examples of the SOA concept is the Software-as-a-Service (SaaS) delivery model. Web services, which stand at the heart of the transport and delivery layers of the SaaS model, are based on SOA protocols that permit systems interoperability. SaaS providers have deployed SOA architectures that enable them to deliver applications as services over the Internet.

33 « Set of processes and tools that consistently defines and manages the non-transactional data entities of an organization (also called reference data) » - http://en.wikipedia.org/wiki/Master_Data_Management

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Much like how companies use SOA in their IT systems. Moreover, to fully leverage and integrate the SaaS delivery models, an SOA compliant architecture is critical.

SOA and Open Source

Open Source Software (OSS) technologies thrives well in services oriented systems, as they permit better composition from heterogeneous bricks (often the case with OSS) and they simplify the integration and complexity problems that often come with OSS. SOA and Open Source share the same philosophy about reusability, componentisation and interoperability standards. They both combine custom development and packaged approaches to IT.

SOA and Cloud Computing

Cloud Computing goes along very well with SOA as it is the other face of the same IT coin. Cloud computing is the intermediation layer between hardware and software, SOA between software and business needs. SOA is the technology used for PaaS (Platform as a Service) to create SaaS (see above) services.

4.4. Market Data Market Value by region (all in EUR 2008 constant)

Area 2007 2008 2009 2010 2011 2012

EU 27 2 057 3 534 4 838 6 678 8 808 11 002

Annual market growth

Area 2007 2008 2009 2010 2011 2012

EU 27 - 71,8% 36,9% 38,1% 31,9% 24,9%

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SOA - EU27

12 000 Licences + 10 000 Subscriptions

8 000

6 000 M€

4 000 Associated IT Services 2 000

0 2007 2008 2009 2010 2011 2012

Figure 18: Services Oriented Architecture market – EU27

Market Market CAGR structure structure 08/12 2008 2012

Licences + Maintenance 40.7% 19.0% 16.3%

Associated IT Services 59.3% 81.0% 38.9%

SOA 100% 100% 32.8%

4.5. Overall Market analysis SOA is the new architectural wave and as such it as experienced a very strong growth in the past few years, before becoming mainstream and more recently being affected to some extent by the challenging economic climate. Its growth pace remains nonetheless much buoyant than most of SSBS segments as it value proposition is compelling in the current economic crisis: it offers optimisation, efficiency as well as iterative deployments. SOA adoption has been relatively fast in Europe, and the patterns are more often based on vertical segments than on geographical areas. In Spain, for instance, the banking industry as well as Telefonica in the telecommunications sector were European front-runners in the leverage of SOAs. However, besides these two examples the Spain remains lagging behind most countries in Europe.

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4.5.1. Drivers/Barriers SOA has been first deployed in sectors that derive a large part of their added-value from the use of IT systems: in particular telecommunications, finance, e-business… Even though these sectors were impacted by the economic crisis, their SOA investments suffered less than other IT investments. In those troubled times companies need increased efficiency from their IT systems, which can be achieved thanks to business processes and information systems alignment, one of the key value proposition of SOA.

Hence, several factors continue to fuel the demand for SOA:

• Need for cost reduction and process efficiency • Increased competition on a global scale • Flexibility and openness of information systems being key in modern economies • Cloud computing and SaaS • OSS

Besides challenges inherent to the roll out of SOA projects (incl. communication issues in between business and IT resources), the main barrier to the development of the SOA market is the availability of skilled competencies combining both IT architecture expertise as well as business process knowledge.

SOA projects are fairly complex and can become entropic if not well managed. SOA governance is now a pre-requisite for SOA projects. High-level project management is therefore a critical competency for the success of such projects.

SOA remains, for now, a concept mainly aimed at large enterprises or for companies that heavily rely on IT systems to produce added value. But it is slowly spreading to all economic sectors and all company sizes.

4.5.2. Value creation & destruction SOA does not particularly destroy any value except maybe for certain redundant services and software products while creating a new activity that focuses on

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application composition, architecture, IT/Business alignment and information system optimisation.

SOA changes the way software is developed: services are composed using individual bricks that can be reused from other composite applications, which means that less lines of code need to be developed. Less software developers are needed although they have to be more experienced. On the other hand, SOA “hides” a part of the technology layers thus calling for more high-level architects, system engineers and business analysts. Software development is therefore more industrialized and companies can concentrate their resources on the added value created by IT for the businesses.

By separating the different layers of IT from the business processes its manage, SOA reshapes the industry landscape by giving back to IT services companies some of the added-value that was “confiscated” by the enterprise packaged applications such as Enterprise Resource Planning (ERP) software that slowly replaced numerous legacy systems previously developed either internally or by external services providers. The middleware centric approach of SOA has also pushed down the added value of the system toward the tools layers where one designs, develops, executes and monitors information systems’ services, applications and processes. This evolution was at the basis of recent strategies that saw SAP developed Netweaver and Oracle acquire BEA Systems.

4.5.3. Competitiveness of Europe Usages/sales

The adoption pace of SOA in Europe is relatively fast, as its implementation requires less manpower and more qualified staff. Custom development is also well deployed in Europe, often a good driver for SOA. First, SOA as been used for integration of heterogeneous systems, but more and more for helping businesses become more agile. Enterprise Resource Planning (ERP) and Customer Relationship Management (CRM) systems, for instance, become more flexible as a result. One of the biggest uses of the SOA concept is in the integration and/or migration of mainframe systems with/towards new technologies.

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Banks, Telecoms, Airlines and others are now able to change their business processes and optimise their resources thanks to SOA. They focus more on their business processes than on their IT systems.

As we mentioned earlier, SOA architectures are the soil for Web 2.0 and SaaS. They are also rich in higher value-added IT Services and this is important for the indigenous IT services companies.

SOA usage is a worldwide trend, which is more influenced by the critical nature of IT for the business than by the geography. As heavy users of SOAs, telecom operators and financial companies are front-runners in those technologies. US usages tend to be more top-down, business driven while Europeans have a more technical, bottom- up approach to SOA.

Production/R&D

Europe is the home of some large SOA vendors such as Software AG, the biggest independent software vendor, Axway or SAP’s Netweaver. Several specialised companies exist in Europe around local and/or specific needs like Inubit, Cordys or Ilog, recently acquired by IBM.

SOA enables European software companies to get up-to-date software foundations that improve their global competitiveness and reach, by giving them increased interoperability capabilities. SOA breaks vertically integrated software (from application to middleware), and then opens competition. European software companies often lack critical size to compete with a Microsoft or an Oracle and by integrating middleware components SOA enables them to literally “plug” their software on existing platforms from major vendors that are already installed within the end-user’s information system.

They can concentrate on providing innovation in terms of functionality, business process know how and niche requirements that usually cannot be addressed by large software players. SOA allows different software vendors to act independently of each other. It helps solve the issue of interoperability and as a consequence,

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large companies can look at niche solutions from smaller players that better suit their needs.

The services orientation also benefits IT services companies (a thriving industry in Europe, with several World class companies cf. related profile) to get more added value from the integration of those systems by comparison to basic software development activities. It enables them to move up the value chain towards higher value added services including architecture, consulting, complex system integration... SOA being closer to the businesses, being used in critical activities, the IT services needed are more rewarding. Compared to ERPs where one fits all, SOA requires more customisation and therefore more proximity with the client. This means that these services are less “offshoreable”.

5. MOBILE SOFTWARE

5.1. Reason for inclusion Mobile phones have become now widespread, with more than 3 billion active devices, and represent more and more a new way to access the Internet. Mobile computing will most likely be the first type of computing for many people in emerging countries. With the mobile Internet and associated software marketplaces, there are countless new opportunities for the software industry. Most of them should also come from value creation, as the mobile phone provides new usage opportunities.

5.2. Definition Mobile software includes all forms of software that can be used on a mobile handset or mobile phone. It includes:

• Operating system: this is the lower layer of the software stack and the base software component that manages resource allocation and provides an initial development interface. The OS often comes with several applications built-in, especially navigation software • Middleware: the intermediary software layer that translates data exchanged between several applications (and with the operating system). The middleware

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also provides a programming interface for working indirectly on the underlying OS, enabling more robust solutions that are therefore more complex to develop. There are tools associated with middleware to develop over-the-top applications; • Applications and services: applications are either pre-installed or downloaded over the air or through a USB cable, while services are software that can be used when connected to the mobile Internet. Major services can capitalize on mobile Internet access and many of them can be accessed through WAP/Web browsers and widgets (specific applications that are regularly updated). Many stores and download platforms are now available to offer software and software based services on mobile phones.

5.3. Scope The following elements are accounted for the mobile software market:

• Mobile OS, mobile middleware, mobile on-device portal (i.e. mostly infrastructure software embedded) • Pre-installed applications except content and games • Mobile enterprise applications • Integration on mobile handsets of mobile infrastructure software • IT integration of mobile enterprise applications • Paid downloaded applications • Ad-funded mobile internet browsing and downloaded applications

This segment clearly excludes:

• Most of the forms of mobile contents (except for mobile games), i.e. mobile music, mobile video and ringtones. • Pure mobile messaging revenues like voice, SMS and MMS which are pure telecom services. Revenues from SMS advertising are also excluded.

Revenues for mobile applications and services can come from either paid services or applications by consumers (and enterprises) or from advertising like on the web (display, sponsored links, etc…).

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Revenues for operating systems and middlewares are generally coming from developers paying for tools and from device manufacturers integrating that infrastructure software into their devices.

Mobile software covers the full scope of the software industry, with some mobile forms for each market segment (e.g. OS for infrastructure, browser for applications, but also games and tools). Most of the non-mobile applications can be adapted to the mobile handset, while new applications taking advantage of mobile phone sensors

Mobile software revenues can come from all the revenue models, with licences for pre-installed software, IT services for integration with information systems, web- based services with downloaded applications and advertising for web-like applications adapted on the mobile phone.

Mobile software is also in connection with many other market segments, as most type of software solutions can be used on mobile phones as extensions of existing software (connected or not). Market segments like IOT or Web 2.0 will generate revenues for the mobile software market, as they can be implemented in mobile versions. Mobile software revenues can also come from OSS, as some mobile software is open source like Android or LiMo.

5.4. Market Data

Market Value for SBSS for mobile software (all in EUR 2008 constant)

2007 2008 2009 2010 2011 2012 2013

EU27 5 529 6 576 7 021 8 367 10 162 12 387 14 862

AsiaPac 6 433 7 783 8 591 10 377 12 740 15 108 17 578

NORTH 6 345 7 450 7 838 9 234 11 155 13 534 16 185 America

ROW 1 675 1 781 1 624 1 680 2 157 2 802 3 652

World 19 982 23 590 25 076 29 657 36 215 43 831 52 277

Growth 2008 2009 2010 2011 2012 2013

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EU27 19% 7% 19% 21% 22% 20%

AsiaPac 21% 10% 21% 23% 19% 16%

NORTH 17% 5% 18% 21% 21% 20% America

ROW 6% -9% 3% 28% 30% 30%

World 18% 6% 18% 22% 21% 19%

Breakdown of type of revenues for total market segment

2007 2008 2009 2010 2011 2012 2013

Licenses 5623 6300 6257 6930 7839 8763 9625

IT Services 11948 13488 13615 15399 17623 19964 22227

Paid web-based 1 494 2 299 3 165 4 404 6 373 8 375 10 577

Advertising 917 1503 2038 2924 4381 6729 9848

Total 19982 23590 25076 29657 36215 43831 52277

Growth 2008 2009 2010 2011 2012 2013

Licenses 12% -1% 11% 13% 12% 10%

IT Services 13% 1% 13% 14% 13% 11%

Paid web-based 54% 38% 39% 45% 31% 26%

Advertising 64% 36% 43% 50% 54% 46%

Total 18% 6% 18% 22% 21% 19%

Volume indicators: Mobile Internet users (including professionals)

2007 2008 2009 2010 2011 2012 2013

EU27 49 62 75 98 125 154 177

AsiaPac 134 152 170 206 241 272 297

North America 39 48 58 71 92 111 129

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ROW 22 31 45 64 92 134 181

World 243 294 349 439 550 672 784

Growth 2008 2009 2010 2011 2012 2013

EU27 27% 22% 30% 28% 23% 15%

AsiaPac 14% 12% 21% 17% 13% 9%

North America 25% 21% 23% 29% 20% 16%

ROW 42% 45% 40% 44% 47% 35%

World 21% 19% 26% 25% 22% 17%

5.5. Overall Market analysis The mobile software market is poised for huge growth, as it will enable to offer both service continuity and brand new applications. The market has mostly developed so far with service extensions of wired services (mobile email for professionals, mobile version of best of web services), attracting mostly advanced users of Internet. New applications could trigger even an acceleration of the development of the market. It will nevertheless be impacted by the global downturn, as mobile handsets sales are even declining.

5.5.1. Drivers The key drivers sustaining such a strong level of growth are the following ones:

• Diffusion of mobile handsets, which are even the first form of computing in emerging countries • Improved performances of devices in advanced countries for both hardware and software aspects. For instance, smartphones (13% of the mobile phone market) now have more computing power than first generation of computers. • Mobile broadband development with 3G coverage, enabling access speeds comparable to entry-level ADSL. It is now sufficiently widespread in Europe and the US, with more than 70% of the population covered. Upcoming mobile technologies are expected to make mobile Internet even more usable.

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• Development of open software systems that facilitates third-party development, which means more applications become available. Offering applications via widgets, borrowed from the traditional Internet, is an excellent example of how services can adapt to the limitations of mobile handsets (screen size, less-usable keyboards, etc.). • Flat-rates offering for mobile broadband since late 2006 in Europe and USA (even before in Asia). Flat-rates prices are even decreasing and more bundled with numerous other applications. • Sensors installed on mobile phones allowing to develop brand new innovative applications that are not possible to design in the wired or non- connected environments

5.5.2. Barriers There are still a few barriers impeding the development of the mobile software market:

• Technological fragmentation, as there are still numerous platforms that can be used to develop an application. Porting an application between two environments is still costly for developers. • cost of mobile Internet is still considered to be too high for many users • usability is still poor on many devices (due to devices, networks and software) and therefore does not encourage widespread adoption beyond very advanced phones and applications

5.5.3. Value creation/destruction This market of mobile SBSS is for now more an extension of the other existing software market segments, except for the infrastructure segment. It is therefore mainly value creation, around new activities made possible by usages in the context of mobility or nomadism or in combination with new sensors.

For some applications, value creation may remain limited for the SBSS industry as mobile application may be bundled with the corresponding fixed application. Value for the mobile application may be hard to isolate, as the mobile service may be

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offered to give more attractiveness to the fixed application and help maintain its price.

5.5.4. Competitiveness of Europe Usage/Market

Consumer markets in South East Asia are so far the most advanced in the world, with a strong adoption of smartphones and mobile Internet, and indirectly with mobile Internet advertising. North America is also very competitive thanks to its leadership in business applications, allowing being the leader on mobile enterprise applications (licenses and integration) drawn up from the extension to the mobile environment, but is trailing far behind Japan and South Korea for consumer markets. North America should benefit from its leadership on advertising to derive significant revenues from mobile advertising.

Europe is just behind those two main markets, but is almost equivalent in market size. Europe will benefit from its very high adoption of mobile phones (above 100% of penetration in Western Europe) and from the progressive diffusion of 3G, around standardized network infrastructures.

Production/R&D

Among the emerging platforms for mobile infrastructure, there is only one European player with Nokia and its OS Symbian (plus extensions like Series 60). Other main players are all from North America (Google, Microsoft, Apple, RIM, Adobe and to a lesser extent Qualcomm) or from Asia with only domestic impact. While they will generate fewer revenues per unit in the long term, as more and more players are offering them for free or even open sourcing them, they are the building blocks to develop new applications, with dedicated APIs and toolkits. They also more and more come with an associated distribution platform on which free and paid applications can be downloaded to be use in a connected mode. They are therefore playing a key role in terms of both ecosystem organization and technological orientation (programming languages and methods, etc…).

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All developers have therefore to be able to address those different platforms, generally not interoperable, to benefit from the mobile software market. When looking at technologies, there is no major advantage or shortcoming on this market for European players compared to their counterparts. But as the market is so far developing mostly with adaptations of existing web services (porting of Google, Facebook, etc…), European players are logically less advanced than the US developers. They are mostly developing with white label services or target pure mobile services.

Telcos could definitely play a key role on this market, even though they have had very little success so far in Europe to develop the mobile services market, while Asian players have been on their side very successful (i-mode from NTT DoCoMo). They are even right now mainly trying to promote major brands and services of the Web to sell mobile Internet access rather than services. Their mobile portals are still some major entry points for the Web, but they can be more and more bypassed by application stores (e.g. App Store of iPhone) or third party browser (Opera), meaning no revenues for telcos from services.

Beyond their portals on which they can aggregate applications, European telcos still have major assets to benefit from the mobile SBSS market. They have some strong control of the handsets (that they sell with subsidies) and can preinstall many applications for easier usage. They have the necessary skills to manage the most challenging services that will require strong knowledge of network, software and hardware (sensors). They can also design network-centric applications (LBS, identity management) and tools (audience measurement for advertising) leveraging the nature of the network. They have also already opened to third parties developers to organize a legitimate ecosystem around their own platforms and accelerate innovation and software production.

6. INTERNET OF THINGS (IOT)

6.1. Reason for inclusion/analysis: Internet of Things (or IOT) is one of the most promising and potentially disruptive set of emerging technologies that will impact the operations and processes of numerous

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vertical industries and daily life of consumers, as any object or item could be connected to the Internet. Software will be one of the main components of Internet of Things services and the software industry will therefore benefit from it.

6.2. Definition Internet of things refers to (billion of) physical objects or items that connect transparently to the Internet to retrieve or send information (like location or condition) to a distant database or information system without direct human intervention (no direct connection to the web). Each object has then an identity which has to be interpreted through a local device (which can be a mobile phone, especially for consumers) connected to the Internet. The information is not produced by or stored into the object/item, but only available remotely thanks to the unique identification through a distant database, requiring then some form of network connection (mainly through the Internet).

Technically, Internet Of Things (IoT) is then an extension of the naming system of Internet and means a convergence of electronic ID, as it allows to identify electronic data elements (URL address for websites for instance) and physical elements (pallets in a warehouse…). Moreover, it is not restricted to a specific technology but covers several technical solutions (2D bar code, RFID, TCP/IP, mobile technologies), allowing objects identification, data capture, storage, processing, transfer within physical environments and also between physical contexts and virtual universes.

Internet of things relates to the communication of information between objects and the Internet and involves three main functions:

The identification of the object which could be made by a virtual label, potentially through a RFID tag embedment as this technology offers numerous features that the Internet of Things could benefit from (size, storage, range, no line of sight requirement…). Other virtual labels enabling identification for IoT include bar code (1D or 2D) or even GPS coordinates.

The connectivity to the Internet (or data access) is allowed by readers connected to network (and the antenna of the tag) or, in case of an active tag, by the tag itself.

The information processing and storage is done through large databases in charge of providing back information related to the object.

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In its current basic form, the Internet of things refers to objects and items (but not machines) communicating information back to closed information systems of one company. The Internet is then only the transmission network. But the information could come from public databases or shared databases operated in open loops. Databases would then be hosted in the Internet and would come with numerous associated services like for the web (address system with ONS, search services, security services, etc…).

6.3. Scope & relationships with other segments The scope of the Internet of Things is potentially very large. We exclude from Internet of things the following elements:

M2M (machine-to-machine), detailed in another profile. M2M is a very different market as it is mainly organized around machines that can create/process information directly. In M2M, most of the applications are then related to telemetry and telematics, which are mainly transmission of remote information in closed environments.

Connected objects, which are mostly electronics with capacity to connect to the Internet with an adapted browser.

The following types of software have been included when accounting the Internet of things software market:

• Middleware: middleware are used to manage locally data collected on-site from the different RFID hardware (readers, gates, etc…). Like conventional middleware, they will generally convert the different data formats into something that can be read and/or processed by a local edge server. RFID middleware are also in charge of data management (filtering, aggregation and buffering) and of interface with enterprise applications or with third parties systems. • Vertical applications: applications from the various industries integrating the data to allow operating business processes (like CRM, SCM, etc…). Applications are generally not specific to RFID, but rather extensions of existing solutions, but have to handle more data.

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• New web-based services: platforms in charge of storing and handling data exchange between players. Typical future web-based products include those designed by EPC Global Network like security or search services to retrieve relevant information stored in databases located into the Internet.

The scope excludes embedded software in ID readers (RFID, barcodes, etc…) as embedded software is out of the scope of this study. We also exclude mobile applications used on mobile phones to get information on objects, as this is already accounted in mobile software (see other profile).

IOT market falls mainly under the middleware (with mostly brand new middlewares) and application market segments (with mostly extensions of existing software).

IOT revenues are so far coming essentially from licenses and IT-related services. In the future, paid web-based services and advertising could also generate some revenues.

6.4. Market Data Market Value for SBSS IOT (all in EUR 2008 constant)

million EUR 2007 2008 2009 2010 2011 2012 2013

EU27 150 200 250 450 825 1300 1800

NA 300 420 525 810 1150 1600 2100

ASIA/PAC 250 300 340 410 600 850 1050

ROW 50 80 105 130 225 350 500

WORLD 750 1000 1220 1800 2800 4100 5450

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Growth 2008 2009 2010 2011 2012 2013

EU27 33% 25% 80% 83% 58% 38%

NA 40% 25% 54% 42% 39% 31%

ASIA/PAC 20% 13% 21% 46% 42% 24%

ROW 60% 31% 24% 73% 56% 43%

WORLD 33% 22% 48% 56% 46% 33%

Overall market for IOT (including SBSS, hardware and connectivity)

Million EUR 2007 2008 2009 2010 2011 2012 2013

World 3600 3900 4200 5400 7100 9450 12700

SBSS share of total market of IOT

2007 2008 2009 2010 2011 2012 2013

SBSS share 21% 26% 29% 33% 39% 43% 43%

Breakdown of type of revenues for total market segment

2007 2008 2009 2010 2011 2012 2013

Licenses 300 350 403 540 812 1048 1281

IT Services 450 650 817 1260 1988 2952 3970

Paid web- 0 0 0 0 0 100 200 based

Advertising 0 0 0 0 0 0 100

Total 750 1000 1220 1800 2800 4100 5450

Overall Volumes: Number of tags shipped per year

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million 2007 2008 2009 2010 2011 2012 2013

World 1740 1970 2350 2900 4200 7000 12500

Growth of volumes

Volume 2008 2009 2010 2011 2012 2013

tags 8% 8% 29% 31% 33% 34%

6.5. Overall Market analysis In its current form, Internet of things is mostly limited to RFID internal deployments but the first building blocks of the future Internet of things are being rolled out (around for instance the EPC Global Networks). Tags are so far mostly used internally (without Internet connection), but first deployments in open loop solutions are trialled. Most of the projects remain industrial or B2B oriented and should really concern consumers only in the very long term (limited impact in the next five years).

Currently, tags and readers account for the larger share of the IOT market. Major long-term opportunities for IOT will be around IT services, as tags become commodities and as enterprises integrate the data collected into their back-end systems. IT services spending could be huge as the volume of data to handle will be of one or two orders of magnitude compared to existing systems. In the very long term, new revenues will come from IOT services and their web-based forms, either paid or free.

6.5.1. Drivers and Barriers The Internet of Things is a fast growing market benefiting from the following drivers:

• the RFID market itself is growing fast, thanks to value added for business operations involving high level of automation, large volume simultaneous reading and/or management of unique objects with complex characteristics (compared to the current situation in which most advanced solutions on bar codes are at best semi-automated, reading one item at a time and are associated with a whole product category, but not with a unique product)

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• ubiquitous networks that can help to connect from anywhere and access remotely the information

• standardization for data exchange around IOT platforms that can help to engage into collaborative projects, accelerating the needs

• diffusion of NFC into mobile devices (expected to reach 12% of new shipments in 2012), meaning more people equipped with some form of RFID reader

But the development of the Internet of things is slower than expected by most market observers, as many barriers are still impeding mass market and mainstream developments:

• Technical imperfections of RFID causing troubles to interact with objects with metal and/or water • Prohibitive cost of RFID tag making it difficult to put it on objects with low value • Development of a new infrastructure (readers, software, platforms) mostly from scratch which requires huge set-up costs. • Unclear business models in most of the vertical industries, especially for RFID costs sharing in the supply chain

6.5.2. Value creation and destruction The Internet of Things should mostly represent some value creation from the point of view of the software industry, as it will allow implementing new services that were not technically or economically possible to offer. This market should also develop at the expense of paper-based applications (barcodes).

Transfer of value from barcode applications

• extension of WMS solutions to include item-level management (so far mainly category-level) and offer higher visibility

• extension and/or transfer of value of vertical applications like SCM, CRM to include the new data derived from RFID tags with huge volumes

• creation of new markets with new applications based on IOT, mostly for consumers with either paid-based services or ad-funded services (like price comparison, allergy detector, etc…)

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6.5.3. Competitiveness of Europe Usage/sales

Europe is a key future market for the Internet of things, as its development is generally linked with underlying vertical markets on which Europe holds some dominant or advanced positions. On the long term, Europe should then benefit from IOT, in accordance to its overall economical weight and its adoption of software for operating business processes.

Today, IOT (and in fact for now RFID) markets are dominated by North America, which is benefiting from more adapted spectrum regulation and higher involvement of major order givers (mandates from Wal-Mart, Sams Club, DoD, etc…). RFID is also only useful if used in combinations with advanced application software like SCM or ERP, which are more widespread in North America.

Future adoption of IOT clearly depends on technical considerations and existing market structure for business operations, but also on the specific market environment for RFID, including national and regional regulation. Privacy and data protection will play here a key role, for both user reaction and business models (for instance, return logistics are easier). All the regulation and public policies should have a great influence on the way the market will develop in the different regions. Current European regulations are generally harder to implement, implying a slower adoption in the first years.

Production/R&D

While production of tag is done of both sides of the Atlantic ocean (due partly to different regulation for spectrum), pure software players are mainly US-based players that were positioned earlier on application software that are expanding to include RFID into their offerings. Dominant players are then the same those of application software (in which Europe is weak except for a few players like SAP) or than in the IT services (in which Europe has a better position, even though trailing North America).

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A few specialized players (like OAT Systems), for both software and IT services, are also trying to position on this market. Most of them are of small scale and have had so far minor impacts on the market, for business and consumers like France-based Violet. RFID is mainly offered by IT providers benefiting from their existing relationships with vertical users, and will be therefore most likely be an extension of this market rather than a fully new one. IOT in its standalone non-connected version should not have really an impact on Europe competitiveness on software markets.

Future IOT services, i.e. the web-based version of it, may offer an opportunity for Europe to reposition. While current platforms are designed internationally (to enable cross region data exchanges), most European companies reject the idea of an IOT operated by US-based players. Early solutions for addressing systems (ONS) were for instance controlled by VeriSign, but European solutions are being trailed (by Orange in France).

Specific initiatives have been launched by telcos on those markets, mainly for now as IT integrators in direct competition with regular IT service providers. Those initiatives are mainly coming from a few European telcos (BT, France Telecom, Telekom Austria) are offering RFID IT services for specific vertical markets, even though initiatives are generally of small scale. Telcos will try to leverage their network connectivity activities (and also their indirect sales of mobile devices) to offer next gen IOT services requiring remote connections and the associated platforms to handle the data. Europe’s leading telcos are already positioning and could become flagship players in this domain which requires in open loops good skills in both software and network. Their positioning on these markets should be very close to the ones they adopted for EDI.

7. MACHINE TO MACHINE (M2M)

7.1. Reason for inclusion/analysis: Machine-to-Machine (or M2M) is one of the new ICT markets under the spotlights. Thanks to wireless network technologies, new applications are now made possible,

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to take in account machines that are in remote area (in which deploying a fixed network would be too costly), machines that are moving or machines that are located on third party territory (on which a company can not generally existing fixed networks).

Internet is also a key component in offerings as it can be used as a bearer to collect back the data to the information systems without needing expensive dedicated links, while the web can be used as an interface to control machines.

All those new applications need at least some software to operate and can be of higher value if they are integrated with information systems.

7.2. Definition M2M to refer to automated communications (both programmed and/or triggered by an originally man-induced event) that involve at least one remote device which is not a commonly-used information device (e.g. computer, telephone, TV…). This therefore involves exchanges between several machines without human intervention in the chain of communication. An application or service can call also be called M2M if it involves a communication with at least one machine whose primary feature or value is not communication and/or Internet access (i.e. that can work without any network connection, like a car or a meter).

M2M is not a technology in and of itself, but rather a logical combination of different technologies based on electronics (sensors, RFID, modems…), wireless telecommunications (GPRS, Wi-Fi, Internet…) and computing (XML, information systems…), which makes it possible to build new services.

M2M solutions allow a central server (operated automatically or manually) to communicate with a group of distant machines, via a private, public or operated access network. The purpose generally is to capture data that is stored or processed on the machine and/or to send data to alter the state of the machine.

7.3. Scope & Relationships with other segments The scope of the M2M is potentially very large. We exclude from M2M the following elements:

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• Internet of things, detailed in another profile. • Connected objects, which are mostly electronics with capacity to connect to the Internet with an adapted browser. Most of the software value associated with these new electronics enhanced by Internet is from embedded software (excluded from the study) or from mobile Internet services (see other market segment).

M2M is associated with wireless technologies, even tough some definitions may include wired technologies. When network connections are based on wired technologies, we generally refer to other markets like SCADA (Supervisory Control Data) used for automation. The wired markets are also way older and more developed than M2M, and therefore enjoying more limited growth. They are also operated more locally, generally without Internet connection.

The following types of software have been included when accounting the M2M software market:

• M2M platforms: (mostly equivalent to middleware) M2M key specific software elements are the gateway and the middleware. The gateway is often embedded and then out of the scope of the study. The middleware is generally a server located at the upper end of the network (housed by the company) or inside the network (hosted by a third party, generally is ASP mode, and accessible via the web). The goal of this server is to organise the data streams. Several levels of sophistication can be achieved with the middleware, when combined with the user company’s applications, from simple communication to full remote control: • M2M applications: applications from the various industries integrating the data to allow operating business processes (like databases, CRM, SCM, etc…). Applications are generally not specific to M2M, but rather extensions of existing solutions that have to handle more regular and automated streams of data (existing solutions mostly rely on human input on a few occasions). • M2M web-based services and visualisation interfaces: basic applications allowing getting an aggregate vision of machines but without integration with existing systems. Those interfaces could be especially provided to consumers to monitor their usages. But consumers may not generate any revenues for

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those services in terms of software, as it will be provided to them as an additional feature/service to their usage of a machine.

The scope excludes embedded software in modules and readers as embedded software is out of the scope of this study. The gateway, or interface, whose main role is to convert the information to be transmitted to the transport protocol format, is located at the entrance to the operated network. It is more and more embedded into the module, and therefore not accounted. It is however sometimes designed in direct conjunction with the middleware.

M2M market falls mainly under the middleware (with mostly specific middlewares) and application market segments (with mostly extensions/adaptations of existing software).

M2M revenues for SSBS aspects are coming essentially from licenses and IT- related services. No form of advertising revenues is expected. Paid-web-based services may be developed for consumer services, but software part should remain very limited and hard to split from other revenues (bundled within a package including the machine).

It is hard to isolate revenues of M2M software, as enterprises (and consumers) buy in some cases the machines and the associated services, but do not really pay for software-based services but for machine-based services enhanced with software. Machine providers are then able to bill services on subscription basis and rely on anew business model. Software is in this case more one of the machine service enablers than the service itself. Revenues will then generally be accounted within the vertical industry and not into the software industry.

7.4. Market Data Market Value for SBSS in Cellular M2M (all in million EUR 2008 constant)

million EUR 2007 2008 2009 2010 2011 2012 2013

EU27 2168 2700 3000 4000 5150 6400 7700

NA 1735 2100 2200 2900 3850 5000 6100

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ASIA/PAC 1054 1250 1450 1800 2350 3200 4400

ROW 506 835 1060 1700 2298 2808 3283

WORLD 5463 6885 7710 10400 13648 17408 21483

Growth

2008 2009 2010 2011 2012 2013

EU27 25% 11% 33% 29% 24% 20%

NA 21% 5% 32% 33% 30% 22%

ASIA/PAC 19% 16% 24% 31% 36% 38%

ROW 65% 27% 60% 35% 22% 17%

WORLD 26% 12% 35% 31% 28% 23%

Breakdown of type of revenues for total market segment for SBSS in Cellular M2M

2007 2008 2009 2010 2011 2012 2013

Licenses 1495 1785 2050 2570 3350 4300 5400

IT Services 3968 5100 5550 7620 9900 12500 15250

Paid web- 0 0 110 210 398 608 833 based

Advertising 0 0 0 0 0 0 0

Total 5463 6885 7710 10400 13648 17408 21483

Growth by type of revenues

2008 2009 2010 2011 2012 2013

Licenses 19% 15% 25% 30% 28% 26%

IT Services 29% 9% 37% 30% 26% 22%

Paid web-based N/A N/A 91% 89% 53% 37%

Advertising N/A N/A N/A N/A N/A N/A

Total 26% 12% 35% 31% 28% 23%

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Breakdown of cellular M2M market in value

2007 2008 2009 2010 2011 2012 2013

SBSS 46% 49% 51% 55% 59% 61% 63%

Hardware 39% 35% 33% 30% 26% 24% 22%

Connectivity 15% 16% 16% 15% 15% 15% 15%

Volumes: Cellular M2M modules

million 2007 2008 2009 2010 2011 2012 2013 module

EU27 9,5 12,0 14,5 18,5 25,0 34,0 44,0

NA 7,4 9,7 11,2 13,5 17,5 24,5 33,0

ASIA/PAC 4,5 5,7 7,0 9,0 12,0 16,5 22,7

ROW 3,0 4,1 5,3 7,7 11,3 16,0 22,0

WORLD 24,0 31,5 38,0 48,7 65,8 91,0 121,7

Growth of volume

2008 2009 2010 2011 2012 2013

EU27 26% 21% 28% 35% 36% 29%

NA 31% 15% 21% 30% 40% 35%

ASIA/PAC 27% 23% 29% 33% 38% 38%

ROW 37% 29% 45% 47% 42% 38%

WORLD 31% 21% 28% 35% 38% 34%

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7.5. Overall Market analysis M2M is still a very recent market and has yet to explode. Growth of this market has been very high but remains mostly steady around 20% in value and 35% in volume. SBSS in M2M is growing faster than the overall M2M market as most of the value progressively shifts to software.

M2M market is in fact developing step by step, vertical by vertical. On certain machines and applications, M2M is already well-developed. The most advanced sectors are in transport, with fleet management and telematics, and in utilities, principally for meter readings.

Other widespread applications are found in security services, with alarms and in electronic money services. Among other promising segments of the market are within consumer markets with health or even toys and gadgets. But as with most consumer solutions, the business models for these new sectors have yet to prove themselves, given the frequent reluctance of the end-user to pay.

Software and IT services represent a large share of the market, as connectivity revenues are generally low (very limited consumption per unit) and as modules prices are falling down. IT services is the segment that should enjoyed the most growth as pure software is spend mostly on middleware that can be shared over many applications.

7.5.1. Drivers and Barriers The M2M is a fast growing market benefiting from the following drivers:

• Customer benefits (either ROI or higher customer satisfaction) with the introduction of the capacity to measure indicators remotely in an automated way. Most of the solutions focus on cost optimization or reduction (replacement of human-based activities) but M2M could also be applied to new services (with associated new revenue streams). Main benefits come from travel cost savings, reduced bad data recording and reduced machine downtime. • Solutions mostly based on very mature and well-deployed technologies like Internet, SMS, GPRS or XML. There is very limited need for speed, as machines generally send only small volume messages.

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• Public policies and regulation adopted in a few vertical markets are not imposing M2M, but are more and more implying automated remote monitoring solutions (e.g. automotive for emergency procedures with eCall, monthly billing on real data, etc…) • Telcos involvements in this market, which represent at least new opportunities to sell SIM cards, especially as the “human” telecom mobile markets become saturated.

But the ever-promising M2M market is still an emerging market due to the following barriers:

• A few technical aspects could be improved fro some applications (safety, reliability, latency, network coverage, autonomy, etc.) • Cost is still a key issue. The prime issue is the level of upstream investment in software and modules. These fixed costs can only be earned back on large- scale projects, which require a strong commitment on the part of the client, or user, to M2M. • The M2M market is particularly fragmented and divided between numerous technologies and players, often niche ones, operating on various links of the value chain. There is therefore complexity for both technical integration and supplier identification.

7.5.2. Value creation and destruction The M2M market should mostly represent some value creation from the point of view of the software industry, as it will allow implementing new services that were not technically possible to offer. Alternative solutions are generally mostly human- based operations. This market should also develop at the expense of wired telemetry.

• Transfer of value from a few wired remote monitoring telemetry • Extension and/or transfer of value of vertical applications like SCM, CRM to include automatically the new data collected from machines • Creation of new revenues with middleware and IT services and marginally with web-based services to enable business operations with less human intervention

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7.5.3. Competitiveness of Europe Usage/sales

Europe is already currently a well advanced market for M2M, thanks to the involvement of leading telecom operators looking for new mobile revenues (US telcos are less involved) and also thanks to specific vertical regulation (e.g. deregulation of electricity) that have encourage industrial players to adopt M2M. Europe also benefits from its strong positioning in some vertical markets that are the users of M2M integrating it into their products and service offering. The major drawback of Europe regarding M2M is still the capacity to offer pan-European offerings as the solution relies on different networks in different countries.

Europe is well ahead of the United States in cellular M2M development. The American market is much more fragmented, with a great many technologies which have not achieved the critical mass that would allow costs to come down, and a great many poorly interconnected networks covering the country in a piecemeal fashion. More expensive than GSM, which operates in the US on different frequency bands than in Europe, CDMA is hampering the market’s development. And lastly, a number of certification procedures (FCC, telcos) are relatively long and expensive.

The Asia market is also trailing behind Europe and focused only on a few applications, especially on vending machines in Japan

Production/R&D

Key players in this market have been so far module vendors, with leaders in Europe like Wavecom (recently acquired by Canada-based Sierra Wireless), Telit or Cinterion (spin off from Siemens). But those players are of small scale and all major equipment providers have gotten out of this market with spin-offs or acquisition (Nokia, Siemens, Sony-Ericsson, Kyocera, etc…) and are now being challenged by Chinese players like Simcom.

Other key players of the market are telcos, with traditional carriers (mostly incumbents) and small MVNOs offering advanced telecom services. European telcos, especially Telenor, France Telecom, Vodafone and Telefonica are also among the dominant players in terms of volume for cellular M2M.

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But their offering is so far mainly about module and network connectivity, with limited software-related aspects. A few telcos are trying to offer their own platform, but most of them focus their efforts on either pure network solutions (they only sell SIM cards) or fully packaged vertical solutions (they bundle the machine with the service). The middleware they provide is therefore generally very basic.

While there are a great many vertical solution suppliers in Europe, there are only a few horizontal M2M software infrastructure specialists from Europe, unlike the US market which is gradually taking shape. Main software players like SensorLogic and Nphase are US-based, but are generally too small to address the markets and need strong partnerships. Many of them have acquired by bigger players like Qualcomm for NPhase (this is also true in Europe with Anyware by Wavecom). IT integrators in the M2M space encompass both small providers and traditional IT powerhouses like IBM, giving so far no clear competitiveness advantage for Europe.

Telcos should definitely play a key role in the future of the software for M2M, as they will more and more offer directly or by combination with other players from the ecosystem full solutions integrating software. As major module vendors have progressively disappeared, telcos are now the players with the most resources to organize and centralize the market. Europe could then benefit from the telcos advanced positioning to leverage a stronger position in the software industry.

8. WEB 2.0

8.1. Reason for inclusion In just a few years, Web 2.0 has become a dominant way of programming and has radically transformed at least in terms of usage the web, which can be seen as software offered as a service through the Internet. Web 2.0 is now a “must have” in current and future Internet services.

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8.2. Definition Web 2.0 encompasses a certain shift on the Internet, spurred by the regular launch of innovative sites and applications. While hard to pin down precisely, this multi- faceted phenomenon does embody at least three possible definitions:

The first puts the individual and his/her social ties as the heart of the Internet. Web 2.0 refers most often to applications based on the principles of collaboration and sharing information and content (in many cases via virtual associations or communities). This involves some participation from the user.

Others have a more technological definition of Web 2.0, associating it with any service based on certain technologies (Ajax, RSS, wiki), of which some are not necessarily built around the principles of collaboration.

Finally, some speak of Web 2.0 as the migration to the Net of applications traditionally confined to the business world (e.g. desktop and storage solutions). This simply involves new approaches to ASP or SaaS (software as a service) solutions, for collaborative applications. We’ve considered to not include it into the definition of Web 2.0, as SaaS is already accounted into a separate market.

8.3. Scope & relationships with other segments The segment includes:

• Advertising spending and paid services on social network services • Business spending on Web 2.0 technologies: • Social networking: Web-based platforms for online communities of people who share interests and/or activities, or who are interested in exploring the interests and activities of others. The contact between community members and the ensuing communication is carried out over a variety of channels: personal pages, mail, IM, blogs, content sharing, comments, tags, ranking… • RSS: a form of syndication for web content coded in XML. The format makes it possible to disseminate the new elements on a site and to view these new elements at a glance, without having to visit the website itself each time. • Blog: a website where one or several people express their thoughts and views on a regular basis – inviting readers to comment on the posts – and containing links to other sites.

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• Wiki: system for managing a website’s content that allows the webpage to be modified freely and equally by all authorised visitors • Mashup: website created by assembling and combining content from other sites. • Podcasting: a series of digital audio or video media files that is made available for download via web syndication. • Widget: a mini application or tool that makes it possible to display a wide array of information on a computer screen.

Concerning advertising spending and paid services on social network services, the segment doesn't take into account social networking sites' entire revenues: it excludes revenues from digital content and media, whether it is professional or user- generated.

As regards business spending on Web 2.0 technologies, the segment:

• excludes classifieds on professional social network services such as LinkedIn or Viadeo; • only takes into account the revenue share that is really attributable to Web 2.0 in bundled sales.

As a reminder, SaaS is excluded from Web 2.0.

Web 2.0 market revenues mainly come from online advertising for consumer websites and licenses for business applications. Revenues come also from IT services, but the ratio of IT services spending per spending of licence is significantly lower than for other applications.

In terms of types of software, Web 2.0 falls mainly under the segments of applications and tools.

Mobile Web 2.0 services can be used as mobile communication channels instead of traditional mobile applications (voice, SMS/MMS, mobile IM…). Some of the revenues of the Web 2.0 market will then come from mobile software.

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8.4. Market Data Market Value (all in million EUR 2008 constant)

Area 2007 2008 2009 2010 2011 2012 2013

EU 27 249 455 713 1135 1640 2206 2934

North 1233 1650 2105 2539 3010 3488 4097 America

Asia Pacific 233 502 752 941 1130 1318 1487

ROW 0 28 31 91 166 263 313

Total World 1715 2635 3601 4705 5945 7276 8830

Annual market growth

Area 2008 2009 2010 2011 2012 2013

EU 27 82% 57% 59% 44% 35% 33%

North America 34% 28% 21% 19% 16% 17%

Asia Pacific 115% 50% 25% 20% 17% 13%

ROW N/A 11% 194% 82% 59% 19%

Total World 54% 37% 31% 26% 22% 21%

Breakdown of type of revenues for total market segment

Area 2007 2008 2009 2010 2011 2012 2013

(“one-shot”) licenses 310 520 850 1300 1850 2490 3160

IT services 465 725 1111 1555 1995 2406 3010

Paid web-based 0 0 0 0 0 0 0

Advertising 940 1390 1640 1850 2100 2380 2660

Total 1715 2635 3601 4705 5945 7276 8830

Other metrics

The number of worldwide visitors to social networking websites grew by a quarter between June 2007 and June 2008. Asia Pacific was the most dynamic region with a 35% growth rate, while it is only 9% in North America.

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Figure 20: Social networking growth by Figure 19: Top Social Media Sites (WW worldwide region (WW million unique million unique visitors, Nov. 2008) visitors)

580,5 Worldwide 464,4 Blogger 222 Facebook 200 200,5 Asia Pacific 162,7 MySpace 126 Wordpress 114 Europe 165,3 Windows Live Spaces 87 122,5 Yahoo Geocities 69 131,3 Flickr 64 North America 120,8 Hi5 58 83,4 Orkut 46 ROW 58,3 Six Apart 46

June 2007 June 2008

Source: comScore Source: comScore

8.5. Overall Market analysis Web 2.0 is a very recent market and has been able to reach the mainstream only in a few years. Usages are now impressive, but this huge market in volume is still very small in terms of value. One of the major reasons behind that is that the underlying technologies are either incremental compared to previous web technologies or not very sophisticated. They can therefore be easily copied or integrated with existing applications.

While most of the revenues are still coming from advertising, the adoption of web 2.0 by businesses should become the first source of revenues in the coming years. Most of the applications are used for collaboration and communication but with very limited integration which leads to very limited need for IT services.

8.5.1. Drivers and Barriers Web 2.0 is a fast growing market benefiting from the following drivers:

Web 2.0 services, and especially social networking websites, have enjoyed a sharp uptake in usages and audience since 2006 (number of users, time spent, frequency of visits…).

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Features of Web 2.0 sites (social networking, content sharing, comment posting, ranking...) are spreading across the whole of the Net. All types of websites (e- commerce platforms, specialised search engines, guides, thematic portals, media sites, etc.), including those that have been around since before Web 2.0, are gradually adopting online social networking's main principles : community, interactivity, collaboration, etc. To incorporate social features into their services, a great many website publishers are calling on community-based Web specialists to provide them with 2.0 technological services.

Beyond the Web, more and more enterprises are equipping themselves with their own 2.0 tools (social networks, RSS feeds, blogging platforms, wikis, widgets…). However, the development of the "enterprise 2.0" market is mainly driven by business spending for external purposes (social computing): according to Forrester Research, enterprise spending on Web 2.0 technologies split equally between internal purchases and external purchases in 2008; but external purchases are expected to grow 7 times between 2008 and 2013 and to account for 60% of the "enterprise 2.0" market in 2013.

Nonetheless, despite their massive popularity, Web 2.0 sites and business applications are not managing to generate revenue in line with the size of their audience because:

For online advertising players, Web 2.0 presents considerable difficulties to the extent that it constitutes a new way to surf the internet, a third way beyond portals (built on a model of a segmented mass audience, well suited to display) and search engines (whose traffic-centric strategy is ideal for incorporating sponsored links), whose point of departure is users themselves.

The inventory of Web 2.0 sites cannot be monetised efficiently using classic online ad formats (search marketing, display…), which are unable to capitalise on the inherent features of community-centric services for advertising purposes. Web 2.0 sites needs to be monetised using adapted marketing tools (data-mining, tracking, sponsored applications…) that can appeal to advertisers.

Those new marketing tools offering more targeting options will have to deal with major privacy issues, making it difficult to get a commercial solution even if the technology is ready.

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In the Web 2.0 era, advertisers also need to factor in users’ experience, now well used to richer and more sophisticated browsing; they are more demanding when it comes to advertising as well, wanting it to be more attractive and inventive than classic links and banners.

On the business side, applications and tools have become “must have” solutions, but are considered so far commodities bringing low value. Most of the value in 2.0 applications is not in the software but in the communities and in the databases that can be drawn from them.

Although advertising will no doubt continue to the be prime source of income for 2.0 sites, they should not overlook their other money-making activities, some of which have the potential to generate substantial revenue for Web 2.0 sites – white label technology sales, marketing premium services and e-commerce – but which are still largely underexploited by the market players.

8.5.2. Value creation and destruction From the point of view of the software industry, the impact of Web 2.0 is still unclear, but could be overall negative:

there are some transfers (paid services, advertising revenues) from Web 1.x sites integrating Web 2.0 features, as Web 2.0 sites have become major destination sites and therefore attracting advertisers’ revenues

there is already some destruction value, as Web 2.0 is often used instead of other software applications for communication that can be more costly. The same is true for some business Web 2.0 tools used instead of other traditional solutions. Software industry players indeed benefit from free/low-cost user-driven innovation, but contrary to open source, players have for now limited indirect benefits (almost no IT services). Web 2.0 should destroy value on the mobile application segment. Indeed, thanks to the growing widespread use of 3G phones and the development of flat data rates, social networking services should be more and more used as mobile communication means, instead of more lucrative tools like SMS/MMS, proprietary applications, portal-based communication services. However, most of those revenues are not related to software. There should also be in the long term

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some revenue creation as new forms of advertising and/or collaboration will be possible to implement.

8.5.3. Competitiveness of Europe Usage

Europe only accounts for a small part of the Web 2.0 market (17.4% in 2008 according to IDATE's estimates): indeed, this segment derives most of its revenues from advertising, but this is a small market whose prime beneficiaries are two American players: MySpace and Facebook.

Europe is especially trailing behind North America regarding adoption of Web 2.0 in businesses. Consumer adoption of Web 2.0 appears to be at the same level than North America or Asia, but revenues are small compared to those two regions as advertisers have been more reluctant to use those formats. North America also benefits from its more advanced market of online advertising, which is the prime source of revenues for Web 2.0, and from initiatives from Web 2.0 giants which focus at first on their domestic markets.

However, Europe's Web 2.0 market share should increase in the years to come (this share is expected to represent a third of the market in 2013 according to IDATE's estimates) thanks to the growth of the inventory of European Web 2.0 services (increase in the number of pages and applications) and their rising audience.

Web 2.0 is also an opportunity for Europe to accelerate its development and adoption of software, especially for SMBs (a segment on which European players are generally far behind their US counterparts). With Web 2.0, the cost is not anymore a barrier for adoption.

Production/R&D

Currently, most of Web 2.0 leaders are US-based (MySpace, Facebook, Twitter, Ning, Six Apart, etc.). This is also true for business applications. They are the most popular and attractive services thanks and maintain their leadership thanks to their dynamic innovation policy. Only a few flagship players are originating from Europe (Netvibes, Pageflakes, etc…) or from Asia and have generally a much more limited

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impact beyond their borders. Other players are mainly clones of leading US offerings with a domestic focus and are generally only small challengers even when considering only the national market.

All software players are integrating Web 2.0 features into their offerings, generally with no additional cost. As innovation has been limited into that space in terms of technologies (evolutions of Javascript, tagging, RSS, wiki, etc…), all players have been able to integrate/copy them with limited investments. Web 2.0 technologies are not disruptive enough to allow for shifts in positions on the software market and are merely add-ons to existing applications. Europe is therefore trailing North America, which is already really more advanced on the Web or for enterprise software.

The only exceptions are the collaboration and communication tools market, on which Web 2.0 provide new complete solutions and therefore compete with the existing solutions, mostly coming from USA (Microsoft SharePoint, etc…). On pure software aspects, necessary developers’ skills are mostly of low level or are very traditional for web developers. The value is indeed generally coming more from the integration of different services through mashups and APIs rather than one single service. Europe could benefit from having a clear policy on user-driven innovation to foster its position in this market.

The telcos that have positioned themselves on the online advertising market – through an ad network business for instance - could develop specific innovative tools and solutions to help Web 2.0 services to better monetize their inventor through data-mining (to make the most of personal information contained in social networks' member profiles in the respect of privacy), tracking, behavioural targeting, etc. But so far, European telcos have had very limited initiatives in this space, as they do not expect direct revenues from it.

9. ONLINE ADVERTISING

9.1. Reason for inclusion The web has also to be seen mainly as software being accessible through the Internet (some parts of the web should however not be assimilated to software like

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video content) and monetized in many cases through advertising. Advertising has been seen for years as a potential business model disruption for the software industry, but generally represented only additional revenues as it was not cost- effective to distribute with only advertising revenues in the offline world. With the Internet, it is now possible to operate a sustainable business model based on mainly advertising revenues, even for advanced software. Google is one of the key examples of players that have managed to generate billion dollars with online advertising.

9.2. Definition Online advertising in the context of SBSS industry is taking account of all forms of software and activities that were offered previously in an offline version, but excludes all online activities that are still accounted within their original market segment like content (video, game, press, music, etc…) or e-commerce. For this study, online advertising is therefore only accounted when related only to some services of the Web like communication, search or practical services.

9.3. Segment scope & relationships with other segments The segment only includes online advertising revenues generated by software- based Internet services:

• Search engine marketing (sponsored links in search engine results or contextual links on other web sites) • Display advertising (banner ads, video and rich media, sponsorship, etc…) on online software-based services like communication (webmail, IM, etc.) or practical services (maps, etc…)

The segment excludes the following of online marketing formats:

• Online advertising on other types of online services like content/media websites (which are the online versions of TV/radio/newspaper sites), including games already accounted in a separate profile. • E-marketing, like e-mailing which is more an online version of direct mail and is more related to the communication industry

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• Online classifieds • Online Yellow Pages or directories

The online adverting market includes revenues from all generations of Web services, including Web 2.0 and upcoming Web 3.0 or even in the long –term IOT services.

The online advertising is directly linked to other markets like mobile Internet advertising and game advertising (common formats and practices), but their perimeter is different and therefore there is no double counting.

9.4. Market Data Market Value of SBSS in the form of online advertising (all in million EUR 2008 constant)

Area 2007 2008 2009 2010 2011 2012 2013

EU 27 4 100 5 475 6 647 7 897 9 537 11 995 14 698

North America 6 657 7 890 8 843 10 088 11 955 14 585 17 768

Asia Pacific 4 353 5 374 5 828 6 755 7 579 8 679 10 394

ROW 467 580 1 122 1 862 2 875 3 918 5 297

Total World 15 577 19 319 22 440 26 603 31 946 39 176 48 158

Annual market growth

Area 2007 2008 2009 2010 2011 2012 2013

EU 27 - 34% 21% 19% 21% 26% 23%

North - 19% 12% 14% 19% 22% 22% America

Asia Pacific - 23% 8% 16% 12% 15% 20%

ROW - 24% 94% 66% 54% 36% 35%

Total World - 24% 16% 19% 20% 23% 23%

Details on key countries

Area 2007 2008 2009 2010 2011 2012 2013

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France 770 1 050 1 316 1 542 1 787 2 131 2 493

Germany 858 1 225 1 502 1 706 1 998 2 451 2 964

Italy 193 281 375 517 750 1 035 1 393

Spain 295 372 423 506 620 776 982

UK 1 123 1 446 1 753 2 024 2 338 2 776 3 294

USA 5 932 6 980 7 773 8 810 10 396 12 641 15 360

Japan 1 663 1 940 2 174 2 485 2 952 3 451 4 038

China 481 718 953 1 327 1 919 2 741 3 919

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Annual growth rates

Area 2007 2008 2009 2010 2011 2012 2013

France - 36% 25% 17% 16% 19% 17%

Germany - 43% 23% 14% 17% 23% 21%

Italy - 46% 33% 38% 45% 38% 35%

Spain - 26% 14% 20% 23% 25% 27%

UK - 29% 21% 15% 16% 19% 19%

USA - 18% 11% 13% 18% 22% 22%

Japan - 17% 12% 14% 19% 17% 17%

China - 49% 33% 39% 45% 43% 43%

Figure 21 : Worldwide top 10 properties Figure 22 : Global share of total searches

Source: comScore World Metrix, October 2007 Source: comScore World Metrix, October 2007

9.5. Overall Market analysis Online advertising is a very dynamic market, even tough it is currently deeply impacted by the global downturn, like all segments of the advertising market.

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9.5.1. Drivers Online advertising is a fast growing market benefiting from the following drivers:

• Growing Internet usages: • Growth of worldwide online population • Broadband access development • Increase in time spent online • etc.

The constant increase in the inventory development (more and more websites with more and more pages and applications)

The growing digitisation of advertising spending: traditional media (above the line advertising) and non-media (below the line advertising) budgets are being transferred to the Web. This trend seems to be emphasized by the current economic crisis that makes the assets of this marketing support (performance, price competitively, targeting, efficiency measurement…) even more attractive for advertisers.

9.5.2. Barriers But the development of advertising on software-based Internet services could slow down because of the maturation of search marketing and the evolution of online usages:

The growth of online advertising revenues on software-based services is mainly driven by the evolution of search marketing spending that constitutes the bulk of the market. In next years search marketing will continue to fuel online ad market growth. Nonetheless, on the most advanced markets, search marketing will soon start to mature and thus should keep growing but at a slower pace. The search marketing slow down will first occur in the United States - the most advanced country as regards the online advertising market cycle - and it will progressively extend to Europe.

In the years to come, display on online software-based services should keep growing. However, on the long term, its growth should slow down because:

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Internet users should reduce their use of traditional online communication applications, like IM and webmail, to the benefit of new online communication means, such as social networking sites, micro-blogging services, etc, which are generating lower revenues (see Web 2.0 profile).

Display spending should more and more concentrate on media/content services since online content consumption has soared over the last year and is here to stay.

9.5.3. Value creation and destruction The development of the online advertising has mostly been so far based on value creation from the point of view of the software industry. The web is in fact developing around either new applications or online electronic software versions of services that were not considered as software when looking at their offline versions (like mail for email). It is therefore often either value creation for SBSS or transfer of value from another industry, with generally some value destruction during the transfer from the other industry to SBSS.

However, online advertising could have at some point some value destruction effects, as players are offering on the web equivalent of paid services that were sometimes expensive. It is still difficult to measure on each application the impact, as delivering the software for free may attract new potential users that would have never paid for it. If the number of new users is significant enough, it may consequently attract advertisers that may pay more than the more limited base of users.

Generally, only applications with mass market potential can be monetized through advertising, meaning only a handful of the SBSS can be offered profitably this way, while niche applications will remain paid. In fact, revenues generated with advertising per user are very low which means that applications with high fixed costs have to be adopted broadly. Commodity applications with minimum fixed costs can also easily turn to advertising.

9.5.4. Competitiveness of Europe Usage/Market

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Europe is already significant market for online advertising, even though it is behind North America, where Internet has been adopted massively before and where advertising on the overall is a much bigger market. Advertisers in North America have indeed been quicker to shift to their budgets to the Internet. Europe is progressively closing the gap with the US market.

Europe benefits from its strong adoption of Internet and could even take some advantage of its deployments of high speed Internet, especially around FTTx, compared to North America or Asia (except Japan and South Korea). With more bandwidth, new advanced software-based services and new forms of advertising may emerge, allowing for new revenues.

The major difference between Europe and North America regarding the web and the online advertising is the adoption by SMBs which is higher in the latter case. SMBs in the USA are more likely to spend on online advertising to promote their products and their services.

Production/R&D

Most of online advertising revenues go to the United States since the three leaders of the global Web (Google, Yahoo! and Microsoft), which corner more than 70% of the market, are US-based.

Those three players offer the most popular online search engines and software- based services (Yahoo! Mail, MSN/Hotmail, Gmail, etc.) in the World and rank first in Europe among top Websites by number of visitors. The situation in Europe contrasts with Asia where some big local players enjoy leadership positions (Naver and Nate/Cyworld in South Korea, Sina, Baidu and QQ in China, etc.). There are only a few European players that are leaders on their domestic market, and only a handful of them have a true European or worldwide reach. Most of the innovation on the web (monetized with online advertising) is coming from the United States (and even generally from Silicon Valley or Route 128).

Online advertising also benefits mostly to market leaders, as there is a premium for leaders (more revenues generated than volume market share). European players suffer from the intrinsic fragmentation of the European market, which is more an aggregation of national markets. The only pan-European players are generally the

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US leaders. This leads to a situation in which winner takes all for a defined market (de facto monopoly) and encourage the existence of dominant players, around whom are organized ecosystems of small players.

Telcos could play different roles in the development of online advertising, directly by offering services and ad networks and indirectly by offering tools that could lead to enhanced ad performance or new advertising formats:

Some of them have implemented online audience strategies and top among most popular Websites in their domestic country. Portals from European incumbents generally rank in the top 5 for audience in their domestic market (e.g. in March 2009, Orange ranked third among most visited Websites in France with 19.4 million monthly unique visitors) and run their own ad network for their portal and for third party partner websites. This is true only in Europe, as US-based telcos portals are generally co-branded with those of Internet giants.

As Internet access providers, telcos could contribute to improve online ad performance measurement and analysis (which is key to convince advertisers to invest on the Internet), offering enhanced statistical tools and metrics for measuring audience and tracking online marketing campaigns. But such an ambitious project requires telcos to cooperate to define and propose common audience and performance standards.

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CHAPTER 4 ECONOMIC CONTRIBUTION

1. SSBS CONTRIBUTION TO EU ECONOMY

The size of the EU27 services sector excluding financial services (sections H, I and K) was in the order of 47 million employees in 2006, and generated production for a value in the order of €4 trillion34, almost half of this was value added at factor cost.

The sector of CARA35 (as measured by NACE Rev 1.1) accounts for 6% of employment in sectors HIK, this is more than 8% of its value added (Figure 23).

So that:

36 • In terms of employment , it accounts for 2.7 million employees (this is a similar size of the post and communication sectors, the support of transport activities or real estate activities37). 38 • In terms of value added , it equals €180 billion (this is a similar size of the support of transport activities, hotels and restaurants or land transport39).

These figures compare well with EC 2009 (using Eurostat labour force survey) where it is stated that in Europe, 2007, there are 3,776,900 IT professionals, or 2,269,200 Computer professionals (ISCO 213) and 1,507,700 Computer associate professionals (ISCO 312)40.

34 This is €4.3*1012. 35 The OECD also uses 7200, Computer and related activities (ISIC, Revision 3) as part of its definition of the ICT sector. OECD (2002). 36 Number of persons employed is defined as the total number of persons who work in the observation unit, as well as persons who work outside the unit who belong to it and are paid by it (e.g. sales representatives, delivery personnel, and repair and maintenance teams). 37 Sectors "63: Supporting and auxiliary transport activities"; "64: Post and telecommunications"; and "70: Real estate activities". 38 Value added at factor costs is the gross income from operating activities after adjusting for operating subsidies and indirect taxes. Value adjustments (such as depreciation) are not subtracted. 39 Sectors "63: Supporting and auxiliary transport activities", "55: Hotels and restaurants" or "60: Land transport/pipelines". 40 EC (2009): "The Evolution of the Supply and Demand of e-Skills in Europe". Draft synthesis Report – Confidential.

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Water transport Ê Research and development Ê

Air transport Ê Water transport Ê Research and development Ê Air transport Ê Renting of machinery and equipment Renting of machinery and equipment

Supporting and auxiliary transport activities Supporting and auxiliary transport activities Computer and related activities Computer and related activities Real estate activities Ê Hotels and restaurants Ê

Post and telecommunications Ê Land transport/pipelines Ê Land transport/pipelines Ê Post and telecommunications Ê Hotels and restaurants Ê Real estate activities Ê

Other business activities Ê Other business activities Ê

0 5,000 10,000 15,000 20,000 0 200 400 600 800 Number of persons employed (000) VA at factor cost (10^9)

Source: SBS Eurostat.

Figure 23: CARA contribution to EU27 economy (2006)

So, the CARA sector lies in the middle of the services sector in terms of number of employees and value added as measured by Eurostat's HIK sectors (Figure 24).

710.834 k74

VA at factor cost (10^9)

k70 i64

k72 i60 h55 i63

k71 i62 20.2138 i61k73

198.867 19386.3 Number of persons employed (000)

Note: h55: "Hotels and restaurants" i60: "Land transport/pipelines" i61: "Water transport" i62: "Air transport" i63: "Supporting and auxiliary transport activities" i64: "Post and telecommunications" k70: "Real estate activities" k71: "Renting of machinery and equipment" k72: "Computer and related activities" k73: "Research and development" k74: "Other business activities". Source: SBS Eurostat.

Figure 24: Employment and value added of different sectors (2006)

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Not surprisingly, the size of the CARA sector is very different across Member States, in fact, the top four Member States (UK, DE, FR and IT) account for more than 70% and 60% of total EU27 value added and employees, respectively in 2006 (Figure 25). The top seven countries account for 83% and 78%41.

600 50

40 400

20 200

0 UK DE IT FR ES NL SE PL HU BE CZ DK RO AT FI PT IE EL BG SK SI LT LV LU EE 0 UK DE IT FR ES NL SE PL HU BE CZ DK RO AT FI PT IE EL BG SK SI LT LV LU EE

Note: countries sorted by number of employees, descending. Source: SBS Eurostat.

Figure 25: Size of CARA in different Member States (2006)

Nevertheless, the contribution of CARA to the total economy shows a very different pattern, and for some countries (UK, SE, FI and IE) it contributes to more than 10% of HIK's value added. In terms of employment, CARA accounts for more than 7% of HIK's employment in the Member States of DK, FI, IE, IT, SE (Figure 26 where countries have been sorted by number of employees, descending, to make figure comparable to Figure 25).

41 According to EC 2009 LFS figures in 2006, the four largest countries, DE, UK, FR and IT, together come up with more than half (56%) of Europe’s IT workforce, and the seven largest employer Member States (adding ES, NL and PL) account for 75%.

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15 10 5 0 UK DE IT FR ES NL SE PL HU BE CZ DK RO AT FI PT IE EL BG SK SI LT LV LU EE

Employment (% of HIK) VA (% of HIK)

Note: countries sorted by number of employees, descending. Source: SBS Eurostat.

Figure 26: CARA contribution as a share of HIK (2006)

As seen, the contribution of CARA to the EU27 service economy is quite substantial, but more importantly, this has seen an important increase in recent years, both in terms of employment and value added (Figure 27).

Air transport Ê Post and telecommunications Ê Land transport/pipelines Ê Water transport Ê Renting of machinery and equipment Research and development Ê Hotels and restaurants Ê Supporting and auxiliary transport activities Computer and related activities Other business activities Ê Real estate activities Ê

0 20 40 60 Employees (%) VA (%)

Source: SBS Eurostat.

Figure 27: EU27 growth by sectors (2000-2006)

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In terms of both employment and value added growth, the CARA sector is among the group of sectors at the far right top corner of Figure 28, which means that the increase has been substantial in both of these measures (and not just one).

64.7037 k73

k70

k72 i63 i61

VA (%) k71

k74

i64 i62

h55

21.1366 i60

-3.82558 43.2102 Employees (%)

Figure 28: Employment and value added growth EU27 (by sectors, 2000-2006)

Finally, the increase experienced in the CARA sector has been quite different in the different Member States. In the period 2000 to 2006, SSBS employment grew more than 50% in DE, FR, and IT, while it doubled in ES (Figure 29).

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100

0 DE ES FR IT NL UK

Employees (%) VA (%)

Source: SBS Eurostat.

Figure 29: CARA growth by top 6 Member States (2000-2006)

2. SSBS CONTRIBUTION TO PRODUCTIVITY

A large volume of literature examining the links between the ICT sector and the economy has rapidly developed over the last ten years. There are much fewer studies analyzing the impact of SSBS on growth and productivity outcomes.

Without being exhaustive, the following paragraphs provide an overview of the main conclusions on the ICT impact on productivity. Previous studies of productivity growth have focused on the contributions of aggregate ICT investment (including computer, telecommunication and software) and have shown how this is a crucial driver of productivity growth, especially in OECD countries. For the purpose of our research, the findings of this review can be related to the SBSS as long as this is an important part of the ICT sector and their recent evolution has often been closely correlated.

Furthermore, the importance of software on these studies cannot be neglected, especially as some authors report that the share of software and computer services on US value added is about twice as large as the computer and telecommunication hardware shares combined (Jorgenson, Ho, Samuels, and Stiroh, 2007). In addition, software is also fundamental as it provides the crucial interface with the ICT investments that ultimately determine the improvement in productivity.

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Much of the literature is based on studies undertaken in the OECD countries and finds that ICT has made strong contributions to economic output and productivity. Economic output, or GDP, is usually determined by the level of inputs (usually capital and labour). Productivity (labour productivity or TFP) is the efficiency with which those inputs are transformed into economic outputs.

The literature has identified different mechanisms through which ICT contributes to economic growth and productivity (Pilat, 2004):

• Capital deepening • Technological advances • Increased efficiency from greater ICT use.

We will review the empirical evidence on each of these mechanisms, in turn.

Capital deepening

The renewal and replacement of existing capital stocks is crucial to enable innovation and new technologies to enter the production process of firms. Hence, ICT plays an important role in increasing the investment in overall physical capital (also known as capital deepening). It has been reported that several OECD countries experienced an overall increase in the growth of capital in the 1990s. Nevertheless, ICT has been the area where most dynamic investment took place. Often, it has been argued that this has been due to the steep decline in ICT prices over the past decades which has encouraged investment in ICT, at times shifting investment away from other assets (Jorgenson, 2001, 2003). Moreover, the continued decline in software and services prices has led to the substitution of software and computer hardware for other types of capital or labour services (Eicher and Strobel, 2007).

Several empirical studies have provided estimates illustrating very different contributions of ICT investment: for a number of large economies (G7 countries plus AU), ICT investment accounted for between 0.3 and 0.9 percentage points of growth in GDP per capita over the 1995-2002 period. The US and UK received the largest boost; while the impact was smaller in DE, FR and IT. Interestingly, the contribution of software to GDP growth has also been estimated and is reported between 0.26% (US) and 0.07% (DE) (OECD, 2003).

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Similar results were found in alternative studies. Jorgensen and Stiroh (2000) examined the contribution of ICT to GDP and productivity growth in the US over the period 1995–1998 and estimated the contribution of ICT to GDP growth at around 1%. In a different study, London Economics (2003) found that ICT capital deepening contributed 0.8 percentage points to GDP growth in the UK over the period 1992– 2000 (and 0.76 percentage points to labour productivity annual growth over the same period). In a more recent study, Oliner et al. (2007) concluded that the high growth performance observed in the US since the mid-1990s is best explained by investment in ICT.

Finally, the study of Eicher and Strobel (2007) shows that software-intensive industries are the crucial determinant of productivity growth in DE. The findings show that whereas investment in new equipment was about identical in software- intensive and non software-intensive industries from 1991 to 1995; for the period 2000-2004, investment in software-intensive industries expanded to generate over half of Germany’s productivity growth.

Technological advances

Investment in ICT capital stocks plays an additional role in the growth of labour productivity and TFP through technological advances. According to this argument, the rapid technological progress in the manufacturing of certain ICT goods and services (such as semi-conductors) has contributed to rapid price declines and thus to higher productivity and growth in real volumes (Jorgenson, 2001). The decline in software prices have also been exponential since 1960 which contributed not only to a substitution towards more software investment, but also to an increased productivity of ICT hardware (Eicher and Strobel, 2007).

There is also some evidence of a positive link between ICT investment and performance at a firm level. An important insight from studies is that the impact of ICT investment on productivity and growth can be enhanced by a number of complementary factors. For example, one study in AU showed a number of these factors includes human capital, firm’s experience in innovation, firm's use of advanced business practices, and the intensity of organizational restructuring (Gretton, Gali and Parham, 2003).

Increased efficiency from greater ICT use

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The diffusion of ICT may also have impacts that go beyond individual firms' performance through ICT networks, especially in ICT-intensive sectors (e.g. finance, business services and distribution).

In some countries (notably the US and AU) there is evidence that sectors that have invested most in ICT, such as wholesale and retail trade, have experienced an increase in overall efficiency. It is believed this is because these sectors have received productivity gains (from network effects) in addition to capital investment and labour productivity gains. According to this argument, the effective use of ICT would allow firms expand their product range, customize the services offered, or respond better to client demand, reduce inventories and to innovate (see Pilat, 2004)

References

Eicher, T.S. and Strobel, T. (2008). The Rise and Fall of German Productivity Software Investment as the Decisive Driver. CESifo Economic Studies, 54(3), 386- 413.

Gretton, P. and Gali, J. and Parham, D. (2003). ‘The Effects of ICTs and Complementary Innovations on Australian Productivity Growth’, Productivity Commission Staff Working Paper, Canberra. (Also published in OECD 2004, The Economic Impact of ICT: Measurement, Evidence and Implications, OECD, Paris).

Jorgenson, D.W. and Stiroh, K.J. (2000), ‘U.S. economic growth at the industry level’, American Economic Review, Papers and Proceedings, Vol. 90, pages 161- 68.

Jorgenson, D.W. and Stiroh, K.J. (2000), ‘Raising the speed limit: U.S. economic growth in the information age’, Brookings Papers on Economic Activity, No. 1, pages 125-211.

Jorgenson, D.W. (2001). ‘Information Technology and the U.S. Economy’, American Economic Review 91, no. 1 (March): 1-32.

Jorgenson, D.W. (2003). ‘Information Technology and the G7 Economies’, World Economics 44, 139–170.

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Jorgenson, D.W., Ho, M.S., Samuels, J.D. and Stiroh, K.J. (2007). ‘Industry Origins of the American Productivity Resurgence’, Economic Systems Research, Vol. 19, Issue 3, pp. 229-252.

London Economics (2003). “ICT and GDP Growth in the United Kingdom: A Sectoral Analysis”, A Report to Cisco Systems, April 2003.

OECD (2003). The Sources of Economic Growth in OECD Countries, Paris.

Oliner, S. D., Sichel, D. E. and Stiroh, K. J. (2007). “Explaining a Productive Decade”, Brookings Papers on Economic Activity, 1, 81-152.

Pilat, D. (2004). ‘The ICT Productivity Paradox: Insights From Micro Data’, OECD Economic Studies No. 38, 2004/1.

3. EXPENDITURES IN R&D BY LARGE SSBS FIRMS

As said, expenditures in R&D have been obtained from Eurostat's Scoreboard (for 2006). It should be noted that since the Scoreboard relies on R&D investment in published annual reports and accounts, it is likely that smaller companies are underrepresented in the figures.

ca ca cb cb da da db db dd dd de de dg dg dh dh di di dj dj dk dk dl dl dm dm dn dn e4 e4 f4 f4 g5 g5 h5 h5 i6 i6 j6 j6 k7 k7 k7221 k7221 l7 l7 n8 n8 o9 o9

0 10,000 20,000 30,000 0 5 10 15 R&D investment (mio €) R&D investment % of sales

Note: CA stands for: Oil & gas producers; Oil equipment, services & distribution / CB: Mining / DA: Food producers; Beverages; Tobacco / DB: Personal goods / DD: Forestry & paper / DE: Forestry & paper; Media / DG: Pharmaceuticals / DG: Personal goods; Chemicals / DH: Automobiles & parts / DI: Construction &

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materials; General industrials / DJ: Industrial metals / DK: Industrial machinery / DL: Electronic office equipment; Computer hardware; Electrical components & equipment; Electronic equipment; Semiconductors; Telecommunications equipment; Leisure goods; Health care equipment & services / DM: Automobiles & parts; Aerospace & defence / DM: Commercial vehicles & trucks / DN: Household goods; Leisure goods; Health care equipment & services / E4: Electricity; Gas, water & multi-utilities / F4: Construction & materials; Household goods / G5: Food producers; Support services; General retailers; Food & drug retailers / H5: Travel & leisure / I6: Industrial transportation; Travel & leisure; Fixed line telecommunications; Mobile telecommunications / J6: Banks; Other financials; Life insurance; Nonlife insurance / K7221: Software / K7: Computer services; Internet; Biotechnology; Support services; Other financials; General industrials / L7: Aerospace & defence / N8: Health care equipment & services / O9: Media; Travel & leisure; General retailers. Source: EU Industrial RD investment scoreboard.

Figure 30: EU R&D Expenditure by economic subsectors: total (MEUR) and as % of sales (2006)

Nevertheless, EU R&D expenditures reminds significantly behind other jurisdictions (especially with respect to the US), when measured in absolute terms and as per employee or as a percentage of sales (Figure 31).

15,000 40

10,000

5,000 10

0 US IL EU IR CA IN JP 0 R&D investment per employee (000 Û) R&D investment % of sales US EU CA IL IN IR JP

Note: CA: Canada; IL: Israel; IN: India; IR Islamic Republic of Iran; JP: Japan. Source: EU Industrial RD investment scoreboard.

Figure 31: R&D Expenditure in Software (K7221) by jurisdictions (2006)

The software sector has the potential to play a strategic role within the EU. The profitability of the sector (measured as profits as a percentage of sales) is the highest amongst small sectors (measured as market capitalization) and is only inferior to sectors that are larger in terms of market capitalization (CA - Oil & gas producers; Oil equipment, services & distribution; J6 - Banks; Other financials; Life insurance; Nonlife insurance; CB – Mining, Figure 32).

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36.7265 cb

Profits % of sales

ca k7221 e4 db da dg o9 n8 di dj i6 h5 dn dk de dl dd l7 f4 k7 g5 dm 3.74581 dh

59 736847 Market capitalisation (mio €)

Note: definition of sectors as per Figure 30. Source: EU Industrial RD investment scoreboard.

Figure 32: Sub-sector Profitability and size (EU, 2006)

4. INVISIBLE PART OF THE SOFTWARE INDUSTRY

In this study, we look only at the visible part of the software industry, i.e. the SBSS sector with a broad approach (licences, IT services, hardware, online). But we do not take in account software developments made within R&D departments of vertical industries, also called software intensive systems. It is still worth mentioning that software intensive systems represent a larger value than the software industry itself.

As a reminder, a software intensive system is any product or service whose functionalities are dependent upon software or even defined by it. By ‘dependent’ we mean simply that the product or service either would not function at all, or otherwise would function in a very different way without electronic systems operated by software.

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A software intensive system is a system where software represents a significant segment in any of the following points: system functionality, system cost, system development risk, and development time. Examples are numerous: an ECU (Electronic Control Unit) in a modern car, processing engine for digital or mobile TV. Software is much more than a simple production input or raw material.

To a large and increasing extent, software defines the attributes and functionalities of many products and services. Moreover, software can play a role not only in providing functionalities, but also in producing them. Much software is developed primarily for the purpose of increasing the efficiency and quality of production and distribution processes (e.g. simulators, etc.). There software intensive systems scope is larger than just embedded software, as it takes in account also software used only internally to develop another product.

The value of software intensive systems is therefore not accounted within the software industry but rather within the vertical industries themselves, as these types of software are mostly used internally (not sold) or bundled within products. The development of software intensive systems is key as Europe has sometimes more competitiveness in industrial and manufacturing sectors, which are not considered primary “software sectors”.

IDATE has been involved in the past (with TNO) on an evaluation of the software intensity in several vertical markets for ITEA. In the following, we provide an update on the vision of the software industry (SBSS) with a comparison with the software intensive systems. We follow the same methodology presented in the synthesis document (see link).

4.1. Estimates for 2007 There was already in 2007 a high level of software intensity outside of the SBSS industry.

Software WW market R&D level R&D Software 2007 size (share of expenses as intensity (Billion EUR) revenues) a (billion EUR percentage of total R&D

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expenses Aerospace 350 6% 39% 8.2 Automotive 1550 5% 27% 20.9 Consumer 195 7% 50% 6.3 Electronics Medical 193 11% 28% 5.6 Equipment Telecom 247 13.5% 57% 19 Equipment Automation 40 4% 12% 0.2 TOTAL 2575 60.3

Source: IDATE, based on estimates from ASD, Eucomed, BERR (ex-DTI), DataMonitor, AIA, ACEA, European Commission for market size and R&D level in vertical industries, and also R&D spending and revenues from top 5 players of each industry

Table 1: Estimates for 2007 of software R&D effort worldwide

In 2007, the total software R&D effort (whether developed internally, subcontracted or bought) in the six economic sectors is much larger than the corresponding effort from packaged software as a ‘producer good’. The 6 sectors spent 60.3 billion EUR in software R&D in 2007, which is more than double the software development expenses by packaged software producers (22.2 billion EUR). Even if we take the whole definition of SBSS and include IT services software, paid web-based services and advertising, the 6 sectors still have 60% more software development.

Software R&D WW market R&D level expenses as Software 2007 size (share of a intensity (Billion EUR) revenues) percentage (billion EUR of total R&D expenses Licenses 187 14.5% 82% 22.2 IT Services 400 5% 60% 10.8 Paid Web-Based 16.3 15% 90% 2.2 Advertising 17.9 12% 90% 1.9 TOTAL 621.2 37.2

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Source: IDATE, based on estimates from BERR (ex-DTI), PAC, European Commission for market size and R&D level in vertical industries, and also R&D spending and revenues from top 5 players of each industry

Table 2: Estimates for 2007 of software R&D effort worldwide

60.3 Automation Medical equipment 37.2 Advertising Automotive Paid web-based

IT Services Aerospace

Consumer electronics Software licenses Telecom equipment

Source: IDATE

Figure 4: Software R&D expenses worldwide from SBSS and the industrial sectors in 2007

ICT sectors have a stronger share of software intensity (in percentage) than the sectors such as automotive, aerospace or medical equipment are not classified as ICT, but are among the largest software developers. The amount spent in software R&D by these sectors is explained by the critical impact of software on each sector. It points out that, to a large and increasing extent, software defines the attributes and functionalities of many products and services. The existence of specific software needs has been recognised by large IT services companies, which developed specific activities by sector. Even packaged software producers (SAP, ORACLE) have an increasing effort towards industrial sectors.

Software impact on the six industries is already very strong, whether we look at the amount of software included in the product or at the tools to design or simulate it.

At the process level, software is key for a “dematerialised” design, making use of simulation and CAD tools (Computer Aided Design), which has proven to be faster

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and more efficient (time spent, money, testing…) especially for cars and airplanes. In automation, software contributes to increase productivity and decrease cost by using more sophisticated and integrated process control, obtaining decrease of power consumption or of downtime.

At the product level, software may be considered as a tool to manage the increasing complexity of new devices and networks, and also to hide this level of complexity as much as possible from the final user, in order to reach a level of complexity “acceptable to the user”. It is therefore a powerful tool for differentiation and innovation. Software contributes to manage the increase in complexity implied by a more interconnected world, and to answer the multiple requests for new functionalities. In airplane and automotive, it allows the exchange of information between the different types of control units. In consumer electronics, it is a key part of new devices.

4.2. Forecasts for 2012 The updated forecasts for 2012 show a strong global increase in the size of software development for all sectors considered, from 61 BEUR to 81 BEUR, even when taking in account the impacts of the downturn between 2008 and 2010.

Software R&D WW market R&D level expenses as Software size 2012 (share of a intensity (Billion revenues) percentage (billion EUR EUR) of total R&D expenses Aerospace 375 6.5% 42% 10.2 Automotive 1600 6% 31% 29.8 Consumer 200 7% 55% 7.7 Electronics Medical 350 11% 31% 11.9 Equipment Telecom 260 13.5% 62% 21.8 Equipment Automation 50 4% 13% 0.3 TOTAL 2835 81.6

Source: IDATE

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Table 2: Estimates for 2012 of software R&D effort worldwide

There is therefore an obvious evolution towards more software development in these sectors in the future, meaning that software development is a key and increasingly strategic factor for industry competitiveness overall.

In all sectors, R&D expenses, expressed in percentage of the revenues, will be stable, or in a few cases increase slightly. The software development increase will therefore be mainly the consequence of the increase of the percentage of software expenses in the total R&D budget. The growth is also related to the growth of the market size, but very marginally because of the downturn and of price pressure in some markets.

There will probably be some kind of upper limit to the percentage of software R&D expenses, compared to overall R&D expenses, but this limit will not be reached in the next 5 years except for some specific products.

Software growth is a general trend at the manufacturer’s level to differentiate its products or services. But it will also be pushed by (and will enable) a large number of societal requests from the end-users. In automotive, it provides answers to new regulations concerning road safety or protection of the environment. In Consumer Electronics, software provides benefits from the shift to digital while keeping product use as simple as possible. In aerospace, security and surveillance are key issues. The demand for medical equipment is influenced by an increasing patient population (aging population but also extension of lives of very ill people) and the focus on health care cost and preventative therapies. Software may represent 70% expenses for products like imaging.

This growth of software intensity will be more important in non-ICT sectors, as these sectors will begin to catch up with ICT sectors which are already well-advanced regarding software development. Nonetheless, ICT sectors will still keep their leadership on software intensity in the next decade.

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CHAPTER 5 SOCIAL CONTRIBUTIONS

1. INTRODUCTION

This part provides a first level of analysis of the current impact of software and services industry on social aspects in Europe and identifies the contribution of the European software and services industry to today European society. In essence, it provides a brief analysis of the role of software and software-based services in today’s EU society. This analysis is based on extensive literature that covers the subject. This analysis is also completed by the Policy Overview in Chapter 6 and will be completed during phase 2 and the interview process conducted with stakeholders and industry experts.

In order to structure this part, the Consortium proposes to focus on eight important domains in today’s society. The goal of this work is to present concrete examples of the role of SSBS in these domains: how SSBS improves the situation in these domains, what is made possible by SSBS in the current situation…

• Education • Security • e-Government • Optimisation of economic processes - the role of software in different economic sectors (competitiveness, productivity improvements, role of e- business and e-commerce…) • Transport / Mobility • Health • Sustainable development • e-Inclusion

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2. EDUCATION

One of the main keys to economic development and improvements in society is Education. As global economic competition grows sharper, education becomes an important source of competitive advantage, closely linked to economic growth, and a way for countries to attract jobs and investments. In addition, education appears to be one of the key determinants of lifetime earnings. Countries therefore frequently see raising educational achievement as a way of tackling poverty and deprivation42.

Today ICT – and the Internet in particular – play an important role in the education sector, especially in the process of empowering the technology into the educational activities. In many countries, the need for economic and social development is used to justify investments in educational reform and in educational ICT43.

In universities, ICT has a valuable contribution, especially in providing education to people who could not otherwise have access to it. New technologies offer a range of different tools for use in school science activity, including: tools for data capture, databases and spreadsheets, multimedia software for simulation of processes and information systems44.

Many European countries have now stated that the incorporation of information and communication technology into their education systems is a crucially important objective. E-Learning is the technology that enables people to be educated at any time and anywhere using online technology. e-Learning using new technologies is an innovative learning method.

Many software companies have significantly changed their products and/or business models in order to develop software applications aimed at improving education. E- Learning provides an increased flexibility and freedom for learners to choose their favourite software tools and software services that fit their personal needs to complement their personal learning environments. In education literature, there are many case studies and best practices on how to modernize teaching and learning processes.

42International Telecommunication Union - ICTs for education and building human capita 43 Brian Gutterman, Shahreen Rahman, Jorge Supelano, Laura Thies, Mai Yang - White Paper Information Communication & Technology (ICT) in Education for Development 44 Jonathon Osborne, King’s College London Sara Hennessy, University of Cambridge - Literature Review in Science Education and the Role of ICT: Promise, Problems and Future Directions

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In education the main challenge remains to ensure that new technologies are used to inspire students, to allow them to undertake activities that would not be possible without them. Lessons that make best use of e-learning technologies allow the students to better complete researches and to communicate and extend their learning. E-Learning covers best learning experiences, it allows collaboration, new ways of connecting with other people and allows pupils and teachers wider opportunities to engage with their work.

3. E-GOVERNMENT

In a modern society, characterized by continuous transformation driven by globalization, leveraging software solutions and IT services will certainly play a key role in this society’s future developments. In the public sector innovations in Information and Communication Technologies ICT offer opportunities for government agencies to increase the quality while reducing costs of their services, and at the same time improving the communication between citizens and government bodies45.

The development of E-government (e-gov) has great potential in transforming the operation of the public sector for greater efficiency and better delivery of public services to citizens. It can also improve significantly public bodies’ internal processes such as staffing, technology, processes and workflows – just as for any private organization. More importantly, e-gov aims at helping strengthen government’s drive toward effective governance and increased transparency to better manage a country’s social and economic resources for sustainable future development. E-Government should result in efficient delivery of services to citizens, businesses, government employees and agencies46.

According to OECD47, citizens and businesses around the world are increasingly demanding for Governments to deliver better services, but at the same time the

. NESSI Strategic Research Agenda – May 2009 – http://www.nessi-europe.eu/Nessi/Publications/NESSIDocuments/tabid/590/Default.aspx 2. United Nations e-Government Survey 2008, “From e-Government to Connected Governance” http://www.unpan.org/egovernment.asp 3. OECD, “E-GOVERNMENT AS A TOOL FOR TRANSFORMATION- March 2007 http://www.oecd.org

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Governments are facing dire financial constraints. The use of software in the context of governance and the foundation of an E-Government infrastructure offers the opportunity to examine the operations and procedures, identify the business processes and transform the public sector in a coherent system of public services. Software applications for: business process integration, portals and content management, web accessibility compliance, online service delivery, payment of taxes, fines and penalties, online applications and approvals, online permits and licenses, online billing and payment, citizen self-service, information delivery… can dramatically improve the interface between governments and citizens.

Government processes are in general very complex and out-dated. They can be simplified and improved by changing the concept of governance. Increasing the access to information in government processes can lead to a greater transparency, as computerized processes remove discretion and monitor potential corruption abuses48.

Around the World governments are moving forward in the development of E- government strategies and programs. In developed countries governments have made investments to move to a more integrated connected governance stage. At the same time, more and more developing countries are learning from past experiences, both positive and negative, of wealthier and more advanced economies and seeking to devise more endogenously nurtured models and approaches to E-government within their own jurisdictional boundaries.

4. HEALTH

Information and communication technologies have the potential to enhance the development of the health systems, by transforming radically the delivery of healthcare and disaster management. The development of ICT offer new opportunities in providing benefits to public health professionals, both in helping them carry out their job to their best ability and for their own personal development.

4. Patricia J. Pascual, Director for Research and Policy Advocacy of Digital Philippines, “E-Government” - May 2003

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Experiments using new technologies in health service and health status management for improving diagnosis and reduce costs have taken place in developed countries and suggest that almost all primary care could be provided by a physician assistant with support from computer-driven diagnostic tools and support systems. If these systems are implemented, the health system productivity can be improved, mortality rates can be reduced and the health care costs will be reduced substantially49.

The Internet has the potential to replace health clinics as it provides health information for personal use or for professionals that can be in touch with the latest news and research and communicate with other professionals. Today, one can find online and for free: Government publications and statistics, papers from many journals, up-to-date news from major media organisations and much more50.

Software applications provide tools to improve current practices and to develop new ways of working. An example is the CancerGrid51 project, a consortium of specialists in oncology and software engineering from UK universities that develops software for clinical cancer informatics. Another example of software used for research in cancer treatment is the University of Oxford’s eDiaMoND project. This project gathers and distributes information on breast cancer treatment, enables early screening and diagnosis and provides medical professionals with tools and information to treat the disease52.

Intel Corporation also developed software, named SOA Expressway, which is based on Service Oriented Architecture (SOA) and provides a cost-efficient solution to exchange healthcare information inside hospitals and with health information networks.53

Information and communication technologies continue to offer new opportunities to promote better health behaviour, to improve decision making, to promote information exchange among peers, for self care and professional support, and to

1 C.P. Chandrasekhar & J. Ghosh - Information and communication technologies and health in low income countries: the potential and the constraints 2 Karen Hughes, Mark A Bellis and Karen Tocque - Information and Communications Technologies in Public Health Tackling Health & Digital Inequalities in the Information Age - May 2002 51 http://www.cancergrid.org/ 4 The Royal Society - Digital healthcare: the impact of information and communication technologies on health and healthcare 5 New Intel Software Connects Health Networks, Enabling Key Data Sharing in Clinical - Settings http://www.intel.com/pressroom/archive/releases/20080421comp.htm

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enhance the effectiveness of health institutions. Innovations such as telemedicine, the use of new communication technologies like mobile phones and Internet for providing health information, consultation and support services revolutionize the way that people interact with health service providers.

5. OPTIMIZATION OF ECONOMIC PROCESSES

Note: This part can also be completed with the information included in the definition part of Application Software (page 28) that includes examples of the role that application software has in the companies’ and institutions’ processes by functions and business domains.

In the today’s global economy, the utilization of Information and Communication Technologies has an essential role for enterprises and administrations (cf. e- government part) to re-engineer their business models and practices and increase productivity and competitiveness. The integration of ICTs in businesses is considered as an acceleration factor for innovation, productivity improvement as well as an important tool for sustainable development and cohesion. The widest possible diffusion of ICT is therefore essential for enterprises to remain competitive. The rapid diffusion of the Internet, of mobile telephony and of broadband networks all demonstrates how pervasive this technology has become54.

Electronic business or e-Business can be defined as the utilization of information and communication technologies to support all the activities of business. This definition includes three mainstream e-business applications (a) commercial activities such as buying and selling products and services electronically, (b) business activities such as enterprise resource planning, customer relationship marketing as well as collaboration in new product development, and (c) social activities such as supporting social interactions and cultural enforcement55.

Electronic commerce or e-commerce refers to a wide range of online business activities for products and services. E-commerce is the use of electronic

1. ICT SKILLS MONITORING GROUP - E-BUSINESS AND ICT SKILLS IN EUROPE Benchmarking Member States Policy Initiatives 2. Int. Journal of Business Science and Applied Management, Volume 2, Issue 1, 2007 - eBusiness Maturity and Regional Development

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communications and digital information processing technology in business transactions to create, transform, and redefine relationships for value creation between or among organizations, and between organizations and individuals56.

E-commerce and e-business have increasingly become necessary components of business strategy and offer benefits for a wide range of business processes:

• Reduce transaction costs and thereby improve productivity • Offer immediate connectivity – voice, data, visual – improving efficiency, transparency, and accuracy • Substitute for other, more expensive means of communicating and transacting, such as physical travel • Increase choice in the marketplace and provides access to otherwise unavailable goods and services • Widen the geographic scope of potential markets 57 • Channel knowledge and information of all kinds

At the process level, software is also key for a “dematerialised” design, making use of simulation and CAD tools (Computer Aided Design), which has proven to be faster and more efficient (time spent, money, testing…). In automation, software contributes to increase productivity and decrease cost by using more sophisticated and integrated process control, obtaining decrease of power consumption or of downtime.

E-business applications are classified into several categories such as Business-to- Business (B2B), Business to Consumer (B2C), Business to Government (B2G), and Government to Citizen (G2C). The basic components of an e-business application are: the infrastructure, which consists of hardware and a communications network, software applications that manage e-business transactions and the type of e- business application58.

Companies use e-business software – also know as application software or enterprise software – mainly to improve their internal processes and procedures. However, the growing complexity of the industry is driving companies to adopt more

3. Zorayda Ruth Andam – e-Commerce and e-Business 4. William J. Kramer, Beth Jenkins, Robert S. Katz - The role of Information and Communications Technology sector in expanding economic opportunity 5. I.P. Vlachos - Agricultural University of Athens - e-Business Applications in the European Food & Beverages Industry: Managerial & Economic Implications

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effective solutions in response to new strategic challenges. To add intelligence and automation to the business process, companies began deploying Enterprise Resource Planning (ERP) applications that could handle customer information, material planning forecasts, pricing information, and so on. ERP systems typically attempt to cover all basic functions of an organization, regardless of the organization’s business. With the maturity of the ERP systems, new software systems have appeared in order to address enterprise domains not covered by ERP systems. These software systems, considered as a new generation following ERP are represented by two big components: Customer Relationship Management systems (CRM) and Supply Chain Management systems (SCM)59. These systems have expanded their presence in today’s business activities during this last decade, given the significant advance of information systems and technologies and the growing competition of enterprises in a global level.

6. TRANSPORT

Information and communications technology has introduced in the last years a great number of new technologies and innovations, including a wide variety of software applications that can influence the transportation sector directly and indirectly in a large number of ways. These innovations improve productivity and income distribution, support peoples’ quality of life and enhance the opportunity for people to make use of their potential. Moreover ICT infrastructure in transportation is an indispensable public device to allow for good governance and an important mechanism to help people enjoy cultural and humane lives60.

The Intelligent Transport Systems is the next step in the transport system evolution at national, European and international levels; it represents a large number of subsystems which are based on new advanced ICT technologies, including software, for transportation management. Advanced systems for traffic

6. Luis H. Bibiano, Alberto Caldelas, Enric Mayol, Joan A. Pastor Universitat Politècnica de Catalunya - COMPARATIVE ANALYSIS OF CRM AND SCM SYSTEMS IMPLEMENTATION APPROACHES

1. Transport and ICT: Making Infrastructure Pro-Poor - International Development Center of Japan – November 2004

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management, public transport, emergency management, electronic payment, commercial vehicle operation are increasing efficiency and security of the transport.

In Ports or at border crossing, software applications are playing an increasing role in the design of Customs modernization programs and transport facilitation measures. These software applications can reduce waiting time, secure processing of fees and simplify formalities.

The integration of software applications within the transport sector has been an important trend in recent years. As the complexity of logistics in transportation has been dramatically increasing – rising energy costs, global demand, and scarcity of resources – the demand for ERP, CRM and related software packages is growing61 strongly as companies are looking for innovative ways to optimize their transportation processes.

As the transportation market becomes very competitive and profit margins are under high pressure, transportation providers need to reduce costs and improve efficiency. This challenge can be overcome by the implementation of Transportation Management Systems software (TMS). Typically TMS include: planning optimization, shipment execution, performance measurement and management, carrier financial settlement. These features can deliver a competitive advantage to organizations by optimizing processes and reduce costs62. Software combined with new technologies such as RFID and geolocalization can indeed have a tremendous impact on the cost of tracking containers, optimizing delivery routes… saving on energy costs and being environmentally friendly!

In the air transport sector, as numbers of commercial and private aircrafts are constantly increasing, new efficient and accurate systems are needed to prevent accidents. Some projects funded under the European Union’s Sixth Framework Program, like ISMAEL, AIRNET, or SAFE-AIRPORT, aim at reducing the risk of accidents on the ground and during takeoff and landing63.

2. Capgemini Consulting - Capgemini throws light on software trends and solutions for the transport sector 3. Capgemini Consulting – Transportation Report 2007 – August 2007 4. ITC results - http://cordis.europa.eu/ictresults/index.cfm/section/news/tpl/article/BrowsingType/Features/ID/77794/hi ghlights/ISMAEL

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In Europe, many countries have allocated considerable resources for developing technologies and software applications for transportation systems, in order to enable a nationwide vehicle communications system to enhance traffic safety, mobility, and travel convenience while at the same time reducing the carbon footprint of a high- energy consumer sector.

7. SUSTAINABLE DEVELOPMENT

The first broadly accepted definition of sustainable development as the “development that meets the needs of the present generation without compromising the ability of future generations to meet their own needs” was presented at the report of the World Commission on Environment and Development in 1987 by G.H. Bruntdland. This concept is based on four dimensions: Ecological, Economic, Social and Cultural, dimensions that are strongly linked together.

Sustainable development describes an approach to planning and decision-making that aims at achieving a real and lasting reduction of social and economic disparities, as well as protecting the environment64. The goal of creating a sustainable world is a real and pressing one and will require changes in markets, in government policies, in individual and corporate behaviours, and very importantly, in technology solutions.

Information and communications technologies (ICT) have a major impact on today’s society and can facilitate many aspects of the modern life, improving living standards for all. New technologies and institutional innovations can make governments and companies adjust their future development strategy for a lower environmental negative impact.

ICT can facilitate speedy, transparent, accountable, efficient and effective interaction between the public, citizens, business and other agencies. ICT and especially the Internet can help the individuals, to improve the capacity of thinking

1.Sustainable Development Policy and Guide for The EEA Financial Mechanism & The Norwegian Financial Mechanism – 07 April 2006 http://www.eeagrants.org/asset/341/1/341_1.pdf

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globally, or how to interact with other groups in order to find, step by step, the best possible solutions for a more sustainable development65.

An increasing number of software companies are looking for solutions in order to develop and improve applications and services for monitoring and managing energy use and efficient utilization of the resources.

Free and Open Source Software has an important role in building information and communications technology capacity and bridging the digital divide, especially in poor communities. FOSS in the last years has positioned as a viable alternative to proprietary software in many areas of software utilization. The freedom to use, modify and distribute the modifications made to this type of software very attractive especially in poor communities. An example of this kind of software is AVOIR, which is an initiative that is concerned with the creation of a FOSS-based sustainable software ecosystem. With this, it hopes to be able to build ICT capacity and develop business opportunities for economic development in Africa66.

The software industry can also have a positive contribution on sustainable development, new applications are emerging and they will be able in the future to transform economies and cultures in order to put the society on the path to sustainability67.

8. E-INCLUSION

Information and communication technologies has a major contribution in education, public sectors, industry, culture, entertainment and supports our daily life in the digital society from today. Now new complex software applications and IT services are available and they can be accessed electronically through a range of devices, and also the use of internet and digital literacy programmes have progressed across all socio-economic groups.

. B. Kestemont and W. Hecq Université Libre de Bruxelles, CEESE - Information technology tools for sustainable development 3. Breaking Barriers The Potential of Free and Open Source Software for Sustainable Human Development - A Compilation of Case Studies from Across the World 4. Business for Social Responsibility – Software Accelerates Sustainable Development – August 2008

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In spite of these opportunities, there is a risk that awareness, skills, personal capacity, or trust can be significant barriers to some people who could benefit from these services and social exclusion will increase. For these people in society new technologies can help bridge this digital divide and improve their self esteem as well as enhance their participation in society, by promoting digital literacy to enhance e- skills and ICT job opportunities. Combating eExclusion aims at enabling all people to utilise the tools, applications and services of the Information Society, regardless of their age, gender or financial status.

E-Inclusion policy aims at reducing gaps in ICT usage and at promoting the use of ICT to overcome exclusion and improve economic performance, employment opportunities, quality of life, social participation and cohesion. In order to realise these objectives it is very important that the benefits of new software solutions and new technologies must be accessible for all. Inclusion is one of the pillars of the i2010 initiative on the Information Society, and is closely related to other European policies, namely on social inclusion, education and culture, regional development.

E-Accessibility ensures access to technology for people with special needs and disabilities, whether of a permanent or temporary nature, and by older people. E- Accessibility it is a crucial component of E-Inclusion and will became more important as the European population ages. This already high level of demand for eAccessibility solutions will increase substantially with the ageing of the population. In Europe in 2007 there were more than 33 million people aged 50 years or older with disabilities and it is expected that in 2050 to reach 46 million. In addition 69 million people aged 50 years or older have disabilities and it is projected to reach 94 million in 2050.

Online applications like eGovernment, eHealth, eLearning and eCommerce increasingly penetrate all spheres of life and their utilisation or non-utilisation can have an impact on people’s every day life, on market developments and on the society as a whole. These impacts can have both risks and opportunities in relation to eInclusion. On the one hand they have the potential to improve the quality of life of citizens, but on the other hand can put barriers and human isolation for some population groups.

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There are for instance examples where online services have been successfully applied to facilitate access to employment or to educational resources, like online learning platforms for illiterate people, or online services offered to low income households via alternative platforms like digital TV.

The goal of eInclusion policy is an inclusive Information Society for all. Now, new developments in technology provide Europe with the chance to turn the risk of a digital divide to a digital cohesion and bring the benefits of a knowledge-based society to all segments of the population.

9. SECURITY

The Internet in our modern society is transforming the way we live and is becoming the communications backbone of corporations. In the last years ICTs have been developed very fast, but along with the growth in technology has been also a growth in computing technology related crimes.

In order to build and maintain confidence on the infrastructures and systems among users, SME and corporate organizations, the government has a key role to play in research and education programs to maintain an overall secure information infrastructure ecosystem for society and business1.

As companies throughout Europe continue to make Internet technologies an integral part of their business, many will become increasingly vulnerable to security breaches. For corporate executives and information technology managers the demand for secure access to corporate information has become a high priority.

This demand for security solutions is due to the fact that the information transmitted over the Internet can be intercepted if security precautions have not been taken and intruders can install malicious software like spyware and viruses, intercept financial transactions, steal credit cards and access customer information, or steal business vital information68.

E-Security is the electronic security on the Internet, which ensures the confidentiality, integrity and availability of the user data. Security software can act as

1. Vijay Varadharajan - Submission for E-Security Review 2008 July 2008

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a barrier between network and Internet to prevent unauthorized access; it can protect user system by blocking viruses and offering protection against a wider range of threats69.

Software companies like Symantec, McAfee, Trend Micro, Panda, and ZoneLabs have developed software, such as Symantec’s Norton Utilities and McAfee’s antivirus (AV) and system security products, to protect computers against attacks on Windows vulnerabilities. They have become trusted brand names in a worldwide consumer antivirus market. Initially the business model was to sell stand alone applications for antivirus, firewall, anti-spyware and anti-spam; users were installing the software on their computers and periodically download updates. Now, the software evolved and more and more less user intervention is required, the updates are made automatically and threats are found based on their behaviour, not by searching for a piece of code that is known to be bad70.

Today, software also plays an essential role in the security of our society; with the increasing level of automation in critical infrastructures, software components are used more and more in safety-related and safety-critical systems. Applications for intelligent real time video monitoring and surveillance solutions for traffic significantly improve the safety and the security management of roadways, tunnels, bridges, intersections and also airports, railways and sea ports where security threats exist. In developed countries software applications are developed for understanding and evaluating the impact of a natural disaster or terrorist incident to national economy and security and to test the effectiveness of the emergency response plans71.

The Information and Communication Technologies (ICT) have seen rapid growth and development in the last several years. These developments have affected our business and society and security issues have become more significant. Now security is present in every part of technology spectrum, hardware, operating systems, middleware, wired and wireless and mobile networks, databases, applications and users; it is in every business like healthcare, transportation, industry, telecommunications and environment management.

2.Australian Government Department of Broadband, Communications and the Digital Economy - E- security for your business 3.Telecoms Infotech Forum - e-Security in the Broadband Age – March 2006 4. Georgi Kirov, Valentin Stoyanov - Software Architecture for Implementation of Complex Simulation Systems

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10. CONCLUSION: HORIZONTAL VS. VERTICAL APPROACHES

Previous analyses have shown two types of approaches in the computerization of the European society:

• A vertical approach: e-government, health, transport, education • A horizontal approach: e-inclusion, optimization of economic processes, sustainable development, security

10.1. The Vertical Approach of Computerization This approach is predominant in our society and is mostly realized in a “bottom-up” way.

Where software suppliers and end-users meet within companies and public organizations one can find solutions that are local and specific at the same time. Within these entities, one has witnessed the creation of a growing number of application silos mostly independents from each other’s.

On the other hand, there have been very limited top-down approaches that would have brought in a strategic vision of the role of IT within the entity, or even the vertical sector in question. This top-down approach requires setting priorities and defining the preconditions that will allow for these priorities and goals to be achieved at the lowest cost and in an optimized way.

This situation is particularly obvious in the public and health sectors.

Due to the political autonomy of each ministry, the IT programs and policies have been left to the responsibility of each minister. Moreover, since governance remains limited at the overall ministry level, each head of department has made their own IT choices. Thus, numerous IT silos have been established, each one working independently from the other, without taking into account the necessity of data exchanges between the individual departments of a ministry. They have all set up their own means of communication, including with external entities and citizens. As a result, the problem is not only the technological incompatibility and non- interoperability, which has of course resulted from heterogeneous solutions offered by different providers who have all implemented their own proprietary software. The

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absence of a common IT project within the ministry that sets long term goals and target priorities is an even bigger issue (cost reductions? increased service quality? satisfaction and protection of the citizens? 72)

This situation also prevails at an inter-ministry level, as there are no organisms at the government (Prime Minister) level taking into account the interdependences between administrations, and between administrations and their counterparts in Europe and the European Commission.

In the healthcare area, the situation is even more problematic when it comes to the computerization of processes at public hospitals, which has developed in a dual and most of the times counterproductive way within the hospitals with administrative management on the one side and the medical activity on the other. Each one of these two areas has applied its own IT policy; on average, there are about 50 different IT applications within a French public hospital, coming from various suppliers and covering the administration and medical / technical areas. The patients are not at the heart of this system and the fact that there is not even the possibility of integration between all these applications prevents any holistic care of the patients during their hospital stay. Accordingly, there is neither any risk management nor a way to improve productivity in these organizations.

Moreover, other issues such as cooperation between hospitals and the relations of a hospital with External partners: the local practitioners, emergency services, and other providers today only slightly profit from what could bring a thorough integration of all their IT systems73.

The vertical computerization approach, even if it remains a strong trend on the market, shows considerable limitations:

72 In France, a general reference system of interoperability (référentiel général d'intéropérabilité (RGI)) a 3-year project, has recently been released, but seems like a confession of powerlessness, since it imposes nothing that would facilitate this interoperability. 73 The NESSI platform, developed using open source technologies and financed by the European Commission, is an interesting operational solution, but how can it be massively implemented in foreign administrations in particular?

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• It is ill adapted when it comes to dealing with transverse issues, which appear in common areas of different vertical approaches. This is due to the lack of control bodies having the mission and above all the power to handle these IT governance issues (master IT plans at territory, sector, etc. level).

10.2. The Horizontal Approach of Computerization The Law of “Socialization”

Originally having had a very limited and sporadic influence on the functioning of society (accounting machines, calculators, etc.), IT has meanwhile entered all human activities, but has been for a long time mostly limited to the collective space (companies and public bodies). It is currently passing into an ultimate phase of development by invading the individual space: each individual has become at the same time target and driver of the IT process.

The fact that each individual has now the possibility to access IT, be it as a consumer or producer, is surely a positive development and a chance for economic and political democracy (e.g. communities such as Facebook).

However, the other side of the coin should not be forgotten: How can the individual be protected against the existing danger of turning this information into profit for large organizations, which control the entirety of the data given by the individual, and enclosing them within a system to make them passive prisoners (polemics on the right of usage of personal data brought online)?

The Law of Globalization

This law makes it necessary to question regional and national spaces to the advantage of a global space with the Internet being the only structuring element.

The problem is that there is no legislative or regulatory power for defining the basic rules for the functioning of this space.

The access and functioning rules of the Web are today in the hands of a private US American company. Yet a growing number of people request that this responsibility be trusted to an international organism such as the UN.

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In the absence of such an organization, the vertical approach of computerization will be blocked within certain political spaces (e.g. China controlling Web content) or some exclusive spaces (e.g. international media companies) whose ultimate goal is profit and not freedom of the individual.

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CHAPTER 6 POLICY OVERVIEW

1. POLICIES IN SUPPORT OF THE SSBS SECTOR

The European SSBS (Software and Software Based Services) industry as a major part of the European ICT industry ranks with such traditional pillars of the European economy as the pharmaceutical and automotive industries. Nevertheless one of the major concerns for policy-makers in the European Union has always been the persistent wide variation between Member States with respect both to the production of ICT goods and services and to the distribution of ICT application capabilities. Several European countries are situated at the forefront of ICT and especially SSBS development and application, but most have much less prominent positions with some lagging significantly behind the European average.

Although wrapped in the discourse of open markets, European policy historically (and somewhat curiously) has regarded ICT in general as having some of the characteristics of ‘merit goods’, i.e. goods whose socially optimal levels of production and consumption may not be met by the market alone (Stiglitz 1988). Within this development the support of the SSBS sector was a long time neglected field. In the 1970s and 1980s the support focused mostly on ICT hardware sector and in a wider sense on ICT systems sector. Software and especially Software based Services only became step by step since the mid-1980s and then boosted by the dot-com-boom in the 1990s a separate part within the ICT policies (Coopey 2004). In the European case, however, the ‘merit’ element has more to do with capability building and with the distribution of benefits than necessarily with failure of the market to provide ICT goods (David et al 1995).74 Similar perspectives are

74 David et al (1995) point out that with respect to European R&D programmes only some of the expectations of policy-makers concern benefits that are conventionally economic - involving the exploitation of scale and scope economies and positive network externalities by building-up a common European R&D base. Other expectations relate to broader socio-economic goals like enhancing overall European research capabilities, increasing the profile of European research in international research networks, and contributing generally to European economic development and social cohesion. All of these goals have strong merit goods orientations.

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shared by most Member States, thus setting up a potential ‘subsidiarity’ dilemma as to which policy actions might best be pursued at which administrative level.75 Especially with the recent accession of twelve new Member States (most of them ‘transition’ economies), the goal of encouraging reasonable parity in ICT production and use amidst such social and economic diversity presents arguably a much more significant problem for European policy makers than it does elsewhere.

Indeed, at present there is a limited amount that can be accomplished at the European level with regard to ICT industry policy. Beyond the EU Research Frameworks most of the scope for applied policy initiatives to stimulate industry competitiveness remains in the domain of national governments. Nevertheless, national government actions are restrained in that the EU Member States are subject to State Aid rules, which restrict outright subsidy of domestic industries.76

Moreover, the presence of a European level of industrial policy complicates the national policy environment significantly. For example (subsidiary rules notwithstanding), it is not clear at this point to what extent policies and policy-driven applied initiatives for the ICT industries that formerly were pursued at the national level may have been transferred to the European level. Amidst this uncertainty, it is an open question whether national policies have evolved in any coherent common directions or had any notable success. A clear sign for these complex interdependencies is the fact that most EU member states now pursue a national Information Society (IS) policy. These policies derive from or at least refer to the i2010 strategy of the EU, but still depend on the industrial as well political structure of each member state individual shapes and foci. Normally these overall policies address and integrate both the supply side (i.e. ICT or SSBS R&D or industry programs etc.) as well as the demand side (i.e. e-skills for user, broadband availability, etc.).

While these considerations only reflect the historical and organizational problems of policies in support of the SSBS sector in Europe, there is also a set of problems that

75 The principle of ’subsidiarity’ in the EU context is that there should be no duplication of resources and services between the national and European levels of administration (European Commission 1992). Specifically, European programmes should not substitute for programmes that could or should be funded at national levels. 76 The rules covering State Aid are laid out in Articles 87-89 of the Treaty. These articles do not set out a legal definition of State Aid; rather, they set out the principle that no national government measure can have the effect of conferring advantages on domestic enterprises over non-domestic ones. National aid schemes are legal only if approved by the European Commission.

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software itself present to every policymaker. On the one hand software and software based services seem to be a relatively low-investment industry with high growth rates and therefore an interesting field of development for many countries. On the other hand SSBS has become a crucial and beyond that a critical element for businesses and administrations worldwide, i.e. software (production, usage, and maintenance) has become a major factor of cost for administrations as well as for businesses all along the value chain from development, production, distribution to maintenance for all goods and services. Unlike other technologies that have the same significance the SSBS industry is a very dynamic one, due to several specific social, economic and technological characteristics (Hanna/Tessler/Barr 2003):

• The differentiation of the industry into various segments (as described by our definition), each of them with own methodologies, markets, actors, but also with fluid borders between them. • The layer principle, i.e. new software technologies and applications are often built on top of existing software “infrastructures”. Therefore a need for standardization and interoperability exist, which is often insufficiently implemented. • The skills required by each segment and layer have a very broad scope and vary extremely, so that it is difficult to address the needs of all of them. • The absence of cost-intensive production processes and at the same time low development cost, which can rapidly increase in later stages. This creates very fluid structure in the beginning, but as soon as the structures are stabilized it is hard to change it. • Most of the successful countries are only specialized on one segment like for example Japan on games, India on outsourcing services, Israel on exporting technologies or Germany on embedded systems.

This list represents only a few characteristics and is not exhaustive. It can be easily extended, though it is misleading to conclude a uniqueness of the SSBS sector out of them. For each of these characteristics you can find similar problems within other industries like the energy, automotive or aircraft industry. The peculiarity, not the uniqueness of the SSBS industry is the number of these characteristics and especially their dynamic interaction. The resulting volatile structure of the sector faces policymakers with some problems. In countries that already have a

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specialisation in a segment exist a tension between supporting them and simultaneously addressing emerging developments, which potentially can harm them, whereas in other countries the tension exist between building up general infrastructure and specialising on promising fields. Furthermore, all countries are faced with the problem that software as described above gained in high importance for all other industries. This creates a situation where these industries become more and more influenced by the dynamic developments of the SSBS sector. As a result of these policies in support of the SSBS and ICT sectors have to serve various, often enough contradictive aims in a volatile, risky and highly dynamic environment. This may also explain the absence of theory grounded approaches in opposite to other fields of technology policy.

Thus the following analysis has three simple objectives. First we will shortly discuss the problem of making a multi-country assessment of industries whose characteristics vary widely from location to location and make an outline to the research framework. Second we will present a synthesis of characteristics of EU member state policies in support of the SSBS/ICT sector. In addition we will try to contextualize this with observations from Non-EU countries. Third we will present analyses of policies from selected EU member states in these areas.

The empirical bases for our analysis were the documents on national policy, initiatives and support measures collected and presented by ERAWATCH and INNO-PolicyTrend.77 This information was complemented and updated by a survey among the ERAWATCH/PolicyTrend country correspondents and government officials.78

2. THE ANALYTICAL FRAMEWORK FOR ASSESSING NATIONAL POLICIES

The result of the already mentioned situation about most EU member states deriving and adopting their own Information Society Strategy is that none of the member states has a dedicated, stand-alone policies for the SSBS sector (see also Table x).

77 ERAWATCH: http://cordis.europa.eu/erawatch; INNO-Policy Trendchart: http://www.proinno- europe.eu/index.cfm?fuseaction=page.display&topicID=52&parentID=48 78 The analytical framework was partly derived from an earlier study for the European Commission (Friedewald et al. 2005).

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Instead of this they integrated programs and measures for it to a more or less wider extent into the overall framework of ICT/IS policies, which addresses both the supply side as well as the demand side. Therefore we are faced with the problem to analyse SSBS programs or measures with different degrees of specification within such an overall framework.

2.1. Overview of the policy areas covered In principle, the ICT industries could be supported with a wide range of policies. The most well-known and most embracing overview to this is provided by the Information Technology Matrix from Nagy et al. (1995).

Figure 33: Information Technology Policy Matrix (Hanna et al. 1995)

They differentiate between Generation Side (i.e. support development and production of goods and services), Bridging (i.e. facilitate relationships between producers and consumers) and Diffusion side (i.e. enhance use of goods and services) policies on the one hand and hands-on (i.e. encouraging of firms to follow governmental strategies) and hands-off (i.e. no specification of governmental strategies) policies. Moreover they also differentiate between IT-Specific (i.e. intended to raise production and/or consumption of IT goods and services) and IT-

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Related (i.e. not specifically intended at IT goods and services, but have influence on it) policies (Hanna et al. 1995).

A more generic, but for the purposes of this study also more reasonable approach is provided by the OECD ICT policy framework, which is based on the results of the Information Technology Outlook ICT policy development research.

ICT policies

Fostering ICT Increasing ICT Maintaining a healthy ICT Enhancing Promoting Innovation diffusion/use business environment the Infrastructure Trust Online

R&D Programmes Diffusion to businesses Competition in ICT markets Broadband Security of information Technology Transfer Organisational Change Intellectual Property Standards systems and networks Incubators and Innovation Professional/Managerial Rights Electronic Payment/ Privacy Protection Networks ICT Skills Trade and FDI Settlement Consumer Protection Provision of data, market Diffusion to households International co-operation General Network analysis & supporting studies and individuals Fiscal incentives Infrastructure E-Government Government Procurement

Figure 34: Taxonomy of ICT policies (adapted from OECD 2008)

Recent research (for example Hassanlou et al. 2009) as well as our own background research indicated that the most common policy instruments were oriented to foster innovation, increase diffusion and maintain a healthy business environment (basically inward investment policies). By far most of the policies identified were innovation policies.

2.2. Classification of countries In general, wide discrepancies between EU countries regarding ICT production and application make comparisons notoriously difficult. Some EU countries, like Austria or Denmark, have very high levels of domestic and industrial ICT and especially SSBS penetration, but are not otherwise significant as producers of ICT and Software products and services. Although our study was not about making national comparisons as such, it was necessary to examine the various European national policy environments in a contextual framework that accounted for different overall levels and types of engagement as well as the different structural relationships with the ICT and SSBS industry.

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Therefore we took several indicators gathered from different sources into account. This includes indicators from ICT Country Profiles in the Annual Report 2008 of the i2010 strategy like internet usage, e-business, indicators on growth of ICT sector (EUC i2010 Annual Report 2008)), from the Europe INNOVA ICT Sectoral Innovation System report like indicators on innovation performance (Europe INNOVA 2008), from the IPTS report on R&D investments in ICT (IPTS 2008) as well our own data on the SSBS sector as presented in chapter 4 Economic Contributions. Moreover, the classification also blends in more qualitative criteria such as the significance of national ICT producers in the ICT industry globally and the degree to which ICT production is concentrated in domestic firms (as opposed to inwardly investing foreign firms). To account for the resulting contextual differences, the EU Member States were classified into three basic groups:

Independents – States with a significant and established domestic ICT and SSBS producer segment that is capable of developing and/or providing most product and service requirements and that is a major supplier in both domestic and export markets. Countries in this group will have domestic firms that are significant players in a range of global markets. The ICT sector has a significant R&D intensity and a high Innovation Performance. High coverage with broadband infrastructure exists and internet usage within society, government and business is widespread.

Intermediates – States that are mainly importers of ICT and SSBS products and services (particularly goods), but that otherwise are substantial recipients of inward investment involving high levels of domestic value-added. Countries in this group will have significant independent production and export capabilities in selected ICT and SSBS product/service areas. The ICT sector has a significant R&D intensity and/or a high Innovation Performance High coverage with broadband infrastructure exists and internet and ICT usage within society, government and business is widespread.

Dependents - States that are mainly importers of ICT and SSBS products and services (particularly goods) and that receive mainly lower value-added ICT inward investment (manufacture rather than design). Countries in this group will have limited or no significant independent ICT and SSBS production and export capabilities. The states have in general lower broadband coverage and also usage of internet and ICT within society, government and business differs strongly.

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Using these definitions and synthesising the known market characteristics, the EU member states can be allocated roughly according to the following scheme:

Independents Intermediates Dependents

Finland Austria Bulgaria Luxemburg France Belgium Cyprus Malta Germany Denmark Czech republic Poland Italy Ireland Estonia Portugal Netherlands Spain Greece Romania Sweden Hungary Slovak Republic United Kingdom Latvia Slovenia Lithuania

Table 3: Classification of EU member states The value of this classification is that it can be used to construct hypotheses about how policy can interact in different national circumstances. It could be argued, for example, that many of the countries in the independent group could deploy a wide variety of focused policy instruments with relatively even chances of success. In contrast, the generally higher proportion of imports and inward investment in the structure of the ICT and SSBS industry in intermediate countries could make many policy instruments generally less effective for enhancing the competitiveness of the indigenous industry because of the heightened possibility that the benefits would be captured by importers and domestic subsidiaries of offshore companies.

Thus, we could expect that the policy tools with the highest intrinsic performance potential for dependent countries might well lie mainly in the field of innovation infrastructure and human capital development (especially entrepreneurship and technical skills). In these countries, available R&D funding is likely too small relative to requirements to increase the international competitiveness of domestic companies and the risk of benefit capture by importers is especially high. We might also expect that given the still significant merit goods perception that surrounds the ICT producer sector, we should expect to see substantial targeting of national policy initiatives specifically to foster this sector.

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3. SYNTHESIS REPORT

Given the fact that we focus on policies in support of the ICT and in particular the SSBS sector the first observation is that in the follow up of the implementation process of the EU i2010 strategy in 2005 a major change took place.

Because of the significance of ICT for the EU economy the i2010 strategy itself is one key element of the Lisbon Strategy. It pursues three major aims:

• To create a Single European Information Space, which promotes an open and competitive internal market for information society and media services, • To strengthen investment and innovation in ICT research, • To support inclusion, better public services and quality of life through the use of ICT.

Each of these aims includes several action fields that result in various measures such as regulation, funding for research and pilot projects, promotion activities and partnerships with stakeholders. Examples from the Single European Information Space are the promotion of the Internet of Things and IPv6 or the creation of broadband performance index. Within the aim of strengthen investment and innovation in ICT research measures like the European Technology Platforms, EU ICT standardization system or Joint Technology Initiatives are listed. The support for inclusion, better public services and quality of life encompass measures for eAccessibility, eInclusion, eHealth, Digital Libraries initiatives as well as ICT for sustainable growth. All actions are yearly monitored and reviewed by annual reports and a mid-term review in 2008. They describe, analyze and assess the development of the ICT sector and the Member States' progress in implementing their ICT objectives. Many of these actions are implemented under the guidance of the DG Information Society and Media, which has three main areas of activity: regulation, research and promotion of ICT use. Most relevant for the ICT/SSBS are the activities within the ICT work program of the 7th Framework Program. Beside the activities related to the European Technology Platforms and Joint Research Initiatives it encompasses seven challenges (1: Pervasive and Trustworthy Network and Service Infrastructures; 2: Cognitive Systems, Interaction, Robotics; 3: Components, systems, engineering; 4: Digital Libraries and Content; 5: Towards sustainable and personalized healthcare; 6: ICT for Mobility, Environmental

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Sustainability and Energy Efficiency; 7: ICT for Independent Living, Inclusion and Governance) and Future and Emerging Technologies (FET) Furthermore other activities like the introduction of IPv6 are supported by the development of an IPv6 Curricula. Other parts are implemented by DG Enterprise and Industry. Within their policy area ICT for Competitiveness and Innovation are six action fields with several measures exist: 1) key relevance of ICT, which is supported by the establishment of an ICT Task Force; 2) ICT uptake and e-business, where initiatives like e-business Watch asses the impact of ICT on firms or e-business readiness Index which measures the ICT uptake by firms; 3) European e-Business Support network for SME that support policy makers on EU and national level as well as innovative SME that can exchange good e-business practices; 4) ICT standardization that promote standardization work in support of EU policies and legislation; 5) E-skills for Competitiveness, Growth and Jobs, which developed an European e-skills Agenda; 6) e-invoicing that aims at developing a framework for an European e-invoicing system to help SME to reduce cost. Above that the DG Internal Market is responsible for the legal framework for goods and services, which includes for example the framework for e-Business within the internal market.

Following this development nearly all member states introduced Information Society or ICT programs, which address the demand side, i.e. users of ICT by training or provision of infrastructure, as well as the supply side, i.e. the ICT industries (producers) by R&D funding. The focus of these programs varies between the different member states for several reasons. One is the already described difference in production and application of ICT. Another reason connected to this is the existence of previous policies for ICT in different areas like innovation, ICT usage or ICT business climate policy. These are now often integrated within the new overall framework of IS/ICT programs.

Further reasons are the different needs of the member states in meeting the criteria of the EU. All this led to a broad variety of implemented programs. Another difficulty in researching policies in this area is raised by the tendency to more coordinated and integrated policy approaches. An example for this complex situation is illustrated by the case of R&D funding for SME in Germany. For this reason there is a horizontal program that is in principle available to several technology fields that cover a broad variety of industries. One of them is the ICT technology which is

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administrated under the framework of the IKT 2020 (ICT 2020) strategy. The R&D funding for SMEs in ICT itself that aims at improvements in electronic and micros systems, software and communication technology is open again to a number of specific industries including the ICT sector itself. All this makes it more difficult to research and classify the existing policies. Taking this into account we decided on a two-step approach.

3.1. First overview The first step should provide an overview. Therefore we classified the different national policies by means of the following criteria:

• Dedicated SSBS Policies, i.e. countries with stand-alone SSBS policies which is not included in an IS/ICT policy framework • IS/ICT – Policies o With dedicated SSBS programs, i.e. countries where dedicated programs or measures in support for the SSBS sector like programs for software engineering, R&D funding especially for SSBS firms, etc. o With SSBS related programs, i.e. countries where programs mainly, but not exclusively addressed to SSBS sector like managerial training for ICT professionals, entrepreneurship programmes or that have programs a direct impact on the SSBS like horizontal industrial programs for especially increasing the use of SSBS etc. o Without specific SSBS programs, i.e. countries with no programs in support of SSBS sector as well as no programs with direct impact on the SSBS sector. Mean there are only programs aiming at user trainings or increasing broadband availability, etc. o Non-ICT sector-specific Policies, i.e. country that mostly pursue only horizontal policies that are open to all industries.

The results of this analysis, which are shown in Table 4Error! Reference source not found., are not surprisingly. First of all none of the EU member states have a stand-alone policy for the SSBS or moreover ICT sector, because of the described implications of the i2010 strategy. In contrast there also only two countries, United Kingdom and Ireland, that only have horizontal policies. At the same time both

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countries demonstrate interesting polarities in the emerging horizontal dynamics of national ICT sector policy.

The Irish policy that has attracted so much ICT activity, especially software, and transformed Ireland in only a few years into one of the leading software exporters in the world, is essentially based on a national economic development and employment strategy that is open to any sector. Indeed, we were initially of two minds as to whether Irish policy, which is built almost exclusively on foreign direct investment, qualified as ICT sector policy at all. What orients the policy to ICT is the almost total domination of the scheme by the ICT industry. In effect, the Irish initiative is oriented to ICT producers by default.

IS/ICT Policy Non ICT- Dedicated with without sector SSBS with SSBS dedicated specific specific Policy related SSBS SSBS Policy Programs Programs Programs

Austria − x − − −

Belgium − − x − −

Bulgaria − − − x −

Cyprus − − − x −

Czech − − x − − Republic

Denmark − − x − −

Estonia − − x − −

Finland − x − − −

France − x − − −

Germany − x − − −

Greece − − − x −

Hungary − − − x −

Ireland − x − − −

Italy − − x − −

Latvia − − − x −

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Lithuania − − − x −

Luxemburg − − − x −

Malta − − x − −

Netherlands − x − − −

Poland − − x − −

Portugal − − − x −

Romania − − − x −

Slovakia − − − x −

Slovenia − − − x −

Spain − − x − −

Sweden − x − − −

United − − x − − Kingdom

Table 4: Initial Classification of Policies in EU member states

This implicit tendency towards an IS/ICT policy became reinforced by the fact that Ireland adopted and implemented two strategies, Implementing the Information Society in Ireland (1999) and New Connections (2002), that aimed at demand side factors like eGovernment, eSkills and similar targets. This will be continued with the forthcoming new action plan for the knowledge society and eGovernment. Meanwhile also within the overall National Development Plan (NDP) actions were taken in support of the ICT/SSBS industry for example with the establishment of the Science Foundation Ireland that explicitly address R&D funding for public private partnerships. This tendency becomes now explicit by the newly introduced “Best Connected”-Strategy, which is a Software Strategy within the NDP and the forthcoming new action plan for a knowledge society. The UK case is very different, reflecting more a particular philosophy of industry support. UK programmes are normally completely horizontal and concentrate much more on supporting overall industry competitiveness than on supporting any particular sector. Moreover, technology development assistance is available mostly in the form of technology transfer programmes that seek to link industry with basic and applied research in

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universities. Thus, although within such programmes as LINK and the Faraday Partnerships there are many consortia specifically concerned with Software, there are similar consortia under the same initiatives that are involved in many other technology and industry segments. Many of these involve the integration of Software into products not associated with the ICT sector as such. In the follow-up of the i2010 strategy the United Kingdom now start to change this situation with the adoption of the “Digital Britain” strategy. The final report of the consultation and decision process was adopted in June 2009, but the concrete implementation is pending.

All other member states have a policy agenda that refer directly to the i2010 strategy in form of a coordinated IS/ICT strategy or at least policies with a comparable scope. Therefore classification within this field is quiet problematic, because of the fact that the IS/ICT policies combine a lot different programs. They can address or have impact in a lot of ways. As described above, we tried to differentiate between directly addressed programs, programs with direct impact and programs with only indirect or no impact on the SSBS sector. Most of the countries that have IS/ICT policies with dedicated SSBS programs are as maybe expected classified as Independents. Examples are the VERSO program in Finland or the THESEUS program in Germany, which aim at R&D for the Internet of Services. These countries also often have additionally programs with strong SSBS related parts like programs for IT security or embedded systems. On the other hand it is obviously that most of the countries classified as Dependents pursue IS/ICT policies without specific SSBS programs. They mostly aim at improving demand side factors like the availability of broadband, the education in ICT use for people. Often they also aim at improving E-Government, E-Procurement for public authorities or similar applications, which often only have an indirect impact on the SSBS sector. In some cases there are also programs for increasing E-Business/Commerce in the private sector, but this has as long as there are no specifications for addressing or at least including local SSBS producer also only indirect effects.

This mark a more or less soft border to the countries that pursues IS/ICT policies with SSBS related programs. One example is the case of the Czech Republic, which is also a Dependent, where the ICT and Strategic Services program was established. This program is in general open to all industries, but due to the focus

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on software and services it attracts mostly SSBS companies. In general the scope in this section covers most of the Intermediates and some Independents as well as some Dependents. Like the case of the Czech Republic showed that there is a soft border on the lower side, the argument is also valid for the upper side. But most interesting are the cases of the Intermediaries that are mostly located here, because the reasons to sort them in this vary strongly. There are cases like Spain, where within the Ingenio 2010 program several sub-programs exist that have an horizontal character, but which are because of the general aims of the Government concerning IS strongly focussed on companies in the ICT and SSBS sector. In opposite there is the case of Denmark, which is rated as one of the leading countries in ICT use, although it has no big local ICT and SSBS sector because of its historical development. Therefore most of the Danish policies are non-sector specific, horizontal activities, but in small High-Tech areas, where the country holds niche positions, selected single initiatives are carried out.

In general there is the first observation that in the last years the number of policies directed specifically at ICT or even more particular SSBS producers has increased. Because of the character of ICT and SSBS as basic technology most of the initiatives aim not exclusively to them, but rather at all industries with a high impact by ICT and SSBS. Therefore it is complicated to identify policies and programs unambiguously. Indeed, the major focus of most ICT policies throughout the Member States is to stimulate and/or aggregate the demand for ICT and SSBS products and services and not to support the competitiveness of ICT producers or even special segments of this like SSBS producers directly.

Furthermore there was ambiguity as to what constituted a strictly national initiative. The obvious example concerns participation in the EUREKA programme. Although approved and sanctioned at a European level, participants in EUREKA projects are funded directly by national governments. It might be argued that EUREKA is composed of many R&D programmes that formerly were or would have been funded as national initiatives. However, the internationally collaborative nature of EUREKA sets its projects apart from what normally would be pursued at national levels.

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3.2. Analysis and key findings Maintaining a strict producer orientation leads directly to the before described difficulty that many initiatives, which were significant to domestic ICT/Software producers were not directed only at one industry. Indeed, we could identify four main policy modalities that were all relevant to ICT and SSBS producer sector initiatives:

• Vertical initiatives which have exclusive orientation to the ICT sector including programs specially orientated to the SSBS industry (S), • Vertical initiatives which have an exclusive orientation to the ICT industry (V), • Quasi-horizontal initiatives are oriented to the SSBS/ICT industry as part of a cross-industry innovation framework (Q), • Horizontal initiatives are available to any industry on the same terms (H).

Therefore we analysed in a second step a selected set of representative EU member states out of the three country groups. Aim of this analysis was to identify relevant policies in support of ICT/SSBS corresponding to the taxonomy of the OECD (figure x) and classify them along the four main policy modalities.

Nearly all of the countries that are classified as Dependents introduced an Information Society Strategy in the recent years, but mostly this aims at improvements of the demand side. Most notably are measures to increase the broadband access or even access to the internet, raise the number of regular users or improve basic knowledge on using ICT. Most of these activities are also co- funded and therefore initiated by the EU and their structural fund f. e. in Slovakia as well as from other international institutions like the Worldbank in the case of Romania. In general the policies to improve ICT infrastructure address all industries, not only the ICT or SSBS sector. Moreover most of the countries implement program to increase the diffusion and improve the use of ICT in business. Within these programs there are notably differences. On the one hand there are countries like Slovakia or Greece that pursue this policy with the aim first and foremost to modernise existing industries. Another set of countries within this group like the Czech Republic put an emphasis on ICT and in particular on SSBS producers either by addressing topics related to SSBS industry or by implementing programs that attract mostly, but not exclusively ICT and SSBS producers. This is often especially

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reflected in R&D funding schemes. Within this policy field are also most of the measures based that are directed mainly or in some cases like Poland with its Strategy for the Electronic Industries foremost towards ICT producers and related fields, but there are no programs that address SSBS in particular. All other initiatives and programs that are aimed at maintaining a healthy ICT/SSBS business environment like attracting FDI or according tax incentives are horizontal, i.e. they do not address on sector in specific. This is surprisingly given the fact that some countries like Romania mention the especially the software industry as a possibility to create economic growth because of its low start investments. The only great exception in this area seems to be Malta that already implemented the second national ICT strategy. The Maltese government tries to attract foreign companies, especially Indian ones, to use Malta as hub to Europe. Therefore a lot of measures like increasing the skilled labour force, infrastructure or use of ICT in all areas, but especially in government and business are implemented. Similar, but often less advanced programs to improve infrastructure can be also found as already mentioned in the other countries. Although if this is a well formulated and implemented strategy, it is not fully clear if especially the measures to improve the business environment are exclusively directed at the ICT/SSBS sector or not foremost open to other sectors like financial services or other high tech sectors. A little bit different is the case of Luxembourg, which was not reviewed in depth, where it seems that the government successfully tries to establish the country as a hub for data centre services. As far as we can see this strategy is foremost based on horizontal policies.

As a conclusion we can state that nearly all policies in the group of the Dependents can be characterised as horizontal (H). Only a few countries have within the policy fields of fostering ICT innovations (most notably R&D funding and incubators or networks) and increasing the ICT diffusion quasi-horizontal programmes, but some of them have such quasi-horizontal policy in the field of maintaining healthy ICT business environment (f. e. Malta).

A little bit more difficult is the situation in the group of Intermediates. In general this group is characterised by the fact that they all have an ICT sector of considerable size, but the sector is often split up. Most of the bigger companies within the sector

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are subsidiaries of multinationals companies that operate sales and support as well as development facilities. Therefore most of the countries are highly dependent on further Foreign Direct Investment (FDI). The other part of the sector mainly consists of small local, but innovative companies that are foremost active in the SSBS sector. Furthermore they all have in common that they strongly support the diffusion of ICT in all areas by different measures like e-Government programs, skilling work force or the diffusion of ICT in business, although the level of diffusion is already high in each country as it is stated by the e-readiness Ranking (e.g. DK 5, AT 10).79 One example is the use of eIDs, where most of the Intermediaries are forerunners in the EU80. Another element of their policy is to maintain a general healthy business climate that aims at attracting foreign direct investments. Here the group starts to differ. Officially all countries pursue horizontal policies in this field, but in reality there are discrepancies. For example Ireland officially follows a strict horizontal policy to attract FDI, but as mentioned before the programs nearly exclusively attract ICT and especially SSBS producers by default. Other countries like Denmark or Austria set clear preferences for attracting FDI from specific high technologies like biotechnology or medical instruments, nanotechnology but also ICT with a focus on SSBS. The variety increase when it comes to policies for fostering innovations. While Austria and Spain have R&D funding programs that clearly addresses high tech industry, the implemented sub programs are directed towards a specific sector including ICT/SSBS, i.e. the programs are at the borderline between quasi- horizontal and vertical programs. Ireland and Denmark officially run programs that are not specifically addressing single sectors. But in reality there are tendencies to focus on them. Either by default (Ireland) or by other measures that support specific industries, for example the establishment of research centres for ICT and software and as a consequence the allocation of resources.

Summarising, we can state that the group of intermediary countries have a general focus on horizontal initiatives. As in the dependent countries there is a strong focus on mostly demand side initiatives in support of improving infrastructures, but on much higher and more successful level than the dependents. In the field of

79 See Economist intelligence Unit/IBM (2009): E-Readiness Report 2008, http://a330.g.akamai.net/7/330/25828/20080331202303/graphics.eiu.com/upload/ibm_ereadiness_200 8.pdf 80 For example they all participate in the STORK project that aims at interoperability of eID, see http://www.eid-stork.eu/.

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maintaining healthy business environment there are mostly quasi-horizontal measures that address ICT and especially SSBS as one major target, although some of these programs are officially non-specific horizontal programs. This tendency towards more focused policies increases in the field of fostering innovations by implementing nearly vertical, often quasi-horizontal programs.

The countries that are classified as Independents are also difficult to generalize. The main reason for this is the size of their economies in total as well as the size of their ICT sectors. As a consequence there are a lot of initiatives that support ICT and SSBS sector in different ways. In general they also pursue a big variety of mostly demand side oriented horizontal programs to increase the diffusion of ICT in all sectors (private, business, administration), but especially within the administrative sector are some tendencies to enforce the use of OSS. This often doesn’t take place on the national level, which was the focus here, in contrary to an intermediary country like Denmark. In the policy field of providing a healthy business environment the countries pursue clearly horizontal programs, which is opposite to the groups of dependent and intermediate countries. We guess the reason for this can be traced back to the fact that most countries have strong ICT/SSBS or other high technology sectors with major local actors like SAP or Nokia. Therefore it seems that they don’t see a necessity to implement quasi-horizontal or even vertical programs. Within the field of fostering ICT innovations we can also state a development towards more focused programs, what coincide with the development in the other groups as well as with the European level. In detail this is the field with broadest variety within the group members. Finland and especially Germany increased the number of especially SSBS focused R&D funding, other countries like the Netherlands have less of such highly specialised programs. They mostly try to cover the sector as a whole. Above that each country seems to favour areas where the major national players are active. Most of the other subfields like technology transfer or Incubators and clusters are horizontal programs. Only in the programs for provision of market data and further analysis exist at least as quasi-horizontal programs as surveys of high tech sector developments. In some cases like Germany exist also a specific survey with a focus on the ICT sector. A step further is Finland which runs a yearly report on their software industry, which also allows to identify developments and to set up clear goals as it is done in the VERSO program.

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3.3. Discussion of the findings Whether by design or default, the primary modes of policy intervention at the national level are still horizontal and foremost demand oriented activities.

Country Groups Policy types Indepen- Interme- Depen- dents diates dents R&D funding S/V V/Q H Technology transfer H H Q Foster ICT Incubators and H Q Q Innovation innovation clusters Provision of data, Q/V Q H market analysis and supporting studies Professional/Managerial H Q Q ICT Skills Increase ICT Diffusion to businesses, H Q Q diffusion/use households and Individuals E-Government H H H Maintaining a Fiscal incentives (e. g. H H H healthy ICT tax credits, VC business schemes, deferrals) environment Trade and FDI H Q Q General Network H H H Enhancing the Infrastructure Infrastructure Broadband H H H

Table 5: Distribution of policy modalities per country group and policy type

Most of analyzed policy initiatives were of the horizontal and quasi-horizontal type that spanned sector boundaries. Many were aimed at integrating ICT goods and services into various social and industrial contexts. This is perhaps not surprising given the intermediate goods characteristics of ICT. We hasten to add that this observation does not imply necessarily a reduced overall spend on software-related activities at the national level, merely that policy-driven activities that once may have been mostly associated with ICT producers are now becoming integrated into a much wider scope of industrial policy initiatives. In most countries ICT and software

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are now important elements of broader industry policies and programmes. In some cases (such as Germany or Finland, even the United Kingdom), however, software related issues even constitute the central element of these activities.

However, because of the i2010 strategy of the European Commission we expected changes within the national policies. Therefore the raise of vertical programs in the group of the independent countries was no surprise, but the widely lack of vertical initiatives in support of the ICT (V) or more particular SSBS (S) sector in the intermediate and dependent country groups was unexpected. At least there are some signs within the group of the intermediary countries that this situation is in flux. The focus in ICT/SSBS sector policies on R&D funding and other initiatives for fostering innovations seems to mirror the development of the EU level, where a significant raise of resources for this kind of activities took place. Nevertheless, most of the initiatives we identified that were oriented mainly to building up the ICT or in particular the SSBS industry – i.e. in areas like skills, technology transfer, incubators and business/entrepreneurial support – were found to be targeted more specifically to ICT or SSBS producers if they were implemented in the intermediate and dependent groups.

Given that most European governments put great emphasis on the importance of being able to attract inward investment, it is somewhat surprising that more countries (particularly in the intermediate and dependent groups) did not exploit employment, inward investment, fiscal and non-fiscal policies to a greater extent. Inward investment strategies exist in all country groupings, but no overall preference for this strategy could be found in the independent and dependent groups. The clear exception is Ireland, whose industry policy portfolio is structured largely around inward investments. Even including Ireland, however, no inward investment programmes were found in any of the countries that were targeted specifically at ICT; all were horizontal or in some exceptions quasi-horizontal initiatives.

In a nutshell, there is no EU member state that has set up a national software strategy or implemented instruments specifically for the software sector. However, there is also the question to which extent the countries reflect current and future changes in the SSBS sector.

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3.4. Policies in support for Emerging Technologies and Businesses in the SSBS sector Based on the substantiated assumptions (e.g. Sharpe 2009; and analyses from PAC and IDATE in Part 2 of this document) that the software and software based sector undergo major changes at the moment and even more in the coming years, the analysis focused also on policies that react on this development. Although most of the relevant issues like the Future of Internet or Software and Services (SaaS, SOA, Cloud/Grid Computing, OSS) are covered by the ICT work programme within the 7th FP of the EU, we expected that the different member states would take these developments up and start own initiatives in form of policies or programs. Until now only a few numbers of countries did this, but it might be that some countries run single projects in this area. Examples for such programs are the VERSO program in Finland, the semantic systems and services program within the FI-IT in Austria or the Internet of Services program in Germany. Smaller activities are the enforcement of OSS use by state procurement programs like in Denmark or in France or similar activities like use of open standards in eGovernment.

All activities at the national level of the member states as well as at the EU level have in common that they are directed at R&D funding, i.e. the development of basic technologies in this field. So far there are no programmes in excess of this that address the corresponding changes in business like trainings for managers in SSBS sector, stimulation of investments (seed capital) or similar. In principle this doesn’t implicate a general problem because most of the initiatives that aim at increasing the ICT diffusion like procurement policies, fostering innovations like incubators or maintaining a healthy business environment like fiscal incentives can be also used to speed up the development of emerging technologies. Therefore only the aims, but not the policies have to be adjusted (Rammer 2009). However, a problem in this context is that in most EU member states these policies have a low performance for matured technologies. Because of this it seems not justifiable to believe this will be different for emerging technologies. Another problem is that some of the measures or policies that are necessary to enforce the business development have to be implemented on EU level or even above that like data protection or the alignment of regulations on services.

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Finally we have to state that only small number of Independents or Intermediates’, which already have a strong SSBS sector or even single SSBS producers, launched broader activities in form of policies or programs. In opposition to this it is obvious that most of the Dependents did not do this, though many of them formulate the SSBS sector as being an important area of growth due to low investment requirements (Hanna/Tessler/Barr 2003). It is also not clear to what extent these member states can profit from the ongoing EU programs. Furthermore it is obvious that these programs have focused on the technological aspects these major evolutions, while the business side of it is for several reasons neglected. Due to this there is the risk to be in the forefront of technological development, but fail to commercialise it, which is often considered as a problem for the European Innovation System (Wessner 2004).

One reason for the lack of developments in business is as already mentioned, i.e. the need of international developments for example in the internet of services. This includes standardization and interoperability as well as data protection issues. Therefore, but also for more general reasons it is helpful to give an impression on the developments outside of the EU.

3.5. Policies in support of the SSBS sector outside Europe In order to contextualize the development in the EU member states by a comparison with other countries we selected a set of countries that for different is reason seemed promising. Firstly, countries that can be considered as Independents in ICT like the US or Japan. Secondly, countries with an emerging SSBS sector like India and China as well as a small, but highly specialised country like Israel. Thirdly countries like South Korea that put emphasis on the development of an Information economy and especially a software industry.

Most obvious, but also difficult to compare is the case of US. On the one hand there is the tradition of the US government not to pursue sector specific policies. Similar to the case of the United Kingdom or Canada (Capgemini 2006) the policies are more aimed at providing a general business friendly climate, providing well-educated workforce, maintaining infrastructure etc. There are also several horizontal programs for R&D funding like the Advanced Technology Program (ATP), which is

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implemented by NIST81, as well as a strong, mostly defence driven state procurement especially in the field of ICT and SSBS. There are also several other activities that aim at legislative aspects like IP rights. In general the great variety of public as well private initiatives and partnerships are considered to be one of the reasons of the dominance for the American software industry worldwide, because of its ability not only to develop but also to commercialise new technologies (Wesson 2004; NAS 2007).

Completely different is the case of Japan. Traditionally Japan is considered to be one of the leading countries in ICT. While Japan had big share in the ICT goods (computer hardware) sector, the software industry never managed to succeed internationally (e.g. Kim/Choi 1997). Only in computer and video games Japanese producers reached a position that was equivalent to the one of the computer hardware industry. In the course of the internet boom Japan started to centralise the activities in the field of ICT in 2001 by introducing an IT Strategic Headquarter, which is attached to the office of the prime minister. The task of this institution is to establish a coordinated ICT/IS policy. This led into a subsequent series of programs of which the 2006 introduced New IT Reform Strategy is still running. It has three major aims: 1) The Pursuit of IT Structural Reform Capabilities; 2) Development of IT Infrastructure; 3) Provision of Valued Information to the World. Each includes several sub targets and each year there is a Priority Policy Program that set targets for the development of the strategy.82 The concrete implementation of programs and measures is task of two ministries, MEXT (Education, Sports, Science and Technology) and METI (Trade, Industry, Economy). With a view to policies in support to SSBS sector there are programs within the METI that support the development of the SSBS industry. The programs focus on R&D funding, Education and IP rights. The programs of MEXT focus more on Information and Knowledge Society as a whole. Because of this Japan seems comparable to European Independents like Germany.

While Japan was a successfully competitor in the hardware sector, India failed to build up an own hardware industry in the 1980s. As a consequence the focus shifted towards the development of software. After the liberalization of India’s

81 See http://www.atp.nist.gov/ 82 See http://www.kantei.go.jp/foreign/policy/it/index_e.html

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economy in the late 1980’s, which had is turning point in 1991, the SSBS sector of India underwent a major growth, which was mostly export driven. The foundations were laid by the New Computer Policy in 1984 that establish Software Technology Parks and the Export Council for Software as well as by enforcing education and quality measures like the Capability Maturity Model. This part of the development of India to one of the world leading countries in export of software goods and services and their impact on other countries is well researched (e.g. Arora/Gambardella 2004; ACM 2006, Carmel 2003). The raise was also boosted by tax incentives, provision of infrastructure as well as other governmental initiatives to improve infrastructure as well education and research for example by establishing several national centres for Information Technologies with the focus on SSBS. In general this policy aimed at both, attracting Foreign Direct Investments in form of facilities for major multinational companies as well as to build strong, local players. The basis for this is provided by the IT Act 2000, which is carried out by the Ministry of Communication and Information Technology. Within the ministry the Department for Information Technology is responsible for the development of the SSBS sector. In recent years the Indian government did not undertake major changes to these policies in support of the SSBS sector; rather they tried to enforce it by raising the number of software graduates for example. Furthermore the Indian government set up several initiatives in the area of eGovernment, diffusion of ICT and other demand side oriented actions, i.e. increase of broadband access for citizens. It also increased the efforts for R&D by strengthening the Centre for Development of Advanced Computing, which is part of the Department of Information Technology. One part of their efforts is special focus on the development of FLOSS in order to reduce the dependency from foreign technologies, especially in the area of eGovernment (OECD 2009). Most recently is a move towards special policies for specialised Information Technology hardware, which is considered to be a new field of growth as well as a weakness of the Indian ICT sector, whereas in the field of the SSBS sector the existing policies will be continued.83

China is considered to follow a different pattern. Although the Policy turned more and more towards an export orientation for the ICT and especially SSBS sector in the recent years by introducing special economic zones, the initial phase of the

83 See Department of Information technology: Annual Report Information Technology 2007-08, http://www.mit.gov.in/download/annualreport2007-08.pdf

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development of the Chinese SSBS sector was mostly driven by domestic demand like in the case of Brazil (Arora/Gambardella 2004). This demand was a result of the modernisation efforts to Chinese economy in the 1990’s. In order to the long time demand driven policy that aimed at autonomy the government tried to establish a strong local industry. For this reason the number of graduates was continuously increased and special incentives like investment capital and incubators for software start-ups were introduced. This policy is expressed in the “Policy Document 18”, which was implemented in 2000 (Carmel 2003). The strong domestic demand as a consequence of the modernisation of the Chinese economy and their growth in the recent years as well as the huge, but also cheap as well as skilled labour force, started to attract Foreign Direct Investments. Contradictive are the preferences of the Chinese government for “Chinese made” software, which should strengthen the local industry, as well as language problems and moreover problems concerning important fields like IPR that made the development of the Chinese Software Industry very ambiguous (Carmel 2003; Tschang/Xue 2005). At the moment it seems unclear how the newly established Ministry of Industry and Information Technology that is in charge of the development of the ICT and especially SSBS industry will act in future (Dedrick/Kraemer 2004).

In principle different is the case of Israel, which is a small country with small domestic market, but which has the highest density of high-tech companies beside of the Silicon Valley worldwide (OECD 2009). The reason for this is that the Government in general put a lot of efforts in the development of high tech industries, not in particular on the SSBS sector. There are two main characteristics for the SSBS sector in Israel that differentiate it from other emerging countries. Firstly the SSBS sector is highly product orientated unlike India for example and secondly it is also very specialized on niche products (Arora/Gambardella 2004; OECD 2009). This explains why the SSBS sector, which is quite small, produce a great export turn over. In charge for the development of the high-tech R&D support is the Ministry for Industry, Trade and Labour and within the ministry the Office of the Chief Scientist (OCS). This structure was implemented by the Law for Encouragement of Industrial Research and Development in 1984 (OECD 2009; Arora/Gambardella 2004). The major fields of activities also include ICT and in particular SSBS, but in general the

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activities of the OCS are not industry specific. Thus the programs are more directed at the support of high-tech start-ups (seed investment), international cooperation and industrial high-tech R&D in general.84 Especially the emphasis on seed investments together with a well established venture capital system are seen as one of the major reasons for the development and the success of SSBS sector in Israel (OECD 2009; Brednitz 2005). Other factors like highly skilled work force, which is one of the major aims of Government in general, are supporting this (Carmel 2003; Brednitz 2005).

Finally there is the case of South Korea that is a leading country in exporting electronic consumer and ICT goods, but has similar to Japan a weak software industry. The first effort to change this situation started in 1997 with the software development promotion act as part of a general framework to promote Information technology. In the consequence several centres for Software and Multimedia were set up and later merged in 2000 into the Korean IT Promotion Agency (KIPA), which acts as an agency for the Ministry of Information and Communication. The emphasis on the SSBS sector was continued in the following years by Software Industry Promotion Act and the establishment of technology parks or incubators for software. In 2005 KIPA announced a reinforcement of policy towards the SSBS sector. At the moment KIPA’s activities in the SSBS sector pursues five aims: 1) enhancing the competitiveness of the Korean software industry; 2) revitalization of Open Source Software; 3) enhancing digital content competitiveness; 4) support overseas expansion and 5) the construction of a state-of-the art IT Nutrikum (cluster). Every target is split up in sub targets and different projects.85 Another activity in South Korea is carried out by the National Information Society Agency, which can be traced back to 1980s. This agency aims more at the demand side, i.e. the diffusion and use of Information Technology and especially emerging technologies. Main areas of work are consulting to the government, implement infrastructure projects (f. ex. Broadband, NGMN etc.), training for users as well as eGovernment application. The overall aim is to stabilize the position of South Korea as a leading Information Society.86

84 See http://www.moit.gov.il/NR/rdonlyres/BB679C54-573C-407C-A382- BC386AAC3916/0/OCSBrochure2006.pdf 85 See http://www.software.or.kr/index.html 86 See http://www.nia.or.kr/special_content/eng/

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Concluding we can remark that the development of policies in support of the SSBS sector in other countries has the same broad scope as within the EU member states. Especially countries that can be considered as Independents like the US, Canada or Japan are similar to the one in the EU, i.e. the US and Canada are comparable to the development in the United Kingdom and Japan is comparable to Germany or France. Israel is more difficult to compare, because on the first glance it looks like an Intermediary. But compared to countries like Ireland, Denmark or Austria, there are also some differences like the private venture capital or the clear focus on high tech products. In total these things might be the reason for the density of high tech companies, but it is not obviously which policy is responsible in detail. Totally different are the cases of the emerging countries like China, India or South Korea. Beside the fact that they are different among themselves, they are also not comparable to the developments of EU member states. From the size of the sectors they have to be classified as Independents or intermediates, but they pursue often clear defined policies in support of the SSBS and ICT sector. A difference exists about the aims that should be reached. While China is primarily interested in strong and independent local SSBS industry, South Korea and India go after other aims. Therefore both last mentioned cases could be interesting case studies for the Dependents within the EU member states that pursue similar aims, i.e. build up of a competitive information society respectively economy or at least a successful export-oriented SSBS sector as source of economic growth.

3.6. Conclusion We conclude from our findings overall that relatively little policy activity in European Member State governments is being directed specifically at fostering SSBS producers, although the number of policies that aim in general at the development of an Information Society and/or the Information and Communication Technology sector increased since the beginning of the 2000s. It seems that this is also a consequence of the i2010 strategy implemented by the EU Commission. On the surface this is at least an improvement compared to earlier times, where the adaption, diffusion and application of ICT was taken for granted, although there was always a strong merit goods association for ICT products in national economic strategies. However, this state of affairs likely reflects evolving boundary issues,

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both between national and EU levels of administration and between producers and user sectors.

Nevertheless, the analysis has shown that there are still great differences in- between the EU member states related to policies in support of the ICT/SSBS sector. While the dependent countries in general focus on horizontal policies, especially on the increase of ICT diffusion and infrastructure programs as a consequence of the implemented IS programs, there are different tendencies in the intermediary and independent countries. There the number of vertical initiatives that address the ICT or in particular the SSBS sector increased. Most interesting is that within the group of intermediaries there is the development to implement vertical policies for the ICT and partly SSBS sector or at least to support existing quasi- horizontal policies, which aims in general at high technologies including ICT, by implementing single measures in support of single areas of the SSBS sector. The independent countries that have significant software sectors or players also raised the number of vertical programs in support of the ICT sector. Newly, there also some programs within the ICT policies that directly address the SSBS in specific. At large this variety of developments coincides with the ones Japan or the US. Bigger differences exist in comparison to other countries with established or emerging SSBS sectors. Partly countries like India or Israel pursue horizontal initiatives, which are aimed at maintaining healthy business environment, that are comparable to the ones in the European intermediary countries. In other countries like South Korea the government pursue overall Information Society/Economy programs. Within these different types there are often specific elements like the venture capital in Israel or the focus on specific SSBS sector directed policies in South Korea that are comparable to the variety in Europe.

In the European member states most initiatives as do exist in support of the ICT and in particular SSBS focus, with few significant exceptions, mainly on the development and the early stage commercialisation of technology, rather than on support of underlying factors such as skills or the fiscal and investment climates, which are widely considered to increase competitiveness and indeed to establish the conditions in which competitive industries can develop in the first place. Moreover, the technology focus dominates irrespective of the relative historical strength or weakness of various countries in ICT and particular SSBS markets. Therefore it is

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not a surprise that the few initiatives taken in perception of the major changes in the SSBS sector also only focus on the technological aspects of this process. Initiatives that aim on more than early stage commercialisation like managerial education for people from the SSBS sector are still missing.

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ANNEX 1 METHODOLOGY FOR THE QUANTITATIVE ASSESSMENT OF THE SSBS INDUSTRY

Quantitative assessment of the SSBS industry is provided through market figures that relate to the actual demand for software and software based services in the different countries and regions analyzed in the project. Market values are calculated using PAC and IDATE specific methodologies.

Other metrics or indicators presented in this report are calculated using public information sources such as Eurostat.

Software products and services market values from PAC

PAC market figures presented in this report are extracted from PAC’s SITSI® Global Datamart. SITSI® Global Datamart is PAC’s source of market and vendor data comprising IT market volumes, forecasts and IT vendors’ figures.

It includes historic market volumes (for the past three years) as well as four-year forecasts on IT expenditure and Software and IT Services markets, including vendor rankings. It covers the worldwide market, covering 6 regions and over 30 countries.

Market figures provided as part of the SITSI® Global Datamart are based on PAC’s proprietary market modelling methodology, which relies on:

• A single and consistent segmentation that enables quick data comparisons. Each research project refers to this single market model that contains a high level of granularity. The SITSI® segmentation is updated every year, based on market evolutions. • Empiric databases on vendors’ revenues and user spending based on primary and secondary research. Thousands of face-to-face interviews performed every year on both the buy and sell side of the market in addition to telephone surveys and desk research in all major countries. • An iterative bottom-up and top-down approach to leverage empiric research effectively. PAC’s top-down methodology relies on macroeconomics and

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market models built on a large set of statistics and referrals (demographic, geopolitical, economic, technological, industrial, etc) from National Statistics Offices, Eurostat... • Market experience gained thanks to hundreds of custom-specific projects conducted each year. PAC’s Research Team continuously challenges its market data, forecasts and databases in collaboration with PAC’s consultants and experts, which possess great knowledge and understanding of local market trends. • 30+ years of market experience and databases built on indispensable common sense.

PAC’s research process is described in the figure below:

Figure 35: PAC’s research process and methodology

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Software products and services market values from IDATE

Web 2.0

IDATE's estimates and forecasts are based on:

• eMarketer's figures on online social network advertising spending: http://www.emarketer.com/Reports/All/Emarketer_2000567.aspx http://www.emarketer.com/Reports/All/Emarketer_2000541.aspx • Forrester Research's figures on enterprise spending on Web 2.0 technologies: http://www.forrester.com/Research/Document/Excerpt/0,7211,43850,00.html

Online Advertising

IDATE's estimates and forecasts are based on its own production of market report (including the market report “Online advertising”, published in May 2009). Estimates and forecast are derived from desk research, industry association publications and interviews with main stakeholders. They are also cross-checked with estimates from other companies (Zenith Optimedia, SRI, IAB, eMarketer, Dentsu, etc… )

Mobility

Market data for mobile software is based on several sources, as bottom layers (OS, middleware) are generally separated from those of other upper layers (applications, mobile Internet). Those forms of software are indeed very different and involve different revenue streams.

Market estimates and forecasts for mobile infrastructure software come from IDATE. They are based on number of shipments of mobile phones (with a distinction between smartphones and other phones) and on royalties per handset.

Market estimates and forecasts for mobile enterprise applications and integration come from VDC Research Group (mobile computing software for enterprise mobility applications).

Market estimates and forecasts for mobile Internet advertising revenues come from IDATE, which specializes on this market through its publications (including market report entitled “Mobile Internet Services” published in late 2008). They are based on

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estimates of number of mobile Internet users and average spending per user, which is partly derived from ARPU of telcos.

Market estimates for paid web-based applications come from IDATE analysis combined with estimates from Juniper Research (Mobile Applications & Apps Stores, May 2009), based also on active users and average spending per user.

M2M

Sources for estimates and forecast are mainly coming from IDATE which specializes on M2M market since 2005 (“Cellular and Satellite M2M” report to be published in Q3 2009). Main elements of methodology include desk research (publications from main players on modules and revenues) and interviews with major players involved, including software vendors and telcos.

Internet of Things

Sources for estimates are coming from IDTechEx, which specializes on RFID market with numerous publications. So far, software revenues are only coming from licenses of RFID software and IT integration

Forecasts have been made by IDATE based on its expertise of the market and interviews conducted for its market report (“RFID & Internet of Things” published in June 2009) with key stakeholders, including EPC.

Games

IDATE has a dedicated team analyzing the video game markets through regular publications, including a database on video games (published first semester 2009). IDATE gathers observed data and builds a forecasts model based on software volume sales and average retail prices or average revenue per user.

Home consoles market – software: the market data for this segment is based on:

• An estimate of the annual volume of videogame sales, • An estimate of the average retail price of videogames.

Handheld consoles market – software: the market data for this segment is based on:

• An estimate of the annual volume of videogame sales, • An estimate of the average retail price of videogames.

Offline computer software market: the market data for this segment is based on:

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• An estimate of the annual volume of videogame sales, • An estimate of the average retail price of videogames.

Online computer software market: the market data for this segment is based on:

• An estimate of high-speed subscriptions, • An estimate of the proportion of subscribers that play online games, • An estimate of the ARPU (Average Revenue Per User) per gamer. The ARPU includes subscription payments and one-off payments for virtual goods and property.

Wireless software market

The market data for this segment is based on:

• An estimate of the number of gamers, • An estimate of the videogame ARPU per gamer.

IDATE doesn't take yet into account digital sales over home consoles. Even if this segment is promising, it is currently emerging and relatively weak regarding others and quite difficult to estimate. Moreover and for the same reason IDATE doesn't integrate interactive TV video game software which could probably bounce due to the commercialization of Internet TV Ready in Europe since the beginning of 2009.

Definition of SSBS using Eurostat

For estimating the contribution of SBSS to the economy and society we have used Eurostat's Structural business statistics (SBS)87. SBS data describe the structure, conduct and performance of economic activities through standard economic indicators, for a very detailed level of economic activity, and has EU27 coverage (although for different years and available at different quality of data).

SBS describe the economy through the observation of units engaged in an economic activity (generally the enterprise). Enterprises active in more than one economic activity are classified in SBS under their principal activity (the one that

87 These data are collected within the framework of a Council Regulation on Structural Business Statistics (EC, EURATOM) No. 58/97 of December 1996. The full list of variables and their definitions are specified in Commission Regulations.

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generates the largest amount of value added), and activities are classified according to NACE Rev. 1.1 headings88.

SBS covers three main business activities: industry and construction, trade, and services (NACE Sections C to K)89. The contribution of SSBS to the economy has been estimated by using data under "Section 72 Computer and related activities" (CARA) of NACE Rev 1.1 as an approximation. CARA is under code K: Real estate, renting and business activities, and comprises the subsectors described in Table 6. Ideally, one would want to exclude "72.4 Database activities" from the definition. However, this is not possible with SBS as data is only available at the first digit of disaggregation90. This will need to be taken into consideration when interpreting the results.

88 For the purpose of clarity, the original SBS Regulation has been recast to reflect a new classification of economic activities (NACE Rev. 2), covering the collection of information on all market activities, as covered by NACE Rev. 2 Sections B to N and P to S. While this legislation has already been enacted, the first reference year for which data are due to be provided is 2008. As such, the analysis of this section has not been able to use the new classification (further information here http://epp.eurostat.ec.europa. eu/portal/page/portal/european_business/introduction). 89 Hence, SBS does not cover agriculture, forestry and fishing, nor public administration and (largely) non-market services such as education and health. Furthermore, financial services (NACE Section J) are kept separate because of their specific nature and the limited availability of most types of standard business statistics in this area. 90 Arguably, other activities could also be included as SBSS (namely, 74.14 Business and management consultancy activities; 74.15 Management activities of holding companies; 74.50 Labour recruitment and provision of personnel; 74.85 Secretarial and translation activities; 74.86 Call centre activities; 74.87 Other business activities n.e.c.), however, their contribution is likely to be small (INSEE estimates includes shares of 0.5%, 0.5%, 2,5%, 2%, 18%, and 3%, to the previous categories, respectively).

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Subsection Includes …

72.1 Hardware Consultancy on type and configuration of hardware and consultancy associated software application

72.2 Software 72.21 Publishing of software;

consultancy and 72.22 Other software consultancy and supply supply

72.3 Data Database related activities such as provision of data in a processing certain order or sequence, by on-line data retrieval or accessibility to everybody or to limited users, sorted on demand; processing of data employing either the customer's or a proprietary program; management and operation on a continuing basis of data-processing facilities belonging to others; and web hosting

72.4 Database On-line database publishing; on-line directory and mailing activities list publishing; other on-line publishing; and web search portals)

72.5 Maintenance 72.50 Maintenance and repair of office, accounting and and repair of office, computing machinery accounting and computing machinery

72.6 Other 72.60 Other computer related activities, such as BASF computer related AG (DE); Svenska Volkswagen AB (SE); Unilog IT activities Services SA (FR); Telindus Group N.V. (BE).

Table 6: Different subsections under section 72 (NACE Rev 1.1)

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SBSS figures on R&D using Eurostat's Scoreboard

Eurostat's Scoreboard provides an interesting source of information in relation to expenditures in research and development (R&D). The information in the Scoreboard is extracted from the audited annual reports and accounts of companies, using rigorous financial reporting practice verification processes. It includes companies which are identified as having an R&D activity and which either have their accounts publicly available for free (e.g. on the internet or upon request) or at low cost (e.g. at the company registry)91.

It should be recognized that one limitation of the Scoreboard data is that it relies on disclosure of R&D investment in published annual reports and accounts. Therefore, companies which do not disclose figures for R&D investment or which disclose only figures which are not material enough will be not included. Furthermore, there is considerable variability between countries in relation to the administrative procedures and costs associated with capturing accounts. This results in the smaller private companies being underrepresented in the database (a description of the companies included in the dataset is included in the Annex). Both limitations need to be borne in mind when interpreting the results. Scoreboard data is provided at different levels of disaggregation. Interestingly, it includes information for NACE Rev 1.1 heading K7221. This corresponds to Industry classification ICB number 9537 and name "software" 92.

91 The Scoreboard also includes: Reference year; Economic activity (Nace); Industry classification (ICB) - number ; Industry classfication (icb) - name; Company number; Company name; Country; Capital expenditure (mio €); Market capitalisation (mio €); Net sales (mio €); Number of employees; Operating profits (mio €); R&D investment (mio €) 92 The other NACE categories included in the Scoreboard are: CA111; CA112; CB145; DA1589; DA1591; DA1596; DA160; DB1824; DD201; DE2125; DE2222; DG2411; DG2451; DG2466; DH2511; DI2682; DJ271; DJ2742; DJ2745; DK2924; DL3001; DL3002; DL3162; DL321; DL322; DL323; DL331; DM341; DM343; DM353; DM355; DN3614; DN365; DN3663; E4011; E4013; E4022; E410; F4521; G501; G5190; G5212; G5227; G5231; G5248; H553; I601; I6024; I611; I621; I633; I634; I6412; I642; J6511; J6522; J6523; J6601; J6603; J672; K7221; K726; K731; K7412; K7415; K745; K7487; L7522; N8511; O922; O924; O9271; O9272; O9305.

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Summary

The following indicators have been used to characterise the SSBS sector:

The following table presents the main segments of the SSBS market, the proposed indicators to measure it as well as the corresponding data source.

Segment Main Indicators Data sources Licence + standard ISV Software products (applications, tools PAC, IDATE maintenance and system infrastructure software) data market value Associated IT Services IT Services market value PAC, IDATE data Cloud computing Cloud computing market value PAC and IDATE data** Online Advertising Online advertising market value IDATE data** “In-house” software Number of IT professionals engaged development (IT in software development activities departments) “In-house” software Software Intensity in R&D by main PAC and development (R&D vertical sector IDATE data* departments) OSS Software products and services PAC data** market value Number of OSS developers SOA Software products and services PAC data market value Web 2.0 Software products and services IDATE data* market value Number of potential software creators as part of the Internet user population Mobility Software products and services IDATE data** market value M2M Software products and services IDATE data* market value Internet of Things Software products and services PAC and market value IDATE data* Games Software market value IDATE data** * data available for some large regions (Western Europe, North America…) ** data available for some large countries (Germany, UK, France, Spain, Italy)

Table 7: Main SSBS indicators based on PAC and IDATE data

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Segment Main Indicator Data sources

SBSS 72 Computer and related Structural Business activities (NACE Rev 1.1) Statistics, Eurostat

EU R&D K7221 NACE Rev 1.1 Scoreboard (Industry classification ICB name: software)

Table 8: Main SSBS indicators based on Eurostat data

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ANNEX 2 COUNTRY REPORTS

Beside the information we gathered on all EU member states as well as on selected countries outside the EU, we conducted a set of in-depth analysis of a selected EU member states that were considered to be representative for the situation in the EU. Therefore we took several indicators gathered from different sources into account. It encompasses data from the ICT Country Profiles in the Annual Report 2008 of the i2010 strategy like internet usage, e-business, indicators on growth of ICT sector (EUC i2010 Annual Report 2008), from the Europe INNOVA ICT Sectoral Innovation System report like indicators on innovation performance (Europe INNOVA 2008), from the IPTS report on R&D investments in ICT (IPTS 2008 and REDICT 2007) as well our own data on the SSBS sector as presented in Chapter 4 - Economic Contribution (page 160). They represent not the full ICT sector, only the number for the NACE sector 72 (computer and services).

1. AUSTRIA

Austria is regarded as an above average country with respect to the implementation of the information society at large and is a leading country for eGovernment services. The ICT sector mainly consists of subsidiaries of foreign multinational firms and a number of small, mostly software companies (IPTS 2008). Since Austria is a smaller country the absolute number of employees (abt. 50.000 in 2006) and the production value (5 billion EUR) in the computer sector (NACE 72) is limited. However the sector accounts for 1.21 per cent of the national workforce and for 1.89 per cent of the GDP, which at an EU average level. According to the Sectoral Innovation Watch (Wintjes/Dunnewijk 2008) Austria is among “good performers” a level and growth of performance just below the leading group (FI, NL, DE). As a results Austria is considered as an intermediate country.

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Number of persons employed (1000) Production Value (10^9) VA at factor cost (10^9) to Contribution GDP Share of workforce Index Level of innovation growth of Index in innovation performance

Austria 49,739 5,1079 3,0528 1,89 % 1,21 % 0,41 0,49

EU-27 2785 326 180 2,65 % 1,23% 0.17 0,38

1.1. Key Actors Policy Ministries with their main responsibilities related to ICT R&D are:

• Federal Chancellery; responsible for Co-ordination of e-government activities; ICT strategy • BMVIT (Federal Ministry of Transport, Innovation and Technology) ; responsible for ICT and R&D innovation; telecommunication infrastructure • BMWA (Federal Ministry of Economic Affairs and Labour) ; responsible for ICT-related innovation, e-business, c-content • BMBWK (Federal Ministry of Education, Science and Culture) ; responsible for e-learning, ICT in schools, Fachhochschulen and universities.

The most important Research Funding agencies in Austria on the federal level are:

• FWF (Austrian Science Fund), which is directed at funding basic research, applied and pre-competitive research • FFG (Austrian Research Promotion Agency), which is responsible for industrial R&D funding. As Agency for the BMVIT it has three programmes with different targets: 1) General programme, which offers funding for industrial bottom-up R&D projects; 2) Structural programme that aim at strengthening infrastructure for research and innovation in Austria and 3) thematic programme, which address selected national priorities to encourage research on future key

Another activity related to the SSBS sector is the “Internetoffensive Austria”. It is a cooperation of all stakeholders of the ICT from businesses, academic institutions and organisations.

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1.1.1. Key Initiatives The main initiative related to the SSBS sector is FIT-IT, short for Research, Innovation, Technology - Information Technology. It is an Austrian research programme that focuses on high-quality research in the area of information and communication technology. The focus is on visionary and interdisciplinary projects. They aim significant technological innovations and a time-to-market frame for new application areas of three to eight years.93 It has four objectives:

• Development of radically new information technology up to functioning prototypes in Austria • Improving the competitiveness of the Austrian economy and research based on cooperation of academia and industry, thematic foci and formation of clusters • Training of qualified researchers and intensification of challenging cooperative research • Improving the European and international visibility and linkage of Austrian researchers in the thematic foci

Proposers to FIT-IT can be companies, industry, but also research institutes, single researchers and working groups. As a general requirement, it is necessary that companies and research institutions cooperate when proposing a project to FIT-IT to ensure an application context already at a very early stage.

There are no formal restrictions on the financial amount of projects. The duration of a project is limited to 3 years. Projects in FIT-IT typically have a duration of approximately 2 years.

The FIT-IT initiative contains five topics:

• Embedded Systems • Power-aware, hardware supported operating system and ubiquitous application software development environment • Semantic Systems and Services: Covers aspects of semantic technologies but includes agent technologies, natural language and adaptive systems as important technologies for intelligent web services and systems.

93 See also FIT-IT: http://www.fit-it.at/english/index.html

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• Systems on Chip • Trust in IT Systems • Visual Computing: virtual prototyping, data mining and retrieval, human- computer-interaction.

Over the years, the programme has grown from the initial programme line Embedded Systems to cover five programme lines – the latest entrants were Trust in IT Systems and Visual Computing in 2006. FIT-IT typically runs one call per year for each programme line, with a typical annual budget of between 2 and 3 million euro for each programme line.

The “Internetoffensive Austria” works out suggestions for an Austria-wide ICT- strategy for placing Austria among leading ICT-nations.94 Until now it formulated requirements like improving E-commerce, e.g. by creating simple and complimentary Virtual Company Dossier or increasing the usability, as well as on increasing E-government applications or the modernization of the communication network infrastructure. The demands and suggestions that are gathered by several working groups will be integrated and elaborated by the main committee and should build the basis for the national ICT strategy.

1.1.2. Key Findings Austria is clearly an intermediate because of several reasons. The diffusion and application of ICT and especially of SSBS is widespread also within the administration. This is illustrated by initiative like the “bürgerkarte” (citizens card) as an example for electronic identity. On the other hand the Austrian ICT and SSBS sector has a decent size, but most of the leading companies in the country are subsidiaries of multinationals like Siemens or IBM. But there is also a growing number of Austrian small and medium sized companies that mainly act in the field of the SSBS sector (NACE 72 and 642). On the political level the government acts like in other intermediate but also most of the independent countries by enforcing the diffusion and use of ICT and SSBS in all areas (government, industry, private). In opposite to countries like Denmark or Ireland it also use policies directed to support the ICT and SSBS sector. These are mainly R&D fundings that also encompasses

94 see also Internetoffensive Österreich: http://www.internetoffensive.at/site/wissenschaft-forschung/

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emerging technologies like semantic web. There are finally actions taken by the Internetoffensive that is also enforced by interest groups, which aim at a specific ICT/IS policy, but this process is still under way and the results are not clear.

Contact

Austrian Federal Ministry for Transport Innovation and Technology Renngasse 5 1010 Vienna

Dipl.-Phys. Kerstin Zimmermann phone: +43 (0) 1 711 62 - 65 3503 email: [email protected]

FFG - Austrian Research Promotion Agency Sensengasse 1 1090 Vienna

DI Georg Niklfeld phone: +43 (0) 5 7755 - 5020 email: [email protected]

2. BULGARIA

ICT sector indicators represent stable growth in the last few years, a rapid improvement of the ICT environment can be anticipated. The i2010 midterm review states that Bulgaria’s development of the information society is at an rather early stage but also notes that the country is making good progress in the deployment of broadband networks and leapfrogging outdated technologies to catch up with other EU countries. Regarding the economic indicators Bulgaria is among those EU countries with the smallest SSBS sector (NACE 72) with only 16.619 employees (0,43 per cent of the workforce) that accounts for 1,17 per cent of the national GDP. Investment in R&D and innovation in Bulgaria has decreased in the past decade. This is likely to be aggravated by the current financial crisis. In the period 1998 –

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2007, R&D expenditure in Bulgaria declined by 16%.95 Bulgaria is thus one of the EU countries the weakest IT sector and is classified as Depended.

erformance erformance Number of of Number persons employed (1000) Production Value (10^9) VA at factor cost (10^9) Contribution to GDP Share of workforce of Index Level innovation Index of growth in innovation p Bulgaria 16,619 0,3389 0,1583 1,17% 0,43 % n/a n/a

EU-27 2785 326 180 2,65 % 1,23% 0.17 0,38

2.1. Key Actors Policy After several changes in the ICT policy the newly implemented National Programme for Accelerated Information Society established one new coordinative body, the Coordination Council on Information Society (CCIS). Together with the National Council on Scientific and Technological Policy it coordinates the activities of the involved ministries. The coordination includes mainly the Ministry for Transport and Communications, the Ministry for Economy and the Ministry for Education and Science.

2.2. Key initiatives The National Programme for Accelerated Information Society pursues the following targets:

• Increasing the quality of life through development of the national ICT infrastructure and improving the quality of public services through further development of the egovernment; • Encouragement of the usage of ICT technologies as a key factor for the creation of favourable business environment and support for the development of an competitive ICT industry; • Successful integration of ICT in the education and training with the aim of assuring high-qualified human resources for the needs of the ICT sector and the labour market and modernization and optimization of the ICT infrastructure of the research institutes, schools and universities;

95 See ARC Fund: Innovation BG 2009, http://www.csd.bg/fileSrc.php?id=2801

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• Ensuring the conditions for broad access for the citizens to the services of the Information society and popularization of their usage; Improving the information security, guaranteeing the consumer protection and ensuring the inviolability of the written communication.

There are seven main areas in the National Program for Accelerated Development of Information Society:

• ICT infrastructure and security; • Society and culture; • Economy and employment; • Scientific researches and innovations; • Education and training; 96 • To popularize the IS, branding of ICT sector.

There are though software policy pieces in other strategies such as:

• Information Society Program: This program supports the development of information society policies in Bulgaria through policy analyses in fields as telecommunications, electronic media, and ICT.97 • Innovation and Technology: Transfer Program: its aim is to foster the development of the Bulgarian industry through inward flow of technologies and to enhance the competitiveness of the industrial companies and their ability to respond to market challenges. 98

2.3. Key Findings The government policy in Bulgaria has been fragmented at best for long years, although there were officially programs on Information Society since 2001. This has been subject of complains by independent researchers as well as by the EU or UN itself, who co-finance some programs.99 For software or the SSBS sector is no particular strategy existing. The new program has to be evaluated before it is possible to state possible improvements.

96 See Plamen Vatchkov/Roumen Trifonov: National program for accelerated development of information society in Bulgaria, in: Proceedings of the 2007 international conference on Computer systems and technologies, New York, 2007, http://portal.acm.org/citation.cfm?id=1330598.1330600 97 see http://www.arcfund.net/index.php?id=338 98 see: http://www.arcfund.net/index.php?id=339 99 See ARC Fund: Innovation BG 2009, http://www.csd.bg/fileSrc.php?id=2801

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2.4. Contact State Agency for Information and Communication Technology

http://www.daits.government.bg

No further contact data

3. CZECH REPUBLIC

The Czech market for information and communication technologies (ICT) has experienced a strong growth during recent years. However the in terms of the Information Society implementation the country is still lagging behind in comparison to the general development in the EU. Regarding the economic indicator the Czech republic is the new member state with the strongest IT sector. With 55.000 employees or a share of 1,05 per cent of the national workforce the country is slightly under average. The SSBS sector (NACE 72) accounts for 2,69 per cent of the national GDP which is slightly above average. According to the Sectoral Innovation Watch (Wintjes/Dunnewijk 2008) however the Czech republic is lagging behind for all innovation indicators, which is evidence that the modernization of the Czech IT sector is still ongoing. Therefore the Czech Republic is like the most new member states classified as a Dependent.

Number of persons of persons Number (1000) employed Value Production (10^9) VA at factor cost (10^9) to GDP Contribution Share of workforce of Index Level innovation in Index of growth innovation performance

Czech republic 55,474 3,4256 1,6583 2,69% 1,05 % -0,54 0,19

EU-27 2785 326 180 2,65 % 1,23% 0.17 0,38

3.1. Key Actors Policy The main political actor for Czech Republic is the Ministry of Industry and Trade of the Czech Republic (MIT), which is responsible for the national innovation and industrial policies.

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Another actor is The Ministry for Informatics, which is responsible for information and communications technologies, telecommunications and postal services, i.e. the building of the ICT infrastructure in the Czech republic and on market regulation in information and telecommunication industries. For this reason it has only a minor significance for policies in support of ICT and SSBS producers.

Moreover there are different councils within the Office of the Government of the Czech Republic. Here the R&D council, the Economic Council and the Council for the Development of Human Resources act as consultant to the whole government and the different ministries in their field of works.

Due to the importance of the MIT their agency CzechInvest (The Investment and Business Development Agency) is in charge of the most relevant programs. The main objective is to advise and support existing and new entrepreneurs and foreign investors in the Czech Republic, but it also acts as an intermediary for SMEs when it implements EU structural funds. Because of this the agency is responsible for the relevant programs within the framework of the implementation of the two programmes (see below) will be carried out by the CzechInvest agency which will assure joint presentation and administration of both programmes.

3.2. Key Initiatives The main initiative in the Czech Republic is the Operational Programme for Enterprise and Innovation (OPEI) that runs from 2007 to 2013. It contains 15 aid programmes and is mainly co-funded by the EU structural fund (85%). Beside of general programs for development, innovation and similar aims, there are also two ICT/SSBS related programs:

• ICT and Strategic services: This programme helps companies to obtain resources through grants for expansion or introduction of information and communication technologies (hardware, software and other machines and equipment that can be designated as part of IS/ICT) in small and medium- sized enterprises. It is open to all industries, but due to it’s focus on software development, services centres and related fields it attracts mostly SMEs from the ICT and SSBS sector • ICT in Enterprises: This Programme implements Priority Axis 2 “Development of Firms” of the Operational Programme Enterprise and

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Innovation which the Ministry of Industry and Trade (MIT) has prepared for the programming period 2007-2013. The Programme objective is to promote competitiveness of small- and medium-sized enterprises (SMEs) through qualitatively better exploitation of their potential in the field of acquisition and extension of information systems (IS), or, specifically, to promote demand for information systems in order to enhance the effectiveness of small- and medium-sized enterprises.

3.3. Key Findings The importance of ICT sector is relatively low in the Czech Republic compared to the significance of heavy industry or other industries. Because of this most of the ICT policies are directed at increasing the diffusion of ICT in these sectors. The ICT sector itself is also dynamic however, and its growth is mainly driven by huge FDI investments into the hardware sector. These investments are mostly attracted by horizontal policies that aim at business-friendly climate, but which are not especially targeted at the ICT or more particular SSBS industry. One can also find dynamic and competitive small and medium sized Czech firms, especially in the software sector. The other major part of the sector consist of recently built labs of the multinationals.

3.4. Contact The contact point for these programmes is the project agency CzechInvest:

CzechInvest Headquarters Štěpánská 15 120 00 Prague 2 Tel.: 296 342 500 Fax: 296 342 502 E-Mail: [email protected]

4. DENMARK

Like all Scandinavian countries Denmark is a top-performer in all IT related aspects. According to the i2010 midterm review the country is the clear European leader in

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the development of the information society, especially for broadband connectivity and e-Commerce. Though a rather small country the absolute number of employees in the IT industry, the production value and the value added are comparable to much bigger countries. With a share of 1,78 per cent of the employees and a contribution of 3,25 % to the national GDP in the SSBS sector (NACE 72) Denmark is clearly over the European average. Unlike in the other Scandinavian countries the sector is mainly dominated by subsidiaries of foreign companies. The Sectoral Innovation Watch (Europe INNOVA 2008) classifies Denmark as a “good performer” in all innovation indices. In total Denmark can be classified as an Intermediary.

Number of of Number persons employed (1000) Production Value (10^9) VA atfactor cost (10^9) Contributio n to GDP Share of population Index Level of innovation Index of growth in innovation performanc e

Denmark 52,168 7,3914 4,1753 3,25% 1,78 % 0,23 0,62

EU-27 2785 326 180 2,65 % 1,23% 0.17 0,38

4.1. Key Actors Policy The two main actors are:

• Ministry of Science, Technology and Innovation, which is responsible for innovation policy and universities • Ministry of Industry, which focuses on creating good conditions for private firms and promoting entrepreneurship. There is a strong interest in science based sectors and high technology research.

Within the field of ICT policies both ministries are supported by different agencies and institutions:

• National IT and Telecom Agency is run by the Ministry of Science, Technology and Innovation. • National Knowledge Centre for Software, was established for a three-year period in April 2006 to support the Government’s software strategy, including the development of open source software (FLOSS) in the public sector. One goal for the Centre is to ensure that the public sector will only pay for the

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development of a software product once, and that the software marketplace on soft • Danish National High Tech Foundation is a government initiative with the aim of fostering initiatives in politically prioritized areas such as biotechnology and IT. Special emphasis is on SMEs, in three areas: information and communication technology, biotechnology and nanotechnology.

4.2. Key Initiatives In general the Danish policy in support of industries is horizontal. This is expressed in the main documents relating to this topic. First of all there is the overall policy defined by the The Danish Growth Strategy from May 2002: The Government’s objective is the creation of a total of 87,000 new jobs by 2010. The Growth Strategy initiatives include for example a Plan of action Promoting Entrepreneurship, implemented in January 2003: that aim to advance Denmark towards the European entrepreneur elite, by 2010 and to encourage more people to set up their own companies, to ensure greater survival rates in the initial difficult years to promote faster growth.100 This strategy is supplemented by a set of more specific strategies. One of them is the Regional Growth Strategy from May 2003, which focuses on geographically marginal areas in order to make it more attractive to live and work in these areas by promoting better conditions for doing business and by exploiting settlement opportunities.101 Another is the action plan New Ways of Interaction between Research and Industry from September 2003, which addresses public- private partnerships and the commercialization of research results. Therefore also a set legislative act were approved to ease the process of commercialization by regulating technology transfer, spin-off founding, IPR and seed investments. The policy is enforced with the newly published Strategy for Denmark in the Global Economy - Progress, Innovation and Cohesion.102

Mostly related to the field of ICT/SSBS within this overall framework are The Danish Government’s Knowledge Strategy103 from 2003 and the strategy Denmark’s

100 See http://www.oem.dk/publikationer/html/english/vaekst/strategy.pdf 101 See http://www.oem.dk/publication/growth/strategy.pdf 102 See http://www.globalisering.dk/multimedia/Pixi_UK_web_endelig1.pdf 103 See http://en.vtu.dk/publications/2003/the-danish-governments-knowledge-strategy/knowledge- strategy-policy-statement.pdf

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opportunities in the global knowledge society104, published in October 2004. Both put great emphasis on the importance of ICT and SSBS for the future development of the Danish society and economy. They identify four key elements:

• Knowledge workers are gaining ground. Internationally, the demand for highly-educated workers is increasing, while the demand for workers with short-cycle training is declining. • Research and development is increasing in importance. More companies are investing in research and development, and the level of knowledge in business and industry is generally on the rise. • Innovative networks are expanding. Companies and knowledge institutions specialise in their own core competencies, while more and more innovations emerge as the result of collaborative initiatives between companies and between companies and knowledge institutions. • IT and telecommunication usage is on the rise. IT is making knowledge development faster and cheaper. The IT infrastructure is spreading rapidly and globally, and IT is becoming increasingly more integrated in communication, administration, products and in the private sphere.105

Therefore the major aims of the Danish ICT policy are:

• To create growth in Danish industry. • To reform the public sector. 106 • To qualify the Danes for the future knowledge society.

To achieve the reform of the public sector the National IT and Telecom Agency implemented the E-government strategy with 35 concrete initiatives. The initiatives are to create improvements in services for citizens and businesses. The initiatives are intended to promote efficiency and move resources from administrative tasks to citizen-related services. The goal is that by 2012, at the latest, it should be possible to exchange all relevant written communication digitally with citizens, while this will be a requirement in the case of enterprises. Danish enterprises are to use ICT innovatively in order to remain competitive. This is a basic condition for growth and prosperity. In consequence, the Government’s globalisation strategy is focusing on

104 See http://brie.berkeley.edu/news_events/Danish%20Strategy%20Paper.pdf 105 See http://en.vtu.dk/publications/2003/the-danish-governments-knowledge-strategy/knowledge- strategy-policy-statement.pdf 106 See http://en.vtu.dk/information-and-communication-technology/international-ict-collaboration

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ICT developments, and in 2007 a number of initiatives were presented that aim to give Danish enterprises the best possible framework for progress and dynamism.107

Within these initiatives one is of certain relevance for the SSBS sector in specific, the Danish Software Strategy and the Software Exchange, which is carried out by the National Knowledge Centre of Software. The mission is to increase competition and reduce the risk of lock-ins, to use innovative open communities and OSS as a remedy and to focus on tailor made rather than of-the-shelf OSS. The strategy’s main objective is to foster competition, quality of services and coherency in the public software solutions.108

Other relevant aspects of the ICT policy is the strong support for the participation in international and European initiatives for standardizations, collaboration and legislation related to the field of ICT. Furthermore there is a yearly review of all measures implemented related to the overall aims through the IT and Telecommunications Policy Report.109

While most of these policy initiatives are horizontal or to some extent quasi- horizontal measures, there are especially within the ICT innovation policy latter elements gain of importance. In general it is embedded in the overall national innovation policy of the government. In this regard, the Ministry of Science, Technology & Innovation set the following as its main policy priorities.

• Knowledge Transfer through Mobility • More specifically, the objective is to increase mobility, knowledge sharing and interaction across the business sector, universities and other knowledge institutions.

This includes instruments like Centre Contracts, which have the purpose to get research utilized through co-funding of cooperation projects between companies, technological service and research institutions or the Industrial PhD Fellowship programmes, the purpose of which is to promote personal transfer of knowledge between universities and companies, and to produce PhD fellows with business- relevant competencies. Other objectives are as mentioned before the Research

107 See http://en.vtu.dk/publications/2008/it-and-telecommunications-policy-report-2008/it-and- telecommunications-policy-report-2008.pdf 108 See http://osl.dk/fileadmin/user_upload/Konferencer/Michael_Busk.pdf 109 See http://en.vtu.dk/publications/2008/it-and-telecommunications-policy-report-2008/

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Commercialisation, which includes the use of “incubators for entrepreneurs” as an instrument that helps to commercialize results of research and innovative business ideas by various means, including the establishment of new innovative enterprises. Another objective is Widening Access to knowledge, which aims at strengthening technological service in Denmark as a basis for the development and use of technological, managerial and market knowledge and to increase innovation activities within companies. An important implementation instrument is the 'Approved Technological Service Institutes', which have the task of gathering, building up and developing technological competencies and passing them on to Danish enterprises and public authorities. A further important more recent instrument for this policy priority is the regional IT competence centres. Together they share a total of 87.5 million DKK from the Ministry of Science between them. Half of the resources have been dedicated to a joint initiative called the "IT- Corridor", which supports new IT ideas across the four regions. These aim to strengthen the research and development cooperation between industry and the regional IT knowledge environment. Such centres are the Centre for Embedded Software Systems (CISS) in Ålborg, the centre on Interactive Spaces, healthcare Informatics and Software development (ISIS) in Århus, the Knowledge Lab DK in Odense and the Center for Software Innovation in Sønderborg.

4.3. Key Findings Concluding we can state that Denmark acknowledge ICT and especially SSBS as an important driver for the economic growth and social welfare of Denmark at the moment and in the future. On the other hand it is a small country with a small ICT sector. This situation led to two consequences. Firstly, Denmark, which already is one of the worldwide leading countries in ICT use; still enforce the diffusion of ICT and the raise of skilled work force. Secondly Denmark aims at an overall strategy to attract foreign and create local knowledge intensive business addressing especially high tech sectors like biotechnology or software. In consequence it pursues additionally a lot of horizontal or quasi-horizontal initiatives to maintain a healthy business environment. Furthermore they try to improve the commercialization of research especially in selected high-tech areas. Finally the government supports this overall aims by small measures to support specific developments. In the field of the ICT and especially SSBS sector these are the public procurement strategy for

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FLOSS or the establishment of regional IT centres to improve ICT R&D. This goes along with the raise of R&D, which had historically a low share on GDP in Denmark, but now reached on of the highest shares within EU to achieve the Lisbon goals. All this make Denmark to interesting case of an intermediary country, which pursues like Ireland mostly horizontal initiatives, but also uses other measures to achieve specific targets.

4.4. Contact Ministry of Science, Technology and Innovation Mr. Mikkel Hemmingsen (Assistant Head of Department ) Tel: +45 3392 6599 E-mail: [email protected]

National IT and Telecom Agency Holsteinsgade 63 2100 Kobenhavn Tel: +45 3545 0000 E-mail: [email protected]

5. ESTONIA

In the late 1990s and early 2000s Estonia was aiming to become a “wired nation” and is thus well advanced in the development of the Information Society with many deployment indicators (notably broadband connectivity and eGovernment services) above the European average. The i2010 mid-term review, however states that the take –up of ICTs by businesses does not keep pace with the positive development in other areas. As a small country Estonia is also having one of the smallest SSBS industries with just some 5.000 employees representing a share of 0,89 % of the total employment. The SSBS sector (NACE 72) also accounts for only 1,2 % of the GDP which is significantly below the EU average. Most of the companies operating in Estonia are subsidiaries of foreign companies and the trade balance in ICT is negative, which is sign for the weakness of the Estonian ICT sector (IPTS 2008). Overall Estonia is clearly a dependent in the field of ICT.

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Number of of Number persons employed (1000) Productio n Value (10^9) VA at cost factor (10^9) Contributi on to GDP Share of population Index Level of innovation Index of growth in innovation performan ce

Estonia 5,692 0,1854 0,1019 1,20% 0,89 % n/a n/a

EU-27 2785 326 180 2,65 % 1,23% 0.17 0,38

5.1. Key Actors Policy The two central organisations in Estonian policy are the Ministry of Economic Affairs and Communications, and the Ministry of Education and Research. They are responsible for nearly all research funding streams and horizontal policies. Both Ministries have their advisory committees for policy development. Science policy belongs to the Ministry of Education and Research, and innovation policy to the Ministry of Economic Affairs and Communications.

5.2. Key Initiatives A more general framework for the development of Estonia is described in the Estonian Research and Development and Innovation Strategy 2007-2013 is the follow-up of the Estonian Research and Development Strategy 2002–2006. The Strategy sets out three main objectives: 1) competitive quality and increased intensity of research and development; 2) innovative enterprises creating new value in the global economy; 3) innovation friendly society aimed at a long-term development. It identifies as key technologies the ICT, biotechnologies and material technologies. It implements four measures:

1. Development of human capital,

2. Organising the public sector RD&I more efficiently,

3. Increasing the innovation capacity of enterprises, and

4. Policy-making aimed at the long-term development of Estonia 110

In this way the programme is horizontal initiative, that does not address ICT exclusively.

110 See http://www.hm.ee/index.php?popup=download&id=7669

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More related to ICT is the Estonian Information Society Strategy 2013 The principles and objectives of the Estonian Information Society Strategy are the following: each member of the society leads a full life, using the opportunities of the information society in every possible way and actively participating in public life ("nobody will stay or will be left behind"); Estonia's economic growth is based on the wide use of ICT solutions; public sector is citizen-centred, transparent and efficient. In order to achieve these broad goals specific targets were set by 2013:

A section was devoted to the increasing the competitiveness of the Estonian ICT sector. The main tasks in this field are:

• bringing IT education in accordance with the requirements of the ICT sector, • supporting the internationalization of the Estonian ICT sector. Planned activities include, the following: making the software procured by the public sector available in order to avoid duplication of similar solutions and to facilitate the exports of Estonian ICT solutions • facilitating the development of high-quality and innovative information society and media services as well as settling intellectual property related issues, • elaboration and implementation of principles concerning the outsourcing of services necessary for the functioning of the state information system, • increasing the role of the Estonian ICT sector in the development of the country's defensive capacity.

The implementation plan is realized in the form of project-based development works in accordance with the principles set out in the Estonian IT Architecture and Interoperability Framework. Projects are financed both from the state budget and the EU structural funds. Expenses related to the activities to be funded from the state budget are planned by the respective implementing agencies, while central and cross-institutional activities are financed via the Structural Funds.111

5.3. Key Findings Although Estonia is considered to be one of the leading countries within the new member states in terms of the development of an Information Society, the ICT and

111 See http://www.riso.ee/en/system/files/Estonian%20Information%20Society%20Strategy%202013.pdf

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in particular the SSBS sector can not profit of this. Although the country tries to attract FDI by mostly horizontal programs including infrastructure improvements, there are still problems to succeed. Experts stated that a lot of announced initiatives to promote the ICT uptake and successful e-business models in enterprises have not been implemented yet. The need for intervention has also been recognized, but specific alternatives to support the utilization of ICT in companies are still to be considered like regulations on Venture Capital.112 Despite all successful measures taken to improve the Information Society this might be the reason that the Estonian ICT and especially SSBS is weak in exports and Estonia is still a Dependent.

5.4. Contact Ministry of Economic Affairs and Communications

11 Harju St, 15072 Tallinn, Estonia

Tel: +372 6 256 342

Fax: +372 6 313 660

E-mail: [email protected]

Ministry of Education and Research

Munga St. 18

50088 Tartu, Estonia

Tel: +372 735 0222

E-mail: [email protected]

6. FINLAND

Finland is one of the leading countries in all ICT-related aspects. The i2010 mid- term review states that the country is leading in many of the relevant indicators and

112 See REDICT Country Report Estonia

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has one of the most competitive and dynamic ICT sectors in Europe (and world wide). The firm structure is dominated by one national champion (Nokia) and a large number of small and medium sized companies as well as subsidiaries of multinational players. Finland has a strong specialisation in the field of ICT, though Finland is stronger in the field of communication rather than information technologies. This is illustrated by the fact that the SSBS sector (NACE 72) is accounting for 3 % of the national GDP. In Finland some 40.000 people (or 1,65 % of total employment) are working in the SSBS sector (NACE 72). The Sectoral Innovation Watch (Wintjes/Dunnewijk 2008) states that found Finland as the European innovation leader in the ICT sector.

Though Nokia has its roots in consumer electronics and communication technology it has expanded its activity in software and software and software based services since the late 1990s. This shift came along with increased R&D spending in the software sector. As a consequence the SSBS sector became the second pillar of the Finnish ICT Innovation System. Consequently Finland is one of the Independents.

Finland 41,705 5,4388 2,8916 3,03% 1,65% n/a n/a EU-27 2785 326 180 2,65 % 1,23% 0.17 0,38

6.1. Key Actors Policy The main policy actor in the field of innovation, research and technology policy related to SSBS/ICT in Finland is the Ministry of Trade and Industry, which is responsible for the Finnish technology policy.

Within the ministry the Technology Department is responsible for planning and implementation of technology policy. It is regarded as central component of industrial policy and is implemented together with the bodies under the Ministry's administrative domain, for example the national funding agency for Technology TEKES (see below). Central elements of policy making are research, foresight and international cooperation. The first two things are in the responsibility of the Division

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for Research and Foresight Studies as well as all other matters related to the information society within the technology policy framework.

Other ministries involved in the policies for the SSBS/ICT sector are:

• Ministry of Transportation and Communication, which is responsible for the development of the technological infrastructure in the field of ICT; • Ministry of Education, where the Department for Education and Science Policy is responsible for the science policy. Main tasks are the development of centres of excellence, the promotion of national and international networking in research, the support research particularly in field relevant for knowledge- intensive industries and services and the commercialisation and the diffusion of research findings. • other ministries (Ministry of the Environment, Ministry of Social Affairs and health, Ministry of Agriculture and Forestry, Ministry of Finance, Ministry of Justice) are only partly involved in ICT policy mainly involved in public procurement, adopting new technologies, etc.

The importance of the SSBS/ICT sector is mostly reflected by the fact that in 2003 the Information Society Council was launched which is chaired by the Finnish Prime Minister. The main objective of this council consisting of members from the associated ministries, companies and other organisations as well as permanent experts is to negotiate and steer the development of the information society as well to coordinate activities between the administrative branches and between the administration, civil organisations and business. After the related Information Society Program was finished in 2007 the new programme on the Ubiquitous Information Society was established. Under the chair of the new Minister for Communication the Ubiquitous Information Society Advisory Board has a comparable composition as the old ISC. The tasks are:

• to ensure the practical implementation of the national information society strategy. • to prepare the action programme for the national information society policy and coordinates and monitors its implementation • to cooperate with other actors involved in the information society development

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• to introduce new initiatives to speed up the information society development • to monitor the international and EU information society development • to report annually to Government on the implementation of the action programme

The first activities were launched in 2008 and implemented by the different funding agencies. The most important are:

• Finnish Funding Agency for Technology and Innovation TEKES, formally part of the Ministry for Industry and Trade. It is responsible for implementing policy measures, e.g. strategic investments in technology sectors important for the future competitiveness of Finnish industry. The programmes are initiated, planned and implemented in co-operation with companies, research units and Tekes and consist of joint research projects and industrial R&D projects. • Academy of Finland, formally part of the Ministry of Education. It provides funds for research conducted in universities and research organisations. • Finnish National Fund for Research and Development, formally direct under the parliament. This innovation fund promotes projects in four programme areas (amongst others Health care, Mechanical Industry or Energy programme) under which also studies and research ICT related projects with are funded.

6.2. Key Initiatives Between 2003 and 2007 the Finnish government defined four central policies. The Information Society Programme (ISP)113 was one of these four programmes and was co-ordinated by the Ministry of Transport and Communication. The aim of the Information Society Programme was to foster "competitiveness and productivity as well as to promote social and regional equality and to improve citizens' well-being and quality of life through effective utilisation of ICTs." Thus, the programme aimed to maintain Finland's position as one of the leading producers and users of information and communications technology. To develop the information society according to the afore mentioned aims the ISP programme should ensure that citizens have access to fast broadband connections, improve citizens' information society skills, reform operating models and structures, develop Government

113 For more information see: http://www.valtioneuvosto.fi/tietoarkisto/politiikkaohjelmat/tietoyhteiskuntaohjelma/en.jsp

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services and administration and putting them on an electronic basis, promote similar developments in local authorities and the business sector, invest in research and product development, support other actors in the information society, participate in important projects promoting the information society, and issue relevant legislative measures.

The programme was split up into seven sections with more than hundred projects to achieve these aims:

• telecommunication infrastructure and digital television • citizens' ability to utilise the information society and security • training, working life, research and development • utilisation of ICT in public administration • electronic commerce and digital contents • legislative measures • international dimension

Since 2007 the new government established a new programme entitled the Ubiquitous Information Society. The vision of this Information Society Strategy is to reform Finland into an internationally recognised and competitive competence- based service society with a human touch.114 The set up and coordination of the programme is put to the new Minister of Communication, which installed the above mentioned Ubiquitous Information Society Council as successor of the ISC, which prepared an action plan and coordinates the implementation.

The programme formulates five sectoral priorities, which are assigned to specific ministries:

• Developing the information society infrastructure, and promoting communications and media services and business (Ministry of Transport and Communications) • Developing public electronic services and the ICT environment (Ministry of Finance, Ministry of the Interior)

114 See Government Resolution on the objectives of the National Information Society Policy for 2007- 2011 (http://www.arjentietoyhteiskunta.fi/files/38/periaatepaatos_tietoyhteiskuntapolitiikan_tavoitteista_engl_ .pdf)

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• Promoting innovation and electronic services in social and health care services (Ministry of Social Affairs and Health) • Utilising the benefits of ICT in education, teaching, civil participation, research and culture (Ministry of Education and Ministry of Justice) • Information society affairs related to research, innovation, competitiveness and productivity (Ministry of Trade and Industry)115

In total the action plan pursues an integrative approach consisting of development of the horizontal, all embracing information society basic requirements (e.g. trust, security, standardisation) as well as four specific areas of activities: 1. Information society infrastructure (e.g. electronic identity, invoicing), 2. innovation environment and market (e.g. competitiveness of communication industry, copyright/IPR); 3. Content and Services (e.g. television, e-services for social/health services, public services/e-Administration) and 4. Skills and preparedness (e.g. learning environments, safe media environments for children etc.). These activities are accompanied by activities to enforce international activities within the EU, international organisations and outside of EU.

The action plan led into the implementation of concrete measure that as well as the ongoing measures from the previous ISP are mostly carried out by the most important funding agencies. Within these measures are several ICT related projects, some of them with a significant software related part:

• Digital Product Process 2008-2012: The Digital Product Process programme, initiated by Tekes in 2008, boosts the competitiveness of companies with better use of information technology in product processes. • FinnWell Healthcare programme 2004 - 2009: The objective of the programme is to promote health and wellbeing through technology applications and service innovations. • GIGA - Converging Networks 2005-2010: The development of broadband technologies - especially wireless broadband - converge network technologies, services and content in a newly profound way driving different players into ever closer collaboration.

115 See http://www.arjentietoyhteiskunta.fi/inenglish

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• Innovations in social and healthcare services (2008-2015): Innovations in Social and Healthcare Service System is a programme focused on social and healthcare system innovations. • NORDITE 2005-2010: VINNOVA of Sweden, The Research Council of Norway (RCN) and the Finnish Funding Agency for Technology and Innovation (Tekes) launched a new technology programme, NORDITE, in 2005. The programme is open to research organisations in the above- mentioned countries, and it will focus on research projects that will bring about positive results for the Scandinavian ICT industry. • MASI - Modelling and simulation 2005-2009: The aim of the MASI programme is to develop modelling and simulation knowledge and methods, enhance their utilization in Finnish industry and service sector, and thus create a competitive edge for the Finnish companies on the global markets. Furthermore, the programme is expected to catalyze new businesses based on modelling and simulation. • Safety and security 2007-2013: In the context of a rapidly growing international safety and security market, Tekes has launched a technology programme that will help Finnish enterprises and researchers develop international business activity and competence in safety and security technologies. • Ubicom - Embedded ICT 2007-2013: Embedded ICT programme started in the beginning of 2007. The budgeted volume is approximately 300 million € for the duration of seven years. In Ubicom, technologies are developed and piloted for selected applications. Development of business know-how is of special importance. The term ubicom stands for embedded systems and processors designed to make everyday life easy by functioning inconspicuously in the background. Ubicom enables, for example, new kind of leisure services and new housekeeping solutions.

Explicitly to mention is the Verso (Vertical Software Solutions) programme, which started as a direct R&D funding programme in 2006 and will be finished in 2010. It addresses directly the software business as well as possible customers. The total programme budget amounts to EUR 120 million, which are split up between TEKES, the Academy of Finland and others with the following aims:

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• to digitalise and automate business processes and to promote expertise in business activities as well as internationalisation within businesses, selected customer sectors and clusters. • help to generate new, innovative software products and services that are both customer- and market-oriented, as well as integrated and comprehensive solutions to meet the needs of important application areas and customer groups in the international market • to enhance the establishment and development of customer-sector specific mini-clusters • Beside of this more general aims it also names direct goals for the Finnish Software Industry: • Substantial growth (10-30% annually) in the international business operations of participating software businesses • Finnish software SMEs grow by transferring to the international customer- sector software market • Expertise specific to the sector, business and software are combined in new, innovative ways • Enhanced international business expertise and stronger networks • Customer-sector specific clusters develop through networking • The possibilities of utilising open standards and open-source code • Substantial enhancement of companies’ business and product development processes • The usability of Finnish software solutions is internationally top-class • The identified actual need for customers steers all development activities within the company • Businesses gain a foothold in innovation centres in Shanghai, St Petersburg, etc, near growing markets116

Accompanying to this direct R&D funding measures there are several other supporting activities. Within the framework of the ISP (203-2007, section "Training, working life and Research and Development") as well as the new UISP (since 2007,

116 See http://www.tekes.fi/eng/verso.

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section Skills and preparedness) the questions of education and skills for all, but also especially for the software industry is addressed.117

ICT and especially software firms also profit from state owned venture capital companies like SITRA (see above) or the Finnish Industry Investment (FII) and Finnvera.118

Legislation and regulation is as already mentioned above explicit part of the governmental UIS Programme. One field of action is to find new ways in copyright and intellectual property for both, private as well as business. This is expressed by the formulation of a National Copyright Strategy. This builds on earlier approaches to update the copyright legislation. Another field of action at the moment are information security risks and computer-related crime. Also compatibility through standardisation will be another topic for the Finish government, because of it’s importance for innovations, business models and markets, and generating cost savings for information and communications technology acquisitions. As a consequence Finland is very active in regulative issues on the European level and is thus benefiting also at home.119

Another important complementing measure is the National Software Industry Survey that is coordinated and carried out by the Software Business Laboratory (TKK), the Software Product Development Research Group of the University of Turku, and Tampere University of Technology. The aim of this monitoring, which started in 1997 and is funded by TEKES as well as industrial partners, is t o provide information about the current situation of the Finnish software companies, the main focus being the size and growth of the industry, as well as internationalization.120

6.3. Key Findings Although Finland has no specific stand alone Software Policy, it has an integrated approach towards an Ubiquitous Information Society that contains a dedicated software related part. This is expressed in several ways. First of all by direct R&D fundings programmes that explicitly address software business like VERSO or other programmes with a significant software part. Additionally other important topics for

117 UISP Action Plan 118 UISP Action Plan 119 UISP Action Plan 120 See http://www.sbl.tkk.fi/oskari/

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the SSBS sector like Skills and Education, legislation or standardisation have clear references to software issues. This integrative approach on the functional level is complemented by another integrative approach on the superordinated, organisational-methodological level. This approach, which consists of a close interaction and cooperation between policy, society, science and economy, is often considered as one of the most important competitive advantages of Finland. Especially in the Field of ICT this was consequently developed by establishing the different council that develop the different actions and coordinate the between the different actors, enforcing of science-industry relationships as well as the formation of new firms and the promotion of new ICT applications, assisted by industry specific monitoring and participative Foresight processes. This also enables the Government to set clear goals for the development of the SSBS sector, which is a singularity within the reviewed countries.

6.4. Contact Ubiquitous Information Society Advisory Board

Ministry of Transport and Communications

Eteläesplanadi 16-18, PO Box 31, FI-00023 Government, Helsinki, Finland

Secretary-general:

Deputy Director-General Ms. Kristiina Pietikäinen

tel. +358 9 160 28676

[email protected]

7. FRANCE

France is one of the largest economies in the European Union and has the fourth largest IT sector in absolute values (367.000 employees, 49 billion Euro production value). The i2010 mid-term review shows that France is fairly advanced in most of the Information Society related benchmark indicators. Also the share of SSBS employment in the total workforce (1,42 %) and the contribution of SSBS sector

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(NACE 72) to GDP (2,63 %) are both equal or above the EU average, but in regard to the innovation performance the French ICT sector performs only within the average. Especially the growth in innovation performance is poor.

Nevertheless the SBSS subsector has become one of the major driving forces for the development of the French ICT sector. Especially the SBSS sector is dominated by a broad range of small and medium sized companies and a few of the global leaders in the software sectors exist in France. Due to this France is also part of the group of Independents.

ex o d n Number of of Number persons employed (1000) Production Value (10^9) VA at cost factor (10^9) Contributio n to GDP Share of population Index Level of innovation I growth in innovation performanc e

France 366,449 49,7923 25,5158 2,63% 1,42% 0,48 0,20

EU-27 2785 326 180 2,65 % 1,23% 0.17 0,38

7.1. Key Actors Policy In France there are three main actors at the moment involved in the ICT/SSBS policy. First of all we have to mention the Secretariat d’état chargé de la prospective, de l’evaluation des politiques publiques et du développement de l’économie numérique (Secretary of State in charge of exploration, appraisal of public policies and development of the digital economy), which has the responsibility for Forward Planning, Assessment of Public Policies and Development of the Digital Economy and especially for the development of the recent Plan Numerique 2012.

Another important actor is the Ministry in charge of Research121, which is responsible for the policy of higher education, research, new information and communication technologies and space. This includes also the promotion for ICT/SSBS related R&D. Under its patronage the National Agency for Research122 (Agence Nationale de la Recherche (ANR)) was founded in 2005 to fund research projects according to the priorities identified by the Government. The ANR is oriented towards financing public research as well as private research. It is aimed at enhancing the production of knowledge on the one hand and at developing

121 http://www.enseignementsup-recherche.gouv.fr/ 122 http://www.gip-anr.fr/

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partnership between public and private sectors on the other hand. Main research networks managed under ANR concerning ICT are:

• Réseau National de Recherche en Télécommunications (RNRT) • Réseau National de recherche et d’innovation en Technologies Logicielles (RNTL) • Réseau pour la Recherche et l’innovation en Audiovisuel et Multimédia (RIAM)

Last, but not least the Ministry of Industry is another actor. It founded the Agency for Industrial Innovation (AII) in 2005. The organisation was set up to promote the development of industrial activities of high technology with two objectives: high qualified employment and exports. It selects and helps initiatives coming from enterprises and that aim to concept and produce a new and innovating product, implying a technological break. The AII is oriented towards big French companies to support exceptional R&D efforts, as well as towards French medium-sized high-tech firms planning activities on a global scale. In summer of 2007, the new government decided to integrate the AII within the OSEO group. OSEO was founded in 2005 by bringing together ANVAR (French innovation agency) and BDPME (SME development bank). It has a public status and is under the aegis of the Ministry of Industry. The mission is to provide assistance and financial support to French SMEs and VSEs in the most decisive phases of their life cycle. OSEO covers three areas of activity:

• Innovation support and funding • Funding investments and operating cycle • Guaranteeing funding granted by banks and equity capital investors

In total this changes reflect also the development of ICT and SSBS related policies.

7.2. Key Initiatives Most recently is the initiative Development Plan for the Digital Economy France Numérique 2012 – Plan de développement de l’èconomie numérique (Digital France 2012)123, which was adopted in the summer of 2008 and is now implemented. The overall aim of it is to restore growth and modernise the country. The actions in the plan are structured around four core priorities, listed as follows:

123 http://francenumerique2012.fr/html/france_2012.html

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• to enable all citizens to access all digital networks and services • to develop the production and supply of digital contents • to increase and diversify the use of digital services by companies, public administrations and citizens • to modernise the governance and ecosystem of the digital economy

The government is proposing a raft of 154 measures under its digital economy plan including moves to give all French inhabitants broadband access by 2012, up from 54 % today. At present one to two million people are excluded from high speed internet access. Under the France Numerique 2012 plan, broadband access will be available to everyone for less than EUR35 per month from 2010. Moreover, 400 cyberbases will be created in schools over the next five years and schools, which already have access will be modernized.

While broadband access (first priority) and the diffusion of digital services (priority three) are in general more demand-side oriented, the production and supply of digital content as well as the modernization of the governance and ecosystem of digital economy are relevant for the ICT/SSBS sector. Each of them has several sub-targets, to which a various number of actions are attached.

The digital content includes the improvement of the diffusion of audiovisual, cinematographic and music contents; the diffusion of public and proprietary content; guarantee the status of data protection; reform the commission for private copy; assure the diffusion of written content (books) and press; develop the games sector; develop the software sector; stimulate mobile services and increase the development and use of computer simulations (Améliorer la diffusion des contenus cinématographiques, audiovisuels et musicaux; diffuser les contenus publics et patrimoniaux; Garantir le statut de l’hébergeur de données; Réformer la commission pour copie privée; Sécuriser la diffusion de l’écrit et le développement de la presse; Développer le secteur du jeu vidéo ; Développer le secteur du logiciel; Stimuler les services sans contact pour les usages mobiles; Accélérer le développement et l’usage de la simulation numérique.) To the development of the software sector three actions are attached: creation of at least ten centres for software and ICT in key cities for the sector; promote a separate declaration of prices for operating systems for pre-installed systems ; enforce the unbundling of operating systems and computers). The modernization of the governance and ecosystems includes fields

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like adapting the policies for innovative SMEs ; enforce research and development within ICT ; reorganise responsibilities for the digital economy within the government, create better governance for the digital challenge ; create a governance for administrative information systems across the whole government ; support the development of an European and International Internet governance (adapter les politiques publiques dans le domaine des PME innovantes du numérique; Dynamiser la recherche et le développement dans les TIC; Adapter l’organisation de l’État aux enjeux du numérique ; Une gouvernance rationalisée adaptée aux enjeux du numérique; Une gouvernance transverse des systèmes d’information de l’État; Faire émerger une gouvernance européenne et internationale de l’Internet). All of these named targets and the attached actions can have an influence on the development of the SSBS/ICT sector, but before the Plan Numerique there was also some activities especially in the R&D area.

The initiative which had a influence on the R&D landscape since the publication of the Innovation and Research Act and the 2005 Pacte pour la recherche is probably the competitiveness clusters program. Presented commonly as the most important recent innovation policy development in France, the pôles de compétitivité concept was launched in September 2004124. The initiative aimed to strengthen the competitiveness of the French economy by developing collaboration between research institutes, firms and education organisations in a given geographical area. Cluster members are eligible for direct aid, tax incentives and privileges for accessing funding sources. From more than 100 proposals, 66 competitiveness clusters were selected in 2005, of which six are high-level ones labelled pôles de compétitivité mondiaux and ten pôles de compétitivité à vocation mondiale. Five of them are devoted mainly to ICT. But a closer look reveals the importance paid to ICT.

Three were labelled pôles de compétitivité mondiaux (from six reaching this level):

• SCS (Région Provence Alpes Côte d'Azur), • SYSTEM@TIC (Paris area), • MINALOGIC (Grenoble area),

124See. www.competitivite.gouv.fr/

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Two correspond to pôles de compétitivité à vocation mondiale (from ten reaching this level):

• Images et Réseaux (Bretagne), • Cap Digital (Paris area, formerly, IMVN: Imagerie, Multimédia et Vie Numérique)

7.3. Key Findings The initiative of pôles de compétitivité followed the trend to regional based innovation strategies. For France this constitutes a break from a rather top-down to a bottom-up philosophy with competition orientation between initiatives on the regional level. Within the recently adopted Plan Numerique and especially it’s process of creation this development took up. In the follow up actions like the creation new software and ICT in clusters for the development of the sector seems to be consequent continuation. In General the Plan Numerique marks a change in the French policy that for a long time put no special attention to the ICT or in particular the SSBS sector.

7.4. Contact Secretariat d’état chargé de la prospective, de l’evaluation des politiques publiques et du développement de l’économie numérique

Hotel de Broglie

35-37, rue Saint-Dominique

75007 Paris

Ministère de l’Enseignment supérieur et de la recherche (Head Office of ANR)

1, rue Descartes

75231 Paris

OSEO registered office

27-31, avenue du Général Lecierc

94710 Maisons-Alfort

8. GERMANY

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Germany is the largest economy in the European Union and has the second largest IT sector in absolute values (416.000 employees, 51 billion Euro production value). However the German IT industry has since long a certain weakness. The i2010 mid- term review states that Germany is just outside the leading group of countries though all Information Society indicators are clearly above the average. In fact the share of IT employment in the total workforce (1,03 %) and the contribution of SSBS sector (NACE 72) to GDP (2,13 %) are both below EU average. This means that the German economy has no particular specialization in ICT or SBBS. Regarding the innovation performance the German ICT sector is among the three most innovative countries.

The SBSS subsector has become a major driving force for the development of the German ICT sector. The SBSS sector is dominated by abroad range of small and medium sized companies though a few of the global leaders in the software sectors are located in Germany. Due to this Germany is also part of the group of Independents.

ex o d n Number of of Number persons employed (1000) Production Value (10^9) VA at factor cost (10^9) Contributio n to GDP Share of population Index Level of innovation I growth in innovation performanc e

Germany 416,048 51,5584 31,5732 2,13% 1,03% 0,45 0,67

EU-27 2785 326 180 2,65 % 1,23% 0.17 0,38

8.1. Key Actors Policy Due to the federal structure of Germany the structure of the German innovation and research system and its political governance of it is diversified and decentralised. There are many actors on federal (Bund) as well as on regional level (Länder) that interact within the ICT and SSBS sector. Because of comparability we want to concentrate in this overview on the most important actors on the national level.

The policy activities in the field of ICT and SSBS are framed by two technology and innovation policy strategies, the “Hightech-Strategie” as a general innovation and technology policy with horizontal as well as vertical aspects and the "iD 2010 - Informationsgesellschaft Deutschland 2010" as a specific innovation strategy for the

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ICT sector. The implementation and coordination of both programmes in field of ICT is done by a national IT-Summit (Nationaler IT-Gipfel), which was 2006 for the first time established on initiative of the head of the government, Chancellor Merkel, as consequence of the growing importance of ICT for the German economy. Since this the summit is held yearly in November. There representatives of government, research and business meet and want to improve the coordination and implementation of measures within the strategies and to create new topics for further measures. Most of the resulting activities are carried out by two federal ministries:

• The Federal Ministry for Education and Research (Bundesministerium für Bildung und Forschung BMBF) o Department 5: Key Technologies – Research for Innovations; within this department exist the unit 52 for ICT and New Services with several further sub-units • The Federal Ministry for Economy and Technology (Bundesministerium für Wirtschaft und Technologie BMWi) o Department 6: IT, Communications and Post Policy Affairs; within the department exist a sub-department for Information Society and Media with several sub-units To implement resulting projects they use different project agencies (Projektträger): • German Aerospace Centre (DLR) • Projektträger Multimedia (responsible for programs of the BMWi) • Projektträger Neue Medien in der Wirtschaft (responsible for programs of the BMWi) • Projektträger Informationstechnik (responsible for programs of the BMBF) • VDI/VDE Technology Centre Information Technology (VDI/VDE.IT), which is mainly responsible for programs of the BMBF

Besides this, several other organisations and agencies exist for different purposes, e.g. the Joint commission for Education Planning and Research promotion to coordinate between the federal and regional level. Especially within the field of research funding the Deutsche Forschungsgemeinschaft (German Research Foundation) plays an important role, which provides different kind of grants for research projects as well as institutional funding for research institutions.

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8.2. Key Initiatives As described above the Hightech-Strategy established an overall framework for innovation and technology policy in Germany. It places innovation at the centre of political efforts and develop specific strategies for promising technological fields:

• Innovations for a safe and healthy life (comprising for instance medical technology, security technologies, vegetable resources, energy and environmental technologies), • Innovations for a mobile and communicative life (here, information and communication technologies are addressed, besides vehicle and transport technologies, aerospace, maritime technologies, as well as services • cross-sectional technologies such as nanotechnology, biotechnology, microsystems, optical technologies, materials, and production engineering • Beside of these vertical, thematic fields that are split up into 17 Hightech sectors there are several horizontal initiatives to boost science and research, qualification and competitiveness, high-tech firm foundations and diffusion of technologies. In opposite to earlier innovation and technology policies all concerned ministries and there competences were integrated and coordinated within this strategy.125

The other major framework, which directly address the ICT sector, is the "iD 2010 - Informationsgesellschaft Deutschland 2010". It was derived from the EU i2010- Strategy. Main targets of this overall Information Society Strategy are the further expansion of broadband Internet, the further digitalisation of radio broadcasting and new services, a competitive regulation strategy, a modernisation of media rules, further digitalisation, improved security, the provision of modern online services and e-government structures and increased participation.126

In the follow up of these two framework strategies the BMBF and the BMWi developed a common ICT research strategy (IKT 2020), which describes in detail the demand side oriented research promotion. It identifies several promising fields

125 See Bundesministerium für Bildung und Forschung: Ideen zünden. Die Hightech-Strategie für Deutschland. Bonn, Berlin 2006. (http://www.bundesregierung.de/Content/DE/Artikel/2006/08/__Anlagen/2006-08-30-bmbf- langfassung,property=publicationFile.pdf) 126 See Bundesministerium für Wirtschaft und Technologie : iD 2010. Informationsgesellschaft Deutschland 2010. (http://www.bmwi.de/BMWi/Redaktion/PDF/I/id2010- programm,property=pdf,bereich=bmwi,sprache=de,rwb=true.pdf)

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for research promotion within ICT. Some of them are highly related to the SSBS sector:

• Grid Computing (Networking of various processors, digital services, complex applications and intelligent systems on networked high-performing computers) • "Internet of things" (accessibility of devices via individual connections with networks) and machine-to-machine communication through smart labels or RFID. • IT security and reliability (such as security systems in factories, navigation systems in airplanes, traffic and automobile assistance systems (E-security) or early warning systems) • Human-Technique-Interaction (user friendliness and interfaces), such as multimodal interaction or language technologies • Simulation techniques (in materials, physics, development and construction of vehicles) • Embedded systems (e.g. concerning antilocking systems in automobiles, control systems, telephone systems, medical devices). These software- intensive systems are considered an important growth factor for the German economy

The overall approach of the program is based on two dimensions. Firstly the strategic instruments, which are mainly horizontal activities. It contains four elements:

• “Leitinnovation” (Highlight innovations) – innovations in the application of ICT, that are very promising and require strong vertical cooperation between research and industry like ICT systems for health or car electronics • “Technologieverbünde” (technology networks) – horizontal cooperations of research and business within a specific technological field to develop roadmaps for technological innovations in this field • “Dienste-Plattform” (service platforms) - similar to “Technologieverbunde”, but with the aim to develop platforms for new services • “IKT-spezifische KMU-Förderung” (ICT specific SME promotion) – funding of research intensive SME in field of ICT

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These activities should take place within three identified basis technologies: 1. Electronics and Microsystems (e.g. organic electronics, magnetic microsystems or RFID), 2. Software systems and knowledge processing (e.g. grid computing, software intensive embedded systems, software engineering or security and trust), 3. Communication technologies and networks (e.g. Standards for networks, senor networks, trust and security of networks). Additionally there is the field of future technologies containing themes like electronic systems of the future, organic computing or photonic.127

The most relevant programs that result from this are split up according to the responsibilities of the two ministries and carried out by the different project agencies:

Federal Ministry for Education and Research (BMBF):

Projektträger Informationstechnik at DLR: this project agency has four field of activities:

• ICT-Strategy and EU-Coordination, i.e. the ICT 2020 overall program, national contact point for EU ICT program, Joint Research Initiatives • Communication technologies, i.e. four programs with focus on 1) photonic communication networks, 2) wireless communication networks, 3) display technologies and 4) new components and materials • Electronics and electronic systems, i.e. funding of research networks in the field of silicon based micro and nano electronics • Software systems and knowledge technologies, which is highly relevant for the SSBS sector. It contains several research foci with underlying measures: • SME innovative: ICT (KMU innovativ: IKT) - this program is described above as part of the strategic instruments within ICT 2020 program • Software Engineering - it aims at measures and projects to improve software engineering methods and integrating new approaches as SOA, web services etc as well as promoting the use of such methods • Software Intensive Embedded Systems – it aims at research on new architectures and models for embedded software

127 See Bundesministerium für Bildung und Forschung: IKT 2020. Förderprogramm Informations- und Kommunikationstechnik. Berlin, Bonn 2007. (Online: http://www.bmbf.de/pub/ikt2020.pdf)

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• Grid Computing – aims at the promotion of basic research for grid computing. It addresses the development of grid middleware or aspects like security, trust and integrity. • Human-Machine-Interaction – it aims mostly on the interaction with robotic in private (AAL) as well industrial environment • Security and trust/reliability – focus on development of secure and trustworthy IT, especially software systems as well as new approaches to test, verify software for security relevant issues • Virtual and augmented reality – aims at the development of solutions for use in industrial areas like automotive or aeronautic sector • Internet of Things – focus mainly on the use of RFID and similar solutions within the business process, f. e, logistic chains, inventory management etc. • High Performance Computing – targets the development of new, especially software solutions for high performance computing128

Institutional funding: the BMBF is also responsible for the institutional funding of the most basic and applied research organisations in Germany like Max-Planck- gesellschaft, Wissengemeinschaft Leibniz as well as for parts of the DFG. Most of these institutions contain institutes or projects with a high relevance for the SSBS sector, e.g. the Fraunhofer Society with its ICT network, that combines 15 institutes, which primarily research in the field of ICT and software.

The BMBF planned to spend round about 300 Mio. € yearly within the above mentioned as well other programs in the field of ICT, in total round about 1.500 Mio € between 2007 and 2011. Additionally they planned to spend a little bit more, round about 1.700 Mio. €, in ICT related institutional funding for Max-Planck, DFG, Fraunhofer etc.129

Federal Ministry of Economy and technology(BMWi)

Projektträger Multimedia at DLR has four focus areas as well as a series of individual, so called strategic projects:

• Internet of Services – aims at the development of service and knowledge infrastructure for the future internet. It mainly encompasses the THESEUS

128 See http://www.pt-it.pt-dlr.de/de/767.php 129 See Bundesministerium für Bildung und Forschung: IKT 2020. Förderprogramm Informations- und Kommunikationstechnik. Berlin, Bonn 2007. (Online: http://www.bmbf.de/pub/ikt2020.pdf)

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program which is split in 5 use cases as well as an program for SME. In both cases strong cooperations between research and private business is intended. • Internet of Things – consist of two programs; Next Generation Networks with projects between research and business on the infrastructure for a network of things; AUTONIK as program for research intensive SME to develop simulation systems • Internet of Energy – it mainly contains the program E-Energy with several projects which intent the improving of energy network by using ICT 130 • Mobile Internet – the program SimoBIT aims at develop solutions for the use of mobile internet in business and administration

Projektträger IT-Application; Digital Integration; IT Security at the DLR, which has four fields of activity:

• E-Business Solutions for SME and handcraft - a network initiative to increase the use of electronic business within SME and handcraft • E-Business Standards – the e-class project aims at the international standards and descriptions; the PROZEUS program intend to increase the use integrated processes in SME • Knowledge Management – an initiative to improve the use knowledge management in SME 131 • REPROC – an initiative for electronic procurement in administrations.

The BMWi planned to spend between 60-80 Mio. € yearly within the above mentioned as well other programs in the field of ICT. In total round about 400 Mio € between 2007 and 2011. It also supports in the frame of the initiative Kompetenznetze Deutschland (former kompetenznetze.de) eight networks with ICT and software focus.132

Beside of this activities within the framework of ID2010 and IKT 2020 the federal government support the integration in of modern ICT technologies like RFID in classical sectors in several ways as well in other fields. For such purposes the German Government currently runs support programmes in order to foster the further implementation of e-Government in the public administration (for instance

130 See http://www.pt-multimedia.de/ 131 See http://www.dlr.de/pt/desktopdefault.aspx/tabid-3190/ 132 See http://www.kompetenznetze.de/.

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with the measures "Deutschland online" or "BundOnline 2005"), to support broadband access (e.g. the "Breitband-Offensive") and participation (e.g. "Online Kompetenz für die Generation 50plus", the competition "Wege ins Netz", or "Girl's Day"). Another major activity is also the so called “Spitzencluster-Wettbewerb” (cluster of excellence competition), which is as well as other activities initiated by the Hightech-Strategy. Another important activity, the support for new firms in new technologies, is performed by the KfW. The state-owned Group (80 % Federal Government, 20 % federal states) offers loans and guarantee instruments to finance and re-finance investment in new technologies. This task is the major part of KfW Mittelstandsbank, which launches support programmes for small and medium-sized enterprises as well as for firm foundations through loans equity capital, consultancy, etc.,

8.3. Key Findings ICT is an important activity field in the German economy as well as the R&D landscape, however Germany's main strengths are in further fields such as in the vehicle and the mechanical engineering sectors whose competitive advantages can be maintained through the application of ICT and especially SSBS. Due to this one of the main challenges is the support of interfaces between ICT and these technology fields, in which Germany has its strength and comparative advantages. The activities, which are framed by Hightech-Strategy and ID2010 focus on demand side measures, although other elements like network building are also part of different, often not sector specific programmes. Due to this most of the governmental funding is located within the ICT R&D research funding.

Although most of the R&D in ICT is done by private business, the absolute number of public spending in the ICT R&D is huge. Most of the money is used to support ICT-related research through institutional funding of research organisations, thematic programmes directed towards researching actors, and networks. The focus is on co-operations between public and private research (PublicPrivatePartnerships), spin-offs, on the attraction of researchers, and on the participation of small and medium-sized enterprises as important actors of the German business structure. The way of administrating these programmes is a specific characteristic of the German innovation system. On the federal level as well as of the federal state level, the respective Governments define policy objectives

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and design policy measures, whereas project organisations or Projektträger are responsible for implementing and administrating these policy measures.

As a conclusion it is to state, that Germany has no individual, independent strategy related to the SSBS sector. Like the most other countries it pursues an umbrella policy that include all parts of ICT, but in opposite to a lot of countries Germany has within this policy a strong focus on relevant areas for SSBS like Software Engineering, Internet of Services, Grid Computing etc. This areas are addressed with own programs and other activities.

8.4. Contacts Bundesministerium für Bildung und Forschung Informations- und Kommunikationstechnik; Neue Dienste MinDirig Dr. Manfred Dietrich Heinemannstr. 2 53170 Bonn

Projektträger im DLR - Informationstechnik Linder Höhe 51147 Köln Tel. 02203 – 601-2862 Fax: 02203 – 601-2842 E-Mail: [email protected]

Bundesministerium für Wirtschaft und Technologie Informationsgesellschaft und Medien – Uabt VI B MinDirig. Bröhl Scharnhorststr. 34-37 10115 Berlin

Projektträger im DLR -Konvergente IKT/Multimedia Dr. Horst Blume Linder Höhe 51147 Köln Tel.: +49 2203 601-4090 Fax: +49 2203 601-3017 E-Mail: [email protected]

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9. GREECE

ICT is still playing a minor role for the Greek economy. The i2010 mid-term review states that the country is making steady but slow progress in the implementation of the Information society and is generally lagging behind many other EU countries. From all EU member states Greece’s SSBS sector (NACE 72) is accounting for the lowest share of GDP (only 0,75 %) and only 0,75 of the employed persons work in the SSBS sector (NACE 72). According to the Sector Innovation Watch the country’s innovative performance is far below the European average. On the whole Greece is clearly an ICT Dependent.

Number of of Number persons employed (1000) Production Value (10^9) VA at factor cost (10^9) Contributio n to GDP Share of population Index Level of innovation Index of growth in innovation performanc e

Greece 20,671 1,725 0,8608 0,75% 0,43% n/a n/a

EU-27 2785 326 180 2,65 % 1,23% 0.17 0,38

9.1. Key Actors Policy There are several actors involved within the field of policies in the field IS and ICT/SSBS. On the one hand there is the Ministry of Development is in charge of the development and implementation of national policy for scientific research and technology, implementation of policy in the area of quality in industrial production and supervision of entities active in the industrial sector. The Ministry of Development also manages the Operational Programme for Competitiveness. On the other hand there is Ministry of Economy and Finance, which set up a Special Secretariat for Digital planning and a Special Management Services. Both are in charge of running different parts of the Operational Program for the Information Society.133

This program refers to the Digital Strategy which was created by The Information Technology Committee, set up by the ministerial council, and which is still

133 See http://ec.europa.eu/enterprise/e-bsn/policies/national/greece/opis_en.html and http://www.infosoc.gr/infosoc/en-UK/epktp/

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supervising the progress of the interventions for the Information Society. The committee is the common platform for political planning, coordination, monitoring and development of the Information Technology at a national level and esp. in the Public Sector. is the highest institutional body for the planning of the OPIS and for the development of IT.134

9.2. Key Initiatives In 2005 the Information Technology Committee developed an integrated Digital Strategy 2006-2013. This strategy aims at the creation of all the necessary conditions for the materialization of a „digital leap“ in terms of productivity and quality of life in the period 2006-2013. This new digital strategy sets as the country’s basic objective, the development of Information and Communication Technologies and of new skills. The strategy meets the challenges of the 4th Operational Period (2007-2013) and is compatible with the new European policy for the Information Society „i2010“ and with the „Jobs and Growth“ action plan, both of which were worked out in the first semester of 2005.

The main objectives are:

• Enhanced business productivity through the use of ICT, and new skills, ¾ Boost ICT uptake by businesses ¾ Offer a large number of digital services to businesses ¾ Support the ICT sector as a pillar of the Greek economy ¾ Support entrepreneurial activity in ICT-enabled ventures • Improved Quality of Life through ICT ¾ Improve citizen welfare through ICT ¾ Develop e-services for the citizen

It is implemented through three main activities a) the Operational Programme “Information Society”, b) the new law for Public Private Partnerships and c) the new law for investments, which makes specific provisions for broadband infrastructure and services and investments in the technology sector. The latter activities are accompanied by the Broadband Action Plan 2008.135

134 See http://www.infosoc.gr/infosoc/en-UK/sthnellada/committee/ 135 See http://www.infosoc.gr/NR/rdonlyres/41CB3A72-8C7A-47D6-B21C- 5FC8786DEA6F/3070/DIGITALSTRATEGY.pdf

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The central activity is therefore the Operational Programme for the Information Society (OPIS).136 The program, which is co-funded by the European Regional Development Fund and the European Social Fund, pursue several goals:

• Improvements in services to citizens and businesses, • Better quality of life (ICT applications in the health and welfare, environment and transport sectors). • An education system and research adapted to the digital age (education employing new technologies, networking of schools and universities). • Dynamic economic growth (creation of new businesses, emergence of new sectors, increased productivity and competitiveness). • Increased employment (new jobs, improvements and adjustments to human resource skills to cover new labour market needs, development of new forms of work such as tele-working). • Highlighting and promoting Greek culture via new media, • Utilising new technologies in the mass media, • Equal participation of the regions in the global arena, • Developing national communications infrastructure, • Protecting citizen and consumer rights, protecting competition conditions, democratic scrutiny in the digital age.137

9.3. Key Findings As clearly shown by the goals of the Digital Strategy the priorities of Greece are focused on demand side oriented measures like broadband accessibility. Furthermore they aim at increasing the ICT diffusion and use within business in general. All this measures can clearly be seen as horizontal policies because they don’t address the ICT/SSBS sector in specific. Also new regulations like the one on capital venture are only partly addressed on ICT and SSBS companies. Because of this Greece fit into the group of the dependent countries.

9.4. Contact Details OPIS

11 Navarhou Nikodimou & Voulis

136 See http://ec.europa.eu/enterprise/e-bsn/policies/national/greece/opis_en.html 137 See http://www.infosoc.gr/NR/rdonlyres/41CB3A72-8C7A-47D6-B21C- 5FC8786DEA6F/3070/DIGITALSTRATEGY.pdf

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Athens

105 57

Tel: +30 210 3722400

10. IRELAND

In the ICT field Ireland has been the economic growth region of the 1990s and early 2000s. On the other hand the country is not in the vanguard of the Information Society development. Ireland’s largest ICT subsector is the computer and related activities sector (NACE 72) which doubled over the last 10 years.138 Today some 1,66 % of the employees work in the SSBS sector (NACE 72) that accounts for 4,72 % of the national GDP. Both values are among the highest in Europe. The sector innovation arrived to the conclusion that Ireland has by far the best market advantage but is rather weak in other innovation indices. All this is evidence that Ireland has been the extended workbench of globally operating ICT firms. Consequently we have classified Ireland as an Intermediary.

Number of of Number persons employed (1000) Production Value (10^9) VA at factor cost (10^9) Contribution to GDP Share of population Index Level of innovation Index of growth in innovation performanc e

Ireland 34,816 8,7655 3,8749 4,72% 1,66% n/a n/a

EU-27 2785 326 180 2,65 % 1,23% 0.17 0,38

10.1. Key Actors Policy Two departments are involved in policies relating to the ICT/SSBS sector in Ireland. First of all the Department of Enterprise, Trade and Employment, which has the responsibility for a number of agencies entrusted with implementation and formulation of the policy programmes NDP and SSTI . Secondly the Department of Education and Science that is responsible for the funding of universities and the institutes of technology, and their agencies.

The main agencies of the Department of Enterprise, Trade and Employment are:

138 See REDICT Country Report Ireland and OECD (2009)

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Industrial Development Agency (IDA) promotes Ireland as a location for R&D for an increasing range of R&D functions and encourages firms in Ireland to maximize their involvement in global R&D activities to exploit international technology transfer opportunities. IDA has established a new Research Collaboration and Commercialisation Group which will focus on key focus areas of relevance to IDA client firms: ICT Hardware and Software, Biology, Life Sciences, and Medical Technology.

National Software Directorate (NSD) constitutes the focal point for the software industry in Ireland. The agency coordinates the government policy towards the software industry. NSD provides information and statistics related to the industry and to initiate, facilitate and co-ordinate actions which result in the overall growth of the Irish software industry.

Enterprise Ireland is the government agency responsible for the development and promotion of the indigenous business sector. It offered divers supports and opportunities to emerging software firms during the late 1990s.

Office of Science, Technology and Innovation (OSTI) is responsible for the development, promotion and co-ordination of Ireland’s science, technology and innovation policy as well as Ireland’s policy in European Union and international research activities. OSTI is also the overall co-ordinator for the Research Technological Development and Innovation (RTDI) measure in the NDP Productive Sector Operational Programme.

For the Department of Education and Science the Science Foundation Ireland (SFI) is the key organisation in the implementation of the NDP 2007-2013 and the Strategy for Science, Technology and Innovation 2006-2013. SFI advances cooperative efforts among education, government and industry that support its fields of emphasis and promotes Ireland’s ensuing achievements around the world. The research agency aims to upgrade research capability into world class in niche areas of ICTs and biotechnology. A significant portion of its budget is earmarked for Irish university-based research centres of excellence that incorporate strong involvement from MNEs and local firms.

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10.2. Key Initiatives The National Development Plan for 2000-2006 was a nationwide plan to strengthen and improve Ireland’s international competitiveness, to continue sustainable national economic and employment growth, to foster balanced Regional Development and to promote Social Inclusion. These objectives were pursued through several Operational Programmes. The Economic & Social Infrastructure Operational Program (ESIOP) and the Employment and Human Resources Development Operational Program (EHRDOP) were the largest programs, accounting for 80% of the total expenditure. The plan involved contribution from public, private and EU Funds. It was recently succeeded by the NDP 2007-2013. This new Plan is almost completely funded from domestic sources, the vast bulk of it by the Central Exchequer. EUR 180 billion are planed to be invested.139 Within the field of fostering innovations the Strategy for Science, Technology and Innovation 2006-2013 constitutes one of the principal pillars of the NDP, will strive towards a vision of an Ireland in 2013 that is internationally renowned for the excellence of its research, and is to the forefront in generating and using new knowledge for economic and social progress. Nevertheless, the software sector could benefit from sub-programs within that category, in particular, the World Class Research and Enterprise STI programs. The World Class Research Program covers research in third level institutions and the science foundation. The Enterprise STI Program (managed by Enterprise Ireland and the IDA) is responsible for tasks as transforming R&D activity in enterprise, collaboration between industry and higher educational institutions, and releasing the commercial potential of Ireland’s research community.

In addition it must be mentioned that under the pillow of the Institute for Technology and the Irish universities 23 institutions and labs for R&D in the field of ICT and especially SSBS exist. Examples are Research Institute for Networks and Communications Engineering (RINCE) and the Telecommunications Software and Systems Group (TSSG)

Beside of this measures Ireland adopted and implemented two strategies, Implementing the Information Society in Ireland (1999) and New Connections (2002), that aimed at demand side factors of the ICT/SSBS sector like eGovernment, eSkills and similar targets. This will be continued with the forthcoming

139 See http://www.ndp.ie/docs/NDP_Homepage/1131.htm

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new action plan for the knowledge society and eGovernment. This effort is coordinated by the Information Society Policy Unit (ISPU) in the Department of the Taoiseach. It has overall responsibility for developing, co-ordinating and driving implementation of the Information Society agenda and aims at ensuring the development of a fully participative, competitive, knowledge-based Information Society in Ireland. Within the development it has the responsibility for the five major areas that will be included in the program:

• further developing the potential of eGovernment; • development of an inclusive Knowledge Society; • management of the Access, Skills and Content (ASC) Initiative; • the National Payments Conference; • responding to EU and international reporting requests on the Information Society in Ireland.140

Most recently is the in July 2009 adopted “Best Connected”-Strategy, which is a Software Strategy placed within the NDP and the forthcoming new action plan for a knowledge society. This strategy for development of the indigenous software industry (2009-2013), which is carried out by Enterprise Ireland on the base of a report by IDC, identifies the structural change of the software business through new trends (e.g. changing end-user demands, new vendor strategies, changes in the value chain or new delivery models) as a possibility to strengthen the Irish software industry. The major aim is to develop a “Software Ecosystem”. Therefore it proposes an action plan that is targeted at increase the connections between industry, academia and government, the build-up of clusters, skill initiatives, funding measures and improved markets.141

10.3. Key Findings Ireland pursued for a long time a clearly a non sector specific policy. Especially the policies to maintain a healthy business environment, for example by low corporate tax, incentives for FDI, enabled the success of Ireland in the 1990s to attract foremost ICT and SSBS companies. This was enforced by demand side orientated

140 See http://www.taoiseach.gov.ie/eng/Department_of_the_Taoiseach/Policy_Sections/Knowledge_Society_ and_eGovernment/ 141 See http://www.enterprise-ireland.com/NR/rdonlyres/117B1162-7B2D-41DC-81DB- A4E6B8E48F82/0/SoftwarePublishedstrategy.pdf

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information society initiatives like skilled labour force as well as the increased diffusion of ICT in society and business. In the follow up the Irish government went on with this policies to continue this success. Although the measures are clearly horizontal, in reality they attract by default nearly exclusively foreign ICT and SSBS companies in form of FDI. These tendencies become also obvious in the concentration of R&D funding as well as the applied and basic research in the field of ICT and SSBS. The new “Best Connected”, which was presented in July 2009, will may enforce this change, but a final assessment is due to the novelty not possible.

10.4. Contact Details Department of Enterprise, Trade and Employment 23 Kildare Street Dublin 2 Tel: +353 1 631 2121 Fax: +353 1 631 2827 E-mail: [email protected]

Science Foundation Ireland Wilton Park House Wilton Place Dublin 2 Tel: +353 01 6073200 Fax: +353 01 607 3201 E-mail: [email protected]

IDA Ireland Wilton Place Dublin 2 Tel: +353 1 603 4000 Fax: +353 1 603 4040 E-mail: [email protected]

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11. ITALY

Though Italy is one of the biggest European economies its ICT sector is for long facing a structural weakness. The computer and related activities subsector (NACE 72), however, performs somewhat better than the rest of the Italian ICT Sector. With a total of 368.463 employees (1,46 % of the total workforce) or the subsectors is the third largest in Europe. With a share of 2,45 % of the GDP the SSBS sector (NACE 72) productivity is slightly below EU average. The structure of the sector is dominated by small and very small enterprises that are traditionally less innovative that large corporations or medium sized companies. As a result both innovation performance indicators calculated by the Sector Innovation Watch remain clearly below average. Due to its mere size we consider Italy barely as an Independent.

Number of of Number persons employed (1000) Production Value (10^9) VA at cost factor (10^9) Contributio n to GDP Share of population Index Level of innovation Index of growth in innovation performanc e

Italy 368,463 37,6313 17,5514 2,45% 1,46% 0,06 0,22

EU-27 2785 326 180 2,65 % 1,23% 0.17 0,38

11.1. Key Actors After the change of government in 2008 several changes took place. As a consequence the responsibilities for ICT/SSBS policies have changed again after 2006. Major player is the Ministry of Public Administration and Innovation. The Ministry is tasked among others with the definition of the Italian eGovernment strategy. The Ministry is composed of two departments that form part of the Presidency of the Council of Ministers (Prime Minister's Office) namely; the Department for Civil Service and the Department for Innovation and Technologies. The mission of the Department for Innovation and Technologies’ (DIT) is to provide leadership and assume responsibility for the ePolicies of the Italian Government, including technological innovations for public administrations, citizens and businesses. Among other tasks, the DIT ensures consistency among the digital innovation policies conducted at central and local levels while coordinating projects involving several administrations. In connection with the relevant administrative

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authorities the Department also develops and promotes the diffusion of digital innovation policies aimed at improving the access of citizens and businesses to online services, including personal identification systems. The Department furthermore acts as an observatory of the Information Society and the digital divide monitoring the projects implemented by central and local administrations.

Another important player in this field is the Committee of Ministers for the Information Society, which is charged with devising and/or endorsing the strategic action lines pertaining to Information Society in Italy. It coordinates the actions of the various government ministries and agencies. This Committee involves several senior ministers and it is chaired by the Minister for Public Administration and Innovation.

The Italian National Agency for Digital Administration (CNIPA) was created in July 2003. Placed under the direct authority of the Presidency of the Council of Ministers, it replaced the Authority for IT in Public Administration (AIPA), an independent body that had been created in 1993. CNIPA operates in partnership with other public and private actors: central and local administrations, public agencies, citizens, businesses, ICT companies, universities and research centres. The primary objective of CNIPA is to support the Italian Public Administration in the efficient use of ICTs, so as to improve the quality of public services and reduce administrative costs. In each central administration, a senior official responsible for ICT systems is the official referent of CNIPA for ICT matters. The community of the senior officials constitutes an asset in order to coordinate and improve ICT development in Italian Central Administration and ensure an adequate level of visibility on ICT activities. CNIPA is furthermore in charge of the evaluation of Central Government ICT plans, activities and projects, in particular their consistency with the governmental strategies. In this aim, it takes part in the project’s planning phase and issues advices on the techno-economic adequacy of the ICT procurement procedures.

The Inter-ministerial Broadband Committee is responsible for the spread of broadband on the Italian territory was created on 20 December 2006. It is composed of the Minister for Communications, the Minister for Regional Affairs and Local Autonomies and the Minister for Public Administration and Innovation. The strategic objective of the Committee is to ensure access to broadband to everyone, independently of one’s location, by the end of the legislature 2006-2011. To such

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end, the Committee is in charge of the coordination and monitoring of initiatives already taken in this field.

11.2. Key Initiatives Thanks to decentralisation, the Italian regions benefit from an increased autonomy. The regional governments have many competencies in terms of industrial and innovation policies. They have designed and implemented regional Innovation Plans and Information Society Plans. The Central Government keeps the process monitored in order to: control its implementation, and transfer best practices from one region to the other regions. ICT as a policy issue

The Italian government has recognizes that Italy's progress in ICT has lagged behind that of the ICT leaders in the EU, US, and Asia and that this problem is a result of the unfavourable sector structure with far too few innovative medium and medium-large sized companies. As a result the issue of technological innovation and modernisation of enterprises (especially SMEs) by progressively introducing ICTs has become the focus of Italian policy.

In June 2002, the Minister for Innovation and Technologies presented "The Government's guidelines for the development of the Information Society". Actions targeted specifically to the ICT sector are included in the Part III "Transforming the country as a whole": "Stimulating the ICT sector and research is essential for the development of the information society as a whole. ICT research and the ICT industry are the "substrate" of the information society, representing present and future enabling factors for its development" (…). Efforts should focus on strategic sectors for the country and those capable of generating technological spin-offs that can make Italy a global leader. This development must allow the country's evolution from ICT consumer to creator and manufacturer of innovative technologies. Italian firms now have a significant market opportunity in the window created by discontinuity in the use of technology and the simultaneous acceleration in the digitalisation of government.

In the perspective of stimulating the ICT sector and research, the Ministry of Education, Universities and Research, the Minister for Innovation and Technologies and the Ministry for Productive Activities have identified a number of lines of action

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to spur the development of specific initiatives to support applied research and, at the same time, stimulate basic research:

• promote and encourage the training of ICT specialists capable of conducting applied research and facilitate their integration in firms; • encourage the creation and upgrading of broadband networks between universities, public and private research institutes and industrial districts; • provide incentives for the development of joint public-private research projects and the transfer of knowledge/best practices in the ICT sector; • stimulate the public administration to propose and collaborate on research and innovation projects; • foster the transfer and use of innovative ICTs to SMEs and industrial districts; • establish a national research programme for open source software.

In July 2003, the Ministry of Productive Activities and the Ministry of Innovation and Technology jointly developed an initiative entitled "Action Plan for ICT Innovation in the Enterprises" (Piano per l'Innovazione Digitale nelle Imprese). This measure, which is in its second phase since 2005 (II Italian Action Plan for ICT Innovation in Enterprises 2005), aims to provide a comprehensive and integrated framework of measures to promote and strengthen an ICT-based innovation economy. In particular the plan is directed to increase access to technologies by a larger number of Italian firms, particularly SMEs and promote the establishment of innovative enterprises, including ICT companies.

With this plan, the Italian government wanted to foster innovation in Italian industry and business through ICT, particularly in the pivotal stages, to improve productivity and, consequently, business competitiveness. It wishes to implement policies, which support the development of specific high-tech sectors, and to make Italy more attractive to investors. Last but not least, it aims to encourage the transfer of technology from public research centres to companies. This policy is however more indirect (disseminate ICT through the whole economy and traditional sectors such as textile) than direct (support to the ICT industry).

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The change in the government system after the general elections in 2008 might also result in a change of the priorities in research policy, not only in the afore described definition of responsibilities, roles and competences of the new ministers.

11.3. Key Findings Italian policy makers have understood the severity of the weaknesses in the Italian ICT system for quite some years, especially the low investments in education and public and business R&D. However, Italy continues to under perform on most indicators. Besides all awareness of the unsatisfactory situation of the Italian ICT industry and all reforms in the Italian government system fragmentation of policy making for the ICT sector among many Ministries and institutions remains one of the main weaknesses of the Italian innovation system. It reduces the effectiveness of the various programs and supporting activities and finally wastes financial resources. According to expert opinion the most promising activities in support of the Italian ICT sector (especially for promoting R&D and technology transfer) is currently taking place on the regional level: examples are the so called Technologies District "Torino Wireless", established in Piedmont by the regional Government, the Ministry of University and Research and some large firms (STMicroelectronics, Motorola, Telecom Italia) for the development and dissemination of applications of advanced ICT, and the Program Agreement between the Regional Government of Lombardy and the Ministry of University and Research for supporting R&D in the ICT sector in Lombardy.

11.4. Contact Ministro per la pubblica amministrazione e l'innovazione

Dipartimento per l’Innovazione e le Tecnologie

Via Po, 14

00198 Roma

12. MALTA

Due to the small country size, the ICT sector is – at least compared to the European average - quite marginal. However Malta was able to attract considerable FDI in the

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recent decade. Therefore ICT and within this the SSBS sector is one the fastest growing area. In 2006, 36 % of the investment projects brought in by Malta Enterprise were in the field of ICT. Although this development is noteworthy Malta still has to be considered as a dependent.

12.1. Key Actors Policy In the past governmental decade the Ministry for Investment, Industry and Information Technology was in charge of a National ICT agenda that run from 2004 to 2007. After the elections of 2008 Government changed and the newly established Ministry for Infrastructure, Transport and Communication is responsible for the Information Technology. The ministry set up the Malta Information Technology Agency (MITA), which shall deliver and implement the assigned programmes as set out in the National ICT Strategy – The Smart Island 2010. Therefore it is the central driver of Government’s Information and Communications Technology policy, programmes and initiatives in Malta.

12.2. Key Initiatives The Smart Island - The National ICT Strategy for Malta 2008-2010142 is the successor of the National ICT strategy 2004-2007. It has seven priorities:

• Delivering a Next generation ICT environment – aims at infrastructure as well as regulative aspects like IPR • A connected society that bridges the last and the new miles –aims at making ICT a social equaliser • Developing the potential for a smart workforce – aims at education matters for ICT • Putting the e in everything – aims at improving life quality by enforced ICT diffusion in education, health etc. • Reinventing government – aims at eGovernment, eParticipation, eDemocracy in full scope • Taking care of eBusiness – aims at improving of eBusiness towards consumers and business • Developing a world-leading ICT industry – aims at strong growth of the ICT sector

142 See The Smart Island Strategy/Ministry for Infrastructure Transport and Communications: https://mitc.gov.mt/page.aspx?pageid=263

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Most of these points have more then 20 subordinated priorities that should be addressed in programs. Most notably for this review is the last priority “Developing a world-leading ICT industry”, which mainly aims at creating new jobs and companies in Malta. It contains 27 sub priorities that span from creating new markets for ICT in Malta to the creation of test beds. For supporting the SSBS sector several of these priorities like fiscal incentives for ICT investments, start up programs and developing ICT clusters are highly relevant, but have to be implemented in concrete measures.143

Another important initiative is the National Strategic Plan for Research and Innovation 2007-2010 that was approved in 2006. The Strategic Plan's overall objective is to strengthen Malta's research and innovation capacity base in key niche areas as a means to attain increased global competitiveness. Like the Smart Island it also emphasis the importance of the Information and Communication Technology and the financial service sectors respectively for the Maltese economy. It names possible objectives that can be support like increasing the competitiveness of the ICT industry (with a focus on high value added niches) or use technology to improve the quality of life and touristic experience. Introducing IT in non-IT sector. The plan is implemented by the Malta Council for Science and Research.144

12.3. Key Findings The Maltese policy aim at becoming IT-hub at the southern periphery of Europe, which is clearly shown by the efforts that led to two successive national ICT strategies. Though there is a well coordinated but also small research and innovation policy strategies, it is obvious taking the competitive position of Malta into account that in effect the programs are foremost directed towards attracting foreign direct investment. Therefore most of the activities pursue to create a good climate for this by creating attractive conditions related to a educated work force or financial incentives. In difference to other countries it seems that these initiatives are set up for ICT and especially the SSBS sector, but they do not seem to be exclusively because it seems there are similar or related programs to attract financial services or high tech manufacturing.

143 See http://mita.gov.mt/smartisland.html 144 See http://www.mcst.gov.mt/files/uploaded/R&Istartegy.pdf

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12.4. Contact Malta Information Technology Agency

Gattard House

National Road

Blata-I-Bajda HMR 9010

Malta

Tel: (356) 2123 4710

Fax: (356) 2123 4701

E-mail: [email protected]

13. NETHERLANDS

The Dutch ICT industry is the fifth biggest in Europe and the strongest of the medium sized countries. On the other hand the Netherlands are a leading country in the implementation of the Information Society in Europe.

140.000 persons or 1,6 % of the Dutch employees are working in the ICT sector and contribute a share of 3,15 % to the national GDP. Both values are clearly over the European average. The ICT sector itself is dominated by the SSBS subsector (NACE 642, 72), which is responsible for 75% of the turnover and 90% of the added value of the ICT sector. This is also reflected by the number of companies (93% or 19,880 companies). The Sector Innovation Watch has assessed the Netherlands as the second most innovative country. In summary the Netherlands is clearly an Independent.

Number of of Number persons employed (1000) Production Value (10^9) VA at cost factor (10^9) Contributio n to GDP Share of population Index Level of innovation Index of growth in innovation performanc e

Netherlands 140,479 17,6373 9,1077 3,15% 1,61% 0,58 0,74

EU-27 2785 326 180 2,65 % 1,23% 0.17 0,38

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13.1. Key Actors Policy Nowadays there are three ministries in The Netherlands ICT that are involved in the formulation and implementation of the ICT policy:

• the Ministry of Economic Affairs, which is the most important actor and coordinate the national ICT agenda • the Ministry of Education, Culture and Sciences, which is the main responsible for the science policy • the Ministry of the Interior and Kingdom Relations, which is mainly responsible for the e-government programs

Each ministry uses project agencies to carry out the administrative parts of their programmes, but similar to Germany the agencies also develop some of the programs. The most important agencies are:

• NWO (Dutch Organisation for Scientific Research) – works on behalf of Ministry of Culture, Education and Sciences and support the scientific research. This mostly focus on basic scientific research, but in case of applied research with public and private partners they often cooperate with SenterNovem • STW ((Dutch Foundation for Technological Sciences) – is funded by NWO (40%) and the Ministry for Economic Affairs (60%). It focus on the practical application of scientific and technological research. For this purpose STW installs user groups around each research project, usually consisting of industrial parties with a specific interest in the project, and with the possibility to get first rights in using the results for their own purposes. STW has an own ICT research programme. • SenterNovem – it is the major project agency for the Ministry of Economic Affairs. It runs all technology programmes for the Ministry and manages the subsidy schemes for R&D funds for companies. Due to the responsibility of the Ministry for the ICT agenda it is the biggest actor in this field.

Within the last government period an independent body, the so called ICT Authority (Regieorgaan ICT) was established. The aim was to make the Netherlands a leading nation in ICT in Europe. It is based on commitment of participating organisations (universities, RTOs and private companies) and has to cooperate with NWO and SenterNovem, and to enact transparent and with minimal administrative

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requirements. The objective of its is to “structure unity and consistency in the strategic orientation of ICT research and innovation encompassing the entire knowledge chain and to structurally enhance the ICT innovation system in a flexible manner”. This main objective was split into four sub-objectives:

• enhancement and innovation of ICT-research, both in terms of facilities and in terms of strategic choices; • contribute to active demand articulation and the creation of public private partnerships; • contribute to a faster valorisation of ICT research; • strong international implementation of national ICT research and innovation agenda.

The ICT Authority succeeds earlier structures and consists of key representatives of ICT research and industry in the Netherlands (universities, RTOs and private companies). It is established as a non-permanent commission, installed for the period 2005-2010.145 At the moment a review process on it’s work take place and within the new ICT Agenda 2008-2011 it is said that the results will influence if the committee will further exist.

13.2. Key Initiatives In 2008 the new Dutch government formed a new ICT Agenda 2008-2011, which aims to keep the Netherlands as a world leader in ICT in 2015. The Ministry for Economic Affairs, which is responsible for this program, clearly states that the Netherlands has only limited influence on the international development. Due to this it is important for them to monitor these developments and especially their impact on Dutch economy and society. Within this they also refer to the importance of the ICT policy within the EU, which influenced the Dutch agenda.

The agenda sets up five major subjects: 1) e-skills, 2) provision of electronic services by the government, 3) Interoperability and standards, 4) ICT and the social sector, service innovation and ICT. To describe the underlying metaphor of the ICT flower, where the user (individual or organisational) is the heart of the flower and the five subjects are leafs of it. The ICT flower is based on a “pot” of basic ICT topics

145 See ICTRegie Strategic Plan 2005-2010, http://www.ictregie.nl/publicaties/en_Strategic_Plan_ICTRegie.pdf

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like excellent ICT infrastructure, coordinated ICT research, services provided by and to SME and prosumer, reliability of ICT and finally transparency of markets. In the follow up the agenda describes the subjects as well as the basics in detail including the description of selected programs that already support some of the issues. For this purpose there exist an ICT Agenda Implementation Programme (PRIMA) with 20 Mio € that is intended to set up projects. Additionally money is earmarked in other departmental budgets. Furthermore there are two special programs. Firstly, ICT and Social sectors with 80 Mio € aiming at scaling up successful local projects and secondly Investment Boost for ICT in Social Sector with 54 Mio € aiming at eliminating problems in social sectors, increasing productivity in different sectors or improving governmental electronic services.146

Although there is no real information about new implemented programmes, the old programs under control of ICTRegie and the three main funding agencies. Typical policy instruments which are used to promote R&D in ICT in the Netherlands include:

• R&D funding (including public-private co-funding, SME support and incubators) • Technology transfer, especially ICT industry-university-ICT users • Partnerships and networking, especially ICT industry-university • Demos and testbeds, including projects that involve ICT users • Incubators and clusters (venture capital).

Within this list the R&D funding and technology transfer can be regarded as the main instruments. Most of these instruments are combined in the CIC Action plan, which is ICT sector-specific. But there are also horizontal programs and instruments that support fundamental R&D (e.g. the IOP research programme)or try to link from fundamental R&D to commercialisation like 4-8 year projects within the BSIK program. In general the importance of research-industry in ICT is increasingly stressed. One example of this was the transformation of TNO, the Organisation for Applied Research, which started in 2005. The activities have been reorganised into five core areas of which ICT is one.

146

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Competing with ICT Competences (CIC) – The first phase of this program took place between 2000 and 2004. It led into two follow up programs. Firstly the CIC Diffusion plan, which lasted until 2007. It aimed the dissemination of results to innovative SMEs (8.5 million €) by seminars, workshops, or individual advice. Secondly it led into the 2004 CIC action plan, which differentiated between four strategic actions:

• Enhancement and focus within ICT research – aimed at establishment of the earlier introduced ICT Authority that co-ordinates the ICT research. • Accelerating the innovation cycle – this strategic action was directed at improving the interaction and transfer between knowledge institutes and industry. For this purpose a toolkit is being developed which includes organising a number of roadmaps (defining strategic research areas based on application prospects), organising brokerage events (bringing various parties together), organising subsidies to get more youngsters interested in beta- studies, increasing mobility of researchers and promoting the use of fiscal instruments when adopting research capacity. • Increasing the involvement of SMEs within the innovation processes - is directed to increase the number of innovative SMEs. It aims at increasing the number of early adopters among SMEs. Measures used for this purpose are awareness raising campaigns, offering assistance, organising seminars and workshops, etc. all meant to contribute to SMEs becoming aware of the strategic importance of investments in innovative ICTs. • Enhancing the international position of the Netherlands – this action aimed to improve the Dutch contribution in international ICT–research, especially within the on-going European research programmes and by contributing to the European Research Area and the European Technology Platforms.

CIC instruments are targeted at consortia of universities, research organisations and firms – that collaborate in R&D and commercialisation. Nearly all instruments require co-funding and competitive tendering. The extent to which industry and research institutes have to contribute is related to the objectives of the instruments and projects. One example with a high relevance for the SSBS sector was the 2008 finished CIC knowledge building project on software engineering (Jacquard), which had the objectives are to improve the Dutch knowledge position on software

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engineering by involving industry in decisions on the focus of scientific research, and to conduct 'concurrent research'. Participating companies like Atos Origin, Cap Gemini Institute and Philips had a share of 20% on the total budget. The Ministry of Economic Affairs provided 27% of the Jacquard budget via the CIC programme and 13% via SenterNovem's research programmes targeted at innovation (IOP programmes). The Netherlands Organisation for Scientific Research (NWO) provides 20% of the Jacquard budget. Public research institutions (mainly universities) contribute 20% of the budget. Another project, which is considered to be very successful but of minor interest for our purpose, was the CIC knowledge building project on embedded software (Progress). It aimed at improving the knowledge about embedded systems in research institutions and in the ICT industry.

Major horizontal programmes with high ICT and partly relevance for the SSBS sector are:

• BSIK - an R&D instrument with government co-funding of between 25% and 50%. The BSIK programme is intended to stimulate the knowledge infrastructure and innovation and coordinated by SenterNovem. BSIK is a seven years programme that is financed by the revenues of Dutch gas exploitation. Within the ICT domain, nine strategic projects are granted. Some of them like Smart Surroundings (ubiquitous computing/ambient intelligence), ICIS (Interactive Collaboration Information Systems), Virtual Lab E-Sciences (Grid Computing) have also a major software focus. The program is coordinated by SenterNovem and NWO. • Innovative Research Programmes (IOP) - the objectives is to stimulate R&D and innovation. IOPs provide impulses to specific technology domains in order to bridge the gap between academic research and industrial applications. Within the field of ICT there was one program on MMI and another one on generic communication. All programs were coordinated by SenterNovem.

In more general terms, the attractiveness of the overall business environment of the Netherlands (rank 7 and having a score of 8.65 on a scale 1-10 on the most recent

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worldwide ranking by the EIU)147 and for foreign investment should be mentioned. Recent reforms to the Dutch corporate income tax system have improved the investment climate for foreign companies. The corporate income tax rate is lower than in the most other countries and additionally it was planned to introduce a lowered tax rate for income from innovations ("patent box") as well as for financing profits ("interest box"). All this also creates an good environment for Venture Capital, which has grown considerably over the last decade. Round about 25% of VC was spend in ICT.

13.3. Key Findings In economic terms the Dutch ICT sector is dominated by the SSBS sector, responsible for 75% of turnover and 90% of added value. The contribution of the ICT (hardware) production sector is diminishing in terms of turnover since 2001, but increasing in added value, a strong sign of a move and upward shift on the value chain. Within the services sector, increases in turnover and added value go hand in hand with an increase in employment. Therefore it is surprising that Dutch companies spend less then the EU 27 average for ICT R&D. As a consequence of this and based on critical assessments and criticism by the ICT industry on the lack of policy focus and policy coordination have influenced a number of recent policy changes the Dutch government tried new ways within the ICT and overall industry policy. For the ICT and SSBS sector this include the establishment of an ICT Authority (Regieorgaan ICT) in 2005, the integration of Senter and Novem into SenterNovem and the start of the BSIK programme (as follow-up of ICES-KIS) with ICT being the largest of five themes in terms of available budget. Changes also include a shift towards programmatic financing, with the research frontier organising itself around a number of major initiatives. Taking all this into account the Case of the Netherlands is an interesting case. One the one hand the Netherlands are clearly an Independent because of size of the ICT and especially the SSBS, but due to the developments of the ICT and especially the SSBS industrial policy, where different moves were done in the recent years it can be interesting to research their impacts.

147 See http://www.eiuresources.com/mediadir/default.asp?PR=2007102501

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13.4. Contact ICTregie PO Box 93230 2509 AE The Hague The Netherlands Phone: +31 (0)70 344 07 12 Fax: +31 (0)70 344 05 34 E-mail: [email protected]

14. POLAND

The Polish ICT sector has experienced a strong growth during recent years. However the development of the Information Society is only developing slowly and the country is lagging most of the other EU member states. Regarding the economic indicators Poland is one of the new member states with the biggest IT sector (86209 employees). However with a share of only 0,55 per cent of the employees working in the IT sector the country is close to the bottom in the EU ranking. The SSBS sector (NACE 72) accounts for just 1,13 per cent of the national GDP, which is also clearly under average. According to the Sectoral Innovation Watch (Europe INNOVA 2008) Poland is also showing poor innovation performance. Thus the country is clearly a Dependent.

Number of of Number persons employed (1000) Production Value (10^9) VA at factor cost (10^9) Contribution to GDP Share of workforce of Index Level innovation Index of growth in innovation performance Poland 86,209 3,47 1,7993 1,13% 0,55% -0,19 0,20

EU-27 2785 326 180 2,65 % 1,23% 0.17 0,38

14.1. Key Actors Policy In Poland several ministries and their agencies are involved in policies related to the ICT/SSBS policy. Firstly the Ministry of the Economy that is responsible for the creation of better conditions for business activity in Europe. Strategic priorities are the support of entrepreneurship, innovation and competitiveness, to create better

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legal regulations and economic safety of the state, to promote activity on the international market and partnerships for economic growth. Secondly the Ministry of Interior and Administration, which is charge of the IS program and finally the Ministry for Scientific Research and Information Technology as well as the Ministry for Education and Sport. Agencies involved are Polish Agency for Enterprise Development, the Polish Information and Foreign Investment Agency, the Industrial Development Agency, the Foundation for Innovations, Restructuring and Entrepreneurship and others.

14.2. Key Initiatives The major initiative is ePoland - The Strategy on the Development of the Information Society. It was adopted in 2004 and updated in 2008. This strategy names three areas of priority with several subgoals:

• Providing all citizens with Internet access ¾ Broadband Internet Access for Schools ¾ Broadband Internet in Public Administration ¾ General Internet Access Infrastructure ¾ ICT Infrastructure for Scientific Research ¾ Network security • Development of diverse content and services available online ¾ Gateway to Poland ¾ Poland’s Gateway to Europe (e.g. implementing the unified European ¾ system for the exchange of information on employment opportunities) ¾ The state administration’s central databases ¾ Polish Content on the Internet ¾ Distance Learning ¾ Telemedicine ¾ Electronic Commerce ¾ Implementation Strategy for surface digital radio and TV broadcasting • Common ability to use ICT ¾ Common Computer Literacy ¾ Preventing Digital Divide

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¾ Developing the IT Component of Readiness for Employment148

In charge of the program is the Ministry for Interior and Administration, but the other ministries are involved in so far that they are responsible for measures in their field of activity.

While this is a mostly demand side oriented initiative in the follow up of i2010 strategy, the Strategy for the Electronic Industry until 2010 is more relevant to the ICT and SSBS sector in Poland.149 It describes the strategy of the Polish government for the electronics industry and it was produced by the Polish Ministry of the Economy in cooperation with the electronic industry enterprises, the National Chamber of Electronics and Telecommunication and the Institute of Electronics Market

The issue for the electronic industry in Poland are: performing a vital role in the economy and contributing to civilisation progress of Poland, the ensuring long lasting, sustainable development of the sector and the concentration and increase of R%D expenditure, esp. for measures in the economic infrastructure and industrial technologies areas.

In order for the electronic industry to achieve a leading role in the economy, pursuance of an accomplishment of the following objectives is necessary:

• Achieving labour productivity in the electronic industry per capita until 2010 on the level equal to the EU average • Striving to achieve a positive trade balance of manufacturing enterprises in the sector (esp. in the area of electronic manufacturing) • Establishment of sector’s monitoring system along with market information and advisory system for enterprises (esp. SMEs)

From the market perspective the attempts for achieving these goals should focus on:

• Telecommunication sphere: mainly as regards production of software and hardware for broad-band-networks, the GSM, UMTS, TETRA systems or optical fibre telecommunication

148 See http://ec.europa.eu/idabc/servlets/Doc?id=22707 149 See http://www.mpips.gov.pl/pliki_do_pobrania/electronic.doc

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• Software and R&D centres: both for telecommunication and products connected with market convergence (consumer, telecommunication and information technology) • Electronic identification area: e. g. electronic excise tax, electronic purse, electronic ID-card, electronic health and medical services card, letter labelling and tracing systems, fiscal cash registers, etc.

14.3. Key Findings Although the share of the ICT sector is still relative small, the growth is considerable in the recent years. This is not a surprise considering the fact that Poland is the biggest market within the new member states and other factors like skilled work force and others. On the other hand the build up of the basics of the Information society is still on the way, which is clearly shown in the ePoland strategy and especially its update in 2008. Therefore the Polish government decided for twofold strategy. One element is the ongoing IS strategy, which clearly addresses demand side factors and horizontal initiatives like the diffusion of ICT in administration and business or broadband accessibility. On the other side there is the Strategy for the Electronic industry that is mainly addressed towards ICT and also SSBS producers. Several actions like R&D support as well as sectoral monitoring are implemented to force the growth of these sectors.

14.4. Contact Ministerstwo Gospodarki, Pracy i Polityki Spolecznej pl. Trzech Krzyzy 3/5 PL – 00 – 507 Warszawa Tel: +48 22 693 50 00 Fax: +48 22 693 40 48 Website: www.mpips.gov.pl

15. PORTUGAL

In comparison to rest of European Union the Portuguese IT sector is relatively small. On the other hand the European Commission has stated that the country is relatively advanced in the implementation of the Information Society, especially

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showing outstanding development in eGovernment services and wide broadband connectivity. Regarding economic indicators the Portuguese SSBS sector’s (NACE 72) performance is still weak. The sector employs just 0,72 % of the national workforce and accounts for a mere 1,17 % of the national GDP. In addition the innovative performance is slightly under average according to the Sector Innovation Watch. In summary Portugal remains a Dependent.

erformance erformance Number of of Number persons employed (1000) Production Value (10^9) VA at factor cost (10^9) to Contribution GDP Share of workforce of Index Level innovation Index of growth in innovation p

Portugal 37,208 2,785 1,2022 1,71% 0,72% 0,11 0,38

EU-27 2785 326 180 2,65 % 1,23% 0.17 0,38

15.1. Key Actors Policy In charge for policies related to the ICT and SSBS sector is the Ministry of Science, Technology and Higher Education, which aims at the collection and dissemination of information concerning the Portuguese science and technology and higher education systems.

The Knowledge Society Agency (UMIC) is a public agency that operates within the Ministry of Science, Technology and Higher Education. Its mission is the coordinating the policies for the Information Society and mobilizing it through dissemination, qualification and research activities.150

15.2. Key Initiatives The main initiative is Connecting Portugal, which an initiative for the mobilization of a social basis of support is extended to all regions, businesses, research centres etc. in order to develop the Information Society and the knowledge strategies in Portugal.

It has two main fields of action with several subordinated aims:

• Accessibility and infrastructures:

150 See http://www.infosociety.gov.pt/

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o To double the number of regular Internet users, to more than 60% of the Portuguese population;

o To triple the number of families with broadband Internet access, to more than 50%;

o To multiply the number of computers in schools, so as to reach an average of 5 students per computer;

o ensure that the price of permanent broadband Internet access is among the three lowest in the EU, including unlimited traffic and the cost of the associated landline, as available to the majority of the Portuguese population.

• Creation of new jobs, economic development and social appropriation:

o To increase employment in the Information and Communication Technologies sector to 3% of the total employment, representing 44,000 new jobs.

o To increase the percentage of workers who use computers with Internet connections in their jobs to at least 40%.

o To extend regular usage of e-commerce to at least 25% of the population.

o To ensure that all basic public services are available online.151

UMIC run in total 21 Projects to achieve these goals. While most of these projects address demand-side oriented aims like improving broadband infrastructure or increase the use of ICT in public and private sector, there are also programs that address the ICT/SSBS sector or related subjects of interest for this overview.152 These are the followings:

National GRID Initiative: This Initiative under the responsibility of the Portuguese Science and Technology Foundation (FCT) will be overseen by the Knowledge Society Agency. Its aims are:

• expanding GRID infrastructure

151 See http://www.infosociety.gov.pt/conn_pt.pdf 152

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• promoting R&D projects in GRID Computing

• strengthen national competencies and capacities in GRID Computing

Neotec: New Technological Enterprises: Neotec is implemented through the Innovation Agency, a company owned by the Portuguese State through FCT - Foundation for Science and Technology, of the Ministry of Science, Technology and Higher Education, IAPMEI – Institute for Small and Medium Enterprises and Investment, and PME Investimentos – Small and Medium Enterprises Investments, both of the Ministry of Economy and Innovation. The Neotec Initiative promotes the creation of new technological enterprises based on ICT and with high potential growth by providing financial support different phases of the enterprise creation process

Information and Knowledge Society Observatory is a group of UMIC and assures the representation of Portugal in international organizations that deal with indicators and statistics of Information Society or TIC, such as OECD and the European Commission. It assures regular surveys and studies on the use of ICT by families, enterprises, hotels etc. as well as on the employment in the ICT sector, the quality of public administration websites and other matters of interest to monitor the development of the Information Society in Portugal

15.3. Key Findings Beside of the overall goals of most of the information society programs within the EU that aim more at demand side oriented initiatives, the government of Portugal defined a clear second goal. Interesting is that it pursues two aims. Firstly they pursue the aim to increase the diffusion of ICT in business, but secondly also the aim of creating new employment in the ICT and SSBS sector. This latter target varies at the first glance from the other countries because it is oriented towards jobs rather than to industries, but in principle the overall goal is the same.

15.4. Contact UMIC – Knowledge Society Agency

Ministry of Science, Technology and Higher Education

Taguspark, Edificio Inovacao I, Sala 124

2740 122 Porto Salvo – Portugal

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Tel: +351 211 119 600

Fax:+351 211 119 648

E-mail: [email protected]

16. ROMANIA

Romania is one of the bigger new member states and its SSBS sector (NACE 72) employs about 49,000 people. Nevertheless Romania performs poorly on most ICT related criteria and ranks among the bottom three countries in Europe. The economic indicators show a very low contribution of the SSBS sector (NACE 72) to GDP (0,96 %). However, the software industry witnesses a remarkable development and remains among the most dynamic Romanian economic sector. Data on Romania is incomplete, but it is clear that it is at a relatively early stage in the development of the information society.153 As a result Romania is classified as Independent.

EU-27 2785 326 180 2,65 % 1,23% 0.17 0,38

16.1. Key Actors Policy The main actor is the Ministry of Communications an Information Technology.

16.2. Key Initiatives There is no specific software strategy in Romania. There are some strategies for the development of ICT in general coordinated by the Ministry of Communications and Information Technology, such as:

153 See http://www.ebusinessforum.com/index.asp?layout=rich_story&doc_id=10706&title=Romania%3A+Pro mising+signs&categoryid=29&channelid=4

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National Strategy for the New Economy and the Implementation of the Information Society, which concentrates on the consolidation of the National Information Infrastructure and the ICT industry, on education and preparation of the human resources for the Information Society. Its task is also to ensure a Large Scale Access to the Internet Services and to stimulate the implementation and use of Information Society specific services. The strategy is also oriented on the development of complex software packages for both, the domestic market and for export. Another target is to develop antivirus software which will be done by Research Institutes and the Software Industry.

Information Security Government Strategy, which aims to evaluate information system security on institution, regional and national level and to implement anti- fraud methods to prevent and fight electronic crime.

Other projects like the Knowledge Economy Project that is co-funded by the Worldbank were also implemented to improve the demand side situation by improving network infrastructure, training of citizen etc.154

16.3. Key Findings As far as we can see the Romanian government implemented several projects to improve the situation of ICT and SSBS sector in Romania, but due to the state of development most of these actions aim at improving basic requirements like education or infrastructure. Another question is if all these activities are co-ordinated or if the run beside of each other without this. On the other hand there is declared will to see especially the SSBS sector as possibility for economic growth as other countries like Ireland or India did before. If this take place or not can be not assessed on the basis of the existing facts, but for example the Romanian ICT and SSBS sector itself still see a great need of action before it can be achieved.155

16.4. Contact PR officer of the MCIT:

Mrs. Madalina Dolcescu

Tel: +40212114121

154 See http://www.rapido- fp6.eu/download/romania_knowledge_based_economy_paraschiveanu_ro.pdf 155 See ARIES (Romanian Assosciation for Electronics and Software Industry) at http://unpan1.un.org/intradoc/groups/public/documents/UNTC/UNPAN016723.pdf

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E-mail: [email protected]/[email protected]

17. SPAIN

Spain has the fifth biggest SSBS sector (NACE 72) in the European Union in terms of employment, production value and added value. According to the i2010 mid-term review the country is also fairly advanced in the development of the Information Society with many indicators about the European average but with slow progress. Economic indicators reveal that the share of employment in the SSBS sector (NACE 72) (1,06 %) at EU average level while the contribution to the national GDP is fairly under average (1,64 %). The Sector Innovation watch sees Spain in the group of countries with average levels of innovation performance. Therefore Spain is classified as an intermediate country.156

EU-27 2785 326 180 2,65 % 1,23% 0.17 0,38

17.1. Key Actors Policy In charge of programmes related to ICT/SSBS is the Ministry of Industry, Tourism and Trade which is responsible for the areas of Information Technologies, Telecommunications and the development of the Information Society. The Ministry has promoted the creation of CENATIC (National Reference Center for the Application of Information Technologies and Communication). This is a strategic project, opened to participation by public administrations, enterprises, universities, associations of R&D&I, users and developers of this type of technology.

Two further bodies are related to the Ministry of Industry, Tourism and Trade, the National Radio Communications Agency which is an independent Public Body that

156 Data from REDICT Country Report Spain

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regulates national electronic communications and RED.ES which is in charge of driving the Information Society in Spain and of carrying out projects in line with the strategic priorities set by the State Secretariat for Telecommunications and the Information Society (SETSI).

The Ministry of Education and Science includes the State Secretariat of Universities and Research, which is mainly concerned with the technological development and the development of human resources. This applies also for the sector development of the ICT sector.

The Ministry of Economy and Finance supports the development and founding of SMEs, fosters innovation in SMEs, provides fiscal incentives for R&D and sets reforms for the stimulation of private investment in technological innovation.

17.2. Key Initiatives National Plan for Scientific Research, Development and Technological Innovation (2004-2007)157, was in line with the Sixth EU Framework Program and is partly financed by the EU Structural Funds. Part of this Plan is the PROFIT:

PROFIT (Program for the Development of Technological Research): The Ministry of Industry, Tourism and Trade and the Ministry of Education and Science. were in charge of the management of research and technological development policies under PROFIT. The program provides soft loans and grants for competitive R&D projects by firms and public research institutes.

National Plan R&D&I (2008-2011)158: new version of the National Plan 2004-2007. It includes a new structure based on four main areas: knowledge and scientific and technological capabilities generation; promotion of R&D co-operation, sectoral technological development and innovation, and strategic actions.

INGENIO 2010159: part of the Spanish National Plan for Scientific Research, Development and Technological Innovation 2004-2007, which was in line with the Sixth EU Framework Program. The objectives of INGENIO 2010 are:

157 See http://cordis.europa.eu/erawatch/index.cfm?fuseaction=policy.document&uuid=7D87A537-B33C-83EF- 7BBC076ADFAEF9A6 158 See http://www.ingenio2010.es/Documentos/Plan_ingles_web.pdf. 159 See http://cordis.europa.eu/erawatch/index.cfm?fuseaction=prog.document&uuid=7D87B2C4-B1DB-D569- 419CB0503278006E

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• Increase total R&D spending to 2% of GDP by year 2010 • Increase entrepreneurial participation in R&D activities: Increase total R&D spending of the private sector to 55% of the GERD by 2010 • Work for the European Research Area, increase the participation of Spanish enterprises and researchers in the European Framework Program

INGENIO has 3 sub-programmes:

• CENIT (National Strategic Consortiums for Technological Research) Programme: supports key long-term scientific and technological initiatives developed together by private and public entities. The Cenit includes the Programme Torres Quevedo: aims the integration of universities and enterprises with the objective of 1300 PhD holders hired each year from 2010 • CONSOLIDER Programme: increase cooperation amongst researchers within leader consortia and mayor scientific facilities • AVANZ@Programme: this is a strategy for the development of the information society. It is in charge of the development of information and communication technologies. The plan intends to reach the EU average ICT share of GDP by 2010

17.3. Key Findings Within the group of intermediate countries Spain differ from the expected focus on mostly horizontal or quasi-horizontal programs. Especially in the field of fostering innovations Spain has similar to Austria clearly vertical oriented programs for R&D funding. This can be seen as confirmation of the development towards supply side oriented initiatives in this area. In all other areas the focus is on horizontal, mostly demand side oriented measures, for example within the field of increasing ICT diffusion.

17.4. Contact Details Ministry of Education and Science

C/Alcalá, 36

28071 Madrid

Tel: 902 21 85 00

Ministry of Industry, Tourism and Trade

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P. de la Castellana 160-162

28046 Madrid

Tel: 902 44 60 06

Fax: 914 57 80 66

18. SLOVAKIA

As for many new EU members, Slovakia's ICT sector shows a bleak picture. The i2010 mid-term review stated that the information society in Slovakia is lagging behind the general development in Europe but sees some strategic advantages for the future due to the high level of broadband connectivity together with high usage growth rates. The small Slovakian SSBS sector (NACE 72) is contributing below average to the national GDP (1,38 % compared to the European average of 2,65) and employs a below average share of 0,68 % of the workforce (compared to the European average of 1,23 %). Finally Slovakia has the poorest scores in the Sector Innovation watch. All this makes Slovakia a typical Dependent. This explains why Slovakia is classified as Dependent.

EU-27 2785 326 180 2,65 % 1,23% 0.17 0,38

18.1. Key Actors Policy There are several political actors involved in Slovakia. In response for R&D funding and Industry development are the Ministry for Education and the Ministry for Economy. The newly adopted Operational programme Information Society is under control of the Ministry of Construction and Regional Development of the Slovak Republic and the Ministry of Finance of the Slovak Republic. Furthermore several governmental agencies like VEGA Grant Agency or the Slovakian Research and

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Development Agency are involved to implement and carry out programs for the different ministries and co-ordinate the EU fundings.

18.2. Key initiatives Due to the number of actors and recent changes the activities of the Slovakian government seems unclear. The most important is the Competitiveness Strategy (The Lisbon Strategy of Slovakia) and the action plans related to the Strategy, approved in 2005. The two main areas of this policy are:

• completing and maintaining positive results of the structural reforms • development priorities for the knowledge based economy.

Within the last area there are four priorities:

• Human resourced and education policy; • information society policy; • R&D and innovation policy; 160 • business environment policy.

The important National Reference Framework was firstly approved on 17 May 2006, but after changed in the same year after the newly elected government get in charge. They reallocated considerable funds that are co-financed by the EU to information society related activities.161

Most recently is the adoption of the Operational Programme Information Society 2007-2013, that originated from this. The objective is to create an information society as a means to developing a performing knowledge-based economy in Slovakia. The Operational Programme "information Society" falls within the Convergence Objective framework.

The principal objectives of the Information Society Programme are:

• automation of public administration (i.e. transforming the paper-based environment into an electronic-based environment) • development of electronic services • development and renewal of the infrastructure of repository institutions • improvement of the availability of broadband internet access.

160 See http://www.internationales-buero.de/_media/COMPETITIVENESS_STRATEGY.pdf 161 See http://www.strukturalnefondy.sk/en/narodny-strategicky-referencny-ramec-2007-2013/

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The programme is co-funded by the European Regional Development Fund (ERDF) and is coordinated by Mr Pavol Tarina, the Government Plenipotentiary for Information Society.162

Moreover there are also specific innovation measures that are concentrating on existing and new SMEs, but the effects of them to the ICT and SSBS sector are limited.

18.3. Key Findings Due to the fact that the ICT sector only plays a less important role in the Slovakian economy, there are not initiatives that are directed at it. Although the SSBS sector is the major growth driver within this small ICT sector there are also only few considerations about it. Most recently is that with the new government the Information Society has become a topic for national initiatives, but this focus mostly at improving demand side factors at the moment.

18.4. Contact Office of the Slovak Government:

Mr Marek Canecky

Námestie Slobody 1

SK-813 70

Bratislava

Slovakia

Telephone: +421 257295552

Fax: + 421 257295553

E-mail: [email protected]

Internet: http://www.vlada.gov.sk

19. SWEDEN

162 See http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/08/96&format=HTML&aged=0&lang uage=EN&guiLanguage=nl

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Sweden has one of the strongest, most competitive and dynamic ICT sector is Europe and among the top nations for Information society development according to the i2010 mid-term review. Though the sector is not notably big in absolute terms, more than 2,3 % of all Swedish employees work in the SSBS sector (NACE 72) that also accounts for 4,2 % of the national GDP. Much like Finland the sector is dominated by one global player (Ericsson) and long group of small and medium sized suppliers. With regard to the innovative performance Sweden’s SSBS sector (NACE 72) is in the group of “good performers”. All this makes Sweden a typical Independent.

EU-27 2785 326 180 2,65 % 1,23% 0.17 0,38

19.1. Key Actors Policy The main actor in the field of policies related to the ICT/SSBS sector is the Ministry of Enterprise, Energy and Communications. This Ministry encompasses another Ministry within it that is the Ministry for Communications. This is responsible for the coordination of the ICT policy. Therefore it is mainly responsible for the access policy including the development of broadband as well as the parts of the industry policy that are affected by ICT. Furthermore it also governs the Institute for Growth Policy Studies (ITPS). Another important actor is the Ministry of Education and Research, which is responsible for the research policy. Because research resources exist within the scope of all the ministries including the ICT sector, the Ministry of Education and Research drafts its research policy bills in active collaboration with other ministries.

Above that there are several governmental agencies that work in the field of ICT policy.

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The Swedish National Post and Telecom Agency (PTS) is the governmental authority that monitors the electronic communications and postal sectors and ensures the development of functioning postal and telecom markets. The Swedish Agency for Innovation Systems (Vinnova) researches and studies the Swedish national innovation system. Furthermore it aims to support the effective operation of the innovation system in terms of advisory to the government, formulating of programs and providing funds. It is also responsible for the implementation and supervising of implemented funding programs, mostly in the field of R&D funding. Above that there are at least three more agencies related to the development of entrepreneurship as well as for regional development. One is the Swedish Development Agency (NUTEK) that was the central public authority for enterprise and regional development and is recently merged with other institutions to Swedish Agency for Economic and Regional Growth (Tillväxtverket). The other is ALMI Företagspartner that is concentrated on supporting and promoting inventors, entrepreneurs and the start up of new enterprises (SME) in the high tech sector. There also exists the Invest in Sweden Agency (ISA), which is responsible for assisting and informing foreign investors about business opportunities in Sweden to attract FDI. Within the field of research and science the Swedish Research Council (Vetenskapradet) is responsible for the support and development of basic research in all disciplines, including for example the network infrastructures for universities and research institutions in Sweden. Above that there are two more foundations. One is the Knowledge Foundation (Stiftelsen för kunskaps- och kompetensutveckling (KKS) that aims to increase the Swedish competitiveness by supporting research at new universities and university colleges, competence development in industry, the promotion of IT in schools, education and health care, the restructuring of industrial research institutes. The other is the Swedish Foundation for Strategic Research (Stiftelsen för Strategisk Forskning (SSF) which supports the development of vigorous research settings of international class and of significance for Sweden's future competitiveness.

19.2. Key Initiatives Like the other EU member states Sweden has is no specific software policy, but already in 1999 the government suggested a program called “Information Society for all”, which was adopted and implemented in 2000. It encompassed beside of

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several demand side oriented goals like broadband availability foremost two elements, which addressed the ICT/SSBS sector: IT for growth, i.e. increasing the Swedish IT sector's international competitiveness and thereby contribute to new markets, more jobs and increased productivity through-out society and increase electronic trade as well as IT for employment, i.e. increasing employability by providing IT training with high quality on all levels. At this time Sweden was considered to be a forerunner in the field of ICT, but in the following years it was overtaken by its Nordic neighbours. Because of this the program was criticized and in 2003/2004 the ITPS run a big programme to assess the program and compare it with different other IT policies. This led to a new policy presented in 204 and adopted and implemented in 2005. The program has the programmatic title “From ICT-policy for the society to policy for the ICT-society”.163 The initiative identifies a set of areas for prioritized action such as adapting e-services for people with disabilities, starting a campaign to raise interest in IT among students and creating a national electronic patient record. Further it contains a series of planned legislation, among others a law to ensure safe and efficient administration of national top-level domains, and changed the existing law on electronic communications to make the decision-making process more efficient. The initiative was already criticized when it was present because of lack of resources and clear goals.164

Because of this it seems that the priorities start to change again. The official ICT policy nowadays aims at a sustainable information society for all. This implies an accessible information society with a modern infrastructure and IT services of public benefit, so as to simplify everyday life and give women and men, young people and old in every part of the country a better quality of life. To define the main goal more precisely, there are three subgoals:

• IT must contribute to a better quality of life and help improve and simplify everyday life for people and companies. • IT must be used to promote sustainable growth.

163 See http://www.regeringen.se/sb/d/4218/a/47411 164 See http://www.oldepractice.com/document/657

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• An effective and secure physical infrastructure for IT, with high transmission capacity, must be available in all parts of the country so as to give people access to, among other things, interactive public e-services.165

Meanwhile the IT Policy Strategy Group made new suggestions for a renewal of the existing policy. In the document entitled “IT policy for the society” they address several field of actions: a need for a future scenario; ongoing Coordination; Accessibility, public confidence and IT infrastructure; Growth; an environmentally appropriate information society; IT in the healthcare and social services; IT in schools and learning; IT and culture; Democracy, digital gaps and the law in the information society. Beside of the clearly demand side oriented fields like accessibility as well as the wishes for an increased diffusion of ICT in public sector including government and healthcare, there is section of growth, where the importance of the ICT sector for economic growth is described. Furthermore the group clearly recommend a set of actions to improve the situation of the ICT sector, including stimulation of ICT research, public procurement strategies, legislation for eservices, increased diffusion of ICT, skilling of work force.166

Within the field of ICT R&D funding already several programs under the supervision of Vinnova are implemented that directly addresses the ICT and in particular the SSBS sector:

• Communication Systems - aims at research mainly in the communications area and include projects like the Swedish National Broadband Test Bed • Software-intensive Systems - is directed at creating more and stronger Swedish innovation environments by supporting R&D in network-based software technology and promoting co-operation between universities, colleges, research institutes, business and industry and society • Micro and Nanosystems - aims at research in electronics and photonics industry • The Vehicle IT and Telematics Programme - aims at the stimulation of greater co-operation between the automotive industry and the telecom industry in order to enable the introduction of more advanced functions and services in the vehicles

165 See http://www.sweden.gov.se/sb/d/2156/a/20015 166 See http://www.regeringen.se/content/1/c6/07/60/46/d7fe068c.pdf

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Furthermore international programs like the already describe NORDITE are supported.167 Vinnova also runs programs entitled E-services in Public Administration; IT in Home Healthcare; ICT Implementation; Living Labs; eGOVERNET and eContentplus that aiming at increasing the diffusion of ICT in the public sector (government, healthcare) as well as in business, foremost in SME.168

19.3. Key Findings As a conclusion we can state that the Swedish government is strongly encouraged in the field of Information Society and Information and Communication Policies. This was expected because of Sweden’s classification as an independent country. Nevertheless most of the policies in the recent years was directed at demand side factors. Furthermore there were several horizontal initiatives in the field of increasing ICT diffusion or maintaining a healthy business environment. Other initiatives like support for entrepreneurship were not exclusively directed at the ICT or SSBS sector. Like in most other comparable countries it was aimed to attract high tech in all fields and ICT/SSBS is only one of them. Only in the field of R&D funding we could find programs that where directed at in specific at the ICT and SSBS sector.

Finally it seems that the government is reconsidering this strategy and recommendations were made to support for example the legislation towards eServices or to increase business set up in the SSBS sector. Therefore it is a question where this development will led to.

19.4. Contact Ministry of Enterprise, Energy and Communications Mäster Samuelsgatan 70 SE 103 33 Stockholm Switchboard +468 405 1000

20. UNITED KINGDOM

167 See http://www.vinnova.se/In-English/Activities/Information-and-Communications-Technology-/ 168 See http://www.vinnova.se/In-English/Activities/Services-and-IT-Implementation-/

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Together with Germany the UK’s IT sector is sharing the top position in absolute terms. In the United Kingdom more than 560.000 people are working in the IT sector, i.e. an above average 1,9 % of the total workforce. With about 4,1 % the contribution of the SSBS sector (NACE 72) to national GDP is significant above the European level. Regarding the development of the Information society the UK is also among the best performing countries in the European Union. The innovative performance is showing a reasonable high level, but low growth rates. Altogether the UK is a typical Independent.

Number of of Number persons employed (1000) Production Value (10^9) VA at factor cost (10^9) Contribution to GDP Share of workforce of Index Level innovation Index of growth in innovation performanc

United Kingdom 560,525 82,3242 53,0732 4,08% 1,90% 0,47 0,28

EU-27 2785 326 180 2,65 % 1,23% 0.17 0,38

20.1. Key Actors The structure of actors involved in the innovation policy changed in the last years. The main actor was the Department of Trade and Industry (DTI). DTI was committed to the ambition of transforming the UK into a hub of innovation in Europe. One of the central objectives of the DTI is 'to make the most of the UK's science, engineering and technology skills and resources'. DTI was responsible both for UK science policy (through the Office of Science and Technology) and for promoting the development and use of technology by industry. But it has undergone a review and restructuring in the years since 2003, leading to a clustering in industry policy support programmes (where before there used to exist many small programmes) and a consolidation to 50 designated industry areas, each of which centred in a DTI administrative (sub)section. Nine of these have direct relevance to the ICT sector: broadcasting; computer games; computer services; digital content; eCommunications; electronics; information security; software services; and telecommunications. Within DTI the Office of Science and Innovation (OSI), which was established in 2006, was responsible for the funding of basic research both within and via the Research Councils and in developing and coordinating science and technology policy. The OSI was headed by the Chief Scientific Advisor.

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Responsibility for all issues relating to education in England laid with the Department for Education and Skills (DfES). DfES oversees the Learning and Skills Council and the Higher Education Funding Council for England, providing funding for staff and infrastructure for further and higher education.

All this changed in 2007, when three new departments were formed from the DTI, DFES and the Better Regulation Executive. The work of the Office of Science and Innovation was moved to the new Department of Innovation, Universities and Skills (DIUS), The rest of DTI and the Better Regulation Executive (BRE) from the Cabinet Office became the Department for Business, Enterprise and Regulatory Reform with John. The Regional Economic Performance Unit also transferred into BERR from the Department for Communities & Local Government (DCLG). Now Department for Business Innovations and Skills (BIS), which has been created by merging two former departments, the Department for Business, Enterprise and Regulatory Reform (BERR) and the Department for Innovation, Universities and Skills (DIUS), is responsible for the most of the activities. It is led by the Minister for Communications, Technology & Broadcasting Stephen A. Carter. The BIS also sponsors the Technology Strategy Board, which is an executive non-departmental public body (NDPB), established by the Government in 2007. The activities of the Technology Strategy Board are jointly supported and funded by BIS and other government departments, the devolved administrations, regional development agencies and research councils.

20.2. Key Initiatives United Kingdom has a long tradition in horizontal programs. Therefore the DTI Strategy from 2003169 identified five strategic priorities for DTI action:

• transferring knowledge (turning good ideas into high value products and services); • maximising potential in the workplace (raising skill levels to produce high value jobs); • extending competitive markets; strengthening regional economies; • forging closer partnerships (working in partnership within the UK, across the EU and internationally).

169 See http://www.berr.gov.uk/files/file14768.pdf

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The following Five Year Programme (2004) set out the policies needed over the next five years and beyond, to stimulate industries and jobs through science and innovation, while emphasizing the creation of new partnerships with industry, to deliver a new approach to regulation, and to lead the drive for reform in Europe. The underlying innovation policy mix was clearly formulated in the 2003 Innovation Report Competing in the global economy – the innovation challenge.170 It formulated the target to make the UK to a key knowledge hub in the global economy. This should be not only reached by outstanding scientific and technological discovery, but also by being leading in turning that knowledge into new and exciting products and services. The following ten-year Science and Innovation investment framework 2004-2014171 set out the ambition for UK science and innovation in the medium and longer term. One of the challenging targets was a step-change in R&D levels to 2.5% of GDP by 2014. After a review and consultation process in 2006 next steps on five key policy areas were defined: maximising the impact of public investment in science on the economy through increasing innovation; increasing research councils' effectiveness; supporting excellence in university research; supporting world-class health research; and increasing the supply of science, technology, engineering, and mathematics (STEM) skills.172

Very few policy instruments within this framework are specifically aimed at the ICT sector as such. The ICT sector participates like other sectors in a number of 'umbrella' industry support programmes, while claiming a distinctive segment of these programmes. In terms of support for R&D and technology transfer, UK policy focuses first and foremost on the commercialisation of basic research. The Research Councils are linked to industrial policy. Many research Council programmes involve co-funding from industry. The target is to bridge the 'gap' between both worlds, to develop new technologies and apply them to industrial products. One field of action is the promotion of the exploitation of S&T. Therefore the DTI took the lead on a number of mechanisms (such as LINK and Knowledge Transfer Networks) and has joint responsibility with the Department for Education and Skills (DfES) on others like the Higher Education Innovation Fund, which are designed to promote the commercial exploitation of government funded research

170 See http://www.berr.gov.uk/files/file12093.pdf 171 See http://www.hm-treasury.gov.uk/spending_sr04_science.htm 172 See http://www.dh.gov.uk/en/Consultations/Closedconsultations/DH_4132099

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and stimulate collaboration between the research community and industry. LINK and Knowledge Transfer Networks (the former Faraday Partnerships) are the two largest sources of support accessible to firms in the ICT sector. Both are based on competitive bidding. LINK Collaborative Research is the Government's principal mechanism for promoting partnership in pre-commercial research between industry and the research base. The new Knowledge Transfer Networks will build on the former successful Faraday model. Designed to extend the benefits of networking to a wider range of businesses, the new KTNs are intended to improve upon the Faraday model which linked UK businesses to the research base, and which over the past five years has developed a growing reputation for helping UK industry bring new products and services to market more quickly. The difference with LINK is that Faraday partnerships are ongoing networks open to any interested stakeholder, while LINK is operated on a project consortium basis. Between 1998 and 2003 24 Faraday Partnerships have been established with support from two ministries and two research councils. Another instrument are the Knowledge Transfer Partnerships (KTPs), which fund highly-qualified researchers to work in a company for one to three years, on a specific project that is important to the strategic development of the business. The DTI also operates and/or funds a number of schemes for the promotion of innovation in companies mainly based around the identification and dissemination of best practice and the exchange of people (and their ideas and expertise). The DTI also attempts to foster the creation and growth of new companies (especially new technology-based firms) and it encourages the acquisition, development and use of technology and provides R&D support and advice to SMEs (and larger firms, in the fields of energy, space, and civil aeronautics) through a number of measures.

After the restructuring most of these measures were transferred to the Technology Strategy Board and partly renamed. In May 2008 the board set up their new strategic Plan: Connect and Catalyse - a strategy for business innovation. It sets the focus for the next three years as well as provide a longer term perspective.

Another measure to support R&D is the R&D tax credits, which were introduced in 2000. R&D tax credits are by now the biggest single funding mechanism provided, and work either through reduction of the tax bill or - for SMEs not in profit – by

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providing a cash sum. While being an additional and welcome help to start-ups, for larger companies tax credits appear less popular, mostly because of too restrictive.

Furthermore a series of other policy instruments exist like the Public Sector Research Exploitation Fund (PSRE), which encourages researchers to turn their innovative ideas into commercially marketable products or the Small Business Research Initiative, which should help SMEs to gain greater access to publicly funded R&D contracts. Government departments and agencies participating in the SBRI are supposed to place at least 2.5% of their extra-mural R&D contracts with SMEs. Other tools are the Web-based Toolkit. to help business-university collaborative working and speed up negotiations for Intellectual Property (IP) by providing model agreements. Also an important part are the Foresight processes driven by DTI. In 2006 DTI had launched a Information Society Initiative (ISI) within this section to help British businesses respond effectively to the challenges involved in the move towards the Information Society.

The results built an input for the recently introduced (June 2009) Digital Britain strategy, which meet the requirements of i2010. It was developed by Department for Culture, Media and Sport (Secretary of State for Culture, Media and Sport) and the Department for Business, Innovation and Skills (Ministry for Communications, Technology and Broadcasting). It pursues five objectives:

• Upgrading and modernising UK digital networks – wired, wireless and broadcast – so that Britain has an infrastructure that enables it to remain globally competitive in the digital world; • A dynamic investment climate for UK digital content, applications and services, that makes the UK an attractive place for both domestic and inward investment in UK digital economy; • UK content for UK users: content of quality and scale that serves the interests, experiences and needs of all UK citizens; in particular impartial news, comment and analysis; • Fairness and access for all: universal availability coupled with the skills and digital literacy to enable near-universal participation in the digital economy and digital society; and • Developing the infrastructure, skills and take-up to enable the widespread online delivery of public services and business interface with Government.

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The report itself names for each objective several sub-targets and possible actions (up to more then 90 in each case), that have to be addressed. Furthermore the delivering plan shows a time table for further actions that shows that processes of consultations and implementation should start now, but at the moment it is not possible to foresee which recommendations will lead into concrete action. Related to the ICT/SSBS industry several recommendations are relevant like the establishment of testbed, improve digital content production or increased research, but as stated, the outcome is unclear.

20.3. Key Findings In the follow up of the developments around i2010 and similar Information Society programs a clear change in policy has taken place in the UK. Before there was a clear, long lasting tradition in UK to use horizontal umbrella programs that were not specifically aimed at individuals sectors. Now it seems that after several restructurings new policies like the Digital Britain initiative, which is clearly related to the SSBS sector mark a stepstone in the process of change, but as long as concrete measures are not implemented it is impossible to make a final assessment on this.

20.4. Contact Department for Business, Innovation, & Skills

Castle View House

East Lane

Runcorn

WA7 2GJ

Email: [email protected]

The Technology Strategy Board

North Star House / North Star Avenue

Swindon

SN2 1UE

e-mail: [email protected]

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21. REFERENCES

ACM (2006): Globalization and Offshoring of Software A Report of the ACM Job Migration Task Force, ACM 2006. Arora, A.; Gambardella, A. (2004): The Globalization of the Software Industry: Perspectives and Opportunities for Developed and Developing Countries. Oxford: OUP Arora, A; Gambardella, A. (2005): From Underdogs to Tigers: The Rise and Grow of the Software Industry in Brazil, China, India, Ireland, and Israel. Oxford: OUP Brednitz, D. (2005): The Israeli Software industry, in: Arora/Gambardella (2005) Carmel, E. (2003): The New Software Exporting Nations: Success Factors. http://www.ejisdc.org/ojs2/index.php/ejisdc/article/view/78/78.pdf Capgemini (2006): Study into the strategies, policies and other conditions needed to allow the European-based Software and Services industries to take global platform leadership, CapGemini 2006. Coppey, R. (2004). Information Technology Policy. An international History. Oxford: OUP David, P. A.; Geuna, A.; Steinmueller, W. E. (1995). Additionality as a principle of European R & D funding. Study carried out for the STOA programme of the European Parliament. Maastricht: Maastricht Economic Research Institute On Innovation and Technology. http://www.merit.unu.edu/publications/rmpdf/1995/rm1995-012.pdf. Dedrick, J/Kraemer K.L. (2004): China IT Report: 2004. Center for Research on Information Technology and Organizations. Working Paper 354. European Commission (1992). The Principle of Subsidiarity. SEC (92) 1990 final. Brussels. EUC i2010 Mid-term review/Annual Report (2008): Preparing Europe’s digital future i2010 Mid-Term, Brussels. Europe INNOVA (2008): Sectoral innovation System in Europe: The case of the ICT sector; Maastricht. Friedewald, M.; Hawkins, R. W.; Chatrie, I. et al. (2005): Benchmarking national and regional policies in support of the competitiveness of the ICT sector in the EU. Stuttgart: Fraunhofer IRB Verlag. Hanna et al.(1995): Diffusion of Information technology, World Bank Discussion Paper 281, Washington, D.C. Hanna, N.; Tessler, S.; Barr, A. (2003): National Software Industry Development: Considerations for Government Planners. Electronic Journal on information Systems in Developing Countries, Vol. 13, Nr. 10, 1-17. Hassanlou, K. et al. (2009): Information technology policy trends in the world. In: Technology in Society, Vo. 31, No. 2. (May 2009), pp. 125-132. http://www.sciencedirect.com/science/journal/0160791X.pdf.

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IPTS (2008): Mapping R&D Investment by the European ICT Business sector, Sevilla. Kim/Choi (1997): Barriers to the software industry development in Japan: the structure of the industry and software manpower. In: International Journal of Technology Management, Vol. 13, No. 4, 1997, pp. 395-412 McKinsey/Sandhill (2007): State of the Software Industry 2007, McKinsey. NAS (2007): Innovation Policies for the 21st Century: Report of a Symposium. Washington, D. C.: The National Academies Press. OECD (2002): Information Technology Outlook 2002: ICTs and the Information Economy. Paris: Organisation for Economic Co-operation and Development. OECD (2008): OECD Information Technology Outlook 2008. Paris: Organisation for Economic Co-operation and Development. OECD (2009): Innovation in the Software Sector. Paris: Organisation for Economic Co-operation and Development. Rammer (2009): Innovation and Technology Policy in the Context of Technical Cooperation. GTZ Discussion Paper. http://www2.gtz.de/dokumente/bib/gtz2009- 0013en-technology-policy.pdf REDICT (2007): Study on the trends in European public and private investments in ICT R&D, http://is.jrc.ec.europa.eu/pages/ISG/REDICT.html Sharpe,M. (2009): Playing to win.in the new Software Market. Report of an industry expert group on European Software Strategy, Brussels 2009. Stiglitz, J. E. (1988): Economics of the Public Sector. Second edition. New York and London: W. W. Norton and Company. Tschang, T.;Xue, L. (2005): “The Chinese Software Industry”, in Arora/Gambardella (2005) Wessner, C. (2004): Enterpreneurship and the Innovation Ecosystem Policy Lessons from the United States. In: Discussion Papers on Entrepreneurship, Growth and Public Policy. MPHI Jena. http://ideas.repec.org/p/esi/egpdis/2004-46.html

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ANNEX 3 ADDITIONAL MARKET DATA

Applications

The following tables present the application software product markets (packaged software) by main regions and countries. These data are extracted from PAC’s SITSI®173 program.

Market Value (all in EUR 2008 constant)

Area 2007 2008 2009 2010 2011 2012

EU 27 29 353 30 543 29 943 30 259 31 570 33 288

North America 31 705 32 926 31 700 31 412 32 597 34 389

Asia Pacific 12 189 13 211 13 924 15 023 16 689 18 814

ROW 7 461 8 214 8 524 9 103 10 070 11 321

Total World 80 708 84 894 84 091 85 797 90 926 97 812

Annual growth rates

Area 2007 2008 2009 2010 2011 2012

EU 27 - 4,1% -2,0% 1,1% 4,3% 5,4%

North America - 3,9% -3,7% -0,9% 3,8% 5,5%

Asia Pacific - 8,4% 5,4% 7,9% 11,1% 12,7%

ROW - 10,1% 3,8% 6,8% 10,6% 12,4%

Total World - 5,2% -0,9% 2,0% 6,0% 7,6%

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Details on key countries

Area 2007 2008 2009 2010 2011 2012

France 4 778 5 010 4 920 4 976 5 204 5 459

Germany 7 874 8 176 7 995 8 085 8 432 8 874

Italy 2 534 2 595 2 613 2 667 2 753 2 848

Spain 1 430 1 511 1 464 1 474 1 538 1 631

UK 4 845 4 990 4 820 4 829 5 026 5 326

USA 29316 30443 29133 28692 29684 31246

Japan 6 952 7 255 7 303 7 532 7 987 8 525

India 732 879 1 019 1 231 1 505 1 858

China 1 227 1 545 1 897 2 286 2 877 3 704

Annual growth rates

Area 2007 2008 2009 2010 2011 2012

France - 4,9% -1,8% 1,1% 4,6% 4,9%

Germany - 3,8% -2,2% 1,1% 4,3% 5,2%

Italy - 2,4% 0,7% 2,1% 3,2% 3,5%

Spain - 5,7% -3,1% 0,7% 4,3% 6,0%

UK - 3,0% -3,4% 0,2% 4,1% 6,0%

USA - 3,8% -4,3% -1,5% 3,5% 5,3%

Japan - 4,4% 0,7% 3,1% 6,0% 6,7%

India - 20,1% 15,9% 20,8% 22,3% 23,5%

China - 25,9% 22,8% 20,5% 25,9% 28,7%

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Application software - breakdown of type of revenues for total SSBS market segment

Breakdown of type of revenues for total market segment (EU27)

Area 2007 2008 2009 2010 2011 2012

Software Licensing 29 353 30 543 29 943 30 259 31 570 33 288 & Maintenance

Associated IT 65 039 68 621 68 465 69 950 73 830 78 627 services

Paid Web Based 629 776 938 1 145 1 420 1 773

Online Advertising 1 885 2 559 3 180 3 878 4 844 6 356

Total 96 905 102 498 102 527 105 233 111 664 120 044

Annual market growth

Area 2007 2008 2009 2010 2011 2012

Software Licensing & - 4,1% -2,0% 1,1% 4,3% 5,4% Maintenance

Associated IT services - 5,5% -0,2% 2,2% 5,5% 6,5%

Paid Web Based - 23,4% 20,9% 22,1% 24,0% 24,8%

Online Advertising - 35,7% 24,3% 22,0% 24,9% 31,2%

Total - 5,8% 0,0% 2,6% 6,1% 7,5%

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Tools markets by countries and regions

The following tables present the tools markets (packaged software) by main regions and countries. These data are extracted from PAC’s SITSI®174 program.

Market Value (in EUR 2008 constant currency)

Area 2007 2008 2009 2010 2011 2012

EU 27 12 797 13 422 13 398 13 687 14 324 15 132

North America 16 434 17 276 17 325 17 700 18 605 19 947

Asia Pacific 8 874 9 624 10 155 10 985 12 267 13 831

ROW 3 515 3 881 4 082 4 418 4 928 5 560

Total World 41 620 44 203 44 960 46 790 50 124 54 470

Annual growth rates

Area 2007 2008 2009 2010 2011 2012

EU 27 - 4,9% -0,2% 2,2% 4,7% 5,6%

North America - 5,1% 0,3% 2,2% 5,1% 7,2%

Asia Pacific - 8,5% 5,5% 8,2% 11,7% 12,7%

ROW - 10,4% 5,2% 8,2% 11,5% 12,8%

Total World - 6,2% 1,7% 4,1% 7,1% 8,7%

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Details on key countries

Area 2007 2008 2009 2010 2011 2012

France 2 181 2 307 2 315 2 373 2 477 2 609

Germany 3 320 3 465 3 438 3 491 3 654 3 837

Italy 953 1 008 1 028 1 066 1 119 1 187

Spain 686 732 743 760 799 851

UK 2 316 2 402 2 364 2 402 2 498 2 642

USA 15 128 15 906 15 899 16 176 16 934 18 098

Japan 5 549 5 792 5 849 6 061 6 499 7 010

India 485 594 689 818 981 1 190

China 760 956 1 185 1 456 1 852 2 365

Annual growth rates

Area 2007 2008 2009 2010 2011 2012

France - 5,8% 0,3% 2,5% 4,4% 5,3%

Germany - 4,4% -0,8% 1,5% 4,7% 5,0%

Italy - 5,8% 2,0% 3,7% 5,0% 6,1%

Spain - 6,7% 1,5% 2,3% 5,1% 6,5%

UK - 3,7% -1,6% 1,6% 4,0% 5,8%

USA - 5,1% 0,0% 1,7% 4,7% 6,9%

Japan - 4,4% 1,0% 3,6% 7,2% 7,9%

India - 22,5% 16,0% 18,7% 19,9% 21,3%

China - 25,8% 24,0% 22,9% 27,2% 27,7%

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Tools - breakdown of type of revenues for total market segment

Breakdown of type of revenues for total market segment (EU27)

Area 2007 2008 2009 2010 2011 2012

Software Licensing & 12 797 13 422 13 398 13 687 14 324 15 132 Maintenance

Associated IT services 24 821 26 179 26 016 26 478 27 837 29 515

Paid Web Based 283 358 441 540 662 805

Online Advertising 419 571 713 875 1 098 1 447

Total 38 320 40 529 40 568 41 580 43 921 46 898

Annual market growth

Area 2007 2008 2009 2010 2011 2012

Software Licensing & - 4,9% -0,2% 2,2% 4,7% 5,6% Maintenance

Associated IT services - 5,5% -0,6% 1,8% 5,1% 6,0%

Paid Web Based - 26,5% 23,1% 22,6% 22,5% 21,6%

Online Advertising - 36,3% 24,9% 22,6% 25,5% 31,8%

Total - 5,8% 0,1% 2,5% 5,6% 6,8%

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System infrastructure software products by countries and regions

The following tables present the system infrastructure software product markets (packaged software) by main regions and countries. These data are extracted from PAC’s SITSI®175 program.

Market value by region (all in EUR 2008 constant)

Area 2007 2008 2009 2010 2011 2012

EU 27 12 024 12 397 12 089 12 066 12 359 12 739

North America 17 082 17 797 17 186 16 934 17 336 17 948

Asia Pacific 9 722 10 404 10 890 11 495 12 419 13 455

ROW 4 374 4 778 4 921 5 212 5 671 6 226

Total World 43 202 45 376 45 086 45 707 47 785 50 368

Annual growth rates

Area 2007 2008 2009 2010 2011 2012 EU 27 - 3,1% -2,5% -0,2% 2,4% 3,1% North America - 4,2% -3,4% -1,5% 2,4% 3,5% Asia Pacific - 7,0% 4,7% 5,6% 8,0% 8,3% ROW - 9,2% 3,0% 5,9% 8,8% 9,8% Total World - 5,0% -0,6% 1,4% 4,5% 5,4%

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Details on key countries

Area 2007 2008 2009 2010 2011 2012 France 1 909 1 999 1 975 2 005 2 086 2 173 Germany 2 675 2 738 2 627 2 583 2 616 2 661 Italy 1 094 1 130 1 140 1 165 1 205 1 253 Spain 871 917 893 879 905 943 UK 2 149 2 197 2 121 2 102 2 136 2 178 USA 15784 16455 15808 15492 15811 16319 Japan 5 402 5 587 5 624 5 726 5 955 6 203 India 608 699 778 879 1 007 1 146 China 1 542 1 788 2 039 2 276 2 645 3 076 Annual growth rates

Area 2007 2008 2009 2010 2011 2012

France - 4,7% -1,2% 1,5% 4,0% 4,2%

Germany - 2,4% -4,1% -1,7% 1,3% 1,7%

Italy - 3,3% 0,9% 2,2% 3,4% 4,0%

Spain - 5,3% -2,6% -1,6% 3,0% 4,2%

UK - 2,2% -3,5% -0,9% 1,6% 2,0%

USA - 4,3% -3,9% -2,0% 2,1% 3,2%

Japan - 3,4% 0,7% 1,8% 4,0% 4,2%

India - 15,0% 11,3% 13,0% 14,6% 13,8%

China - 16,0% 14,0% 11,6% 16,2% 16,3%

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SIS - breakdown of type of revenues for total market segment

Breakdown of type of revenues for total market segment (EU27)

Area 2007 2008 2009 2010 2011 2012

Software Licensing & 12 024 12 397 12 089 12 066 12 359 12 739 Maintenance

Associated IT services 11 257 11 742 11 777 12 012 12 535 13 161

Paid Web Based 369 454 543 646 766 898

Online Advertising 419 562 677 800 969 1 231

Total 24 069 25 155 25 087 25 525 26 628 28 029

Annual market growth

Area 2007 2008 2009 2010 2011 2012

Software Licensing & - 3,1% -2,5% -0,2% 2,4% 3,1% Maintenance

Associated IT services - 4,3% 0,3% 2,0% 4,3% 5,0%

Paid Web Based - 23,1% 19,8% 19,0% 18,5% 17,3%

Online Advertising - 34,2% 20,5% 18,2% 21,0% 27,1%

Total - 4,5% -0,3% 1,7% 4,3% 5,3%

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Games

Market Value (all in EUR 2008 constant)

2008 2009 2010 2011 2012 2013

EU 27 11 692 12 855 14 001 14 488 14 618 16 124

North 10 848 11 596 11 580 11 504 12 214 13 263 America

Asia Pacific 9 237 10 348 11 664 12 729 13 911 15 248

ROW 1 688 1 984 2 278 2 510 2 725 3 101

Total 33 465 36 784 39 524 41 231 43 468 47 735 Worldwide

Annual growth

2009 2010 2011 2012 2013

EU 27 10% 9% 3% 1% 10%

North 7% 0% -1% 6% 9% America

Asia Pacific 12% 13% 9% 9% 10%

ROW 18% 15% 10% 9% 14%

Total 10% 7% 4% 5% 10% Worldwide

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Details on key countries

2008 2009 2010 2011 2012 2013

France 1 864 1 933 2 034 2 044 2 037 2 264

Germany 1 690 1 830 2 028 2 120 2 157 2 361

Italy 789 888 987 1 050 1 067 1 180

Spain 804 911 993 1 018 1 006 1 115

United 2 955 3 167 3 335 3 328 3 197 3 501 Kingdom

United State 9 954 10 640 10 630 10 569 11 211 12 147

Japan 3 121 3 182 3 482 3 591 3 753 4 145

Annual growth

2009 2010 2011 2012 2013

France 4% 5% 0% 0% 11%

Germany 8% 11% 5% 2% 9%

Italy 13% 11% 6% 2% 10%

Spain 13% 9% 2% -1% 11%

United 7% 5% 0% -4% 10% Kingdom

United State 7% 0% -1% 6% 8%

Japan 2% 9% 3% 5% 10%

Chapter 7 – Annexes Page 338 of 339

Breakdown of type of revenues for total market segment

Total 2008 2009 2010 2011 2012 2013

Licenses 23087 23842 24020 23233 22906 24806

IT Services 0 0 0 0 0 0

Paid-Web 8925 11000 13023 14938 16861 18344 Based

Ad 1453 1941 2481 3060 3701 4586

Total 33465 36784 39524 41231 43468 47735

Annual Growth

2009 2010 2011 2012 2013

Licenses 3% 1% -3% -1% 8%

IT Services N/A N/A N/A N/A N/A

Paid-Web 23% 18% 15% 13% 9% Based

Ad 34% 28% 23% 21% 24%

Total 10% 7% 4% 5% 10%

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