New faces on software leader board

Three out of the top five market share leaders in telecom software are now hardware vendors, according to a new report from OSS Observer — but don't look for a repeat of their late '90s end-to-end power play.

OSS Observer's “Global Telecom Software Market Survey,” which provides market share numbers through the end of 2006, highlights two of the major changes in the software market over the last couple of years that have contributed to this shift in overall market share: consolidation and the inclusion of — and focus on — business related to service delivery platforms (SDPs).

Amdocs remained the leader of this $16.5 billion market through acquisitions as well as organic growth. The company has a 12% market share — five percentage points ahead of Alcatel-Lucent and doubling or tripling that of the next five competitors. “We expect Amdocs to continue to grow, and in some cases, they are growing faster than the market segments they participate in,” said Patrick Kelly, co-founder and senior analyst for OSS Observer.

Oracle made the top five by virtue of its acquisitions of MetaSolv, Portal Software and Siebel Systems. “Without them, it wouldn't have even made the list,” Kelly said.

Although Nokia came in at No. 5, Kelly said that since its joint venture with Siemens closed after the first of the year, the companies ranked lower individually than they would have combined.

And although industry consolidation has reshaped the ranks of software market leaders, the position of hardware companies on the leader board is not a short-term phenomenon. Kelly said most of the market leaders are growing organically and have plenty of market opportunity before them in network and device management, as well as the management of complex services.

“The big guys are getting bigger,” Kelly said. “Some of this is because they are buying smaller companies but also because they are in a good position to act as integrators.”

They also have opportunity in the market for SDPs. This is where the hardware and software vendors may butt heads. BEA, HP, IBM, Oracle and Telcordia all have growth opportunity in this segment. But hardware providers are looking at the SDP as a way to compensate for their hardware platforms potentially becoming commodities through the movement of network intelligence from the infrastructure to the IP-based software domain, Kelly said.

David Sharpley, vice president of marketing and alliances for Oracle, said this approach of building analytics and intelligence into the company's core products is fundamental to, and reflective of, Oracle's strategy. However, Kelly said that although this shift will bring hardware and software vendors face to face competing for the SDP opportunity, they will often end up partnering for it.

Grant Lenahan, Telcordia's vice president and strategist of service solutions, agrees. “The industry is starting to recognize that not every company can have an end-to-end solution. Some companies are great at application servers,” he said. “Others are great at real-time charging or at customer care. Others are great at making databases. But when we stick to our knitting and pull these things together, we will be able to make a super next-generation network.”

As big as some of the leading players become, niche players are not going away. The top 15 vendors make up 53% of the software market. That leaves 47% of the market to be contested by more than 200 vendors that generate less than $50 million in revenue.

Subex Azure is one company near that range that plans to be a $100 million company by 2008. Acquiring Syndesis, as it did recently, will get it much of the way. Its current 20% organic growth rate should do the rest. Like the big companies on acquisition sprees, Sanjeev Gadre, vice president of marketing for Subex Azure, said, “Our acquisitions are not about driving out cost; it is our growth strategy.”

GLOBAL TELECOM SOFTWARE MARKET SHARE OF $16.5 BILLION, 2006

Amdocs 12%
Alcatel-Lucent 7%
Ericsson 6%
Oracle 5%
Nokia 3%
Convergys 3%
Telcordia 3%
Siemens 2%
IBM 2%
HP 2%
BEA 2%
Motorola 2%
CSG 2%
Intec 1%
Comverse 1%
Other 47%

Source: OSS Observer