Strategy
Vision: Global market leader
Our vision is to further expand our position as a top independent vendor of infrastructure software to become the world’s market leader in the high-opportunity segments of SOA and BPM. Our enterprise software modernizes, automates and optimizes existing IT systems and processes in both public and private sector organizations.
Software AG is dedicated to implementing a long-term business development strategy. Our goal of profitable growth is comprised of four components:
- Organic growth through innovation
- Geographic expansion
- Growth through acquisitions
- New customer groups through partnerships
Our focal points in fiscal 2008 were organic growth through innovation and geographic expansion. We successfully integrated webMethods, Inc. and broadened our product portfolio. Geographic expansion consisted primarily of our successful direct market entry in Brazil at the beginning of the year.
Organic growth through innovation
Software AG has been shaping the enterprise software market for 40 years. Our data management (ETS) business division is a strong generator of revenue and therefore our Company’s mainstay. Our high-performance Adabas database system undergoes continuous enhancements and remains the fastest and most effective database in the world. With this product, we are able to retain a significant share of our customer base. Software AG has built a second key line of business with webMethods. It is a globally leading integration software portfolio in the high-opportunity service-oriented architecture (SOA) and business process management (BPM) markets. Independent industry analysts deem Software AG a technology leader in these segments. Integration software is useful to both existing as well as new customers, which makes it particularly important from a strategic point of view. The webMethods business division enables us to modernize our customer base’s IT systems and to acquire new customers and thus achieve profitable growth.
Vendor-independence
One of our key success factors among customers is our independence from specific hardware and application systems. Software AG modernizes vendor-neutral IT systems. This gives us the flexibility to design the best and most efficient IT solutions possible for our customers. Our vendor-independence sets us apart from the rest of the enterprise software market.
Our consistent customer orientation, technological leadership and efficient processes form the foundation of our targeted annual organic growth of 10 percent, in times of normal economic development. Our high-growth webMethods business division generated 44 percent of total revenue in 2008, up from 38 percent the previous year. In the medium term, webMethods will account for more than 50 percent of revenue and bolster growth of the corporation as a whole.
The evolution of the software industry
Software AG regards IT solutions based on SOA and BPM as a market of the future.
SOA and BPM: Opportunity markets
The infrastructure software market – also known as “middleware“ – serves enterprise customers. Software AG’s customers are predominantly large organizations from all industry sectors, including government agencies and institutions. From general business operations or efficiency optimization to introducing new business activities, new products or internal processes, all these processes depend on software solutions. Increasingly, these solutions control processes automatically and form complex IT landscapes. The strategic role of enterprise software is therefore constantly growing. Process innovation is becoming even more important than product innovation. Organizations of tomorrow will be controlled in real time by electronically generated performance indicators, which will be enabled by process-centric software. The concepts and technologies comprising these landscapes are called service-oriented architecture (SOA) and business process management (BPM). According to leading industry analysts and professional associations, a paradigm shift is taking place in the software industry. In the 1970s the trend was home-grown enterprise software. Later, the software market evolved to be dominated by complementary standard packages. Today, these application silos can be made more flexible with SOA and BPM. In 2007, the percentage of business applications supported by an SOA was still quite low (source: Capgemini IT Trends 2008). In the medium term, however, users plan to convert almost one-third of their applications to SOA. The opposite trend is expected for standard software packages. The percentage of these programs in use will drop from 40 to 20 percent. The SOA and BPM product market is still very fragmented and is thus expected to grow by one billion U.S. dollars per year. Software AG’s post-merger market share of 6.4 percent puts us in third place. We plan to build on this position through our technological leadership.
Growth through geographic expansion
Our direct market entry in Brazil was very successful. As planned, we established direct-sales operations in January 2008 after the transfer of distribution rights to Software AG. In the first year alone, we signed new contracts with more than 45 of the approximately 150 Brazilian Software AG product users. During the year, revenue clearly surpassed our forecast of €30 million, which had been raised several times throughout the year. By the year 2010 we want to achieve $75-100 million in revenue in Brazil. Since gaining distribution rights in Brazil, we now have the potential to establish direct contact to all users of our software products and thus to strengthen our customer relationships and broaden our scope of products. Our next phase of growth with regard to geographic expansion will focus on intensified market representation within the 70 countries in which Software AG currently operates.
Growth through acquisitions
Following the three acquisitions of SPL Israel, webMethods, Inc. and Jacada (effective on January 1, 2008) in 2007, our focus in 2008 was on successfully integrating these companies. In September 2008, CentraSite ActiveSOA, our first integrated product, went to market. Acquisitions continue to be a component of our growth strategy. Vendors in the highly fragmented infrastructure software market are having to consolidate. Software AG is a consolidator, buying technology companies that complement our product portfolio and smaller systems firms that strengthen our local or industry-specific consulting activities and project capacities.
New customer groups through partnerships
In 2008 we also increased the number of customer projects in which partners were involved. Thanks to the Partner-Eco-System customer base, we are able to better penetrate the market with our webMethods products. As a technology leader, Software AG is attractive to new partners, which enables us to lay the groundwork for sustained growth.
Success in times of economic turmoil
The extent and duration of a worldwide recession are difficult to predict, as is the impact on demand for IT in our market segment. Furthermore, we expect varying effects depending on the specific sector and region. In spite of the high level of uncertainty with respect to forecasting the future, we nevertheless believe, that Software AG is well equipped for difficult economic times:
- We have a global-market-leading, innovative product portfolio, which, particularly in challenging economic times, can help our customers to cut costs and increase the efficiency of existing IT systems.
- We have a robust business model. Our mission-critical software solutions control the core processes of our enterprise customers, thereby safeguarding their business operations. As long as these business processes exist, our software will be needed – even if a company is taken over. Maintenance and a large percentage of service and licensing fees represent continuous sources of income and account for about 70 percent of our earnings. From a customer standpoint, these fees are recurring operating costs and therefore less vulnerable to economic conditions than investment spending, which is more typically reduced in times of crisis.
- We have a global corporate structure which is scalable but can also compensate for regional differences. For instance, a percentage of our revenue is generated in countries like Brazil or Japan where sales are less affected by the economy than by the transfer of customer contact from former distribution partners to our company.
Outlook 2009: Sights on one billion euros in 2011
Software AG intends to continue growing profitably in fiscal 2009. However, the uncertain global economy makes it difficult to predict performance, for which reason our forecast for 2009 is more cautious than in the previous year.At present, we expect our currency-adjusted net revenue to increase by 4 to 8 percent. Our EBIT margin in the coming year will be between 24.5 and 25.5 percent. Our operational focal points in the current fiscal year will be further market penetration in Brazil and Japan and expansion of our consulting and product activities in our high-growth webMethods business division. Moreover, additional targeted acquisitions remain a possibility. We aim to continue profitable growth through these activities. We will not lose sight of our goal of achieving one billion euros in revenue in 2011.
