Saparbek Smailov 20081212

American software industry Software is one of the largest industries in the world. Its size as big as 297 billion US dollars (Business Software Alliance). This huge market is dominated by United States. America is both top user and producer of software packages: accounting 46% of worldwide spending on packaged software and earning 60% of global spending (Business Software Alliance). Astonished by this numbers I decided to investigate the reason behind the American success in software industry. Success of American software industry originates from generous government spending to research and development after Second World War. This spending resulted in advent of America in digital equipment research bringing state of art military technologies. When computers were introduced to business world most of other countries lagged back. Invention of Personal Computers increased scale of computer industry. Eventually, the scale let birth of software only companies. This was birth of software industry, and this birth happened in the US, giving first mover advantage to the US based companies. This new-born industry contributes $36 billion surplus to the US balance of trade in 2008 (Business Software Alliance). This story is good example demonstrating importance of investments into research and science.

I do not know any other case, when first movers possessed their advantage that long, and in such extend. Does it mean that success of American Software industry lies behind something else? Experts, who relate Americas success to their first mover advantage, claim that Americas first mover advantage lasts long because of the nature of the industry. The rapid pace of change in software and hardware markets gives the US software industry an advantage in international competition (Steinmueller, 1995). Basically, experts say that while other companies try to reach level of US companies, US companies step to the next level. On the other hand, we see that Steinmullers claim about hardware market is not true anymore; we witness how the US lost its leadership to East-Asian countries like Japan, Korea. So how long American hegemony over Software Industry will last? Why no other developed country can be compared to the US in Software market? Is Software Industry special?

Indeed, Software Industry is special. It differs a lot from other industries. Often Software is classified as business service. (Steinmueller, 1995). But packaged software products more close to computer peripherals, but intangible. Even though the production of software is laborintensive work, it can be reproduced nearly for free. Software production can be classified neither as service, nor as manufacturing. The reason other countries cannot compete the US originates on fact that the software is not tangible. Most of other countries underestimate value of software, since they do not consider it as something real as a computer or a car. On the other side, US government understood importance of software very early, and generously supported research in software. Moreover, American scholars introduced College-level study of Computer Science forming first Computer Science department in Purdue University in 1962(!) (Conte, 2002). Also the US government has taken number of effective actions to foster

competition in software industry. Arguably the most important was the threat of antitrust action against IBM that in 1968 led to the company's agreement to price and sell software separately from hardware. This action created an independent software market nearly 30 years ago (Stanford.edu). Another reason why the US has good climate for software industry is due to effective methods to protect authors intellectual property rights. For example, in Japan, the government is one of the major duplicators of software, because departments are given a budget for purchasing hardware but not software (Stanford.edu). Now it seems reasonable why, the US, not other country dominates the market.

Software market is very important for the future. Nowadays software is everywhere, from phones to airplanes. Most of electronic devices that we use today would be just pile of plastic and metal without software. Moreover, the main input the software industry needs is creative minds. In my opinion, a country that will lead software industry will lead the creative era.

References

Business Software Alliance. Accessed May 3rd.

http://www.bsa.org/country/Public%20Policy/~/media/Files/Policy/Security/General/sw_factsfi gures.ashx

W. Edward Steinmueller. 1995. The U.S. Software Industry: An Analysis and Interpretive History. Computer science pioneer Samuel D. Conte dies at 85 July 1, 2002

Stanford university news service. Reasons U.S. dominates world software market. Accessed May 2nd. http://news.stanford.edu/pr/94/941011Arc4096.html