May 27, 2024

Rise of the Independent Software Vendors

The past few decades have seen a rise in Independent Software Vendors or ISVs creating their own business around developing and selling software applications. No longer dependent on hardware vendors, these companies have changed how businesses and consumers access and use software.

Emergence of the ISV Model

In Independent Software Vendors (ISVs) Market the early days of computing, software programs were created mostly by computer hardware manufacturers like IBM, DEC,HP to run on their own systems. This changed in the late 1970s and early 1980s as companies like Microsoft emerged offering software like programming languages, operating systems and productivity tools for various hardware platforms. The idea that software could be developed and sold independently of hardware gave rise to the concept of Independent Software Vendors.

As personal computers became popular in the 1980s, many new companies came up developing applications tailored for the new PC market. Word processing, spreadsheet, database and accounting packages from Lotus, WordPerfect, Borland helped establish the early ISV success stories. They thrived on selling “shrink-wrapped” packaged software that could run across different hardware configurations giving customers more choice. This model gave impetus to development of new productivity and business applications.

Growth of Commercial ISVs

By the 1990s, the commercial ISV market was well established with Microsoft dominating operating system and office productivity suite sales. Emergence of client-server architecture and database systems spurred growth of Enterprise Resource Planning (ERP) and Customer Relationship Management (CRM) applications from large ISVs like SAP and Siebel Systems. These applications revolutionized how large corporations managed operations and customers. New vertical industry specific solutions addressed needs of manufacturing, retail, healthcare and other sectors.

The Internet Boom and Beyond

The internet revolution of the late 1990s brought a new wave of startups developing web-based applications. Companies like NetSuite, offered early cloud-based CRM and ERP solutions. This era saw proliferation of web services, APIs and platforms enabling developers to build applications on third party infrastructure like Amazon Web Services, Microsoft Azure and Google Cloud. Emergence of mobile devices led to demand for specially tailored mobile apps. Today’s ISVs span diverse categories from productivity to healthcare, finance to education developing solutions targeting various customer segments.

Rise of Open Source

Open source revolution led by Linux changed the commercial ISV landscape as well. Many prominent companies adopted open source software like Red Hat for servers and databases. This has supported massive growth of new models where ISVs provide services and support around open source platforms and applications. Companies develop proprietary modules that integrate with open source ecosystems giving customers more flexibility in solutions. The open source space is now filled by large ISVs offering both open source and proprietary tools.

Emergence of Various Business Models

Traditionally ISVs relied on upfront licensing fees and annual maintenance contracts. Today various business models co-exist from outright purchases to subscription and “Software as a Service”. Large ISVs have migrated existing on-premise software portfolios to cloud-based SaaS subscriptions. Startups develop solutions only in the cloud format. Freemium models give limited free access to basic features while charging for advanced capabilities. Some rely on third party marketplaces like the Apple App Store. Emerging technologies like AI, IoT and blockchain will surely drive new types of ISV revenue streams in future.

Impact on Vertical Industries

The effect of ISVs goes well beyond technology sectors. Domain specific solutions have completely transformed multiple industries. Industries like manufacturing leveraged ERP to optimise supply chain management. CRM solutions helped retail and telecom improve customer engagement. Medical practices globally use practice management and electronic health record software from ISVs. Educational institutions adopted learning management platforms to enhance digital learning. Accounting and tax preparation software boosted efficiency of small businesses as well as accounting firms.

Outlook for ISVs

The Independent Software Vendors (ISVs) Market  which touched $420 billion in 2020 is projected to grow significantly in coming years driven by cloud adoption, proliferation of SaaS business models and demand for mobility, analytics and emerging technologies. Large traditional ISVs will continue expanding their cloud footprints while startups disrupt existing models with newer offerings. Strategic alliances and platform partnerships will support next stage of ISV-led innovation across sectors. Regional ISVs too will gain from improving connectivity and globalization of markets. Overall, ISVs will remain crucial drivers of digital transformation and productivity worldwide through specialized applications.

1. Source: Coherent Market Insights, Public sources, Desk research
2. We have leveraged AI tools to mine information and compile it