R&D Investment Drives European Software Growth

Across Europe, software companies increased their R&D spend by over 15 percent in 2010 to over €4.4bn (£3.8bn), driving revenue growth by 14 percent year-on-year, according to the Truffle 100 annual performance report.

The growth, which happened despite a backdrop of unfavourable economic conditions, was an increase on the seven percent increase in 2009. As in previous years, Germany’s 16 participating companies, led by software giant, SAP, took the lion’s share, while UK companies generated 18.6 percent of the region’s €30.9bn (£26.9bn) in revenue.

A highly critical period for vendors

According to Bernard-Louis Roques, General Partner and co-Founder, Truffle Capital this is a highly critical period for vendors. “Software vendors are able to bounce back quickly and generate profits (€3.7 billion last year) (£3.2bn), while investing heavily in R&D. With over 55,000 highly qualified R&D jobs, they constitute a strategic industry that is absolutely critical for employment and GDP growth in Europe. With cloud computing and “software as a service” (SaaS) bound to radically transform the industry in the coming years, Europe’s software vendors are on the verge of a major paradigm shift and deserve a lot more attention.”

Franck Cohen, President of Europe, Middle East and Africa at SAP, voiced the general consensus among software vendors,  that software vendors count on public support through R&D tax breaks and public R&D programs to drive innovation, crucial for sustainable growth and competitiveness. Of the companies polled by the report, 41 percent believe that R&D tax breaks will facilitate the growth of the European software industry, while 34 percent feel that publicly funded R&D programs should be adopted to serve the cause.

According to Neelie Kroes (pictured), European Commission Vice President for the Digital Agenda, “In these times of economic uncertainty, the sector has clearly remained a reliable pillar underpinning Europe’s economic growth. Not only has the market grown by about ten percent year on year but, more importantly, vendors are planning to increase headcounts and R&D investments. These are exactly the right ingredients to sustain the industry’s momentum in years to come.”

Not surprisingly, trends for 2012 include greater investment in R&D, increases in jobs in the sector, growth rates of between five percent and 15 percent, and a focus on SaaS, cloud computing and mobile applications.