The software market may well be dominated by the US giants, but 15 high-performing "software clusters" in Europe are leading the charge for the underdog, according to new research.
Eight of the top 10 largest software and programming companies are based Stateside, according to Forbes, with just two - German SAP and Spanish Amadeus IT - hailing from Europe.
According to Forbes' Global 2,000 list, of the $159.7bn (£99bn) combined sales the top 10 vendors racked up last year, just $24.7bn - 15 per cent - of it came from the European duo. Outside the top 10, only two other European firms featured on the 2,000-strong list: UK-based Sage and French Dassault Systèmes. In fact, the combined revenue of all four of the largest European software firms, $29.6bn, is dwarfed by US-based Microsoft alone, whose sales stood at $72.9bn last year, according to Forbes.
But despite the US's grip on the software market, a European fightback is being led by 15 high-performing regions or "software clusters" on this side of the pond, according to fresh analysis. (See full list and map below)
The EU Software Cluster Benchmark 2013 report, from German research firms Fraunhofer and Software Cluster, claims the US will not have it all its own way as renewed privacy concerns in light of the NSA data-snooping scandal shifts the momentum to Europe.
Cities and districts from across Europe featured on the list, with London named as the second-highest-performing software cluster overall in Europe, after Germany's Karlsruhe, Darmstadt, Rheinhessen-Pfalz and Saarland regions combined.
The areas were ranked on the performance of companies situated within their boundaries in the following areas: turnover, employment, company demographics, growth dynamics and human capital as well as both general and industry-specific factors including education.
London's high employment rate in the software industry and 72-strong army of universities were pinpointed as key drivers behind its software cluster status, as well as its long list of resident IT services firms.
"The number of local software product manufacturers is low, but the number of IT services companies, as well as the percentage of local branches of multinational companies is unusually high," the report said.
"The high density of companies, in particular companies with more than 250 employees, are an advantage over other regions that are characterised by a larger surface area, an advantage that London will not be losing in the foreseeable future."
Software vendor Thunderhead, which provides software-as-a-service (SaaS) products to businesses, set up shop in London's West End in 2001. The company's chief executive, Glen Manchester, said if he had not placed his chips on the capital, his business' future might have turned out differently.
"One of the advantages I had when I innovated our first generation of solutions in London is that it was obviously a very strong financial services sector and a very densely populated community, which meant in terms of getting to market, we had a ready-made customer market that we could target and innovate for," he said.
"That was very formative and enabled us to scale very quickly.
It was a very important influence on our short-term success. "
The M4 corridor, or as the report refers to it, the Berkshire, Buckinghamshire and Oxfordshire (BBO) region, came in tenth
place thanks to its strong employment record as well as its high turnover. The 100 leading software companies in the BBO area
had an aggregated turnover of €20.5bn (£17.1bn) last year, the report claimed.
The region was let down by its low ranking in the education segment due to it having just five universities. However, the report acknowledges that this could be an anomaly as the University of Oxford is situated within the region, but could not be given extra credit due to the nature of its judging criteria. It said Oxford University's presence in the area also meant there was a high number of employees in science and tech-based jobs.
Over the summer, US National Security Agency (NSA) analyst Edward Snowden claimed the agency had been working with a number of top tech vendors including Microsoft, Apple and Google, to snoop on users' data through its PRISM programme. The revelations sent shockwaves through the industry and prompted the EU to moot a plan to force tech vendors to reveal what data they store and to whom they reveal it.
The renewed focus on data privacy and scepticism towards US-based vendors could be a golden opportunity for the EU software industry to eat into its rival's share of the market, the report suggested.
Stephan Fischer, global head of applied research at SAP, said the US' loss is Europe's gain.
"[NSA revelations] will have a significant impact on where your data is, who has access to it and whether your data can be viewed without you knowing it," he said. "It is certainly a factor that will favour European players. European vendors [will] benefit because of this."
The fact that European software firms have invested more in R&D in recent years at the expense of short-term profits also bodes well for the continent's future, said Bernard Louis Roques, founder of ABN Amro Capital France.
"A key takeaway [from the report] is the pressure on profits," he said. "Although the industry is growing, profits are actually lower - aggregated profits are back to what they were in 2010.
"Research and development investment is higher than profit this year [for Europe overall], and that is the opposite of last year. It's a demonstration of the increased competitiveness of the market and [vendors] don't just develop products [for now], but are developing future products - it's a major shift in the business model.
"Also, the new generation of software is based in the cloud and a significant portion of R&D from software vendors is on SaaS - it's a critical moment in time for software vendors. There is mounting pressure from software developers which requires significant investment."
Thunderhead's Manchester added that the recent cloud computing boom has also helped level the playing field between Europe and the US.
"It couldn't be a more exciting time in enterprise technology and Silicon Valley is definitely the epicentre of our universe," he said. "But the opportunity for us [in Europe] is really in the cloud.
"There is a large restructuring of the enterprise ecosystem happening right now and that is creating a new fabric of environments for businesses internationally and there's a democracy happening. It means businesses in Europe are using the same ecosystem as our peers in North America.
"European countries have a real opportunity to compete internationally - there is no reason not to - [cloud] is highly democratic and you can scale. The ecosystem is ready and can be deployed internationally - the barrier to entry is reduced."
The 15 best-performing regions
1) Karlsruhe, Darmstadt, Rheinhessen-Pfalz and Saarland - Germany
2) London - UK
3) Etelä-Suomi district (Helsinki area) - Finland
4) Île-de-France (Paris area) - France
5) Lombardia (Milan area) - Italy
6) Utrecht - Netherlands
7) Stockholm - Sweden
8) Oberbayern - Germany
9) Berlin - Germany
10) Berkshire, Buckinghamshire, Oxfordshire (BBO) - UK
11) Madrid - Spain
12) Mazowieckie (Warsaw area) - Poland
13) Hovestaaden (Copenhagen area) - Denmark
14) Közép-Magyarország (Budapest area) - Hungary
15) Prague - Czech Republic
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