D3 – Baseline Scenario for 2020

Economic and Social Impact of

Software & Software-Based
Services
Smart 2009/0041

Pierre Audoin Consultants SAS (PAC)

23, rue de Cronstadt
75015 Paris – France
Tel: + 33 (0)1 56 56 63 33
Fax: + 33 (0)1 48 28 41 06
www.pac-online.com

January 21, 2010

2009
Consultants Contributing to This Report

Frederic Giron – Pierre Audoin Consultants (PAC)

Mathieu Poujol – Pierre Audoin Consultants (PAC)
Vincent Bonneau – IDATE
Timo Leimbach – Fraunhofer ISI
Michael Friedewald – Fraunhofer ISI
Pau Salsas – London Economics

Latest update: March 5, 2010

 Table of Content

EXECUTIVE SUMMARY ............................................................................................ 5

CHAPTER 1 SSBS IN THE CONTEXT OF THE INTERNET OF SERVICES........ 25

1.1 Definitions........................................................................................................................................... 25
1.2 SSBS Market in 2009 ........................................................................................................................ 31
1.3 SSBS industry players....................................................................................................................... 33

CHAPTER 2 KEY TECHNO-ENABLERS FOR THE FUTURE DEVELOPMENT OF

THE SSBS INDUSTRY............................................................................................. 55
2.1 Artificial Intelligence........................................................................................................................... 56
2.2 Semantic Web.................................................................................................................................... 66
2.3 Information Management .................................................................................................................. 74
2.4 Digital identity..................................................................................................................................... 81
2.5 Standard and interoperability ............................................................................................................ 91
2.6 RFID ................................................................................................................................................... 97
2.7 Ubiquitous networks ........................................................................................................................ 103
2.8 Security............................................................................................................................................. 109
2.9 Datacenters ...................................................................................................................................... 114
2.10 Broadband wired technologies ..................................................................................................... 118
2.11 What does this all mean?.............................................................................................................. 124

CHAPTER 3 EMERGING MARKETS AND THEIR POTENTIAL IMPACTS ON

THE SBIS INDUSTRY ............................................................................................ 130
3.1 Mobile applications .......................................................................................................................... 130
3.2 Web 2.0 ............................................................................................................................................ 135
3.3 Internet of Things............................................................................................................................. 140
3.4 Wireless Machine-to-Machine (M2M) ............................................................................................ 145
3.5 Online Advertising ........................................................................................................................... 151
3.6 Service Oriented Architecture (SOA) ............................................................................................. 155
3.7 Open Source Software (OSS)......................................................................................................... 160
3.8 Cloud Computing ............................................................................................................................. 164
3.9 Synthesis .......................................................................................................................................... 168

CHAPTER 4 SSBS INDUSTRY COMPETITIVENESS ........................................ 173

4.1 Factor conditions ............................................................................................................................. 175
4.2 Supporting industry and other related factors................................................................................ 188
4.3 Industry strategy, structure and rivalry factors .............................................................................. 199

CHAPTER 5 SSBS AND SBIS – FORESIGHT 2020........................................... 205

5.1 The SSBS market structure in Europe in 2020.............................................................................. 205
5.2 SSBS Market in 2020 - International Comparisons....................................................................... 208
5.3 SSBS Market – 4 theme scenarios ................................................................................................ 211
5.4 SSBS players in 2020 ..................................................................................................................... 251
5.5 Future Social contributions.............................................................................................................. 252

CHAPTER 6 OUTLINE TO BARRIERS AND POLICIES FOR THE

DEVELOPMENT OF THE SSBS INDUSTRY......................................................... 262
6.1 Background ...................................................................................................................................... 262
6.2 Identification and consolidation of barriers and measures ........................................................... 268
6.3 Results from the interview process ................................................................................................ 276
6.4 Literature .......................................................................................................................................... 310

CHAPTER 7 FORESIGHT 2020 - METHODOLOGY........................................... 313

7.1 Methodology and main assumptions.............................................................................................. 313
 EXECUTIVE SUMMARY

This report follows on the work presented in the D2 report as part of the “Economic
and Social Impact of Software and Software-Based Services” in Europe.

The objective of this document is to project the most likely economic and social
impact of the EU SSBS industry on Europe (EU27) in the next 10 years from now,
with a specific focus on the impact of the development of the Internet of Services on
this industry.

In this rapidly changing environment, the second objective of this report is to identify
the barriers for the development of the European software and software based
service industry and to determine policy measures to remove or mitigate them.

SSBS within the context of the Internet of Services

In this part, the Consortium focuses on the current impact of the Internet of Services
(IoS) on the SSBS industry and market. The goal here is to present the state of the
art as of 2009 from a definition, segmentation, market sizing as well as nature of the
different players that are active in this industry.

The first step in the definition of the SSBS industry within the context of the emerging
Internet of Services is to define “Internet of Services”. After briefly reviewing the
literature on this matter, the Consortium will retains the following as a definition of
Internet of Services: Generic services that can be automated and optimized through
the use of ICT, delivered leveraging Internet platforms and that can be combined in
order to provide value-added services to services users.

We then make a clear distinction in between Software-Based Internet Services

(SBIS) and Software-Enabled Internet Services (SEIS) that are the two constitutive
segments of the IoS ( IoS = SBIS + SEIS ). SBIS is the part of the IoS that is of
critical interest to the current study. Such services cover capabilities for which the
value to the customer is intrinsically related to the IT resources that are delivered via

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the Internet. These include the use of software and infrastructure resources such as
the ones delivered in IaaS (data storage, computing power…), PaaS (software
development and integration capabilities…), and SaaS (Customer Relationship
Management, Human Resources… capabilities) models.

SBSS has been defined in the D2 report with Paid-Web-Based and Online
Advertising as two emerging segments rendered possible thanks to the Internet. The
SBIS market corresponds to revenues coming from Paid-Web Based and Online
Advertising as defined in the D2 report. Most of those activities are generally made
available through the World Wide Web, but more and more services can be accessed
directly with widgets, thin clients or direct integration into databases.

In the D3 report the Consortium emphasizes much more on this SBIS segment, the
part of the SSBS industry that is also part of the Internet of Services.

The Software-Based Internet Services market is still relatively small in size compared
to the more traditional SSBS revenue models: Licence & Maintenance and IT
Services. In recent years, the pace of growth of the SBIS segment was 4 to 5 times
faster than the growth of traditional segments.

The SSBS market size in the EU27 area is estimated at about 231 billion Euros in
2009. A detailed analysis of the trends and growth drivers for each segment can be

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found in the D2 report1.

In the D3 report the Consortium details how the advent of the Internet of Services
impacts the development of the SSBS industry and its players in particular. For the
sake of this exercise 5 types of players have been retained: Independent Software
Vendors (ISVs), IT Services providers, Telecom operators, Internet players and other
companies that are not part of the ICT industry, but can sometimes partake in the
SSBS industry by selling software that they have developed.

The Consortium gives a thorough description of these categories of players including

their activities, business models, and positioning in Europe.

This first part sets the stage for the remaining of the report that focuses on giving
indications on where the SSBS industry and markets could evolve in the next five to
ten years.

Key Techno enablers for the future development of the SSBS industry.

Numerous technology trends could have a major impact on the development of SSBS
and SBIS in the coming years. Depending on their availability on time, their cost and
their level of adoption by end users (niche or mass market), they could help or not to
accelerate the growth of the overall SBSS market and especially its Internet of
Service part. They can therefore have a major influence in the development of the
market, and need to be taken in account for prospective scenarios.

There are two main kinds of technology trends to analyze:

• Some of those technologies are new software technologies that could represent
new market segments and new opportunities in the SSBS industry. Most of the
time, they would rather be combined or integrated with other technologies rather
than made available as standalone. Their development is therefore dependent of
the SSBS itself, for which they are internal growth drivers. They would most likely
be used as a lever for a faster growth.

1
http://cordis.europa.eu/fp7/ict/ssai/study-sw-2009_en.html

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• Other technologies will develop almost independently of the SSBS industry. They
would be more enablers to ensure a faster development of the software rather
than pure software technologies. While SSBS industry needs could accelerate
their developments (by helping to find sustainable business models), their
development should be seen as exogenous as their availability will depend also
heavily on other industries (like other ICT industries like contents or
communications, or even non-ICT industries). Their development is also
dependent on technology breakthroughs related to physics, mechanics or energy
management.

In this second part, the Consortium presents what we believe will be critical
technologies and concepts for the future of the SSBS industry.

• Artificial Intelligence (AI) • Ubiquitous Networks

• Semantic Web • RFID
• Information Management • Security
• Digital ID • Datacenter
• Interoperability • Ultra-Broadband
These techno-enablers are part of the important underlying technology forces that will
drive the evolution of the SBBS industry in the next years. We explain then how these
impact our foresight scenarios (baseline and theme scenarios) that will be presented
further into the report. Some technology drivers have been in fact directly integrated
fully in the baseline scenario, especially for technologies with limited interaction with
the theme scenario. Other technologies are already included in the baseline scenario,
but not to their full extent. They are indeed either the leading driver of one of the
scenario, or offer some additional leverage on one or two theme scenario.

Emerging markets and their potential impacts on the SBIS Industry

The following part focuses on the emerging SSBS markets identified in the D2 report.
The Consortium focuses here on the interactions in between these fast growing
markets and the development of the SBIS. In particular, we explain for each
emerging market the current positioning of the SSBS players (ISVs, IT Services

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providers, Telecom operators, Internet players, and Others) as well as how there
positioning should evolve in the future in these markets.

The Winners: Internet players

Internet players will benefit the most from the evolution and development of the
different emerging segments presented above. In theory, they are the best positioned
to benefit from the development of SBIS and the impact of Internet of Services on the
SSBS industry. Most players are from origins outside of Europe. There are European
players in this category (cf. the definition of this category of industry players in Chp.
1.3.4.2) with OpenPortal, RunMyProcess, Sidetrade, EtapOnline, Oodrive,
Synertrade, Datev, Onventis, Talentsoft… – which are born with the Internet and rely
mostly on paid-web based solutions – although their number is small and they
currently lack a strong visibility on the market. They should grow rapidly in the next
few years.

The Challenged: ITS and ISVs.

The incumbent players are facing major shifts in the market: shifts in demand, shifts
in the competition with new types of players entering the market. Not surprisingly,
they – especially the larger players – are against this flow of change, which can
represent a real threat to their business models and the recurring revenues that they
have in place in the run and maintenance of their clients information systems. They
today represent the vast majority of players in the industry. They will have to evolve
though in the coming few years and reposition their activities in a renewed SSBS
ecosystem.

The Challengers: Telcos

These players are positioned to benefit strongly from the evolution of the SSBS
industry within the context of the Internet of Services. They are a crucial piece of new
software delivery models as they own part of the infrastructure. Their role in the
strengthening of the European SBIS industry could be critical in this space. Whether
or not they can embrace the SBIS models at the application level remains to be
clarified, though.

Others

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Emerging models (OSS, Cloud…) enable them to enter the SSBS industry. This raise
the difficult question of identifying these new players in industry statistics.

SSBS industry competitiveness

The main determinants and patterns of European SSBS competitiveness have been
examined by looking at: factor conditions of production; related and supporting
industry; and industry strategy, structure and rivalry.

The analysis of the factor conditions has shown that the US had the largest stock of
the ICT researchers in 2006. Comparably, the EU15 (approximately 180,000
researchers) had three times less ICT researchers, and Japan, with 30,000 ICT
researchers, ranks third. When looking at the proportion of science graduates per
1000 inhabitants, the largest figure is was found in France, Finland and Ireland, and
most EU countries outperformed the US according to this measure. The analysis of
the capacity for innovation and quality of research shows the US as the country with
the highest score, but only slightly higher than Belgium, Germany, the UK and
Finland. Finally, the score on availability of the venture capital funding across
countries is found highest in the US, although some leading EU countries
(Netherlands, Finland and the UK) are only slightly lower than the US.

The analysis of the supporting industry and other related factors shows that The EU
27 lags behind the US and East Asia in fields of: financial services; information
society; innovation and R&D; liberalization network industries; enterprise
environment; social inclusion; and sustainable growth. However, individual countries
within the EU perform better than the US. Namely, Sweden, Denmark and Finland
outperform the US in innovation, financial services, social inclusion and sustainable
development. In terms of the IT sector analysis, the US has a leading position in
terms of innovation followed by Denmark, Sweden Finland and the United Kingdom.
The supporting industry of broadband and mobiles is well developed in the EU and in
some cases with subscription rates higher than those in the US (Denmark and
Norway in the case of broadband, and Italy, Greece, Luxemburg, the Czech
Republic, Portugal and the UK in the case of mobile). The perception of intellectual
property protection in the EU is high, and in the case of the most developed

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countries, within a similar range to that of the US.

The analysis of industry strategy, structure and rivalry factors shows that the software
industry is characterised by very different typology of companies. In particular, few
large companies account for a large share of the total sales revenues. The same is
true for the expenditures amounts on R&D investments. However, it is interesting to
note that small companies make similar or larger contribution to R&D investment
when analysed in relative terms (R&D investment per employee). Overall the findings
indicate that the software sector is characterised by economies of scale, and network
economies play a major role in determining the position of the company in the
market. There is also little turnover in the companies positioned at the top of the
ranking.

The implications of this is that past experience shows that it has been very difficult to
gain leader positions in the software sub-sector, and less so in the internet and
computer services sub-sectors. It is unlikely that, under current circumstances,
existing market players will be successful in gaining the top position. The
opportunities will come in the provision of new services where new business models
are developed, such as emerging segments in the software industry. However, the
success of new market players will be limited by the extent to which size,
network effects and reputation will dominate in the new industry that is
emerging.

SSBS and SBIS – Foresight 2020

This part presents the main results of the forecasting exercise for the SSBS market in
2020.

Market sizing in 2020

The following graphs and table present the evolution of the different SSBS market
segments for the 2008-2020 period in the EU27 region. This is the baseline scenario
of the SSBS market development for the next 10 years.

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In the baseline scenario, the SSBS market in the EU27 region goes from 228.7
billion Euros in 2008 to 383.5 billion Euros in 2020, a 4.4% CAGR over the 2008-
2020 period.

Market Market
CAGR
Segments share share
08/20
2008 2020
Licence & Maintenance 28.6% 20.3% 1.5%
Associated IT Services 66.2% 53.6% 2.6%
Paid Web Based 5.2% 26.1% 19.2%
Total SSBS market 100% 100% 4.4%

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Evolution of the emerging segments share compared to the rest of the SSBS market

During the 2008-2020 period, the structure of the SSBS spending by companies and
administrations is changing dramatically as the weight of traditional revenue models
(License & Maintenance and Associated IT Services) is decreasing in favour of the
Software-Based Internet Services that include Paid-Web-Based and Online
Advertising models.

Whereas average annual growth rates of the SBIS segment remain very dynamic in
the 2008-2020 period in this baseline scenario, market shares will likely remain in the
25-30% range in 2020. In fact in this scenario, which is the most likely, these models
do not swipe the traditional models out, the latter having still a positive, although
limited growth over the same period.

SSBS market in 2020 - International Comparisons

Market Shares CAGR 2008/2020

Geography
2008 2020
EU27 32% 28% 4.4%
North America 39% 33% 4.1%
APAC 17% 21% 7.8%
Rest of the World 12% 18% 9.3%
World 100% 100% 5,7%

SSBS spending growth in the U.S. in the baseline scenario is in line with the growth

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in the EU27 region. In Asia (including Japan) as well as in the rest of the World,
SSBS spending growth is estimated to be about twice as fast as the EU27 growth. In
particular the SBIS market will develop much faster than in Europe or in the U.S as
legacy systems and investments are not as developed as in the old economies.
Therefore, APAC companies buy in the SBIS models more easily than U.S. or
European companies. Hence, market share of mature countries will decrease in the
2008-2020 period, to the benefit of the Emerging countries in Asia Pacific (APAC),
Eastern Europe (outside of the EU27), Latin America and Middle East Africa.

SSBS Market – Four Theme Scenarios

The baseline scenario represents an extrapolation of the most likely route of ongoing
development and innovation trends. Some of the assumptions embedded in the
baseline scenario have high level of uncertainties regarding the rate of these
segments' development in the future. In order to better comprehend the potential
impacts of the development of selected market forces, we have built four theme
scenarios, each focusing on the intense development2 of one particular market force.

These theme scenarios have been selected for different reasons:

• Cloud computing – this segment is at the core of the SBIS industry. One of the
key objectives of this project is to better understand the impact of the development
of the Internet of Services on the software industry in Europe. This theme scenario
looks at how the market and industry will look like if the developemnet of Cloud
computing is more rapid than in the baseline scenario.
• Mobility – with the rapid diffusion of portable devices to consumers and
professionals, SSBS players are finding new ways to use software technologies
and, more importantly, new business models made possible by the combination of
the internet, software technologies and the capability to use the software-based
service wherever the end-user is located. This theme scenario examines the
additional growth that could impact the SSBS industry if the development of mobile

2
In the CHAPTER 2 we have presented some of the key techno-enablers that underly the
development of these scenarios.

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 applications is faster than in the baseline scenario.
• Open source – as presented earlier in this document OSS is one of the key
enablers of the cloud computing models. It is also a model that potentially destroys
value in the software product industry. This theme scenario looks at the potential
impacts a stronger development of OSS technologies could have on the SSBS
market and industry.
• Offshore – Offshore is not a market segment in itself. It is a constraint of the IT
services market, a key component of the SSBS market. In the D2 report, we have
explained some of the risks and potential benefits of the offshore delivery models.
This theme scenario takes a quantitative approach to the question of the offshore
models and looks at the potential impacts on the SSBS market and industry if
these models were to develop faster than in the baseline scenario.

These theme scenarios have differentiated impacts on the overall growth and
development of the SSBS market. Mobility is the only one presenting a positive !
compared to the overall SSBS baseline scenario. This is in fact one of the major
growth opportunities for SSBS players in the coming years as it will strongly impact
the usage of software technologies.

The three other theme scenarios yield a reduction of the overall SSBS market in
2020, although it remains limited: less than 10% even for the offshore scenario which
produces a very strong development of the offshore models during the 2013-2020
period. Cloud computing, open source and offshore market forces all have negative
impacts on the growth of the SSBS market in EU27 compared to the baseline
scenario, mostly because they give in important price reductions on SSBS products
and services.

What can be seen as a paradox is explained by an interesting phenomenon that can

be found in the overall IT market: the positive price elasticity of IT products and
services. Numerous examples exist in the literature explaining this occurrence that
sees demand in IT products and services increase when their prices decrease.
Offshore, open source and cloud computing all have a strong negative impact on
prices, although as a result, the value destruction is not as important as one could
have expected. In effect, this price decrease triggers some additional value creation

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in the market through for instance, new projects that were not economically viable
before, projects in SMEs for which investments were too important, or just because
these new models have made some room in the IT budgets of companies that can
continue to invest more on a domain that continuously yields great value for its
business and its activities.

Cloud computing – part of the SBIS segment – is the one market factor that has the
highest impact on the SSBS market structure with direct and indirect impacts on the
costs of IT resources, both at the infrastructure (storage, hosting, computing
power…) and application (custom software development, application maintenance…)
levels. This represent important opportunities for customers as it reduces the
total cost of ownership of Information Systems and consequently lowers the barrier
to acquisition of IT systems for the (smaller) enterprises.

This also represents – in theory – important opportunities to SBSS players of all

kinds as they can provide their software and services to a larger number of
customers. However, these models are also major threats to their existing
business models and recurring revenue streams as it reduces the overall growth
of the market (cf. theme scenarios). Subsequently, it comes at no surprise to see
large, leading, traditional SSBS players (both ISVs and IT Services providers) being
relatively reluctant to rapidly and thoroughly embrace the cloud computing models.

These models offer nonetheless a crucial opportunity for smaller, more agile
providers in Europe to distribute more easily and in a more cost effective way their
software solutions to European customers.

SSBS players in 2020

Looking at the next ten years, the SSBS industry should remain a dynamic one with
massive growth opportunities for all players. Two major trends should nonetheless be
more prominent than the other ones:

- Serviciation – the move towards services – all actors will transform their
business models towards activities under an “as-a-service” mode. These
services might be based on reusable components and solutions – for the sake

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 of profitability, and time to market – however the clients will buy services in the
end.

- Internetization – the Internet will emerge as the prominent delivery channel

for the SSBS industry. All players will have to transform themselves in order to
embrace this new delivery mode.

These evolutions are represented in the following figure:

SSBS 2020 – future jobs contribution

Using the supply forecasts elements provided in the DG Enterprise"s e-skills study
(”Monitoring the e-skills demand and supply in Europe”3), the SSBS study team
developed a growth baseline scenario for the total number of SSBS jobs in Europe.

3 The full study report is available at: http://www.eskills-monitor.eu

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 CAGR
Baseline scenario 2008 2020
08/20

Total SSBS jobs 1,715,000 2,400,000 2,8%

Expected social contributions

The future social impacts are addressed in a qualitative way, in order to give
examples of the contribution that a different pace (slow, medium, fast) of SSBS
development could bring on the adoption of software technologies within the nine key
social domains that were identified and presented in the D2 report (e-government, e-
inclusion, transportation, security, economic processes, sustainable development,
health and education).

A few additional percentage points of growth can make a big difference in the
diffusion and subsequently the usage of software technologies in the European
society. The correlation is true for economic processes (mostly via productivity
increases and top line growth via innovation) but also for other social domains and
the quality of life (sustainable development, transportation, health…) of European
citizens.

Outline to barriers and Policies for the development of the European SSBS
industry

As shown in prior sections the market for software and software-based services is
starting to change. Related industrial policies also started to change in recent years.
In this context two developments have to be taken into account in the analysis of
barriers and possible policy measures: the re-emergence of industrial policies and
the shift within industrial policy towards an innovation-driven approach.

Given the current structure and the expected future development of the SSBS
industry our analysis focuses on the emerging segment of Software-Based
Internet Services (SBIS) for several reasons. The main aim is to develop a future-
oriented innovation-driven industrial policy as part of a European Software Strategy
that enable the European SSBS industry to foster innovation, new businesses and

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markets. Within our time horizon of ten years the rise of the SBIS sector is the most
significant development. Moreover the structure of the existing SSBS industry that is
mainly dominated by American companies cannot be changed easily. Finally the
emergence of SBIS offers a window of opportunity for changing this situation
in the medium and long term.

To achieve this aim we follow a three-step approach. The first step aims at collecting,
reviewing and analysing existing background materials, such as documents about EU
initiatives like i2010, the New Industrial Policy or the ICT Task Force, as well as on
recent studies and position papers on the European SSBS industry and to some
extend EU ICT industry. Based on this we carry out an empirical analysis that is itself
two-folded. In a first part we conduct a series of 55 face-to-face and telephone
interviews where we asked SSBS stakeholders to assess the barriers and measure
and possibly add new ones. In a second part the results of this interviews are
complemented by a workshop with stakeholders and policy makers. The
workshop will validate, enrich and if possible or necessary specify the results of the
interview process. Finally, in a last third step, we will develop a method to determine
which policy measures that are significant for the European SSBS and especially
SBIS industry can be addressed with specific measures for them. This report covers
an overview on the work done in the background analysis as well as the results from
the interview process.

Identifying barriers and measures

Given the constantly growing importance of information and communication

technology and especially of software based technologies in the last decades it is no
surprise that the number of policy documents related to the ICT and SSBS industry
has significantly grown in the recent years. As a result a various number of
documents exist, which cover a broad spectrum of viewpoints from different
stakeholders, including policy makers, industry representatives, national industry
associations as well as user industries and customers. In a first step we analysed
these studies to extract them and build a framework based on the SI approach to
consolidate them. Stakeholders assessed these results during the interview phase.

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For that purpose the identified barriers as well the measures or respectively clear
objectives for measures were classified into four categories (technical, economic,
social and cultural, legal and policy). The preliminary results are presented below.

Technical barriers and measures

Interoperability and standardisation are considered as the most critical barriers for
the current as well as the future development. The results underline especially the
high importance of interoperability for software and software-based services.

Less prioritized, but also often named was security. Although these topics are
already addressed within the framework of industrial policies, they have specific
dimensions for the SSBS sector that can be addressed by additional vertical
measures.

Other relevant results are the current importance of mobile broadband as well as
the raise of lack of cloud infrastructure and Internet governance as topics in the
future. These developments seem to be especially relevant for the development of
the take up and the future development of the SBIS segment.

Given the strong emphasis as barriers for the European SSBS industry it is clear that
enforcing interoperability and with some distinction the support of standardisation
processes are the most named measures. But while interoperability has a distinctive
dimension in software and services, the support of participation in standardisation
processes is already covered by other horizontal measures.

Broadband availability and support of software engineering reach also a

considerable size and priority. In the case of broadband especially the support of the
mobile broadband infrastructure, which is essential for the take up of important
segments of SBIS, has a clear importance for the sector. The support for software
engineering programs that refers to the obstacles of security and critical information
systems is very specific measure for the SSBS sector. Especially since the
acceptance and adoption of new software and services delivered by the Internet the
need for reliable and secure products and services is crucial for the uptake of
SBIS in Europe.

Economic barriers and measures

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Not surprisingly, the current economic crisis is considered to be the most important
barrier for current development. This judgement may incorporate a bias and as a
consequence it should be excluded for long-term strategy considerations.

A more long lasting and also often named and prioritized barrier is the market
fragmentation. It is a general topic, which is already addressed in different
horizontal measures, because of the particular importance of network effects and the
fact that stakeholders expect a growing significance in the future. In parts this
judgment is also significant for the low adoption of SSBS/SBIS by SMEs.

A more particular barrier for the SSBS sector is the problem of investment cycles,
which will grow in the future. Also the importance of the level of R&D spending and
the competition through offshoring will rise in future. While the particularity of
offshoring for the SSBS sector is obvious, the low level of R&D spending is a general
problem that has already been taken up by several measures (Lisbon goals).

Special characteristics for the SSBS and especially the SBIS markets are the
commodization and the lack of revenues due to copyright infringement and
cannibalization, which have a low level of priority at the moment, but the growth in the
future shows the need for actions.

The relatively low results for the access to credit and financing solutions are
interesting, because in other studies of the overall ICT sector this was always
considered to be one of the major problems. In opposite to this the ease of access to
it and the support for seed and venture capital are highly required objectives for
economic measures. Although there are initiatives at a horizontal level, there are
possibilities for specific measures targeted at SSBS and especially SBIS companies.

More different is the situation in the field of support for SSBS SMEs, which is the
most desired objective for measures. Because of the fact that the support of SMEs is
a goal of the overall EU economic policy, there are several initiatives ongoing. In
contrast, the awareness for SSBS seems to be particular for the SSBS sector as it
has not been addressed yet.

Social and cultural barriers and measures

There is a high prioritization of topics related to skills and education. It addresses

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SSBS companies (technical and managerial skills, entrepreneurship) as well as
user"s skills. They all have already been identified and addressed before. Only the
growing significance of particular managerial skills is not represented in existing
studies.

Also often named as a current and a future barrier, but less prioritized was the lack
of cooperation between research and industry. More particular for SSBS and
SBIS are the barriers of change management as well as the lack of trust and
privacy concerns. While change management is a clear barrier for the growth of the
European companies, trust and privacy concerns are more ambiguous, because they
can also be considered as a chance. A more user-oriented software development
with respect to trust and privacy can be a competitive advantage for European SSBS
firms.

Only governance issues seem to be a possible topic in future. As a consequence

there is also a strong emphasis on skills and education within the measures.
Especially the technical education in schools and the promotion of management
skills for SSBS firms show a clear need for more and better educated professionals
in the SSBS industry.

Although several measures at broad level have already been undertaken, there are
some possibilities to shape or complement them with specific actions for the SSBS
industry. This is also valid for the promotion of e-skills for end-user, which should
be expanded towards new required skills in Internet services. Concerning the
emerging segment of SBIS areas like trust, data protection and security have a high
importance. There are several possibilities to act in support of the take up in these
services.

Legal and policy barriers and measures

One major priority is the low level of R&D either in form a lack of R&D funding or in
form of a lack of tax incentives for R&D. The other priority is the lack of support for
innovative SSBS SMEs. These barriers are only partly specific for SSBS. Another
point of importance is the lack of legal harmonization, which has a specific
significance for the SSBS and SBIS and which will rise in future. This is underlined by
the fact that the lengthy regulatory processes that hinder dynamic firms and markets

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refer also, but not exclusively to similar problems and will also rise in the future
perspective. Although both are general barriers they contain several issues that are
specific for SSBS and especially SBIS. In parts this also applies to the problems with
cross-border-operations and internationalisation.

In contrast the lack of procurement policies is considered to be a declining

obstacle, though it has in parts high relevance for especially SBIS. IPR regulation,
which has a great specific component for SSBS, is also seen as a topic that will gain
of importance in future. On the level of policy and legal measures two fields of actions
outreach the other. One of them is the support of R&D either by more funding or by
tax incentives. While the latter is neither SSBS specific nor part of the regulative set
of the EU, the increase of R&D funding on EU level is already implemented. The
other area is the harmonization of the internal market. Although this is already
addressed on broad horizontal level with the single market strategy, there are some
points that are of high relevance for their further development of SBIS like the VAT
regulations.

Also highly prioritized is the support for SSBS SMEs, where specific measures for
SSBS SMEs could complement the horizontal measures for SMEs. Less prioritized
are the establishing of SSBS clusters and the reduction of regulatory issues for
SBIS. Somewhat surprising is the low level of IPR enforcement and public
procurement, which both can have great significance.

Summary

Concluding we can state that some of the prioritized barriers and measures are
topics that are due to their non-specific character like SME promotion or single
market that are already addressed by horizontal policies. Furthermore these results
for current and future barriers confirm to some extent the results from other studies.
In some of the cases like interoperability, procurement or the lack of access to
finance it is possible to use supplementing respectively complementing measures or
instruments to encounter SSBS specific obstacles. But there are also several
prioritized issues, especially for the future development, that directly deal with SSBS
and SBIS specific problems. There, specific measures and instruments are

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possible.

Outlook

These results will be presented in a policy workshop where they will be discussed
among stakeholders" and policy experts. The aim is to consolidate, enrich and if
necessary specify the results. The second aim is to discuss the results in the
context of the existing framework of (industrial) policies within the EU to identify
more barriers and measures that are specific for the European SSBS and
especially SBIS industry. In the final step of this phase we will develop and apply a
matrix approach based on methodology introduced and integrating the EU industrial
and innovation policy framework to select a list of operational and coherent
policy instruments. In the following final phase of the project the potential economic
and social impact of these policy measures will be assessed accordingly to the
impact assessment guidelines of the EU.

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