Software Product Engineering: Growth is in Other Verticals
Software product engineering service providers, particularly a few global ones, are going through a rough patch. Their traditional markets in technology and BFSI are not performing well. However, there are some green shoots emerging in other verticals outside of BFSI and tech.
?In 2023, the three largest global pure-play software product engineering service providers reported a combined revenue of $7.91 billion, which was almost flat compared to the 2022 revenue of $7.9 billion. The BFSI sector declined by 0.6% and technology declined by 11.4%, but other verticals grew by 3.7%.
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The same is true for other software product engineering service providers. The growth in other verticals has been higher than in BFSI and tech.
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Which are these other verticals?
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Healthcare, Automotive, Retail, CPG, Travel, Energy, Utilities, Aerospace, Industrial Equipments, Gaming, Entertainment, Construction, etc.
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How are software product engineering service providers building capabilities in other verticals?
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They are building capabilities with solutions, partnerships, and acquisitions. A few examples are below.
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Solutions Examples
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Partnerships Examples:
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Acquisitions Examples:
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Why are there opportunities in other verticals?
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Traditionally, IT service providers and asset-heavy engineering service providers have catered to various other industry verticals. However, as many industries are increasingly adopting software, digitalization, and virtualization, software product engineering is emerging as a significant opportunity.
The push towards digital transformation is creating opportunities in platform development, modernization, and enhancing customer and stakeholder experiences through software product engineering. In physical or asset-intensive industries, digital transformation manifests in both product and process domains.
For example, in the automotive sector, digital elements within products include electric vehicles (EVs) and software-driven vehicles (SDVs), while digitalization in processes includes digital sales and digital manufacturing. Similarly, in other sectors, process digitalization may involve transitioning to digital commerce, digitized stores, digital healthcare facilities, and digital utilities.
Currently, the focus is more on digitalizing products. However, there is an increasing trend to also target the digitalization of processes.
The advent of GenerativeAI is providing additional momentum to these opportunities, affecting both the product and process sides.
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BottomLine: Software product engineering service providers have been quick to identify emerging opportunities, but they are poised to face increasing competition. Asset-heavy engineering service providers are enhancing their digital capabilities, while IT service providers are increasingly focusing on engineering services. Additionally, there is continuous private equity investment in this sector. It will be interesting to see how this space evolves.