Despite the considerable advances in digital transformation programmes across both industry and the public sector as a result of COVID-19, the growth in software revenues in 2020 was restricted to 2.1%. In part this reflects end-user business disruption, and there were major differences in growth by sector, and in part the impacts of the twin software-driven forces of selling software as a service and the greater ease (and capability) of cost-effective of adapting packaged products.

During 2020 companies faced unprecedented challenges to remain operative but advancing digitisation of processes was the fundamental tool used, and as the conditions change there is strong evidence of a change in emphasis from one of resilience and recovery to one of how to capture growth. Increasing technological investment and moving to the cloud are highlighted as the most important developments.

Along with the growth in digitisation, security issues remain at the fore of corporate strategies. The challenges are increased not only by the rapid development of fragmented workplaces and the speed of the technological advances but also as a result of the growing attraction to miscreants of that data.

Increasingly software is adopting artificial intelligence and machine learning to analyse the huge volumes of data being generated. The challenge is to utilise that data to provide time-critical insight to management, made more complex by the variety of digital channels containing that data, increasingly in unstructured databases.

Key issues covered in this Report

  • How COVID-19 has propelled an irreversible digital transformation and the consequent implications for the software sector.

  • The technological developments that ae fuelling the further expansion of the digital economy.

  • How the move to cloud computing has influenced demand, and how future prospects for edge computing will shape that demand.

  • A quantification of sales by industry sector, and how packaged and proprietary software demand is changing within the markets.

  • How globally M&A trends are moving to ever-larger deals but niche software demand and skills continues to support a vibrant SME software business sector in the UK.

COVID-19: market context

The first COVID-19 cases were confirmed in the UK at the end of January 2020, with a small number of cases in February. Rapidly rising case numbers led to the first national lockdown, starting on 23 March. It wasn’t until 15 June that non-essential stores were allowed to reopen, followed by pubs, restaurants, hotels and hairdressers on 4 July and many beauty businesses on 13 July.

By September, it had become clear that the UK was at the start of a second wave, and social distancing measures were intensified. Continued increases in infection numbers led to Wales implementing a two-week national lockdown from 19 October, England announcing a month-long lockdown from 5 November and Scotland introducing a new five-level system of coronavirus restrictions.

Despite these restrictions, however, case numbers continued to increase. All four UK nations tightened restrictions further in January 2021, effectively leading to a full UK-wide lockdown.

On 22 February, Boris Johnson announced the roadmap to an easing of restrictions in England, starting with the reopening of schools on 8 March, followed by easing of restrictions on outdoor gatherings on 29 March, and with a hoped end to all restrictions by 21 June. The Welsh and Scottish governments also gave more details on their plans to ease restrictions, with both nations taking a slightly more cautious approach to the one planned for England. The June schedule has now been brought into question with the upturn in the number of cases, largely attributed to the ‘Indian’ or Delta variant.

The UK’s vaccination programme started on 8 December 2020, and with the Pfizer-BioNTech, Moderna and Oxford-AstraZeneca vaccines licensed for use in the UK, the government aimed to offer a first dose of the vaccine to 32 million people by mid-April. By 23 June, it had given a first dose to more than 43.6 million adults (82.9% of the adult population) and a second dose to 31.9 million people (60.6% of the adult population).

Impact of the January 2021 lockdown and the vaccination rollout

Our core assumptions on the path of the pandemic had always included an expectation of severe disruption to markets and consumers’ lifestyles well into 2021, with a strong likelihood that the virus would still be with us even into 2022. Although the second wave of infections and subsequent lockdown puts us towards the negative end of our initial expectations, these developments are still broadly consistent with our previous assumptions.

Similarly, MBD had factored in the likelihood that an effective vaccine would be available from early- to-mid 2021. The licensing of the Pfizer-BioNTech and Oxford-AstraZeneca vaccines puts us slightly ahead of that assumption, but the challenge associated with rolling out a new vaccination programme to millions of people means that our previous assumptions are still broadly consistent with the new reality.

Economic and other assumptions

MBD’s economic assumptions are based on the Office for Budget Responsibility’s central scenario included in its March 2021 Economic and Fiscal Outlook Report. After the fall of 9.9% over the course of 2020, the scenario suggests that UK GDP will grow by 4% in 2021 and 7.3% in 2022.

GDP isn’t expected to return to pre-COVID-19 levels until the second quarter of 2022, although this is six months earlier than the OBR forecast in November 2020, mainly because of the faster than expected rollout of vaccines.

Unemployment is expected to peak at 6.5% in the fourth quarter of 2021. As with GDP, this is more positive than the OBR’s November forecast, but the OBR does raise the prospect of long-term scarring on employment, especially in the more exposed retail and hospitality sectors.

Social distancing measures have been progressively eased since April 2021. Nonetheless, the government guidelines as of June remain that employees should work from home if possible, though the ultimate decision now rests with employers. As at 25 June 2021, the planned removal of all legal limits on social contact (widely referred to as the ending of lockdown) in England has been put back to 19 July. Wales, Scotland and Northern Ireland have all similarly paused the previous plans in the wake of what is being defined as a ‘third wave’ of COVID-19 in June, as the Delta variant has introduced a new dimension to cases.

Products covered in this Report

For the purposes of this Report, MBD has used the following definitions:

This Report is concerned with software sales in the UK. Software is the collective term for computer programs, which are instructions in code telling a computer what to do in response to specific user inputs.

There are four major areas of software referred to in this report:

  • Operating systems. Every general-purpose computer must have an operating system to run other programs. Operating systems perform basic tasks, such as recognising input from the keyboard, sending output to the display screen, keeping track of files and directories on the disk, and controlling peripheral devices, such as disk drives and printers.

  • An application is a program, or group of programs, designed for the end-user. Whereas systems software provides behind-the-scenes co-ordination and support, applications are front-end resources used by people to get things done. Applications software may be custom-designed by or for an individual corporate user, developed and sold as part of a computer hardware system with its own proprietary operating system, or developed and marketed independently for use on one or more of the standard operating systems, also referred to as off-the-shelf software.

  • Custom software (also known as bespoke software or tailor-made software or proprietary software) is software that is specially developed for a specific organisation or user. It differs from software packages developed for the mass market, such as commercial off-the-shelf (COTS) software, or existing free software. Large companies commonly use custom software for critical functions, including content management, inventory management, customer management, human resource management, or to fill gaps present in existing software packages.

  • Middleware is computer software that provides services to software applications beyond those available from the operating system. It mediates between two separate and often existing programs. Typically, it supports complex, distributed business software applications.

Other terms used in this Report include:

  • Cloud computing is the ability to use files and applications over the internet instead of hosting, storing, or processing them on locally managed hardware.

  • Content, communications and collaboration software comprises products, tools and hosted services designed to organise, access, use and share content. Content management initiatives involve managing and interacting with a multitude of content types, including documents, records, images, forms and, increasingly, digital media.

  • Customer relationship management (CRM) software is a system for managing a company’s interactions with current and future customers. It often organises, automates and synchronises sales, marketing, customer service, and technical support.

  • Digital content creation software enables the creation or modification of digital content, such as animation, graphics, images or video, as part of the production process before presentation in its final medium.

  • Enterprise Content Management (ECM) is the strategies, methods and tools used to capture, manage, store, preserve, and deliver content and documents related to organisational processes. ECM covers the management of information within the entire scope of an enterprise, whether that information is a paper document, an electronic file, a database print stream, or an email.

  • Enterprise Resource Planning (ERP) is a business management software, usually a suite of integrated applications, that a company can use to collect, store, manage and interpret data from many business activities, including product planning cost, manufacturing or service delivery; marketing and sales, inventory management; and shipping and payment. ERP provides an integrated view of core business processes, often in real time, using common databases maintained by a database management system.

  • Enterprise software is purpose-designed computer software used to satisfy the needs of an organisation rather than individual users. Services provided by enterprise software are typically business-oriented tools, such as online shopping and online payment processing, interactive product catalogues, automated billing systems, security, enterprise content management, IT service management, customer relationship management, enterprise resource planning, business intelligence, project management, collaboration, human resource management, manufacturing, enterprise application integration, and enterprise forms automation.

  • Office suites are a collection of programs for a personal computer that are used to automate common office tasks. The packages usually include word processing, spreadsheets, presentation, email, and database. These components are sold together and typically interface with each other.

  • Project and portfolio management software enables corporate and business users to organise a series of projects into a single portfolio that provides reports based on various project objectives, costs, resources, risks and other pertinent associations. Project portfolio management software allows the user to review the portfolio to assist them in making key financial and business decisions for projects.

  • Software as a service (SaaS) is a software distribution model where applications are hosted by a vendor or service provider and made available to customers over a network, typically the internet.

  • Supply chain management software describes software applications that enable more efficient management of the supply chain.

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