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Investing in technology sector: Part IV – software segment (b)

The previous article in this series provided an overview of the foundational software for ICT (Information and Communications Technology) i.e. operating system software and infrastructure software. Before looking at actual end-use of software (applications), it is important to note one major development in the technology space, that of cloud computing. This can be thought of as sitting between infrastructure and application software space.

Cloud Computing

According to estimates by the consultancy firm Accenture, worldwide “whole cloud” spending is expected to reach US$565 billion by 2021, making it one of the fastest growing segments of the technology sector driven by the Covid-19 pandemic. “Cloud” is a model of computing where servers, networks, storage, development tools, and applications (apps) are enabled through the Internet. Instead of organisations having to make investments to buy equipment, train staff, and provide ongoing maintenance, these needs can be managed by a cloud service provider. Many organisations big and small, are moving beyond traditional data centres. In fact, cloud services have evolved to such a point that only limited or in many cases, no servers within the organisation are required to manage its IT needs

The National Institute of Standards and Technology (NIST) highlights the following characteristics of a cloud computing environment:

– Internet Access: can access data and applications anytime and from anywhere

– Measured Service: only pay for what you use (Pay-as-you-go service)

– On-Demand Self-Service: provided without the need for manual setup & configuration

– Shared Resource Pooling: single application is shared among several users so different users (tenants) can configure the application to their specific needs

– Rapid Elasticity: organization can scale up or down its resource usage as needs change

Cloud computing is used in different ways by organisations depending on their specific requirements. The first thing is to determine the type of cloud environment an organisation wants to operate in. This can be Public cloud, Private cloud, Hybrid cloud, and/or Multi-cloud. After that it has to decide on the type of cloud service it needs. The three main categories are SaaS (Software as a Service), PaaS (Platform as a Service) and IaaI (Infrastructure as a Service). The four largest cloud service providers with massive data centers are referred to as hyperscalers, and are Microsoft (Azure), Amazon (Amazon Web Services or AWS), Alibaba (Alicloud), and Google (Google Cloud). Other cloud providers include IBM and Oracle, HP, Hostwinds, Digital Ocean Droplets, Netripid, among many upcoming firms.

Software as a Service (SaaS) – a specific software application hosted on a remote server and managed by a third-party provider. On a subscription basis, the application is accessed through a web browser, reducing the need for on-device software downloads or updates. Some major SaaS applications include Salesforce, Workday and Microsoft Office 365.

Platform as a Service (PaaS) – an organization accesses a pre-defined environment for software development that can be used to build, test, and run applications. PaaS allows the developer to focus on the creative side of software development, rather than on tedious tasks like writing extensive code or managing software updates or security patches. PaaS products include Google App Engine, web servers, and SQL servers.

Infrastructure as a Service (IaaS) – an organization migrates its hardware (servers and data storage) to the cloud with a rental arrangement while having full control over server instances rather than purchasing and maintaining its own infrastructure. System administrators within the organisation are responsible for managing databases, applications, runtime, security, etc., while the cloud provider manages the servers, hard drives, networking, storage, etc.

Application Software

An application software is a software programme which is created to do one or several tasks. The finished application or set of applications is then ported into an operating system environment where users can open the application, use the application and then close it again. The Application software space is virtually unlimited – i.e. limited only by the human imagination. Any task that can be automated or digitized becomes a candidate for an ITC application development. Application Software may be viewed as of three types:

Utility software – This includes firewall utilities, antivirus applications as well as other utilities like zipping or unzipping utilities or disk defragmenting tools, or anything else that an end-user can operate as a utility.

Specific application software – This is a single application developed for one defined purpose that is not a utility. There are numerous sub-categories here ranging from word processing, entertainment and gaming, analytical engines, huge variety of ‘apps’ for smartphone and mobile devices, newsfeeds and even social media platforms which behave like ‘apps’ such as Facebook, Twitter, WhatsApp, WeChat, etc.

Integrated software – Software that does more than one thing, or includes different bundled applications, for example Microsoft Office suite that has Word, Excel, Outlook, PowerPoint, etc. Database applications bundled together to do different things to data assets also fall in this category as does Enterprise Application software, which we look at below.

Enterprise Application Systems Software

Large organizations have a wide spectrum of activities to manage, ranging from customer service, internal and external communication logs, production specifications, goals and productivity measurements, etc. and would typically include such functions as order processing, procurement, work scheduling, customer information management, energy management, accounting, human resource management, to name a few. Enterprise software enables easy and quick access to unstructured data gathered through data analytics to achieve various organisational objectives including increasing productivity and enhanced system security.

Most common examples of enterprise software are database programs, email and other communication software and security applications. Other Business Process Applications include Commerce Applications, Customer Relationship Management Applications, Enterprise Resource Planning Applications, Financial Applications, Human Resource and Payroll Applications, Office Productivity Applications, Product Lifecycle Management Applications, Supply Chain Management Applications, etc. Two of the largest companies in this sub-segment are IBM and Oracle and also included are SAP SE, Salesforce.com, amongst many others. The enterprise software market is estimated to be US$ 530 billion in 2020, according to the Gartner Group consultancy.


Beyond the Big Brand names


Some Examples of Application Software Companies


Name Type of Software Name Type of Software


Workday Customer Relationship Management Dropbox Cloud Storage and Management

ServiceNow IT Service Management PayPal Electronic Payment Processing

Akamai Cloud Computing Proofpoint Cyber Security

Zoho Customer Relationship Management NewRelic Application Performance Monitoring

Splunk Data Analysis Okta Identity Management

Atlassian Project Management Slack Business Communication

DocuSign Electronic Agreement Management Stripe Electronic Payment Processing

Zoom Business Communication


Gaming Software

Gaming software, a special sub-category of application software, is also one of the fastest growing. The global game market is expected to grow to US$214.7 billion in 2023, representing a CAGR of 8.9% from 2018. Major players in the Gaming Software market are Activision Blizzard, Electronic Arts, Nintendo, Ubisoft Entertainment, 2K Games, Disney Interactive, Petroglyph Games, Sony Computer Entertainment, Nexon, Tencent and many others.

Emerging Areas with High Potential

Big data and Artificial Intelligence (AI) are related subjects as they complement one another. Big data is the kind of data set that is too large for conventional manipulation and analysis. This type of data exists in part thanks to the Internet, which has provided the ability to record huge amounts of information, to track shopping behaviors, interests, hobbies, demographics and more. This type of data requires massive computer power to handle, which has given rise to a whole new software industry. At the same time, this kind of data also allows for intelligent predictions that provide the bedrock of many artificial intelligence applications. For example, music recommendations on Spotify are the result of complex algorithms driven by observations based on thousands of other users, as well as specific user’s own behavior. Similarly, voice recognition software used in applications like Alexa or Google Assistant rely on huge amounts of audio clips in order to recognize and differentiate between different words, regardless of accent or speaking style. Big data enables other programs to look for patterns in images, eventually leading to computer vision. This is also how self-driving cars operate and how augmented reality tools are able to deduce ones position in space so that they can overlay digital 3D models. AI includes, machine learning, deep learning, computer vision, natural language processing. In the Big Data space, besides big brands like IBM, HP, Google, Oracle, Amazon, Microsoft, EMC, VMware, some other players include Prolifics, Clairvoyant, ScienceSoft, Xplenty, Teradata, Splunk, Alteryx, Cogito to name a few.

Fintech, or financial technology applications is yet another area witnessing massive growth. Consider that at its core, traditional commercial banking basically includes deposit taking, payment facilitation and lending. All three of these functions are facing huge disruptions by emerging fintech players which are using applications based on Big Data and Artificial Intelligence to provide more efficient alternatives often with better risk management characteristics. Some players in this field include Ant Financial, Adyen, SoFi, Klarna, ZhongAn.

Biotech and Medical Technology is another big space where ITC applications are speeding up tremendously. We haven’t the space to cover this important segment here but readers should be cognizant of important advances and major players, which can provide potentially profitable investment opportunities.

The Covid-19 pandemic has massively accelerated digitization and migration to technology platforms. Consider the results of a recent survey by the consultancy firm McKinsey & Company (October 2020 publication). The survey indicates that transition to remote working has accelerated by 43X (forty-three times) in terms of number of days required for the transition. Similarly, increase in customer demand for online purchases has accelerated by 27X, increase in migration of assets to the cloud has accelerated by 24X and increased spending on data security by 19X. These trends are here to stay. Companies that provide ITC products and services are witnessing a secular growth the likes of which has not been seen before. It is thus worthwhile to keep in touch with developments in the tech sector and where possible, participate in this growth through a proper investment strategy. This aspect will be examined in the next article in this series.

(The writer is the former Managing Director of Pakistan Stock Exchange. The companies noted in this article, according to the article, are for information purposes only and used simply as examples. This is not a solicitation to buy or sell any security or company mentioned herein. Except for a small investment (US$4,000/=) in an ETF (IYW), the writer does not own stock in companies noted herein. Forward-looking statements should not be considered as guarantees or predictions of future events. Data provided in the article is from publicly available third-party sources, however its accuracy is not guaranteed and the data should be treated merely as indicative. Anyone interested in finding about investment opportunities should conduct their own research and due diligence within the guidelines of their respective jurisdictions and through authorised investment professionals. Potential interested readers should note that past performance is no assurance of future performance of an investment and the value of any investment may become worth more or less than the original invested amount)

Nadeem Naqvi, "Investing in technology sector: Part IV – software segment (b)," Business Recorder. 2020-11-12.
Keywords: Social sciences , Operating systems , Cloud Computing , Applications Software , Communication logs , Facebook , Twitter , Whatsapp , Wechat , ITC , AI , PaaS

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