4 - The Computer Software Industry

Summary

Introduction

Computer software is the stored, machine-readable code that instructs a computer to carry out specific tasks. There are three broad classes of software: (1) operating systems, which control the internal operations of a computer, including network controllers and compilers (also known as “system-level” software); (2) applications tools, which support the development of applications in such areas as computer-aided software engineering and databases; and (3) applications solutions, which enable a computer to perform specific tasks needed by the end-user (as opposed to tasks that manage the computer's internal operations), such as accounting and word processing. All three of these types of software can be provided in either “standard” or “custom” form.

This chapter examines the development of the software industries of the United States, Japan, and Western Europe. I focus on “traded software,” i.e., software produced for sale (often by specialized, independent vendors), in contrast to software produced by computer users, or “embedded” software that is incorporated in other products, such as measurement instruments or automobile fuel control systems. Although U.S. firms have dominated the traded software industry from its beginnings, there has been considerable turnover among the leading U.S. software firms – in other words, this industry historically has been characterized by competitive strength at the level of the nation, rather than the firm (in the language of the Introduction, “comparative” advantage appears to be more enduring than “competitive” advantage).