Our software coverage focuses on three broad themes: the shift from proprietary to open standards; the purchase of software as a subscription, rather than as a perpetual license; and the likelihood of further consolidation within the sector.

Several software companies are taking the lead in tying together disparate software technologies. VMware allows servers to run up to several operating systems on one physical machine, generating power efficiencies and making it easier for companies to explore alternative platforms. Microsoft, determined to maintain its dominance in servers, will virtualize both Windows and Linux operating systems with its upcoming Hyper-V and virtualization manager; further, it will tie together competitors's software with its middleware project Oslo. TIBCO delivers a similar message to developers, while Red Hat seeks to expand its role in the space with its open source JBoss tools. At the same time, software developers and IT managers are trying to consolidate software vendors.

A second major trend within the software sector is the desire on the part of customers to pay for products on a subscription basis, rather than be locked into expensive, up-front perpetual license products. Software as a subscription service allows companies and consumers to pay only for the software that they use, in much the same way that consumers and companies pay for electricity. Our coverage includes a number of companies that have adopted this approach, including Salesforce.com, Symantec, Websense, and Ariba.

In the mean time, the four largest business software companies, SAP, Microsoft, Oracle, and IBM, are quickening the pace of consolidation within the software sector by acquiring smaller companies to fill holes in their existing product lines. As a result, we would expect additional acquisitions to occur over time.