May Software Sales - Impressive For the Month; A Less Promising YTD View

Author: : Steve Koenig, NPDTechworld^SM

Industry Overview

During May 2002, the overall retail software market posted unit sales of 7,228,828 representing an 8.3% year-over-year gain. Retail revenues in the overall software market were $351,130,876 in May, which resulted in a 17.5% gain compared to the year-ago period. While these gains for the month are impressive, the year-to-date (YTD) sales picture is less appealing.

YTD sales for PC software (including boxed product and licenses) are down by almost 2 million units (about 4%) to 48 million units, down from 50 million units this time last year. Unfortunately, healthy gains in business software sales have been largely offset by slower YTD sales in the other major software categories. Perhaps the hardest hit so far this year has been the education segment, where YTD unit sales are off approximately 28% as a result of sluggish sales in two primary education segments - multi-subject and critical thinking.

Sales of PC games are coming under increasing pressure from the console realm (Sony Playstation 2, Microsoft XBOX, Nintendo Gamecube). This is happening even as blockbuster franchises like EA's The Sims continue to drive demand and promising new strategy titles (such as Vivendi's Warcraft III: Reign of Chaos) and RPG titles (such as Infogrames' Neverwinter Nights) prepare to make their debuts.

Slower unit sales of desktop publishing, greeting card, and photo editing software have contributed to a 16% YTD decline in personal productivity software. The software bundling efforts of printer and digital camera manufacturers, eager to compete on value and not price, have smothered growth in the productivity software arena.

On the revenue side, dollar volumes from the sale of PC software through the channel have improved by almost $60 million, or approximately 3%, on a YTD basis. Although unit volumes are down in most categories, higher average selling prices have contributed to the rise in revenue. For example, while YTD unit sales are flat in the finance segment, selling prices are up over 13% YTD.

NPD is still optimistic about the sales performance outlook for PC software, despite some disappointing results so far this year. By year-end, expect single-digit annual growth in the overall market with dollar sales growth leading units --similar to last year's results. Some of the top selling subcategories this month are ones to watch and will likely experience strong growth in the months ahead.

Continued strength in several key software segments including anti-virus, Internet security, CD/DVD burning software, operating systems, and the PC game sector should help fulfill the promise of growth in the overall retail software market this year.

Business Software Summary

Sales of business software in May 2002 increased by 721,064 units over last year's same-period results. This variance equals a 43.4% year-over-year gain for the category. Unit sales of virus detection titles increased nearly 80% in May 2002 vs. May 2001. Disk-backup titles (such as Symantec's Ghost) also showed a rise in unit sales, climbing almost 90% on a year-over-year basis.