U.S. Retail Sales of Non-Games Software Experience near Double-Digit Decline in 2008

E-commerce is the Only Channel to Post Growth

PORT WASHINGTON, NEW YORK, FEBRUARY 17, 2009 – U.S. retail non-games software revenue declined nearly 10 percent in 2008, according to leading market research company The NPD Group’s retail tracking service.  Non-games software sales totaled $2.6 billion in 2008 compared to the $2.9 billion generated in 2007. 

More than 40 percent of the non-games software dollar decline was due to the absence of any operating system releases in 2008.  Unit volume fell as well by 13 percent to 38 million units.  Average selling price (ASP) actually rose, however, as a favorable product and channel mix helped to increase the ASP for boxed software more than 4 percent over 2007, which itself was more than 15 percent above 2006.  As a consequence, the average non-games software sale has seen an increase of $12 over the past two years.  Growth in e-commerce ASP also helped to raise selling prices as it was the only channel to increase in both units and dollars in 2008 despite a selling price more than $45 above the average.

With no major operating system launch in 2008, the operating system category saw revenues take the biggest hit, dropping 40 percent from last year.  Personal productivity revenues plunged by 27 percent led downward by CD/DVD utilities, travel software, and music software.  Imaging and graphics sales fell 14 percent in dollars and 19 percent in units as personal photo and video editing and publishing products declined from 2007. 

Education software experienced the smallest declines in 2008 among the major product categories as falling sales in personal learning and training products were nearly offset by strong growth in the language segments.  All of the major finance segments declined in 2008 with personal finance and accounting software getting hit the hardest. Some of the decline in finance software was mitigated by strong ASP increases in both personal finance and personal tax preparation products, which rose 15 percent and 2 percent respectively. 

System utilities, which performed well in 2007, saw sales decline in 2008.  The competition-driven growth in security suites continued in 2008 with the segment up 8 percent in dollars, but this growth was offset by declines in anti-spyware and anti-virus software, which fell by 19 percent and 11 percent respectively. 

Among the major segments, business software was the only one which managed a revenue increase of 1 percent and a unit increase of 10 percent   Office productivity suites led the way with 3 percent revenue and 20 percent unit growth on top of last year’s huge Office 2007 driven increase.  Some of the unit gain was driven by a price decline of more than $20, most of which was from aggressive pricing in MS Home and Student, which saw its ASP fall from $144 in 2007 (for the equivalent products) to $124 while unit volume shot up 19 percent.

“While revenue fell from 2007, the decline was not unexpected given the big introductions that occurred last year,” said Stephen Baker, vice president of industry analysis at NPD.  “More concerning is the steep decline in unit volumes among most of the major product segments.  Retailers and publishers tried to offset declining revenue trends by limiting discounts and driving selling prices up.  While this strategy offered some relief in 2008, it is likely that pricing will take more of a central role in demand generation in 2009. Macro trends, such as consolidation at retailers and growth in netbooks, are likely to make the packaged software business even more challenging this year.”

E-commerce was the stellar channel in 2008, as it was throughout consumer technology.  Revenue rose 3 percent to nearly $500 million and accounted for almost 20 percent of total revenue.  Unit growth was strong as well, up 3 percent versus a total market decline of 13 percent.  The average selling price of $114 was almost double the average brick and mortar retail price of $62.  E-commerce volume was propelled by strong performance in the imaging and graphics segment, where e-commerce accounted for 40 percent of the total segment volume; with an ASP more than double that of brick and mortar retail.

“E-commerce, while often thought of as a download-focused sales channel, performed extremely well in 2008 for packaged software,” said Baker. “Categories such as imaging and graphics and education, which performed poorly at retail, were strong performers in e-commerce. Publishers quickly adapted to this opportunity by leveraging retail consumer products such as MS Home and Student, which saw sales volumes increase 40 percent, into big sellers online.”