Software Pumps $1 Trillion A Year Into US Economy: Is This Estimate Too Low?

It may seem intuitive logic that software is a major part of the economy. A couple of years ago, venture capitalist Marc Andresseen famously wrote that “software is eating the world,” observing that every business, on some level, is becoming a software business. So, how big, exactly, is the software sector? What defines who belongs to this sector?

Recently, BSA | The Software Alliance set out to quantify the impact of software — at least in the United States. In a new report developed with The Economist Intelligence Unit, the report’s authors determined that software industry is adding $1 trillion to the annual Gross Domestic Product. The report estimates that the software industry directly added $475 billion to the US economy in 2014, with another $525 billion coming from indirect and induced effects.

The $1 trillion figure, based on 2014 measures, represents about six percent of the total economy, a GDP which is estimated to have been around $17.35 trillion the same year. Six percent is a sizable chunk, but by comparison, healthcare is about 17% of GDP. In many ways, software touches everything — including healthcare — and, as stated above, the future byproduct of most businesses. Can this even be measured?

This share is likely growing rapidly. Software has grown at nearly twice the annual growth rate for the US economy as a whole from 2004 to 2014, the report states.  In 2004 the software industry was responsible, directly and indirectly, for a total of nearly $649 billion of total US value-added GDP. In 2014, that figure had risen to over $1 trillion, representing a nearly $351 billion (or nearly 54%) increase.

In addition, BSA estimates, the software industry supports nearly 10 million jobs, driving economic gains in all 50 states. Software employment numbers also significantly increased. In 2004, the software industry directly employed 1.8 million people in the US. By 2014, this number had jumped by nearly three-quarters of a million people, to 2.5 million people employed by the industry.

One question is whether this study fully accounts for the empowering effects software (and data) have on businesses and careers — which goes a long way in advancing people and organizations forward. Software — offered through cloud services — makes it easier to launch startups, for example. Startups that can test new ideas, act on innovations, and stretch the boundaries of existing industries. There are fintech and insuretech innovators, for example, which are launching products that add new intelligence to financial services products. There’s a whole new breed of companies leveraging machine language and blockchain technologies.

The BSA report suggests that the innovation ripples it creates could extend beyond the $1-trillion mark. For starters, the industry contributes 17% of all domestic R&D. “By investing more than $52 billion into cutting-edge R&D in 2012, the software industry is helping support breakthrough advances that can spur further innovation and an even more prosperous future,” BSA states. “This economic progress, coupled with tens of billions in software research and development investments, translates into software serving as a powerful catalyst for economic change,” the report’s authors point out.

There are obstacles emerging that could inhibit this growth as well. “The real question is how we continue this positive economic impact, and at the same time protect and encourage the progress software is making worldwide,” Victoria Espinel, president and CEO of BSA, states. “Our future competitiveness will demand greater competence in software-related skills across the economy’s many sectors – and government policies that support continued software growth and innovation – if we’re to maintain our competitive edge in the global marketplace.” she said.

In a panel discussion at the launch of the report, the major challenge cited was the availability of skills, and the dearth of training and education in communities. There are more than half a million jobs that go begging that are primarily tied to software and healthcare. In an economy with persistent underemployment, there’s a need to fill this gap. “We have a real major issue about the pipeline, and we’re not providing this foundational knowledge at the K-12 level,” says said Mark Doms, PhD, former undersecretary for economic affairs with the US Department of Commerce.  Minorities and women are underrepresented in computer science training, due to lack of funding for poorer school districts, as well as gender bias.

In addition, organizations are still struggling to figure out how to extract value from the huge volumes of data surging through their systems. This may drive even greater investment in software. “Despite all of the real-world benefits that software is driving today, we have seen only a fraction of its full potential,” the BSA report states. Ultimately, this will spur growth as well — “sophisticated software code is helping us make greater sense of this growing data,” the report adds.