Software and Internet companies have stepped up R&D spending more than any other industry

• A report by consulting firm Zinnov shows that software companies witnessed nearly 19% year-on-year growth, the highest compared to other industries.
  
• In absolute terms, the automotive industry spent the highest on R&D last year.
  
• The top R&D spenders in the software industry include Amazon — leading with $22.6 billion — followed by Alphabet, Microsoft and Facebook.

It is becoming increasingly imperative that industries spend billions on research and development (R&D). The trends in R&D spending reflect the pace and potential for change in every industry.

Last year, the global software and Internet industry showed an year-on-year growth of 18-19%, the highest growth rate among all the other industries, according to a report by Zinnov, a consulting firm.

Amazon topped the list of R&D spenders in the software industry with an investment of $22.6 billion, followed by Alphabet at $16.6 billion, Microsoft at $13 billion, and Facebook at $7.7 billion.

However, in absolute terms, the automotive industry had the highest spending at $130 billion, followed by pharmaceutical companies with $125 billion, clocking 7% and 6% growth from year ago, respectively, the report said.


The report speculates that the stark difference in investments is because the automotive industry has limited its investment to research practices, while software companies have diversified.

Interestingly, with the alarming increase in the number of data breaches in the past year, the report seems to reflect that software companies are braced for more research around strengthening cyber security and empowering digital platforms — which obviously requires more money.

Media reports also suggest that with rising concerns over fake news, several IT companies are working with their legal and development staff to curb the problem — all the more pertinent after the leak of Facebook’s ‘secret rulebook’.

According to another research conducted last year, companies that offer software as a service spend 23% of their revenue on R&D in order to better manage cloud applications. In fact, early- stage startups have been found to invest a larger proportion into R&D in contrast to the major IT giants.


Looking ahead

Driven by the growth in mobile devices and smart phone-based digital services, ‘digital engineering’ is expected to spend 37% on R&D by 2023, up from 24% last year.

Global ER&D spending, which was recorded at 3% over the period of six years up to 2018, will likely be up at 7%, five years down the line.

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