The 25 biggest software companies doing business in Bulgaria increased their combined turnover to slightly over 750 million levs in 2016. Only a year earlier the same companies reported revenues of 660 million levs. Regardless of the relative slowdown of growth, to 14% compared to 23.5% in 2015, there are certain interesting shifts and trends among the top IT companies. On the one hand, the Bulgarian companies have an increasingly stronger presence in the ranking. On the other hand, there are reshuffles at the top: the leading software company on the market in 2016 was a newcomer - Paysafe Bulgaria, a provider of digital payment and transaction-related solutions.
While in 2015 the 25 biggest software companies reported a growth rate almost double the average for the sector, in 2016 the two figures were almost equal. According to data of the barometer of the sectoral organization, Bulgarian Association of Software Companies (BASCOM), the growth in the sector was 13% last year, while among the leading companies the figure was around 13.84%. Yet, the biggest companies generated more than one third of the revenues in the sector totalling slightly less than 2 billion levs. The sector comprises around 3,000 software companies, according to BASCOM. When comparing the number of employees, the ratio is similar: 7,500 of all 19,000 employed in the sector work in the top 25 companies.
Local initiative gaining ground
"Some of the Bulgarian companies of the past five years have begun to accumulate achievements and affirm themselves as players on the market, which so far has been dominated by businesses with foreign shareholders," says Ivailo Slavov, CEO of Bulpros, which is one of the companies with the highest leap in the ranking and the most tangible revenue growth (over 60%). His words are confirmed by the fact that six of the companies of the second echelon - ranking 5th to 15th - are mainly owned by Bulgarian shareholders.
Two more positive trends are observed on the market. On the one hand, an increasing number of Bulgarians hold key positions in IT companies with foreign shareholders, according to managers from the sector. On the other, the local ecosystem of technological start-ups keeps on growing and maturing, Slavov comments.
However, this should not be misinterpreted as shifting of the focus of the software sector in this country: Bulgaria remains rather an outsourcing destination for IT. "It is not correct to think that there is a shift from outsourcing to development of our own products. The latter is too small and fragile to make one assume that there is a shift of focus," Slavov said.
Miroslav Bozhilov, general manager of this year's top-ranking Paysafe, shares Slavov's view: "We are not witnessing a movement from outsourcing to product development." The company has a development unit servicing the needs of the global Paysafe network.
SAP Labs and VMware Bulgaria, traditionally big names in the sector, are involved in development activity but it is aimed rather at meeting the needs of their foreign parent companies. They keep on expanding their centres and make ever more interesting and comprehensive developments in Bulgaria.
The digital champions
Surprisingly, Paysafe Bulgaria jumped to the top position among the software companies in 2016 from the fourth place a year earlier. The company specialized in solutions for the financial sector has grown its revenues by nearly 57% year-on-year to impressive 82.6 million levs. The growth of Paysafe Bulgaria, formerly Skrill Bulgaria, in 2016 was mostly due to the company's global business. Last year was the first one after the acquisition of Skrill by Optimal Payments in which the two companies operated as a single entity. As a result a turnover of $1 billion was reached for the first time at the global level and a profit of $300 million was recorded, Miroslav Bozhilov commented.
"Naturally, this also had an effect on the Bulgarian unit, which apart from maintenance also carries out a serious development activity related to our digital portfolio. At present we have over 100 engineers in our development unit and plan a big extension in 2017," he added.
The number of Paysafe Bulgaria's employees has reached almost 850 with the share of the developers similar to the share of people employed in the area of financial risk management.
Second-ranked is the unit of US-based Progress, which purchased Bulgarian company Telerik in 2014 in what has been the biggest acquisition in Bulgaria's corporate history. Although the Bulgarian unit of Progress continues to make big revenues it remains a loss-maker. The good news is that the loss is substantially lower compared to 2015 but this could not prevent the lay-off of around 100 employees of the local unit in January 2017 and the abandoning of a project for the construction of a new building for expansion of operations.
SAP Labs and VMware traditionally occupy the next two places among the top five. The companies are planning to sustain the positive trend in their performance.
Diana Stefanova, CEO of VMware Bulgaria, says: "Historically, the company's annual growth is between 20% and 30% depending on the programs and the initiatives, in which we invest. We are planning an investment in the office in Bulgaria, extension of the range of experts and products developed by the engineers here."
SAP are also positive: "The extension of SAP's development center continues during the current year, as we expect to keep the pace of the recent years. At the beginning of the year we also opened a second office in Sofia."
Visteon ranks fifth. The company is increasingly involved in software development and, therefore, it is included in the ranking for the first time. US-based Visteon set a foothold in Bulgaria two years ago after acquiring the global automotive electronics business of Johnson Controls Electronics. The company's development center in Sofia employs over 700 engineers developing software, hardware and mechanics for automobile dashboards, displays, multimedia devices and communication modules. The company's customers include Volkswagen, BMW, Daimler, Opel, Mazda, Ford, Renault, etc.
More investments, global achievements
Companies with Bulgarian founders dominate positions from 6 to 10 in the ranking.
Sirma Group which ranks sixth is among the few companies in the country having opted for expansion abroad through the stock exchange. The company will try to raise a fresh 20 million euro from the capital market at the end of the current year or the beginning of 2018. Sirma Group already has 20 offices abroad.
"Our enterprise solutions are sold in over 50 countries on all continents. Our mobile applications are present in 187 countries, i.e. almost all over the world, and are available in 18 language versions. A mass product of ours - for diabetes control - is present everywhere. In the field of publishing we work with the BBC and the FT. Almost all Bulgarian banks and some international banks, for example, Banco Espirito Santo, Credit Agricole, Alpha Bank, Bank of America, use our products; in the field of insurance business we are probably the biggest supplier of technologies. In the production sector, we work in partnership with Heidelberg, in the USA - with QVI, in Australia - with Canon," Sirma Group Holding executive director Tsvetan Aleksiev told Capital newspaper.
One of the fastest growing software companies in the country, Bulgaria's Bulpros, ranks seventh with an average annual revenue growth of over 50% during recent years. A greater leap to 76.8 million levs is expected in 2017, which may lead to reshuffles among the top five in the ranking for that year. After external investments of around 3.5 million euro in 2015, last year Bulpros set up a new company within its group, Innexys Consulting, while at the beginning of 2017 it acquired German IT company GBS for 11 million euro. At present Bulpros is considering potential acquisitions in Serbia and Macedonia.
Ninth-ranked Chaos Software is among the companies whose business drew strong international resonance last year. Specialized in software for 3D visualizations, the company received recognition for its long-term presence in Hollywood film studios in the form of an Oscar award for technological achievement in 2016.
There is one more Bulgarian company that can boast both investments and international success. This is Software GroupBG, a developer of microfinancing solutions, which sustains its good performance. The company is working to develop its own platform for mobile payments for the Association of Asia Confederation оf Credit Unions, which will cover 44 million end users in Asia. In March 2017 Software GroupBG received a second investment of 5 million euro from two funds, Black Peak Capital and PostScriptum Ventures, whereby each got a share of 12.5% in the company.
New horizons in 2017
While there is a traditional shortage of personnel in the IT sector, software companies manage to maintain the positive trends. Several interesting events in the field of education are upcoming, with the launch of the Developer Profession program in secondary education in the autumn being one of them. There are interesting developments in the private education sector: the founder of SoftUni, Svetlin Nakov, is working for the opening of the first national software high school. At the same time, the founders of Telerik are focused fully on the development of their Telerik Academy. The fact that Peter Sharkov has joined the team and the announcement of a new training methodology involving shorter terms indicate that interesting months lie ahead for the IT education market.
In the business area, there will be hardly any change of course or major alterations but reshuffles and a slight shift of focus are quite possible. In technological terms, everything on the world's agenda will be topical in Bulgaria as well: the fastest entry of new trends is expected to take place through companies in the services sector and then through start-ups.
"Ways will be sought to extend the positions of the business in the hot spheres," says Elena Marinova, president of Musala Soft and board member of the Bulgarian Association of Information Technologies.
No big players are expected to enter the market in 2017 but new Ukrainian companies are likely to come and interest from Asia is also possible, Marinova explained. Investments through foreign funds are also expected, she added.
At the local level, it is interesting to follow several companies. One of them is Sutherland, which operates in the field of business process outsourcing and will increasingly focus on the IT sector. The second one is Visteon, which has many new projects in the pipeline and is expected to expand considerably its operations, industry representatives say.
ScaleFocus and Quseters are also among the ones planning growth. In April, the Ministry of the Economy presented them with investor certificates for their plans to invest 1.96 million levs and 500,000 levs, respectively, in the expansion of their businesses.
"Besides, it is interesting to observe the redundant staff of Progress. There are serious signals that most of them will join the start-up ecosystem," Ivailo Slavov commented. Elena Marinova also sees interesting tendencies in the fledgling IT business. "Following the intoxicating climbing to leading positions in the number of start-ups, the sobering counting of the survivors after a kind of 'a zero year' of full disbursement of the Jeremie financing and building of the new funds, a wave of more moderate investments in more promising and developed ideas is coming."