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Number of software firms in Mass. down 126 since '04

With mergers and outsourcing chipping away at one of the state's most important technology sectors, Massachusetts continues to lose computer software companies and software-related jobs, according to a survey scheduled to be released today.

The survey, by the Massachusetts Technology Leadership Council, lists 126 fewer software companies doing business in the state this year, compared to 2004, and 5,831 fewer software-related jobs. It marks the fifth consecutive year of declines in both categories.

Other findings of the survey, which is being mailed to council members this week as part of a new directory, were more encouraging. It showed significant increases in the number of software companies that market both a product and a service, and the number of companies that distribute their products and services outside the United States.

Joyce L. Plotkin, the council's president, said the survey reflected structural changes in the software industry, as customers cut back on vendors, companies merge, markets globalize, and a new software-as-service model gains momentum. Under that model, customers buy software applications ''on demand" from third parties, rather than licensing software and putting it on their own servers.

Plotkin said Massachusetts continues to add software start-ups, even as more established mid-size firms are gobbled up by giants such as Microsoft Corp., IBM Corp., and Computer Associates International Inc. She said part of the decline in the number of companies can be attributed to the tighter criteria the council used in its survey this year.

''It's relatively flat," Plotkin said, noting that the software industry today is roughly the size it was prior to the Internet bubble. ''But we believe we're at a sustainable level of employment, and we believe software will continue to be a factor in the economy of this state."

John B. Landry, chairman of Adesso Systems, a Boston software firm, said Massachusetts is suffering partly from overly cautious venture capital firms and an inability to grow large companies like Google Inc., the highly successful Mountain View, Calif., Internet search company.

''I'm concerned that we're becoming something of a backwater here, and I don't like it," Landry said.

''We have great innovation here, but we don't have the talent pool coming out of the big companies, and we don't have the kind of venture investors who would have funded Google."

The council's survey listed 2,655 companies selling software and related high-tech products in Massachusetts this year, a 4.5 percent decline from the 2,781 companies listed in 2004. The figures include software-only companies and software divisions of other companies.

On the job front, the companies employed 118,976 workers this year, the survey said, a 4.7 percent drop from last year. Plotkin acknowledged that outsourcing was one factor, while noting that technology-driven productivity has enabled companies to trim payrolls.

Software jobs represent fewer than 5 percent of the 3.2 million jobs in Massachusetts. But as the vanguard of the state's cutting-edge technology industry over the past decade, software has been considered an important sector.

Last year, the number of Massachusetts software companies decreased 4.2 percent and the number of jobs 3 percent from 2003.

The new survey found smaller companies are fueling much of the state's high-tech industry, with more than 70 percent of the businesses saying they employed 25 or fewer workers; 68 percent reported annual revenue of $5 million or less.

Thirty-seven percent reported selling products and services in other countries, up from 27 percent last year. And nearly half of respondents said they offer both a product and a service, up from 40 percent in 2004. ''They're adding services around their products because customers are looking for fewer vendors," Plotkin said.

The shrinking of the software industry has been paralleled by consolidation in the trade association business. Plotkin's technology leadership council, which sponsored the software survey, was formed last month through a merger of the Massachusetts Software Council with the New England Business and Technology Association. The new group represents more than 550 businesses, including healthcare and financial services companies that use technology, as well as software vendors.

Even before the merger, the software council had reached out to companies in emerging fields, such as open-source software, robotics, and radio frequency identification technology, in an effort to broaden its base.

''We're trying to capture the growth areas," Plotkin said.

Robert Weisman can be reached at weisman@globe.com.

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