nalyzed next. 3.1 Software Spending by CSPs As mentioned above, the current phase of the software market evolution, among other indicators, is reflected in the software spending by the CSPs. According to the model of the vertical software market evolution described in Chapter 4 on "Model for Evolution of a Vertical Software Industry," software spending is high in the first L. Frank et al. Table 6 Software spending Phase of vert. Innovation Productization Adoption Service by CSPs, in relation to software revenues market evol. Total IT spending Table 7 The software Average Median spending (minimum, 0.038 0.028 maximum, average, and 0.039 0.026 medium values) of CSPs in 0.031 0.029 relation to their revenue and especially in the second phase of the evolution (where it may reach and exceed 10% of the revenue), while in the subsequent phases the spending drops to 1.5-2% (Table 6). In case of CSPs, software spending consist of in-house software development costs and the costs of acquired software products and services. Based on the CSP's annual reports and assuming that the in-house software development is a portion of the CSP's R&D spending, Table 7 shows the software spending of a sample set of CSPs, in relation to their revenues, for the years 2005-2007. As can be seen, the total software spending in the period 2005-2007 is around 4% (0.031-0.039) and in some cases exceeds 10%. This rather high value indicates that the software market has not reached the third phase yet, and hence is currently in the second phase (Productization and Standardization). 3.2 The Ratio of Internal/External Software Spending Using the information on internally developed software and acquired software, the ratio of internal to external software spending can be evaluated. Histograms in Fig. 2 show the distributions of the ratio values. As manifested by the histograms, the majority of the values of the ratio of internal to external software spending lie in the range of (0;1); the median value of the ratio is approximately 0.3. In other words