Software industry ‘closer to Boston than Berlin’

A report from the Irish Software Engineering Research Centre was launched this week that highlights how a global skills shortage is threatening one of our most vibrant sectors. Behind the headlines, however, Irish Software Landscape Study also offered interesting insights into the complex nature of Ireland's software industry and its unusual position in the world.

"Many people say Ireland shelters multinationals for tax reasons and doesn't really have a software sector, but that's not the case," says Prof Brian Fitzgerald, co-author of the report and chief scientist at Lero, the Irish Software Engineering Research Centre."We have five times as many indigenous software companies than multinationals."

There is no doubt that the presence of American multinationals in Ireland and the steady trickle of foreign direct investment is the envy of many countries. It has helped the country punch above its weight and create an environment where indigenous firms could flourish.

The real revelation of the survey, however, is how it has also helped foster strong ties with the US and the idea that "Ireland is closer to Boston than Berlin". The emphasis on the US market is not as prevalent in other European software industry surveys.

EU grants

“One of the very first things a lot of Irish start-ups will do is open an office in Palo Alto,” says Fitzgerald. The sheer size of the market is one reason; another is that Irish firms often engage with American venture capital companies to fund their businesses and they are more comfortable with clients incorporated in the US.

At a time when there is much discussion about Ireland's relationship with the European Union, many Irish software firms wouldn't consider the Continent a prime target, with the possible exception of the UK. At the same time, many are dependent on early- stage EU grants to get their businesses up and running. The irony is not lost on Fitzgerald. "I had a lot of EU funding for open source community-developed software. A huge number of people writing the code were European based, but the profits came from the US," he said.

This isn't a problem, according to Fitzgerald, because a successful Irish start-up will create jobs in Ireland regardless of where the main sales occur. He mentions the pioneering Irish firm Iona Technologies as an example of an EU-funded start-up that did most of its business in the US a decade ago but was responsible for a huge amount of job creation back home.

Where relationships with US multinationals are more difficult is in the chase to recruit the best talent. A household name such as Microsoft or Google is more likely to attract skilled people, and their ability to offer bigger salaries has created what the report refers to as a jobs "arms race".

Fitzgerald believes Ireland’s software future would be significantly enhanced if indigenous and multinational companies could be encouraged to work more closely together rather than simply compete for people. He wants to see clusters that involve large and small tech players setting up partnerships in a shared ecosystem that would transform Ireland’s software industry.

Common cycle

“We’ve seen it happen in the medical device sector around

Galway

where

Boston Scientific

and Johnson & Johnson work very closely with local companies. But it doesn’t happen in the software sector for some reason and we’re trying to address that,” he said.

Another characteristic of Ireland and the rest of Europe is an inability to nurture global software giants of the scale that regularly emerge out of Silicon Valley. A more common cycle is the growth and development of niche firms that are eventually acquired by large corporations.

“There is a ‘get rich quick’ model where everyone wants to sell the company for 40 million rather than try and go to the next level,” he says. “The pattern has been to capitalise then start something else, whereas in the US they’d rather grow a successful business into a Fortune 500 company than sell.”

Fitzgerald accepts that any change in this culture would be slow. It would require a few high-profile success stories to encourage more businesses to take the risk rather than cash in early. Perhaps the biggest obstacle may be the European Union, which struggles when it comes to nurturing a start-up culture. “I admire the EU a huge amount, but trying to encourage an entrepreneurial spirit with a large funding agency that has to accommodate different political agendas is almost impossible,” he says.

A light in the tunnel is recent funding schemes that are structured to support a more entrepreneurial approach. “They are starting to pick the best people and give them enough to get going with no strings attached. That’s exactly what we need,” he says.

Blended products

The

Irish Software, Landscape Study

also identifies a change in the industry, a move towards a blended products and services model that goes hand-in-hand with a number of emerging technology platforms, encompassing cloud computing, data analytics and cyber-security.

The key message of the survey, however, is that action needs to be taken urgently because Ireland has a great opportunity to capitalise on market demand. Software is becoming increasingly critical to industries that are leveraging technology to become more competitive.

The report identifies five main sectors: manufacturing, energy, transportation, health and emergency response services. “We have a very healthy base here that we need to develop. There is an opportunity and we shouldn’t miss it,” warns Fitzgerald.