A larger proportion of the Celtic Tiger wealth is now being channelled into new enterprises, writes JOHN COLLINS

IF THERE was an award for the most overused phrase to drop from the lips of Government politicians in 2010, it would have to be “smart economy”.

Perhaps despite such Government cheerleading, 2010 was a relatively upbeat year for the technology industry in Ireland, as some of the biggest names on the web – such as Google, Facebook, LinkedIn and eBay – either established Irish operations or significantly expanded their presence here.

More traditional tech firms such as Hewlett-Packard, Analog Devices, Electronic Arts and Stream Global Services, which provides support for Microsoft’s Xbox, either created new jobs or invested heavily in research and development.

Indigenous firms also fared well, with companies such as Openet, NewBay, Intune Networks, CarTrawler, Realex Payments, Powervation and RedMere increasing revenues significantly and signing up international networks.

Several factors have combined to help the sector defy the wider economic gloom. It has been said that most businesspeople under the age of 40 have no experience of dealing with a downturn.

That platitude does not apply to the tech industry: after the dotcom implosion at the beginning of the decade came the global economic jitters which followed the 9/11 attacks.

This double whammy devastated indigenous firms in 2001 and 2002, with a generation of web businesses barely surviving or going to the wall. Most of the current crop of founders and managers worked through that downturn and learnt the value of lean operations that can adapt quickly to changing market needs.

The collapse of the property market has also been good for the tech sector. Many entrepreneurs who sold out in the early 2000s put their money into property rather than starting other enterprises. That broke the cycle which creates a pool of experienced entrepreneurs – the sort of cycle that helped make Silicon Valley what it is.

Latterly, the increased involvement of private investors in early-stage funding here is a positive by-product of the property collapse. Not all the Celtic Tiger wealth has been obliterated and a much larger proportion of it is now being channelled into new enterprises.

Globally, technology and in particular consumer technology, has proved a bright spot over the past two years. While the likes of Apple and Google benefited directly, the indigenous sector has also blossomed – from Openet helping operators develop new iPad business models to the plethora of new software houses and independent developers embracing the app economy.

All of these factors will continue to underpin the sector, but there are signs that a snowball effect will benefit the technology industry next year.

Despite the scepticism that greeted the launch of Innovation Fund Ireland in July, the €250 million of Enterprise Ireland and National Pension Reserve Fund money earmarked for it by the Government has already attracted two top-tier venture capitalists.

With €180 million still available, expect DFJ Espirit and Polaris Ventures to be joined by other US and European investors next year.

IDA Ireland’s task of attracting foreign investors will not get any easier, but despite the black mark of the EU-IMF bailout, Twitter, the web sensation for which any European government would be happy to roll out the red carpet, is reportedly considering Dublin as the location of its European headquarters.

Although the games sector has flown under the radar somewhat, a strong base of games companies has been built up here in the past five years. The choice of Galway by Electronic Arts for a new customer services centre was a significant feather in the cap of the IDA but also reflected the progress made in the sector lately.

The announcement that Activision Blizzard had hired 600 staff in Cork, rather than the 100 jobs it announced upon its arrival in 2007, confirmed the strength of the gaming sector but also indicated its relatively low profile.

There are still challenges. Many companies are doing little more than treading water but, by the standards of the past two years, the technology sector is still a jewel in the Irish economy.

Both the report of the Innovation Task Force and recent marketing by IDA Ireland talked about creating an “innovation island”. The concern, as we come to the end of 2010, is that we may end up with an island of innovation in a moribund wider economy, rather than the high-tech beacon on the western fringes of the Atlantic that its promoters have suggested.