The IIEA has been soliciting comments to a number of questions they posed to the great and the good in the Irish software sector. After receiving their email for the third time today (once from the ISA, once from the Digital Media Forum and once directly), I put together this response.
1. What are the current policy (or other) opportunities & challenges
that Ireland faces in the digital sector?
We compete in a global market place where the rate of creation of experts in the digital sector (which I think needs clearer definition BTW) in countries like India and China far outstrips our own. Our key challenge is to do an end run around the numbers game and position ourselves in key markets that play to our strengths and nullify the numerical advantages of our global competitors. Our first clear advantage is the baked in creativity of the Irish population. At a recent conference in Dublin (http://www.knowledgecity.ie/) one speaker made a clear link between a city’s artistic and creative output and their business productivity and innovation. Ireland is clearly a leader in this area and yet we killÂ our (digital) children at birth by starving them of the oxygen they need, capital. Worse we discourage would be enterpreneurs by littering the startup arena with the carcassesÂ of failed companies who died for lack of money. Two recent examples should serve to demonstrate the problem. CleverCactus was a company started by Diego Duval and Paul Kenny some years ago. The company collapsed because it failed to raise funds. Diego Duval then moved to the US where he was head hunted by Marc Andressen (founder of Netscape) to build his software for his new company Ning.
More recently we have the boys of Auctomatic who moved straight past GO to start their company in the US because their chances of success were so much higher.Â Most VCs work on a 10 to 1 ratio, that is, invest in ten companies to get one big winner who will fund all the rest. The government needs to take the same approach and at the same time it has to realise that the matching funding model promulgated by EI will not address the infant mortality or “failure to start” issues that are pandemic in the Irish software industry.
So we need more capital at an earlier stage without strings attached. This is a key requirement for a thriving startup industry. The matching funds model works really well as you move up the value chain and stops the government making large investment mistakes.2. Which emerging trends are potentially dominant in the digital sector?
The key trends are,
- Software as a Service: Nobody wants to own software, they want the capability that the software can delivery. Software as a service eliminates the need to have a large maintainance staff, capital expenditure on hardware and locked down long term commitments. The old school packaged software industry (where Microsoft made its bread and butter) based its business model on the large bundle of highly valued intellectual property it delivered, and devil take the high road if you only needed 10% of it. Open Source is changing those economics.
- Open Source : Once you have software as a service you are no longer concerned with creating intellectual property, instead you must deliver consistent service with high value SLAs. Capital acquisition costs of proprietary software packages can hugely impact the bottom line in such businesses. As a result we see Linux. Apache, MySQL, Perl, Python and PHP (the LAMP stack) proliferating in such businesses. So we see Amazon, Oracle, IBM. Google, Yahoo and even Apple adopting open source stacks as their defacto platform creating a virtuous circle where these companies rotate back in modifications to the software they adopted.
- Web 2.0 : The ability to interact with software on the web as if it was your desktop has essentially made the desktop and the home PC a redundant cache of data. Web 2.0 promotes the creation of peer relationships between people, data and processes, which is the natural way we interact with the world.
- Cloud Computing : The ability to host everything in the cloud and the advent of unlimited computing power available to the man in the street (via services like Amazon’s S3 and EC2 service) completely changes the dynamics of launching a web business. Now scaling to 100,000 users is a running cost rather than a capital cost (previously require 1m euros or more up front spend) and a succesful business can compete on a global scale with the biggest competitors overseas.
- Global Distribution: The ability to reach a global audience from a home PC complete disintermediates the old channels of communication removing the “validity” of traditonal media networks.
- Simple Content Creation: Any moderately technically smart individual can now create, edit, mashup and publish rich media out including video, graphics, audio and art work with little training and no special tools3. In which niches can Ireland become a world leader?
Software is the best way to leverage our brain power. Hardware plays are too capital intensive and the production centres that are cheapest are typically based in the Asian basin. But what kind of software? Well with software we can play in any of the spaces above, However the current focus of the sector is on wholly proprietary software development which is dangerous direction to move in when the rest of the world is going Open Source. Our geographic location and the availability of significant wind and water power generation resources could make us an easy choice for future data centres andÂ if I had to pick oneÂ of the above areas I would focus on cloud computing (the presence of Google’s European HQ doubly strengthens our hand in this area).
4. What is the most important strategic investment of relevance to the
digital sector that Ireland could make at this point to enhance its
competitiveness in the next 10 years?
- Focus on generating more maths and science graduates
- Get a “back to work| program going for women who have fallen out of the workforce to have families. This program should include retraining and incentives to employers to encourage utilisation of this “lost generation”.
- More hard cash (no matching funds required) to early stage (pre revenue) startups
- Univeral low cost broadband to create an early stage Irish market for Irish software products
- Green energy (cheap, green power makes us a natural location for data centres)
- Some mechanism to encourage adoption of Irish Software products within the EU
5. What are the next three steps that Government should take?
- Tighter integration of SFI, IDA and EI activities
- Discourage the Third level Institutions obsession with Intellectual property, patents, copyrights etc. SFI should incent Universities using different measures that are not related to IP and focus more on creating successful industries based on the software sector
- Make indigenous software production a cornerstone of the governments economic strategy