The Irish software industry is at risk of losing out on its chance to gain substantial share of the potential €20bn global cloud computing software market.
The cloud computing market has been described by software industry veteran Fergus Gloster (pictured) as the biggest opportunity to hit the technology sector in the last two decades.
Gloster, the former salesforce.com EMEA founder and Oracle technology director, has just set up Thomond Technology to bring his international experience to Irish software firms.
In a report “Cloud Computing – The Opportunity for Ireland’s Software Economy“ Gloster argues that Irish software firms have a major opportunity to take advantage of cloud computing but few to date are exploiting the technology.
He believes that cloud computing could be a major boost to jobs and exports. The indigenous software industry employs an estimated 15,000 people and accounts for about €2bn of Ireland’s total software exports of €12bn.
“The big wave in technology today is cloud computing or Software-as-a-Service and Ireland has got to be part of it,” believes Gloster.
He says that most industry analysts are predicting massive growth in revenues for Software-as-a-Service companies selling enterprise applications. Gartner is expecting revenues for the industry to grow to almost US$20bn by 2011 and IDC predicts an increase in rates of growth from 38pc in 2008 to 42pc in 2009 for companies operating in this segment.
“The exciting opportunity about cloud computing is that it removes the traditional barriers and costs to developing a global Irish software firm,” believes Gloster. “Irish software firms have a good reputation for the quality of their technology but they often fell down because of the scale and ability to market it globally.”
In his report, Gloster argues that the traditional software industry works against small markets like Ireland. “Whilst our technological and business ideas are as good as others internationally, the lack of scale causes challenges in creating traction in the global market and developing a sustainable revenue stream.
“The solution to this for Irish companies was traditionally to expand directly with a sales force or go indirect via distributors. Both of these are expensive, risk laden and time consuming. Irish companies with a perfectly good business idea often lost out to international players because of these factors.”
According to Gloster’s report, cloud computing completely changes the game as it enables the service offering to have global reach immediately through the internet.
He says where the service is delivered from is irrelevant to the end user as long as it meets the business need, is always available during the end user’s business hours and provides a quality service. Irish software companies need to begin delivering enterprise class cloud computing services on an international basis out of Ireland.
He also points out that investors need to change their mindset regarding the revenue model. “The revenue model for cloud computing is a subscription one, where the customer contracts to pay on a month-to-month basis. This reduces the scale of the initial revenue and hence time to profitability, but it changes the long-term relationship with the customer and its lifetime value.
“Irish companies will need to educate their funders on the new model and the short-term restrictions for much longer strategic gain.
“The revenue model also provides a huge competitive advantage to companies against those that stay with the outdated model as the latter are demanding that the customer takes a greater one-sided financial risk with their offering,” Gloster says.
By John Kennedy