The $2.4bn acquisition of Irish software player Fleetmatics shows that Ireland, its people and its Government need to wake up to the potential of the software industry, writes John Kennedy.
Walk down any high street of any Irish town or city and you’ll notice windows above shops like newsagents or butchers with signs denoting it as an accountant’s office, or a solicitor firm, an auditor or a dentist. Some of these could also be web design firms, some of them software firms.
In 2004, if you glanced above a shop in Templeogue on Dublin’s southside you might have seen a sign for a business called Fleetmatics. If you were to enquire what it did, they might have said telematics and fleet management, GPS, 3G, that kind of thing. Buzz terms like cloud and internet of things (IoT) hadn’t entered the popular lexicon and wouldn’t for a few years.
2004 was a strange time to be in tech. The dot-com downturn of 2000 was a recent memory, as was 9/11, no one believed the tech industry would ever again rise from the ashes and most media ran from covering tech like scalded cats.
You certainly wouldn’t have believed that, 12 years later, Fleetmatics would be the biggest exit so far in Irish tech industry history. Yesterday (1 August) it was revealed that US telecoms giant Verizon is to buy Fleetmatics for $2.4bn in cash.
Tallaght-headquartered Fleetmatics, which has grown to employ 1,200 people and recorded annual revenues of $284.8m last year, was professional from the get-go.
If you dealt with the company in its early years, everything was professional and carefully thought out. These were focused and determined individuals who quietly and carefully navigated the complex, highly-regulated worlds of telecoms, cloud and fleet management to the point where the company now has 37,000 customers and approximately 737,000 subscribers.
If each subscriber is a vehicle, the reality is Fleetmatics’ technology is the glue holding together the world’s currently largest connected vehicle fleet.
In recent months, for example, it emerged that not only was the company creating 75 new R&D jobs in Dublin, but it had been selected by An Post to digitise its fleet of 900 vehicles.
Judging by an interview I did with CEO and chairman Jim Travers in 2013, product development has been at the heart of Fleetmatics’ journey. The company quickly harnessed the evolving capabilities of mobile and GPS and wove an intricate web using software-as-a-service (SaaS) and cloud as a calling card. If anything, it displayed an intuitive understanding of what customers wanted.
“A physical vehicle is a highly capital-intensive asset,” said Travers at the time. “You can’t run a vehicle without fuel. So it is all about the efficiency of managing a physical item and that depends on the efficiency and performance of the driver. Most of our customers deliver services on a billable basis, so this information is critical.”
On that basis, you could rightly argue Fleetmatics is Ireland’s original IoT company, connecting things like vans and trucks in real-time.
There are lots of others like Fleetmatics in Ireland
The Fleetmatics story shows you what is possible through focus, determination, solid R&D and a globalised mindset.
The good news is that there are lots of other companies like Fleetmatics that occupy the indigenous software space and target various global industry verticals, from medicine to insurance and fintech,; solving problems with solutions.
The dream is that one day Ireland will field global brands that stand as tall as Google or Facebook, IBM or Microsoft.
The issue is that Ireland, despite its abundance of tech multinationals, is a hard place to be a local software company.
Firms operating in this space are crippled from the get-go by a range of geographic, educational, financial and bureaucratic setbacks. The fact that globally recognisable names like Fleetmatics and Openet started here is almost a miracle and it certainly occurs in spite of the conditions.
It is no irony that some of the best tech companies in the world started by Irish people that are already globally recognisable brands were started elsewhere. The Collison brothers’ Stripe, recently valued at $5bn, was started and is headquartered in San Francisco. High-flying Intercom was founded in San Francisco by four Irishmen – Des Traynor, Ciaran Lee, Eoghan McCabe and David Barrett – but most of the company’s technology is made in Dublin where the company currently employs 140 people at its offices on St Stephen’s Green and where it recently announced 100 new jobs.
Skin in the game
The reality is that, after a hard slog, many indigenous companies opt for an exit in the form of a trade sale, which is actually no bad thing because, increasingly, it leads to employment growth back in Ireland. Cork cloud company Qumas was acquired by Accelrys for around $50m, Waterford-based FeedHenry was bought by Red Hat for €63.5m and Cumas was bought by IBM for an undisclosed sum. Workday, which acquired Iona co-founder Annrai O’Toole’s Cape Clear in 2008, last year announced 200 new jobs for Dublin’s Smithfield area on top of the 600 staff it already employs in Dublin. And let’s not forget the €115m sale of Realex Payments to Global Payments and the $40m acquisition of Payzone by Carlyle Cardinal.
The problem is that, traditionally, there has been no local market for these players. Sure, some could scrub an income in the early days catering to the needs of local SMEs by tapping into some service they can provide, but inevitably the tiny local market would mean looking abroad quite early in their development.
Another problem was the Government in Ireland rarely bought from indigenous companies, which presented reputational problems overseas. An example would be when a start-up selling medical software to a hospital in America, for example, would be asked: “If your own government isn’t buying from you, why should we?” True story.
Perseverance, professionalism, and quality products inevitably won the day.
Another problem is tax. Failure to address Ireland’s capital gains tax structure to make it possible to reward share options may have already cost the indigenous software sector in Ireland thousands of jobs in the last 10 years alone.
A deep-rooted conservatism around entrepreneurs in general and the tech industry in particular among civil service watchdogs may be at fault.
But the good news is that the next Budget may see capital gains tax finally reduced to 10pc, albeit with a five-year window before any gains from an exit can be accrued and a €10m cap on gains. This is a step in the right direction, but not far enough as entrepreneurs in the UK are taxed 10pc with no time limits or limits on gains.
The reality is that exits inevitably result in individuals having the funds available to start or invest in more companies. It’s that simple.
More companies mean more jobs and more taxpayers.
Taxing people severely after they have sacrificed more than a decade to make something happen will blight this potential. It needs to stop and it needs to change.
A change of attitude across society
If anything, the $2.4bn acquisition of Fleetmatics by Verizon should concentrate minds across all of Irish society about the potential of the software sector as a very real industry.
It should awaken brilliant young minds to the prospect of careers that could take them to the four corners of the Earth, where their creativity can be harnessed to solve very real problems.
The evidence is already there – Ireland is home to nine out of 10 of the world’s “born-on-the-internet” companies and the ICT sector employs more than 105,000 people.
The indigenous portion of this employs 12,000 people and accounts for exports of €2bn per annum.
To grow this we need talent and we need schools, particularly at second level, to introduce coding to the curriculum.
We need to ensure that gains in maths performance in the Leaving Cert are bolstered and opportunities in computer science are explained ahead of vital CAO choices.
And, vitally, long-rooted gender issues and stereotypes that prevent young women from taking up science, technology, engineering and maths (STEM) subjects at second and third level need to be urgently addressed.
They say software is eating the world. Well, Irish companies like Fleetmatics’ technology is keeping the world on the road, and there are many more like Fleetmatics doing incredible things in areas from telecoms and payments to health and education.
If the industry is to scale, we need to scale our attitudes and ambitions too.
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