Taking software to a new level

3 Jul 2003

Small tech firms should be guaranteed a cut of any new government technology contract. This is one of a raft of new measures being planned by Cathal Friel, chairman of the Irish Software Association, to boost the indigenous software sector.

“We’re going to try to get a clause into contracts which says that 5-7pc of [their value] should be allocated to SMEs,” he explains. “It would mean that the likes of IBM, Accenture and EDS would have to sub-contract part of a contract to SMEs. This would help build an indigenous base.”

Friel notes that this practice is widespread in the US and France and also in the UK where the NHS is due to spend £5bn sterling on new technology over the next four years – a portion of which will be earmarked for tech minnows.

The SME provision in government contracts is one of a number of actions that Friel feels would benefit the Irish software industry. The others are: improving the industry’s core sales and marketing skills – a theme which dominated the ISA’s recent annual conference; increasing the availability of early stage funding; establishing what role, if any, Ireland should play in the open source arena; and, finally, boosting the relevance of the ISA to both new and existing companies.

Having only taken up the ISA position in April, Friel is still finding his feet but already he seems to be bringing a fresh and pragmatic approach to the role. In particular, he seems eager to confront the issues that could harm as well as benefit the industry. The growing open source movement is a prime example.

“There may be an opportunity for Ireland to become a centre for open source in Europe. We are looking carefully at how the model works. Are there any advantages for Irish companies? If not, let’s address the issue. If there’s a tidal wave coming, let’s understand what’s happening.”

Funding is another of Friel’s key concern deals and one he deals with daily as head of corporate finance at Merrion Capital. He strongly feels that in recent years the easy availability of funding has blunted software firms’ drive and commercial skills. Many of the world’s most successful software companies, he points out, including Microsoft and Oracle, had to rely on services early on to generate the funds needed to build products. “It’s called bootstrapping and even to the present day that’s the model adopted by most successful Silicon Valley firms.”

He adds: “A lot of software companies around the world would have built version one of a product under contract for a large company. That’s the beauty of the software model: someone will pay you to develop a product, they will use it for themselves but then you have the freedom to sell it to everyone else.”

It seems ironic that someone who heads up a financing business should effectively be encouraging software companies to go it alone financially, but Friel’s argument is that unless software firms get used to winning new customers and generating revenue, they won’t survive, let alone be attractive to investors. “To get money you have to demonstrate that you are a risk-taker because that’s the middle name of an entrepreneur,” he notes.

He further suggests that entrepreneurs need to go it alone early and that spending 10 or 15 years in a multinational might not be the best preparation for the cut and thrust of the software industry. “People need to become more entrepreneurial and escape the comfort zone of the big multinationals,” he says bluntly.

Friel is unusual among recent leaders of the ISA in that he has experience of both the venture capital and software industries. Prior to joining Merrion, he worked in the software industry in the US, Australia and Ireland and is a former deputy CEO of Irish financial software house Allfinanz.

He follows with interest the latest developments in the global software industry, particularly Oracle’s hostile bid for PeopleSoft, which he sees as a transparent attempt to take a competitor out of the market. He contrasts this with the ISA’s own vision: that of a healthy software market with a large number of players. “Larry Ellison claims that the software industry is being dominated by a few giants and that the years of rapid growth are gone,” he observes. “But I think he’s wrong in that regard … I’ve always believed there’s room for more and more up-and-coming companies.”

Friel sides with those who believe that industry consolidation reduces competition and thus choice to users. He picks Nokia as his most admired company, not only for transforming itself from a paper products manufacturer into a leading tech firm but also for having the vision to resist the advance of Microsoft into the wireless space. “Nokia is trying to corral other mobile phone manufacturers into the Symbian group. It’s saying, ‘hey, if we let Microsoft in here we’ll just become box shifters because that’s what happened in the PC industry’.”

Closer to home, Friel feels the tech recession is pretty much over and he remains upbeat about the future of the Irish software industry. “I think the reputation of the Irish software industry has come out of the recession intact, the reason being that we didn’t have too many high profile failures. A decade ago, Ireland was known for its farming and other things. Now, it’s recognised the world over as a centre for technology.”

By Brian Skelly