Strategy for the Software Sector2008 – 2013

Presentation to the Irish Software Association Executive Council

9th June 2009

Jennifer Condon,

Manager Software & Public Procurement

Enterprise Ireland

Indigenous Software Industry - Overview

EI Software Clients - 500 + Active Companies

Exports - 73% primarily to the UK and US

Start ups – 28 per annum (2001-07) – 40 in 2008

Revenues €1.6B Exports €1.0B** Source Forfas Annual Business Survey 2007

Scale – Based on Turnover (2007)

5m-10m 10m-20m 20m-50m 50m-100m 100m+

33 10 6 2 1

Indigenous Software Industry - Inhibitors of Growth

Strategic Marketing and Planning Organisation Development including

Human Resource Development Organisation Culture

Product Management including Strategic Marketing Services Development After Sales/Customer Relations Management

Market Opportunity including routes to market Senior Management Team Capability Company Funding for growth

Software Industry – Global Drivers

Highly challenging economic environment Users moving software from Capital to Current spend – pay per use! Users seeking “best of breed” modular solutions Established vendors changing the way they do business New market entrants with innovative business models Focus on emerging markets Globalisation Technology trends

5

Evolution of the Networked Software Value Chain

R&D Support andOperations

DeploySales and Marketing

Product Development

Globalisation/ Localisation (Internal/Partners)

Co-innovation Partners Channel Partners/ VARS

Consultants/System IntegratorsCustomer SW Factory Hosting Partners

Outsourcers

BPO

Delivery Model: Including Open Source/SaaS/SOA/Web 2.0

Cus

tom

er

Other SWvendor

Applications SW

vendorResearchpartner

Prod devpartner

Mktg/sales/VAR

Infrastructure SW vendor

Services & systems integrator

Key influences:

Emerging business models Emerging ecosystem models Industrialisation of services Globalisation

From a conventional ‘Porter’ schema

To an interlinked

model where components are supplied

from a number of sources

6

New Business Models

Different Ways of Delivering Characterized by Software as a Service Pay by subscription or transaction or "Pay" by viewing advertising Customer retention and service levels are critical Cash issues demand different funding and valuation Vendor size/location less relevant

Common Theme: Subscription and "Value-Based" Pricing

Companies need to diversify revenue models increasing service delivery SaaS forecast growth rate 24% pa 2007-12 compared to overall software

market 6- 7%. Global SaaS market $5.7b 2007 – forecast to treble to $17b 2012 Global SOA based service spending will quadruple to $34 billion 2006-10

New Software Economy - NSE

The main features of the New Software Economy are: Independence of location provided by the Internet, New customer relationships requiring 24x7 support by vendors or

their channel partners, Pricing on usage through business models such as Software as a

Service (example companies include Google, Salesforce.com, The TAS Group, Datalex).

7

NSE is underpinned by new technologies such as Software as a Service (SaaS), Web 2.0, Services Oriented Architecture (SOA) and

Cloud Computing

Growing an Industry of Scale in Ireland

- Three building Blocks

Focus on Clusters -Build on what has already been achieved in vertical markets and develop others

“Best Connected” Networks

Network assets in MNC’s, Diaspora, Academia, Industry Bodies

to create virtual scale

The New Software Economy -Utilise market trends toward SaaS, Pricing on usage

’

9

Focus AreasFocus Areas

Primary clusters operate in high growth areas where the EI

portfolio is well represented and/or growing fast.

Developmental clusters operate in attractive market

sectors but where EI is lacking either growth or scale.

Potential opportunity areas where EI has a presence,

but further work is needed to establish whether they are

independent and sustainable.

This contains those EI portfolio businesses whose

main revenues are not derived from the above

areas.

Primary

-Telecom (€210million)- Finance (€237 million)

- eLearning (€218 million)

Developmental

- Travel and aviation (€30 million)-Security (€14 million)

-Public sector (€117 million)

Investigation

- Mobility (€81 million)- Customer-centric (€75 million)

Foundation businesses

Tec

hnol

ogy

Wat

ch (

e.g.

mLe

arni

ng, E

nter

pris

e 2.

0 et

c.)

New

Sof

twar

e E

cono

my

Reinforce

These are central to the EI mission and must be protected, reinforced and grown.

Manage

These businesses require active management in order to:

• Indicate new opportunities in selected verticals

• Look for emerging focus areas• Identify potential collaborative or merger

opportunities• Seek out businesses for special attention

Grow / Promote

Businesses in these areas should be the subject of intensive action so that the areas

can quickly become primary clusters.

Investigate

These are possible primary or develop’tal clusters but require validation.

The

"be

st c

onne

cted

" in

tera

ctio

n m

atrix

will

var

y be

twee

n th

ese

grou

ps.

Market-Facing Clusters Cluster ActionsR&D

10

Overseas Players

Buyers

Individuals

Irish GovtMNCs

VCs

Academe

Vendors

‘Best Connected’ ecosystem for virtual scale

‘Best Connected’ means that each cluster uses the elements most appropriate to its development

Vision Statement

By 2013, Ireland will be internationally recognised as

having a "best connected" New Software Economy

successfully delivering innovative solutions

on a global scale

Strategic Response & Recommendations

To address the challenge of significantly developing the indigenous software industry by taking action in four key areas:

Focus & be ‘Best Connected’ Talent Development Routes to Market Finance

Source:/Notes:

Focus & Best Connected - Strategic Response

Identify & work with companies who have scaleable business models Pipeline of start-ups – NSE, IP and networked models Promote serial entrepreneurship Undertake Technology Watch activity Develop the best connected concept focussed on clusters of companies Look to identify further opportunities for strategic engagement with the

3rd level sector Work with the relevant industry associations to review the potential for

developing relationships with MNC’s

Talent - Strategic Response

Continue the current “technology” sector focussed L4G programme

Network/align the software L4G CEO’s with other sectors where EI has significant strength

Extend L4G to address the development of world class skills of the senior management teams

Continue to provide programmes such as International Selling to meet the needs of a wider group of clients

Harness the expertise of experienced and successful senior management to feed their knowledge back into the industry

Routes to Market - Strategic Response

Promote awareness and understanding among companies of the potential and implications of the NSE.

Support companies to develop a strategic emphasis on partnering to establish global presence and access to market.

Selected and more mature companies should be encouraged to consider focussed sales strategies to enter BRIC Countries

Significant potential in the mid- market for innovative solutions, from faster moving, smaller players

Finance - Strategic Response

Continue to work to facilitate the operation of a balanced, competitive investment environment in Ireland - particularly to ensure the availability of finance to support the scaling agenda

Support the on-going development of a tax environment that encourages personal investment

Ensure that the Irish entrepreneurial community, particularly HPSU’s, have an early understanding of the “funding journey” associated with the long-term development of a successful IT company.

Investigate shared models of critical resources other than funding

The Scale of the Opportunity

Grow an industry of scale – double the size of the indigenous software industry by 2013

Increased cohort of Scaling companies

Globally trading businesses

Industry characterised by companies with strong IP and strong market/customer focussed business models

Ireland recognised as a leader in specialist, niche market sector (s)

Context

Strategy developed in context of projected 7% CAGR in SW industry worldwide.

Latest forecasts show CAGR falling to 2% till mid-2010, with growth to 5% in 2011.

Higher growth rates projected for specific sub-sectors

Current Market

SW companies heavily dependant on US (33%), UK (25%) and Eurozone (20%)

Reduction in no. contracts, longer lead time to closure and payment. Access to funding for R&D and working capital a challenge Priority for SW companies is retaining customers and maintaining sales

and exports.

However Emergence from recession will provide SW opportunities in

productivity, compliance, security. SW growth sectors will include Environment and Healthcare

Our approach to implementation

The implementation plan for the software sector strategy, proposes:

Focussing on activities and initiatives in 2009 which are directly related to strengthening and sustaining companies of strategic importance—through the short term

And Continuing to develop:

Structural initiatives to bring about sustainable change and growth in the industry to deliver the overall strategic vision for the development of the sector in the medium term