The UK has always been at the heart of the IT industry and contrary to popular belief, Britain's software suppliers are booming as never before.

By common agreement, the software industry as we now know it was born in the early 1960s along with the launch of 3rd Generation Computers like the IBM 360 and ICT 1900. Business could now afford the hardware—-but not the bespoke systems—required to make them operate. Standard operating software was soon followed by standard tools, like programming languages and then by application software.

The launch in the 1970s of distributed systems like – DEC VAX and HP3000 – and then the PC in the 1980s brought affordable hardware to literally millions of businesses and billions of users and created an explosion in the demand for standard software.

Throughout the 40+ year history of the software industry, the UK has played a crucial part. Just as the UK played a vital role in the very birth of both computers and programming, it had an early hand in many of today’s software hits – from databases to email, from computer games to the internet.

UK software industry in rude health

But as most of the familiar software companies are now US, or non UK companies, there is a tendency to write-off the UK software industry. However, our most recent report into the UK software industry argues that would be a big mistake.

The UK software industry is in rude health. A combination of organic and inorganic growth has resulted in UK-HQed software companies growing c20% in the last year. Perhaps even more surprising is the c70% of revenues that the UK software industry earns abroad. Indeed, the UK is not that far off earning as much from overseas markets as we buy in. Currently £4.6b plays £5.6b with the gap narrowing each year.

National failings

Without decrying the achievements of our leading software players – Sage, Misys and Autonomy – it is true that we have not produced a truly global software giant like Microsoft or Oracle. Some say, if the Germans can produce a SAP, why couldn’t the UK?

The problem for the UK software industry has never been the quality of its people or its innovation. More, its shortfalls are:

  • Lack of available financial backing – particularly at the early stage. The US has developed superb clusters around its leading universities particularly in Silicon Valley. Software developers could rub shoulders each day with venture capital people. So our best innovators go West for funding and stay there. It is reckoned that around 40,000 UK nationals now work in the US software industry.
  • Lack of marketing expertise. We can build the best mousetrap but it doesn’t make the world rush to your door! I’ve met many brilliant UK software developers who have no interest in, let alone ability, in explaining their wonder products to the masses.
  • Local not Global. When you look through the lists of companies in the report, you will find that many are involved in software that is mainly applicable to the UK market. We have a strong history of accounting and payroll software developers. Few UK accounting products were exported though. It meant that few international software companies could be bothered to create UK versions of these products either!
  • Lack of ambition. Many UK software companies are lifestyle companies. Management is happy with the Merc and is not prepared to take the risks that might upset their lifestyle.
  • Lack of management skills. Growing from a small to medium sized enterprise is hard. But not as hard as that required to grow to be large. Often the management skills of the founders are not up to running larger organisations. Few are prepared to step aside.
  • Easily pleased. UK software companies have a long history of being other nations’ acquisition fodder. Many say that it’s much better to accept a few million now than suffer the hard work and risk entailed in growing bigger. Although the UK has a few such heroes, in the main the British seem happy to accept the first pile they make and retire to the Med.

The future

The future for the UK Software Industry looks bright. But it could be even brighter!

We now have two FTSE100 listed UK software companies – Sage and Autonomy. Together with others, like Misys and MicroFocus, they have been a-buying overseas. After decades of the purchases being the other way around, it is good to see us fighting back.

The bigger these companies grow, the more attractive and vulnerable they become to an overseas predator. Indeed, it would probably only be a non-UK buyer who could now afford them. Software consolidation is rife and I see several of the UK’s stars falling into foreign ownership in the next few years.

Conversely, ‘Getting into Software’ has never been easier, never had such a low cost of entry. On top of providing the right education and jobs, we need to provide the right environment for young software companies to flourish. Better tax incentives for investment, corporate venturing, R&D support etc could all help. The Making BrITain Great Again IT Manifesto has put forward several policies we would like to see incorporated in the main political parties’ manifestos in the upcoming General Election.

The pay back is huge. UK HQed software companies not only create employment at all levels in the UK, but they and their employees pay their taxes here too. They use UK accountants and lawyers. They IPO on the LSE. Just like the clusters seen in the US, great UK software companies are like a honey pot. The closest we have is the cluster in Cambridge around such UK stars like Autonomy.

So the UK Software Industry Report Card for 2009 would read ―“Great Effort. Could do EVEN Better!”

To subscribe to TechMarketView’s free daily newsletter, please click: here.

For further information on TechMarketView email here or ring +44 (0) 117 230 1796.