Wednesday, 21 October 2009

The UK software industry - a “significant investment opportunity”

Despite numerous claims to the contrary, the UK’s software industry is a thriving and highly profitable business. With the top 50 companies reporting revenue growth of 20% and operating profit growth of 25% last year, it is also a significant investment opportunity for those willing to take UK software to the world stage. These are the findings of a comprehensive report into the UK software industry by TechMarketView, the leading analyst firm focused on the UK software and IT services market.

“There is a tendency to write-off the UK software industry because most of the familiar software companies are in the US. That would be a big mistake,” states Richard Holway, Chairman, TechMarketView. “A combination of organic and inorganic growth has resulted in the top 50 UK headquartered software companies growing c20% in the last year. Perhaps even more surprising, to an ever sceptical British audience, 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.”

While the report paints a more positive picture of the UK software industry, it highlights a number of “national failings” that have prevented the UK from producing global software giants the likes of Microsoft, SAP or Oracle. “The problem for the UK software industry has never been the quality of its people or its innovation,” argues Holway, citing the following factors as holding the UK back:

* Lack of available financial backing: In comparison to the US, it is much more difficult for UK software developers to gain access to venture capital funding.

* Lack of marketing expertise: Many of the UK’s best developers simply fail in explaining how great their product is to investors and to the market.

* Local not Global: Many of the UK’s software companies focus mainly (if not solely) on products geared to the UK market.

* Lack of ambition: Many UK software companies are run as ‘lifestyle’ businesses. Very few UK software entrepreneurs seem prepared to risk the Merc for the seemingly scant possibility to become a global player.

* Lack of management skills: Growing from a small enterprise to medium-sized is hard enough – but not a fraction as hard as that required to grow to be large. Few founders are up to running large, global organisations; even fewer are prepared to step aside!

* Easily pleased: UK software companies have a long history of being other nations’ ‘acquisition fodder’. Founders seem to want to ‘take the money and run’ rather than take the risk of growing to something larger.

“The UK software industry is often dismissed as an insignificant player in the global market. Our analysis shows that it is thriving as much as it ever has, but most companies fail to break out of the confines of the domestic market,” states Phillip Carnelley, TechMarketView software research director and lead analyst on the report. Anthony Miller, Managing Partner, TechMarketView explained why. “This situation is not due to a lack of talent – we estimate over 40,000 UK nationals work in the US software industry. It’s more a lack of ambition and a nurturing capital structure. The global software industry is a £150b market opportunity. We have the talent and the innovation, but with the right investment, appetite for risk and management panache – all of which are readily available to leading venture capitalists – there should be no reason why the UK cannot capitalise on the opportunity to produce if not the next Google, then at least deliver significant returns for those willing to take the risk.”

For further information, please contact TechMarketView on or +44 (0) 117 230 1796.

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