Small firms the real pioneers in software market

Expert says smaller operations' size allows them to develop innovative technology and face down global competition, writes Karlin Lillington.

Being small - whether it be a company or a country - has its advantages when it comes to doing business, says International Data Corporation (IDC) analyst Melinda Ballou, programme director for IDC's application life-cycle management (ALM) research.

"There's a nimbleness and adaptability that a smaller business and a smaller country can bring to the table," she says. "Where you are clever, quick and responsive, and can build something up in a different way, that's where small can do something a larger, more lumbering company or country can't."

Ballou, who will be addressing the topic of global trends and emerging business models in the software industry at the Irish Software Association's annual conference next Thursday in Dublin, has a particular interest in and affection for smaller companies because she feels their size enables them to do some particularly interesting things in the software arena.

Her own research focus in ALM - with specific focus on software life-cycle process configuration and management, software quality, and IT governance software - has Ballou watching some of the most cutting-edge, emerging areas of software production.

Much of the software and, increasingly, services offered in these sectors come from small, highly-focused companies selling to large enterprises that operate globally.

From her observations and experience, she has some definite ideas on how and where Irish software entrepreneurs can make their mark in a very rapidly evolving software market.

As a starting point, she warns that companies must start with an awareness of how complex the global market has become in recent years, and also how that market is driven by global pressures - political, cultural, and regulatory issues - not just the business market per se.

"Smaller companies have to be much more responsive to the global market than they have ever been before," she says.

Globalisation is bringing both pressures and consequently, opportunities. As an example, she cites offshoring and outsourcing, which brings management challenges for Irish companies doing the outsourcing, but also can bring work opportunities to companies providing outsourcing or offshoring of software and other projects.

Software companies in both Dublin and Belfast have been able to seize opportunities to provide outsourcing, she says, but she adds that Dublin is probably becoming too costly a location to make such work cost-effective for client companies. Belfast and other areas of Ireland still offer good value to foreign companies however, she says.

Another major pressure is the degree to which even small companies have to manage their business internationally. Due to the collaborative nature of many projects - again, due to outsourcing or providing services to large, globally-operating enterprises, small companies face many of the same headaches as big multinationals.

"Small companies need to bring the rigour and management skills to collaborate across these great cultural divides," she says.

Other challenging trends that smaller companies can adopt, adapt to, or compete with, include the expanding open-source software market and the new services-oriented architecture (SOA) business model of offering software as a service, hosting it and selling access to it over time to clients.

"These are all important trends for software companies to take into consideration as they decide how to grow their business in this very dynamic, challenging, interesting economy," she says.

She thinks the open-source and SOA models offer much opportunity for Irish companies, as they are new areas where small companies can do very well.

Ballou says Ireland has already produced many companies that have grown themselves internally with a knowledgeable entrepreneur, offering products tied into a specific market.

This is the type of company that can do very well with either open-source or an SOA offering, where to succeed, a company must understand what are generally very complex needs of client companies in a very focused niche.

For example, in the emerging open-source arena, she says that companies have the best chance of doing well by building onto an already established open-source product - she cites Eclipse, the open-source platform originally from IBM - so that they have a huge prospective base of users.

"The advantage to you is there are no licensing costs to add on and there's already market presence. You also don't have to form an alliance with a company, but you can take advantage of an existing base of users. But you have to be highly differentiated with your product," she says, because many products will already exist in such a market from other developers.

Many of the general applications in the open-source market are already freely available too, she adds, so focusing on a niche is crucial for generating profile and revenue.

Services-oriented architecture - software as a service - is an even newer market than open-source, so young that she calls it "embryonic". IDC and other analysts are predicting "significant" growth in this area she says, but to date, there are less than a dozen SOA deployments across a handful of large enterprises, none in place for more than 18 months.

That means some of the difficulties in the model are only just emerging, but that means developers are beginning to understand better what works and what doesn't work. She feels this is exactly the area where small companies can offer a very targeted service to enterprises, but acknowledges that going into this area right now means the disadvantages of being on a steep elarning curve.

On the other hand, the advantage is the opportunity to be in early and help create a market which can offer lucrative rewards. Overall, she feels that the Republic's already notable level of software production - about 13 per cent of national exports - indicates a strong base for further growth into new international markets.

"That's a significant figure, but it could be much more," she says.

And she stresses that big size isn't necessary for going after big markets.

"Being small, smart and feisty has its advantages."

• Melinda Ballou will address the annual ISA conference, New Models, New Approaches for Tomorrow's Success, which will focus on scaling companies. It takes place on May 18th at the Mansion House, Dublin.