The UK software industry is alive and kicking—despite many claims to the contrary. But more needs to be done to help young software companies if the UK wants to create its own Google or Microsoft.
The top 50 UK software companies reported revenue growth of around 20 per cent last year, together with operating profit growth of around 25 per cent—showing that the UK's software industry is "a thriving and highly profitable business", according to research firm TechMarketView.
In addition, the UK software industry pulls in around 70 per cent of its revenues from abroad, earning nearly as much from exports—£4.6bn—as the country spends on buying in foreign software, £5.6bn.
There is a tendency to write-off the UK software industry because most of the familiar software companies are in the US, said TechMarketView chairman Richard Holway who warned: "That would be a big mistake."
The UK has played a vital role in the development of the software industry over its 40-year history, having had an early hand in many of today's most popular applications—from databases and email to computer games and the internet.
Two UK software companies—Sage (SGE.L) and Autonomy (AUTN.L)—are now listed in the FTSE100 and, together with others such as Misys (MSY.L) and MicroFocus (MCRO.L), have been making acquisitions overseas.
However, Holway warns that this growth makes them increasingly attractive to overseas buyers. "Software consolidation is rife and, sad as it is to say, I see several of the UK's stars falling into foreign ownership in the next few years," he said.
Holway said the UK's failure to produce a global software giant like Microsoft (MSFT) or Oracle (ORCL) is largely due to a lack of financial backing. While the US has ready-made communities of developers working together with leading universities to secure investment, British software developers often struggle much more to gain access to venture capital funding.
As a result many of the most talented innovators head to the US for funding, with around 40,000 UK nationals now working in the US software industry.
Other factors holding the UK back include a lack of marketing and management expertise, the tendency to focus on products geared to the UK market rather than considering an international audience, and an overall lack of ambition.
This situation is not due to a lack of talent said TechMarketView managing partner Anthony Miller.
"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 (GOOG), then at least deliver significant returns for those willing to take the risk," he said in a statement.
The analysts said improvements to teaching of science, technology, engineering and maths needs to be improved in order to create the next generation of software developers, while better tax incentives for investment, corporate venturing, R&D support etc could all help young software companies flourish here.
The top 10 UK-headquartered software companies according to TechMarketView:
• Micro Focus
• Intec Telecom
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