Strong competition from multinationals, cultural cringe amongst customers and investors, as well as poor support from government, remain anchors for the local software industry, but history shows that companies that make it here can make it anywhere.
ASX-listed ERP software developer Technology One can certainly claim to be a poster child for the local industry.
With a market cap of more than $200 million, it is projecting sales of around $55 to $60 million this year and currently claims to be winning two out of every three tenders it is short-listed for.
Yet, according to its executive chairman Adrian Di Marco, it seems as though even when local technology companies do kick big goals, investors still do not 'get it'.
At a recent VC conference in Queensland, for instance, he says the company was viewed as more of an anomaly than as evidence to support more local investment.
'There seems to be a mind-set even amongst Australian companies that we can't compete with overseas companies - there certainly seems to be a cringe and I don't think that this is changing.'
Di Marco believes firmly, however, that the difficulties facing local companies have pushed them to higher standards. 'To survive here you have to be good and the standards here have to be good - we've got a great breeding ground to develop great products,' he says.
By contrast, he adds, products coming out of some of the large ERP companies are often of a very low standard.
Dr Neil Miller, founder and director of Canberra-based developer TASKey, thinks that local companies are held back by perceptions of them as risky.
'There is a bit of a 'risk aversion' thing - people feel if they choose bigger companies then they have more resources - they tend to want to get a minimum number of contracts,' he says.
TASKey markets a 'matrix' as opposed to 'project' management solution, which uses the web to distribute people around tasks, as opposed to the other way around.
Its products have enjoyed strong uptake, especially within government departments in Australia, while also getting a name for itself in the US. NASA is currently conducting trials.
Along with many of its Aussie peers, TASKey has found that the internet removes many of the disadvantage of being a smaller player.
'You have to pick a niche - once you go out on the web you have a global market,' Miller says. 'There's no advantage to being in the US over Australia when it comes to web-based applications."
According to John Thompson, CEO of CRM developer and distributor Point Global Australia, smaller local companies will always find it hard to achieve the economies of scale needed to succeed. 'It's very difficult for small, innovative local software companies to get much traction,' he says.
Like most successful local companies, Point has succeeded in identifying valuable niches, for instance, developing web-based versions of its products as far back as 1999.
This, Thompson says, enabled the company to get its name out and acquire customers - locally and overseas - more effectively and for less cost.
'It's terribly hard to build the sorts of distribution channels that you need to succeed in this business,' he says, adding that the internet has made 'distribution of software a breeze'.
As a member of the board of Melbourne-based VC group Momentum Ventures, Thompson also knows how hard it is for local companies to be taken seriously by investors. 'I think that there is a very strong cultural cringe problem here which makes it very difficult for companies to raise funds on the scale required.'
According to Foad Fadaghi, research director for Frost and Sullivan Australia, 'mind share' remains the perennial challenge for local developers, especially those that want to make inroads into the US.
'It's hard to convince a US partner that you'll be as good or better than another US company, which is probably larger and has broader media exposure,' he says.
Good news for local companies though, he believes, is the current global trend away from software licensing to a more services-based structure. Sound familiar?
The increased development and use of web-based applications, as well as the wider availability of cheap bandwidth, has created a sound platform for round two of the ASP model, Fadaghi believes.
'In the past, companies were pushed into ASP models without the right platform to do it,' he says.
Now, with the success of companies like Salesforce.com - an ASP provider of CRM solutions - the industry is ready to take another bite at the cherry.
'One of the reasons that Salesforce.com has been so successful is that they built, from the ground up, something designed specifically to be delivered over the web,' Fadaghi adds.
Web-based distribution models have huge implications for the software industry, especially Australia's, where innovative developers are often limited by the high cost of traditional distribution.
The internet is expected to give smaller developers clearer access to new vertical and horizontal markets, while making it easier for them to do business overseas.
'The way for developers to move forward is to use ASP-type models to build applications for specific verticals and horizontals,' Fadaghi says.
He adds that Australia's already strong pool of web-savvy developers means that the local industry is well placed to market viable alternatives to largely unpopular, capital-intensive deployments. 'There has been a lot of skills development for web-based skills. Much of those skills are now really falling into place.'
Frost and Sullivan believes that this transition is most apparent in the CRM space, and projects that host CRM solutions will account for a third of the total pie by 2008.
The move to greater use of the internet by software companies and their customers also has big implications for open source developers that have struggled to live up to the hype of a few years ago.
Brendan Scott is a director of the recently formed Open Source Industry Australia (OSIA), which represents most of Australia's 300-plus open source developers.
He believes that the strong services flavour of open source, its suitability for the internet and incentives for innovation, make it an ideal fit for the local industry.
'Looking at all segments of the local IT sector - the only areas where we have a positive balance of trade is in the provision of services,' he says, stating that open source-related services would do much to stimulate the industry, while helping to maintain Australia's broader reputation for clever technology.
'Investing and promoting open source in Australia will play to our IT trade strengths rather than its weaknesses like packaged products, software,' Scott says.
OSIA estimates that there are currently more than 300 developers for open source platforms such as Linux and others; however, it admits that there is not a lot of data yet available for this part of the industry.
'The general feeling within the open source community is that business is booming, with many companies now finding that they need to think more seriously about partnerships and distribution arrangements,' Scott says.
Not such good news for the local open source community though is the recently signed Free Trade Agreement with the US.
OSIA says that the FTA exposes not just open source, but all Australian software developers to a whole raft of headaches, not least of which is accidentally infringing US patents, which are not only staggering in number, but very aggressively enforced.
Far from the clutches of US patent attorneys, packaged accounting software group MYOB is extremely upbeat about the local market, while also optimistic about its plans for expansion overseas.
'We're seeing that the market for accounting software continues to be buoyant - in terms of units through the channel we saw growth of over 30 percent last year,' says Andrew Fiori-Dea, MYOB general manager business division.
With its acquisition of former ASX darling Solution 6, the company now accounts for about 70 percent of the local market for accounting software, a fact that Fiori-Dea sees as strong evidence that Australian companies can excel on their own turf.
'At the end of the day the key to our differentiation is our customer service, along with our ability to develop a locally produced and customised product that is tailored to local conditions,' he says.
Heavily dependent on the channel, MYOB is slightly sceptical about the move to ASP, yet has not ruled out the possibility of exploring web-based models where appropriate in the future.
MYOB's new suite of 'M-Powered' solutions is designed to make it easier for smaller companies to conduct billing and other business transactions electronically. The company believes that this capability is now essential to compete in the accounting software game.
'We view M-Powered services as facilitating the process of our customers operating their businesses smarter and electronically - but without them feeling they need to move from one platform to the other.
'This saves a whole lot of re-training and double-handling and is therefore a big time saver for our customers while being critical to us maintaining our competitiveness,' Fiori-Dea says.
But for companies that are not in a mainstream commodity stream, the game is really all about quality over quantity.
Derek Rippingale, managing director of mid-market ERP player Professional Advantage, says that one of the most important objectives for his company is to develop opportunities for marketing IP rather than try to survive selling 'commodity' products. 'It's always been the company's intention to develop IP in relation to projects that we are doing for clients,' he says.
PA has around 200 staff in Sydney, Melbourne and Brisbane, and recently opened an office in the US. This year it expects to hit turnover of $35 million.
Having started as a reseller, PA has plenty of experience working directly with customers in deploying ERP software, enabling it to nurture specific areas of expertise.
The strategy has been very successful, with the company recently selling its IP to Microsoft after having identified opportunities to improve the Great Plains software suite.
'We really see ourselves as developing software that is complementary to mainstream solutions,' Rippingale says. 'Big vendors can't always mobilise to develop these smaller things.'
While acknowledging that his company has certainly had some good fortune along the way, Rippingale believes that talk of the cultural cringe is completely overblown in Australia, and that companies that complain they are hard done by should basically reorient themselves for success. 'I don't believe there's any real cultural cringe at all. There's plenty of opportunity out there you just need to tune into the right ones,' he says.
But such comments are like a red rag to a bull for Dr Paul Campbell, director of Queensland-based multimedia developer Icemedia and head of industry lobby group Software Queensland, who views the situation for local companies as deplorable.
Campbell's main concern for Australian developers is the re-emergence of the 'total solutions' approach to software procurement, despite its being responsible for such spectacular failures as the South Australian Government's EDS contract, which hurt many local companies in that state.
The 'political memory' in Queensland is especially worrying, Campbell says, with Premier Beattie recently stating on public radio that local technology companies are of a lower standard than their multinational rivals.
'There is a disconnect between the rhetoric of the 'Smart State' as espoused by Beattie and the actions of government purchasing departments,' Campbell says.
Software Queensland has tried unsuccessfully for the past two months to meet with Premier Beattie to discuss his gaffe, and it hopes to set the record straight in the interests of the industry, which in Queensland accounts for a about 13.5 percent of the state's entire work force.
Another issue Software Queensland hopes to raise with the premier is the growing trend amongst multinational software companies to outsource development to cheaper workers in India.
'This is something that would never happen with the US Government,' Campbell says.
Formed in the early 1990s, Icemedia has had much success marketing its products for developing intelligent, interactive websites to organisations such as the Department of Defence and Telstra, while also making strong inroads into the lucrative pharmaceutical industry. Yet Campbell maintains that this has been despite what is essentially an unfriendly climate for local developers.
'We've certainly shown that we can survive in a tough climate but that doesn't mean that we've been successful,' he says. 'We've succeeded despite the lack of support in Queensland.'
Roger Bushell, managing director of Vital Software, which markets the ContactTracker product, knows how tough it is for smaller software companies in Australia.
'If you can get to $1 million in sales as an Australian software company, you've done a pretty good job,' he says.
Having pitted itself against some of the biggest players in the software business, the company has succeed in netting some of Australia's largest companies, including ANZ Bank, Smorgan Steel and Telstra, and is not doing too bad overseas either.
But while for most companies the US remains the Holy Grail, Bushell has decided to give it a miss all together, instead focusing his energies on Europe, where Vital currently has a small presence in the UK and is in the early stages of forging partnerships in Italy and Germany. Bushell says that while Asia promises a lot of new opportunities, the market is yet to reach a sufficient level of maturity to justify investing in the region.
He says his reasons for side-stepping the US though are essentially 'cultural', citing an experience back in the 1990s when the company launched ContactTracker, naturally enough, with a photo of an Aboriginal 'tracker' on the front cover. The company later received the unenviable accolade of the 'Badvertising' award, given to the worst-taste ads in America. 'There really is a different mind-set altogether in the US,' he says.
One of the things that Bushell says he tries to stay mindful of in the software business is that the small players pay more attention to the larger ones, and that sometimes this can be an advantage. 'We're more aware of them than they are of us but I've beaten Microsoft to some serious deals,' he says.
Mid-market ERP developer eOne recently cracked the big time in the form of a joint development and licensing agreement with Microsoft, again for the Great Plains business suite.
For founder, director and former merchant banker Simon Butler, the formula for success was quite straightforward: identify exactly where and how to find the best returns. 'When I started this I basically says that I wanted to develop something that would sell in the US,' he says.
Which he duly did. Punting that Microsoft would buy Great Plains, he focused all his energies in finding areas of the product suite that were lacking or underdeveloped. This led eOne to develop an accounting component that Microsoft has licensed from the company in return for 'nice licence revenue', and, naturally, huge kudos. The company has also managed to retain its IP.
Also in partnership with Microsoft, eOne is now developing tools to help Great Plains users create customised applications. Further down the track, eOne expects to license a tool that will enable Great Plains users to develop their own tools and automatically convert them into web-based forms.
Looking at companies like eOne, PA, Technology One, MYOB and genuine global successes like mining solutions group Mincom, it is obvious that local software companies can grow into big fish. However, at the moment there remains a clear divide between those with the scale and backing to become major concerns in this highly competitive market and those still labouring under our own cultural cringe.
However, if there is one thing very few local software companies lack, it is the experience of trying.
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