Battling global giants

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.