Battling global giants

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.