UK losing ground in software market

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The UK's position at the head of the European software industry is under threat, according to a new report.

Developing the Future is a report issued by Microsoft in partnership with Intellect and the British Computer Society, which is intended to flag trends across the industry.

It reveals that while a quarter of Europe's largest software companies are located in the UK, smaller companies with between ten and 50 employees, are disappearing as European venture capital heads towards Germany and Israel, threatening to "derail the sector's future success".

Figures reveal that the UK's cut of the European venture capital pool dropped from around 37 per cent in the fourth quarter of 2006 to 27 per cent in the third quarter of 2008. Germany's cut has risen from 18 per cent to 20 per cent in the same period, with Israel rising from 13 per cent to 18 per cent.

Another slight source of concern is that the software industry knowledge gap is still not closing, with the numbers of students taking on computer and physical sciences, technology, engineering, and mathematics subjects still falling.

The report offers a number of recommendations to alleviate the problems, including a series of IT internships that would see students trained in-house by companies to develop the skills they need. It also suggests a new focus on small businesses by the Government.

"Where possible government should move away from large, multi-year systems development projects to more streamlined and simpler programmes that small businesses can compete for," the report says.

Finally, the report notes that UK businesses need to reawaken their global ambitions: "Software companies in the UK are popular targets for acquisition by overseas companies and such exits are actively sought by many company founders and investors.

"Examples include a number of UK video games developers that have been acquired by foreign games publishers, and Web 2.0 companies, like Bebo and last.fm that have become part of US media conglomerates.

"Although this trend has brought increased investment and jobs, it has also resulted in fewer domestic companies with international ambitions."

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