Lane: U.S. Software Faces Loss of Global Dominance

U.S. software companies face more global competition than ever, with both India and China working ceaselessly to expand their domestic software industry and graduate more software engineers, the former Oracle president says.

SANTA CLARA, Calif.—The U.S. software industry is losing its dominant position in the global market as India and China graduate far more software engineers than U.S. universities produce, says Ray Lane, general partner with venture capital firm Perkins Caulfield & Byers.

U.S. software firms are not only facing more global competition than ever, but also face the daunting task of generating truly innovative new product ideas if they are going to survive amid the dominance of the three largest software companies, SAP AG, Oracle and Microsoft, said Lane, former Oracle president and CEO.

"I believe the enterprise software industry is at a crossroads. Its economic structure may be unsustainable," because most software companies can no longer afford to plow 50 to 60 percent of their revenue into sales and marketing or 25 percent into R&D, said Lane as he kicked off the Software 2006 conference here.

The profit pool for software companies has shrunk over the past five years, Lane said.

Almost 80 percent of the profit generated in the software industry is concentrated in three companies, SAP AG, Oracle and Microsoft.

More than half of the profit is concentrated in one company, Microsoft.

Only about 15 to 20 of the largest companies generate enough revenue and profits to enable them to sustain the level of reinvestment to let them perform the "continuous innovation" that allows them to maintain their dominant position in the software industry.

This leaves 5,000 to 7,000 software companies to struggle for the remaining slender share of profits, he said.

The U.S. software industry is facing more global competition than ever before, with both India and China working ceaselessly to expand their domestic software industry.

As a result, Lane said, the software industry "is not in a dominant position any longer" and will likely soon find itself at a distinct disadvantage because India and China are graduating 10 times the software engineers than the United States is.

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If the United States doesnt educate more software engineers, then it has two alternatives: bring Chinese and Indian engineers to the United States, or invest to employ these same engineers in their homelands, he said.

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John Pallatto

John Pallatto

John Pallatto has been editor in chief of QuinStreet Inc.'s since October 2012. He has more than 40 years of experience as a professional journalist working at a daily newspaper and...