Lane: U.S. Software Faces Loss of Global Dominance - Page 2

Several years ago Lane said he concluded there was no reason for Kleiner Perkins or other venture capital firms to have an investment presence in India and China.

"Now we have made investments in both counties. Other Venture firms are tripping over themselves" to invest in Chinese and Indian software ventures, whether they are for domestic markets or for technology exports, he said.

The venture capital industry currently supplies about $5 billion in funding for the United States.

Lane said he is "shocked" that venture capitalists are still providing this level of funding at a time when many startup software companies will struggle to achieve profitability.

Far fewer startups are going public since the end of the dot-com boom in 2000.

For some of the most promising startups, the best outcome is that they get acquired by larger companies, he said.

That leaves a lot of software startups in the "no mans land," where they have poor prospects for achieving profitability or being acquired before they run out of money, he said.

This problem could become even more acute if "a lot of that $5 billion goes to China or India—do the math," he said.

A related trend is the fact that that for the first time, private equity funding—that is, funding from individual private investors and banks—is providing more software industry funding than the professional venture capitalists are providing, Lane said.

Private equity may be picking up more of the slack from venture capital, he said.

But that doesnt relieve any of the pressure on software startups to achieve the means to pay off their investors, he said.

To survive, software companies have to think of new ways to innovate, and Lane said he is confident there are still plenty of business processes that IT hasnt yet found a way to automate.

Lane advised software entrepreneurs to look for product development opportunities in the six Web modalities defined by technology pioneer Bill Joy.

These include the "near Web," which people access at their desktop; the "far Web," where they access films and other entertainment; the "here Web," where they access information through mobile devices; the "weird Web" where people interact with cars, homes and electric appliances, business-to-business Web communications and device-to-device communications.

Furthermore, Lane offered seven laws to guide software entrepreneurs in their search for opportunities:

A new product should serve individual need. It shouldnt have to be sold to 1,000 people before it gains market value.

Its a technology can be virally adopted so it gains value from personal recommendations.

It should provide personalize information delivered in a useful context.

It shouldnt require data entry or training to be useful.

It should also deliver instantaneous value.

The idea should utilize communities, relationships and social networks.

And finally, it should occupy virtually no IT footprint.

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John Pallatto

John Pallatto

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