Trends lead those who walk, and drag all the others

Today entrepreneurship is more about creating opportunities than seizing opportunities.
Sven Hamrefors

Recently we have been hearing more and more that a transition from exploiting irreplaceable natural resources economy to an IT-economy is very important for the Russian economy. The trends are interesting for any hi-tech entrepreneur because they can play on it. Let me present my subjective view on objective processes in IT-industry.

TRENDS

Improving Globalization and communication Infrastructure

Many scientific and popular works are written about this, so I will not repeat them. This trend accelerates both outsourcing and the export of ready-made products, and helps specialists in Russian provincial towns educate themselves as well as their colleagues from Silicon Valley (in theory at least). The production companies can use this trend directly. For instance, Scandinavian entrepreneurs launched Skype which was created by their programmers in Estonia, and sold the company for several billions of dollars. Don’t you have Skype yet?

Significant salaries growth in Russia

This trend is very positive for our programmers and very negative for entrepreneurs at first sight. It is negative at the second sight as well, but nevertheless it prompts some positive movements. Companies start thinking about effectiveness and more added value creation. The high salary level stimulates human resources coming into the industry. More and more pupils and students are interested in building their careers within this industry. About the students, by the way, do you know that students from Moscow and St-Petersburg won 9 gold medals in the annual international ACM programming championship between 1999 and 2004? And this year first place in the world was taken by a team from Saratov State University. Do you remember what I wrote above about globalization and communications?

Outsourcing

Cutting IT-budgets after 2000, together with improvements to globalization and communication infrastructure, have caused the spectacular growth of offshore programming in particular, and the outsourcing business in general during 2003-2006 period. Offshore programming makes sense while there is a significant difference between the wages of specialists in different countries. The increasing competition in the labor market is gradually decreasing this difference. We can take Baltic countries as an example. If five years ago some of the European companies opened offshore programming centers in Estonia or in Latvia, today it does not have any economic sense. Generally the market of software outsourcing will continue to grow within the next few years, occupying gradually new geographic regions and business processes.

Convenience of using

 Remember Skype which I mentioned above? It is far from being the first product in the area, and Scandinavian entrepreneurs did not have a lot of money in the software developing industry (it is enough to look at the Forbes rankings). The product has become popular due to the fact that it was ofhigh-quality and was made convenient for users.

Software as a service

This trend is a like corporate customers’ striving for convenience. What is the reason to pay for expensive licenses, to hire expensive IT-specialists, to buy hardware, and to equip protected data storage centers if you can entrust professionals with all these tasks. In the meantime using software via the internet, and paying your monthly fees? It has been realized by many American companies: both buyers and sellers of services. Bill Gates and a new technical director of Microsoft, Ray Ozzey, have recently concentrated all Microsoft’s power in this direction. Last time a similar target of Microsoft’s focus was the time when they launched their new platform (Microsoft.NET), whose development helped me to establish a small outsourcing business. Before that such a focus was in 1995 when Bill Gates directed the power of the giant to the Internet. Today Microsoft will fight for this market against such giants as Google. And where giants fight, small companies can both lose everything and make a lot of money.

Social aspect

At the moment more and more sites and software products become popular owing to the fact they provide the people with the possibility to communicate better, to do something together, to build up social networks, and to use it. There are many examples of this: Skype (sold to eBay for $2,6 bn), MySpace (sold to Rupert Mardock for $580 mln), Flickr (sold to Yahoo) etc.

AJAX

The growth of communicating channels capacity has revived an idea of using web-sites instead of usual applications which should be loaded and installed. AJAX is just a name of the technology which allows to do this. The most famous examples are GMail and Google Maps.

Web 2.0

It is a term largely disputed about within the industry, which implies the recent series of web-sites which are similar to each other and different from conventional web-sites. There is a new wave of investing activity in Silicon Valley. And this wave is lead by start-ups.

INTRODUCTION

A reader seldom expects to find an “introduction” at this stage of an article. But it is exactly what is happening with Russia and the global software market. Despite a significant average salary growth, which has been caused by the fast growth of development centers of such big companies as Sun, Intel, and Alcatel, many Russian companies have doubled their size and are continuing to grow. Joint solutions of HR-training problems are looked for, regional development centers are opened and companies develop vertical specializations. But outsourcing is not the only way for IT-industry.

Such pioneers of successful companies dealing with western product market opening as ABBYY, and JetBrains, show a positive example which is important to inspire the next generation of entrepreneurs. The situation in the industry is close to Gladwell’s “turning point” at the moment. Now, for instance, a draft of the law is being discussed actively which will allow big Russian software exporters to use reductive reporting. If this law is passed it will affect not only to big companies but start-ups as well, it will be able to change positively the investment climate and to stimulate the surge of western and Russian investments to the industry. It would let the Russian economy decrease risks which are caused by the tight dependence of the economy to natural resources prices.