The 3-day 2014 Web Summit is set to open on Tuesday (Nov 4-6) and the organisers of the immensely successful annual event expect record crowds that has prompted some hoteliers to raise Dublin prices 600% according to a media report. A 1000+ journalists are also expected to be at Dublin's Royal Dublin Society (RDS) conference centre and as usual with high tech, for those who haven't a vested interest, the challenge is to separate the hype and reality.
Among the featured speakers are two Irishmen representing Silicon Valley firms and one based in New York: 1) John Collison, president & co-founder of Stripe, a payment services company that is among the Financial Times' '25 Silicon Valley startups to watch,' which was published On Oct 31 2) Bono, the U2 musician, who is a managing director and co-founder of Elevation Partners, a venture capital firm and 3) Oisín Hanrahan, a co-founder of Handybook, which aims to make scheduling a home cleaner, plumber or handyman as simple as hailing an Uber car.
Last year Enda Kenny, taoiseach, said at the event: "Welcome to Ireland, the new capital of the digital world."
This year the European Commission published a ranking of Europe's tech hubs and Munich, London and Paris were on top with Dublin in 16th place.
This was a good performance for Dublin.
The Digital Hub Development Agency (DHDA) was established in 2003 by the Irish Government, with responsibility for the management of the Digital Hub. The Hub hosts about 70 companies employing more than 800 people and it claims that 170 companies (survival rate not known) have progressed through the enterprise cluster.
In recent times, the area of south inner city Dublin around the Grand Canal Dock - near the confluence of the Grand Canal, and the rivers, Liffey and Dodder - has been dubbed 'Silicon Docks' and several American companies, led by Google on Barrow Street and Facebook, Twitter, LinkedIn, Dropbox, venture capital companies and others, have opened offices in the area.
The use of the tag 'silicon' to evoke Silicon Valley is more a marketing label than reflecting a tech cluster as the companies do not generally do any research or development.
Their main functions are sales, customer support, general administration and data infrastructure. Most of the employees are from outside Ireland because of the demand for fluency in European languages.
According to an interview feature with John Herlihy, Google Ireland's chief, in The Sunday Independent, 71 nationalities are employed in Barrow Street and about 30% of the 2,500 total are Irish.
Of course there are level-headed and grounded tech journalists but alas like Irish property journalists during the bubble, many of them confuse the ubiquitous hype with reality.
Even the normally reliable Economist lost the run of itself last January when it wrote of a 'Cambrian moment' triggered by the plunge in the cost of entry for high-tech startups:
It began its cover story called 'A Cambrian moment - Cheap and ubiquitous building blocks for digital products and services have caused an explosion in startups':
Daniel Isenberg , a former entrepreneur who created the entrepreneurship ecosystem project at Babson Executive Education and previously taught at Harvard Business School, replied in The Economist:
Prof Isenberg said that many startups are not entrepreneurial and much entrepreneurship is not about startups and he cited Icelander Robert Wessman who came home from Germany in 1999 to save a small failing generic drugs company named Actavis and in a decade it was transformed from a firm with a payroll of less than 100 to 11,000 while doing little core scientific innovation.
Isenberg added that while there has been a jump in tech startups, it is not clear that the actual speed on the highway to scaling-up has been impacted at all. "In fact, the entire highway just may move more slowly as a result of the startup glut - - that is, firms that have the wherewithal to scale into socially and economically valuable ventures, may just be slowed down by the on-ramp traffic build up, the hype, and the valuable resources startups tie up."
Prof Isenberg concluded:
The reality and myths
It's striking how the tech industry has made the terms 'startup,' 'entrepreneurship' and 'innovation' synonymous with itself in public and policy settings in Ireland and elsewhere, with the help of politicians and the media.
Technological innovation is very important in the big economies while adoption and adaptability to change are crucial everywhere - the latter includes non-technical innovation and the purchase of technology.
Small economies should not aspire to become world leaders in technology - even in the UK, its biggest high tech company ARM Holdings reported in February 2014 that its processor technology was in 2.9bn chips that had been shipped in 2013, including ones used in smartphones and tablet devices but its global payroll was less than 3,000.
There is a trend for a small number of big transnational companies to dominate the key global business sectors and creative destruction is accelerating - the Japanese were once leaders in consumer electronics but no longer.
According to the Joint Research Centre (JRC) of the European Commission, over 50% of all US firms in the Top 1,000 global R&D spenders in 2009, were founded after 1975, in Europe the figure was 18% and in Japan just 2%.
Young companies are on average almost twice as research-intensive as old companies (3.3% vs. 6.1%) according to the JRC. This suggests that young companies are more likely to be found in research-intensive sectors.
The dataset analysed consisted of 287 companies from the EU, 340 from the US, 199 from Japan and 174 from other countries (OC) . 51 of the EU companies, 185 of the US companies, 3 of the Japanese companies and 87 from the companies from OC were young.
1) Venture capital is the exception, not the norm, as a funding source for even US tech startups. More VC-backed new companies fail than succeed, and since 1999 US VC funds have barely broken even.
2) The failure rate of tech startups is estimated to be up to 90% - while it is claimed in Silicon Valley that failure is no impediment to future success, that surely ignores the human toll on individuals and their families of effort and sacrifice going up in smoke, with nothing but debt and more to show for it.
3) We have often cited American and British research, which found that high growth firms - the ones that add most jobs - are not typically in the high tech sector and a report from McKinsey in 2010 said: "While many policy makers see innovative technologies as the answer to the challenge of job creation, our analysis indicates that governments are likely to be disappointed in such hopes.” See here.
4) Mariana Mazzucato, professor of science and technology at the University of Sussex, wrote last February on a blog of The Economist:
5) Bart Clarysse, professor of entrepreneurship, at Imperial College London Business School, in a public lecture in February 2009, exploded the myths surrounding the economic importance of high-technology startups to the Europe.
"People think of the big names like Microsoft, Apple, HP, Intel and Xerox as once being new tech-startups," said Prof Clarysse at the lecture. "Yet most of these highly successful companies did not develop their own ideas. Typically they took existing technologies, developed by pioneering - and sometimes financially unviable - companies. They bought other businesses to help them succeed and appear credible."
Real technology startups tend to grow slowly, have a poor survival rate and contribute little to the wider economy in economic terms. Compared to the US, European startup performance is poor. In Europe, after seven operational years these new firms comprised, on average, 18.5 employees with revenues of £250,000 and a mere 36% likelihood of surviving beyond 10 years.
In the UK in 2009 there were over 2,900 of these companies that had been in business since 1991. Despite spending over £2.5bn, they were responsible for only 40,000 jobs. "They don't become the new Microsoft," said Prof Clarysse, "They just stay micro."
6) A Kauffman Foundation report released last January highlighted the impact of education on rates of business startups and growth in metropolitan areas, while disputing the impact of certain factors that previously have been touted for their influence.
For example, despite billions of dollars in government research expenditures, which commonly are believed to trickle down to the private sector, area research universities and patents do not contribute to higher rates of entrepreneurship.
Metropolitan areas with more college graduates will produce more startups; however, while college completion often is considered the minimum indicator of high skill, the study showed that a higher high school completion rate will further increase the area's startup rate.
7) "Myth-busting Entrepreneurship," notes four commonly held beliefs and attempts to set the record straight.
Stangler concludes by acknowledging the importance of harvesting more research to uncover myths and propose constructive alternatives.
What does Finfacts want?
In the period 2007-2013, 530 jobs were added in computer related manufacturing in Irish indigenous exporting firms.
3,750 jobs were added in services in ICT (information and communications technology), computer consultancy and programming. Not all these jobs involve high tech skills while about 10,000 jobs or 0.46% of the workforce are in firms supported by venture capital.
About 40% of Irish VC funding is provided by the Irish Government while including foreign firms, almost half of Irish-based ICT staff are in administration functions, according to research by Gartner of the US.
We view it as a foolish policy to rely on scientific research to produce a jobs engine - that is not to argue that Ireland should not engage in such research.
Last December, the Department of Jobs, Enterprise and Innovation told Finfacts:
The minister is "unashamedly ambitious" but wonder why the annual patenting data doesn't merit a ministerial comment?
The spending of an inflation-adjusted €24bn on public science policy in a decade merits some evidence rather than official spin.
The current official target "in which Ireland in 2020 is the best country in the world for scientific research excellence and impact," could be achieved with a lot of resources and we could have at least one world class university but the Irish could still remain among the poorest in the Eurozone along with Italy, despite a high GDP (gross domestic product) per capita.
In a 2013 study of 30 countries, Ireland ranked last for business support of university research.
Austria, another small European economy, has Europe's lowest unemployment rate at 4.7% and the rate has been low for decades.
In the latest Times Higher Education World University Rankings, Austria's University of Vienna is at 182nd while according to the OECD's 'Education at a Glance 2014,' in 2012 at 22%, the number of 25-34 year olds with a university degree was the lowest of the developed world and compared with 66% in South Korea and 49% in Ireland - the last South Korean president decried the obsession with getting a university degree.
Austria like Germany has a well-established apprenticeship system that has dual work-education learning.
Computer coding is a growing area of jobs demand in the US and elsewhere while the function is essentially a trade. However, four-year computer science college degrees are a standard requirement for the job but not alone is this unnecessary, the high demand for places means that many young people with potential cannot enter the sector.
In 2012, Richard Bruton, enterprise minister, said "our industrial policy must not just be aimed at attracting the next Google or Microsoft to Ireland – we must strive to create the next Google or Microsoft here in Ireland."
It's of course foolish to compare the domestic US market with the tiny Irish market: overseas exports success usually is preceded by building experience in a domestic market.
In March 2010, the Innovation Taskforce report, of a 28-strong group of mainly insiders, to meet then taoiseach Brain Cowen's aspiration of creating a European Silicon Valley in Ireland , had a vision of up to 215,000 science and technology jobs being added in a decade to vault over the original Silicon Valley to become the world's top tech cluster - at end 2013, IDA Ireland client companies employed 161,000 - 55 years after T.K. Whitaker's seminal 'Economic Development' report.
What Bruton and others fail to realise is that any Irish startup with potential and venture capital funding would be sold to a foreign firm before Ireland could reap a return.
Less than one-third of the client companies of IDA Ireland, the inward investment agency, do even minimal research in Ireland and big US firms such as Microsoft and Intel prefer to locate R&D centres in Israel.
The agriculture and food sector has been left tick over for decades with its dependency on payments from Brussels. It is the sector with the greatest value added potential.
Enda Kenny's claim that Ireland is the capital of the digital world is an empty boast when it mainly depends on foreign firms - which on the services side have a bias towards locating administration functions in Ireland.
Innovation is a strong contender for the crown of business buzzword of the decade and it's inevitable that starry-eyed politicains would fall for the hype.
However, politicians can be blind to the fact that the success of McDonald's and Starbucks depended on innovation while firms like Uber, Handybook and Facebook piggybacked on technology produced by others.
Rather than waiting for eureka moments in laboratories there is no Irish business sector that cannot benefit from startups using innovation to gain market traction.
Just over a decade ago, three Irish companies, Elan founded in 1969; IONA Technologies founded in 1991, and Parthus Technologies, founded in 1993, were international stars in the high tech and pharmaceutical sectors. Elan was the 20th most valuable drugs firm in the world. IONA by 2000 had "4,500 customers and partners (including numerous Blue Chip clients), and over 900 employees in 30 offices worldwide," for its business integration software while also in 2000, the London Independent wrote: "Few people in Brian Long's local know what he does for a living. In fact, most people in his native Dublin are barely aware he founded and owns 23% of a $2.8bn company blazing a trail with silicon-chip design just three months after floating on the London Stock Exchange and America's Nasdaq. The rise of Parthus Technologies has been remarkable, even in a sector noted for its hi-tech shooting stars, but its success has gone nearly unnoticed in its home city. Last week alone, shares in the company, which develops semi-conductor intellectual property for mobile devices, rose almost 50%, which doubled the new company's market capitalisation."
There were others as well who were doing business overseas - Smart Force and spin-off Riverdeep, Cognotec, Trintech, Baltimore - what they had in common was that they were either acquired by overseas firms or went bust while the Irish operations of the survivors faded or disappeared.
Last year Elan was sold to a US firm after transforming itself into a financial shell.
It doesn't appear that policy makers have learnt from this history while aspiration trumps evidence.
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