W. J. Kitchen, the CEO and president for San Diego-based Ameranth Technology Systems Inc., is feeling good these days.
His small software company recently lined up a $5 million investment from a Laguna Beach venture capital firm, and is gearing up for the launch of its product which it calls the 21st Century Restaurant.
Ameranth’s software allows waiters to connect with a restaurant’s point of sale system through a mobile wireless device, giving them the ability to send customer orders to the cooks and process their checks at their tables.
This year, the 4-year-old company should generate about $2 million in revenues, but after its product is launched sometime early next year, Kitchen said sales should reach at least $15 million.
Though the general impression may be that most restaurants seem to be doing a good job in terms of getting an order to a patron’s table quickly, Kitchen says, “They think they can be faster.”
By getting an order to a customer more quickly, food servers can tend to additional requests more efficiently, and tables are turned quicker, he said. Considering the razor-thin margins in the restaurant industry, the product should generate lots of interest, he added.
– Firms Proliferate In Software Industry
Ameranth’s story is indicative of thousands of other firms operating in the little-known and understood software industry.
Unlike the manufacture of products such as autos or medical instruments, software is more elusive. It’s essentially made up of code, the binary language that runs so much of today’s machinery. Without it, practically every other industry sector would not be able to function.
“Software has become so important to everything we do, but the more you try to pin it down, the less you understand what’s going on,” said Bob Slapin, executive director of the San Diego Software & Internet Council.
Simply trying to get a handle on the number of local companies producing software is a challenge. According to Alexander X, Inc., a firm that publishes the Technology Directory, San Diego had 778 firms that do software development or provide software services as part of their primary business model. The sector, which excludes computer hardware and peripheral manufacturers, employs some 22,000 workers.
However, this figure doesn’t include many large companies that employ lots of software engineers, programmers and systems analysts. For example, Remec, Inc., with about 1,400 employees, makes microwave components for communications systems. The company has a huge software component, but it’s classified as an electronic component division, not software.
– Cluster Doubles In Less Than A Decade
A recent report produced for the San Diego Workforce Partnership lumped software and computer services within a single “industry cluster,” which was also one of the area’s fastest-growing segments. From 1990 to 1998, the cluster more than doubled to 1,228 firms and employed 17,658 persons.
Slapin and several other local software executives interviewed for this article said the Workforce Partnership’s number was too low because the industry was too narrowly defined.
Paul Stannard, president of SmartDraw.com and chairman of the Software & Internet Council, said it’s practically impossible to get an accurate count on the industry because it’s so fragmented, with new firms popping up all the time.
“We say there are about 800 firms, but there are companies all over the place that we don’t even know about. They’re springing up faster than we can count them.”
The growth of the local industry can be traced to two converging trends that happened about the same time locally: the downturn in the defense and aerospace industries, and the growing computerization of businesses in tandem with the expansion of the Internet.
“The wind-down of the defense industry left a lot of technical people available to adjust their careers in the software work force and into the new telecommunications companies like Qualcomm,” said Charlie Gaylord, a former software executive and current high-tech angel investor.
– Software Designed Specifically For Taxes
Gaylord became personally involved in the software business in the early 1990s when he was named chairman of ChipSoft Inc., a software firm started by former SAIC executive Mike Chipman.
ChipSoft’s main product was a program called TurboTax that helped taxpayers prepare their personal income taxes.
From a small start-up, the company grew to about 300 employees in 1993 when it attracted the attention of Intuit, Inc., the manufacturers of Quicken and QuickBooks, two popular financial planning and accounting programs.
Since its purchase, Intuit’s San Diego consumer tax division has grown to about 800 full-time employees, about 150 of whom are engineers, said Bob Meighan, vice president and head of the division.
As retail software programs go, TurboTax is the best-selling product by far , even better than Windows, Meighan said. The company sold 4.9 million units last year, above the 4.2 million units in the previous year. The basic product costs about $20, while a version that includes an individual state income tax is about $30.
Intuit doesn’t break out revenues for its consumer tax division but the company reported total sales of more than $1 billion last year.
Intuit, along with a few other large software firms, are more the exception in the local software industry. Peregrine Systems Inc., HNC Software Inc., and Mitchell International are all large firms with more than 700 employees.
– Growing Rapidly And Spinning Off
HNC in particular has been able to grow fairly rapidly, and just like Qualcomm Inc. in the telecommunications industry, is spinning off new companies.
About two years ago, the 14-year-old company that makes predictive software solutions for the finance, telecom and insurance markets had about 600 employees. Today the number is about 1,100 including 700 in San Diego.
That doesn’t include the 600 employees who work for Retek Inc., a firm once completely owned by HNC that completed a public spinoff last month and had a market capitalization then of about $2 billion.
Bruce Ahern, a local high-tech industry analyst, said the majority of software companies in San Diego are less than 150 employees, and most are far less than that.
The early 1990s saw a couple of larger software firms oriented toward producing retail products, particularly those in the multimedia market, either get acquired by larger firms or go under, he said.
“The San Diego software industry is really known for the number of boutique companies, those which aren’t competing in the retail sector, but which have made good by picking out a niche operation and produce higher end products,” he said.
The companies’ smaller size allows them to alter their business plans faster to respond to ever-evolving markets.
– Company Takes Different Direction
Stac Inc. was once a manufacturer of software that compressed data, and permitted it to store larger amounts on a hard drive. As of this April, Stac is now called Previo Inc., reflecting a change from its earlier business.
Tom Dilatush, Previo’s president, said the company first changed its focus about 1994, after its successful lawsuit against Microsoft Corp. From that point the company made three distinct types of software geared to data storage and access an office PC from remote locations.
Today, Previo’s focus is on the burgeoning electronic commerce market. Its E-support Essentials product provides help desk technicians the ability to quickly restore a PC to working use.
One of the primary reasons the software industry has flourished here is the availability of a skilled labor pool, noted many of the software executives.
The presence of both UCSD and SDSU, along with trained technical personnel formerly working in defense industries have made it an appealing place for larger firms to set up satellite operations and for helping homegrown companies find the people they need.
Another key factor contributing to the industry’s growth is the presence of more venture capital firms and the relative ease of finding investor “angels,” willing to take a chance on untested but promising technology start-ups.
Stannard, who launched his own company about six years ago, said the industry is one that doesn’t require a large amount of capital to get started and can pay huge dividends if the model or product captures the right attention.
“There are no large barriers to entry,” he said. “The Internet gives you the ability to distribute software electronically and quickly. It’s a high-tech cottage industry and a lot of people have the drive to get into it and become successful, and they do.”
