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Silent Explosion
While biotech hogs headlines, software has quietly become the state's fastest-growing technical industry. But a dearth of workers places that growth at risk
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Business New Haven
5/4/1999
By: Susan Banfield
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The software industry is Connecticut's fastest growing technical industry. With 444 new companies and more than 4,800 new jobs added since 1992, software has shown a growth rate in excess of 60 percent over that period. Currently there are 1,143 software companies in Connecticut, employing nearly 13,000 workers. The increase in employment has been greater than in any other industry.
The financial strength of the industry has kept pace with its growth in size. Connecticut software companies that are publicly traded showed a 46.4 percent average stock price increase for 1997, and the state's software companies taken in the aggregate posted almost $1.4 billion in sales last year.
The real size of the industry is even greater than these figures show. The above employment and financial numbers are for companies wholly dedicated to software. In fact, the majority of the state's software industry is embedded in other industries.
Hundreds of companies, especially those in the financial services sector, hire their own software developers and custom programmers. A more realistic estimate of the total number of software workers in the state is somewhere over 70,000.
There are a number of reasons for this impressive growth. “The proximity of major financial services markets that rely heavily on software,” is one reason, according to Steve Clement, projects manager for the Connecticut Technology Council. Another is the rapid growth of the Internet and Web-based commerce.
Still another reason, which comes as a surprise to some, is the ready availability in Connecticut of the capital on which high technology companies depend. Connecticut software companies attracted more than $34 million in venture funds in 1997, according to the Price Waterhouse LLP National Venture Capital Survey. In the survey Connecticut was ranked 14th among the 50 states.
That $34 million includes a sizable amount of state funds available to software companies. Through Connecticut Innovations Inc., the state has invested nearly $8 million in software companies since 1994.
The role that universities played in the development of Silicon Valley is well documented. Here in Connecticut the connection to academia has been less evident.
While Yale's computer science department has an excellent reputation, and was in the forefront of Internet research and development in the 1970s and '80s, more recently it has not been a major player in the growth of the area's software industry.
There have been a few software tech-transfer companies to come out of Yale (such as the recently-formed Mirror Worlds, which is developing a new operating system called Lifestreams), but the figure is dwarfed by the number of biotech companies with Yale origins.
According to Henry Lowendorf, associate director of the Office of Cooperative Information, which deals with all technology coming out of Yale that might be licensed, money is the reason for this discrepancy.
Between 75 and 80 percent of the research funding at Yale goes to the medical school. When related disciplines such as biology are included, this figure may be as high as 85 or 90 percent. Also, notes Lowendorf, biotech companies are more open to looking for and accepting inventions from universities.
Lowendorf also cites Yale's difficulty in attracting graduate students in computer science. In large measure this too can be attributed to financial causes. A new graduate with a B.S. in computer science is easily lured by the hefty salary he or she can command right out of school, making the prospect of going on for a graduate degree and continuing to rack up student loans highly unattractive.
But this lack of qualified personnel is also one that plagues the software field as a whole. Indeed, the shortage of qualified workers is the most pressing problem now facing Connecticut's software industry. About one in five software positions in the state now go unfilled, according to a survey of Connecticut software executives.
Paul Avalone, senior director of human resources at Hyperion, one of the state's largest software companies, reports that his company currently has between 50 and 75 unfilled technical positions. Hyperion is looking as far afield as India and Russia to find qualified workers.
The short-term solution to the problem is to lure software workers to Connecticut from other states. Currently the Connecticut Economic Resource Center (CERC) is conducting a campaign, advertising in software publications, to do just that. The Connecticut Technology Council is working closely with CERC on the attraction piece, according to CTC Executive Director Laura Kent.
“Connecticut is not frequently seen as a state where there is a lot of opportunity, but in fact it is,” Kent says. So CTC is working to get that message out there.
The long-term solution, however, is to find ways to train more workers, to induce more students locally to go into computer science and related fields. Over the past ten years, the number of degrees granted in Connecticut in computer and information sciences has declined a shocking 50 percent. To reverse this trend will require a major effort.
One way in which the state has begun to address the shortage of software workers has been by forming the Connecticut Information & Technology Institute (CITI), a partnership between the private sector, the University of Connecticut at Stamford and Norwalk Community-Technical College.
Using facilities at the UConn/Stamford, in the heart of the area where most of the state's software companies are located, CITI is currently in the process of hiring its first faculty. The institute plans to begin offering courses toward an M.S. in computer science and engineering by this fall. It will also offer certificates in information technology, a program that came out of a 1997 meeting of the Information Technology Association of America.
Funding for CITI is currently planned as a combination of gifts from the private sector and university funds, with an endowment being put together by the private sector and the state.
While this initiative sounds promising, it is not being greeted with enthusiasm in all quarters. “In principle it's a good idea,” says Hyperion's Avalone, “but the money has to come from the government.
“There are 900 software companies in southeastern Connecticut, and most live paycheck to paycheck,” Avalone explains. “They have no money to give to education - and the notion that a few larger companies can make up the difference is ludicrous.”
Connecticut's software industry will almost certainly continue to exhibit impressive growth in the years to come, but the shortage of qualified workers will doubtless keep the growth figures lower than they might be.
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