Hawaii's $600 MM computer and software services industry includes 275 local companies with 7.500 employees. Software services offered by local businesses (as categorized by Aug. 1999 HTDC survey) include creating and selling new software programs ("applications software development"); modifying and enhancing software ("software localization", "computer programming", "systems integration"), and consulting and training. What is past history, future prospects for software services industry in Hawaii? We talked with three local experts: David Talisman (T) heads recent startup Monster Software which primarily creates, markets its own line of e-commerce software. Walt Simmons (S) owns veteran (1971) software firm Decision Research which has created a library of proprietary insurance software it sells to national/international corporations; also offers enhancement, maintenance, servicing of its own insurance/financial software programs. Both companies heavily export-oriented-- Monster is 100%. Decision Research 85% out-of-state sales; Mainland primarily market for their products/services. Frank Fukunaga (F) headed HTDC until few months ago, spent 10 years on Mainland in software industry before returning home to help state create software industry .....Quick history: State's initial effort terminated prematurely. 1989 legislature asked HTDC to develop strategy to create software industry out of fragmented, mish-mash of some 120 small firms, most doing enhancements, modifications, maintenance of Mainland accounting/business software packages bought by local companies; a few developing original, proprietary software programs for retail "shrink wrap" sale. Industry lacked leadership, capital, trade association, marketing experience (only selling services/products locally, not outside state). HTDC hired Fukunaga, stepped in, funded, established industry Software Service Center to fill void, tackle problems, promote industry. First year, 1990, got $200,000 budget, staff of four. But Japanese "bubble" burst few years later, S tate economy tanked, Center funding, staff, effort slowly disappeared. Today, cash-strapped state no longer willing, able to lead; encouraging private sector, new Hawaii High Technology Association (HTTA), to carry ball. .....Current Opportunity: Fortunately, 1999 not 1989. Internet emergence in last few years has eliminated time/distance barriers, leveled playing field for Hawaii software services companies. Particularly beneficial for Hawaii software developers ("applications software development" sector of software services industry). Net offers Hawaii software services companies inexpensive, electronic, global product marketing, delivery, billing and even installation system. And local VC funds starting to invest in local software companies. (T): "This year, we will offer our e-commerce software in two ways -- Installed by us or self-installable by the customer. Customers will soon be able to log onto our Monster Software website, check out our company and its 21 featured products. If they like a product, they will be able to click to buy it, pay for it via an electonic 'shopping cart'; this will take them to a screen for real-time credit card verification and authorization if the transaction clears, it will transmit approval code back to the Monster Software site that tells an Install Wizard program to issue a product authentication code, install the newly purchased program on the customers web server, send confirming e-mail to all parties upon completion, and set up an upgrade path to automatically upgrade the customers software when upgrades become available. The entire process will take place in under thirty seconds." In short, the Net will allow Monster Software to mass market its programs with minimal overhead. Currently, Monster markets its products to largest ISP in the world, Verio Web Hosting. (T): This is the revolution in how a lot of retail software is sold now, versus five years ago. We don't sell anything shrink-wrapped. In the past, startup software companies needed enormous amounts of money t o get up and going, to get stuff shrink-wrapped with all the expensive graphics and packaging that came with shrink wrap. To warehouse the stuff until sold, then to ship it by plane or truck to stores. In our case, all that cost in terms of time and money will be gone. We can turn out a new software product in a month or two and deliver it to the customer immediately, electronically, no packaging costs, no shipping costs, hassles, delays. All of our product is sold strictly through the Net." E-commerce in U.S. will be over $600 billion in 1999; Net rapidly gaining acceptance as viable marketing channel. D): "When I started up in Hawaii, I got a hard time from Mainland friends who said, 'How in the hell are you going to get clients?' Today, if you've got good products and good service, you can be run a software company from anywhere, including Hawaii." When you level playing field, Hawaii and its beautiful working environment suddenly become more attractive than many other states. Reason why Simmons and Talism an stay. (S): "The quality of life here certainly beats Nebraska. This is a wonderful place to live." (T): "The new Technology Omnibus Bill passed last year was very important to growing a software industry here. It significantly lowered my tax liability on my stock options, which is a common way many in my industry get paid. We get stock instead of big salaries for all the killing hours we put in to a startup. I work 20 hours a day. I export 100 percent of my products to Mainland customers, so I'm up every morning at 4 AM to deal with them. (laughs)" ....How's business for competent, quality local software services companies like Monster and Decision Research? (T): "You ask me if I go out and look for business? I have to laugh. The truth of the matter is, I can't even handle the business I have. That's why I'm seeking a bunch of new programmers, and also mass market with our concept of wizard based installations. It's really tough expanding because you need the guys who are really talented and can handle the enormous workload and learn because in our business, speed is everything, getting product development done quickly. So I never advertise (to attract business), I'm operating at 150% capacity right now. I could probably hire as many people as I wanted and expand that much, and still not ever have to market to do the labor intensive type jobs we currently do. So the focus of our business is changing to a less labor intensive one. We'll be spending big marketing dollars, but to mass market self-installing software not software that requires huge amount of human installation time. Basically, the Internet has taken on such unbounding limits that right now, everybody wants and needs everything right now." .....Most Important Thing Hawaii Can Do to Expand Software Industry: Train workers as fast as we can -- not only information and computer science degree grads from UH, but also programmers/technical people at community colleges, private technical/trade schools, even high schools. Give Hawaii-born kids shot at hig h-paying jobs now going to in-migrants to state, virtual employees on Mainland, elsewhere. (S): "In the long run, it's straightforward - reform education here. In the short-term, you have to import the workforce. I'm not sure that's a good idea from the state's point of view, but from my point of view that's a necessity from a dollar-return point of view. It's very simple. Dave deals with customers all over the world; I deal with customers from all over the world, our competitors are from all over the world. I go into the office of a big insurance company with headquarters in New York, the board sits down and decides: 'Who are we going to choose to do the job?'. Well, they're going to hire the best company. That means the standards here for our workforce, and thus our education system, have to be the same or higher than they are elsewhere. Otherwise, why wouldn't the customer choose a company in Silicon Valley instead of a Hawaii company? We have to have here in Hawaii the highest standards in the United Stat es - across the board, secondary education, college, university. We have to meet those standards. There is no point being in the software industry and going to a client and saying, "Well, were not as good as those guys, but we want the job'. It doesn't cut it. You have to be good or you're out. So you have to build up the state education system to turn out people who meet the same standards as MIT, Stanford, Cal Tech. Berkeley. Wisconsin. the top places. We have over 56 employees in Hawaii - but also more than 25 'virtual employees' on the Mainland. We can't find enough people locally. We have seven UH graduates with masters degrees in computer science and they're great. But the repeated cuts to the UH budget are an absolute disaster for companies like mine. Talented kids coming out of local high schools here see the UH budget is down. They say. 'Why should we go to UH and suffer with second-grade equipment, overworked faculty'. In some departments, 15% of positions are unfilled. Why should someone go to such a university where they don't have enough teachers to teach the courses, and are canceling courses. They won't. They'll go to the Mainland, and many end up staying there. The effort going on today in education in Hawaii is woeful. So funding education is the single most important thing the state can do to grow the software industry here. Obviously it's a long term investment, but pays off big in the end. These are good jobs. We pay prevailing, national scale because we have to compete nationally for workers. Everyone in our company is on salary." (T): We pay by the hour or by project, not salary, but we pay very well. Our engineers, on the low end, earn about $40 an hour ($83.000/year). Programmers who know languages like PERL or C+ can make anywhere from $40-$150 an hour, depending on their skills and productivity. A PERL programmer will earn $65,000 entry level, straight out of school. Even HTML newbies can earn $20-$25 an hour. ($40.000-$50.000/year). Lots of people write HTML. I have myself and only thre e other people working here in Hawaii. I have 12 virtual employees on the Mainland - in South Dakota, Silicon Valley, on the East Coast, in Denver, other states. I can't find good, qualified workers locally. I'd hire 100 percent local if I could find the people. Also, the state should be more creative in starting technical schools that can teach classes in PERL, train programmers." (F): "What you're talking about is certified course. Technical companies need specific skills, more than a well-rounded four-year degree graduate. Particularly Net companies because the product life cycle is so short, you can't be screwing around. Before, with software, there was a 57 year window, it had that kind of shelf life. Today, you're looking at 1-2 months development time, and your sales window may be 6 months before another product comes along. So universities can't adjust their curriculum fast enough to keep current with changing. specific skills needs. The key is to develop the community colleges, the technical schools; they're smaller, less subject to bureaucracies; work with them to develop the kind of courses industry needs." (T): "Right. Technology changes so dramatically over short periods of time. Universities can't teach specific technologies; it just changes too quickly. But those skills are what I really need." ...... Industry Appeal: (T): "I get asked by at least one person a day, 'How do I get into your business?'" (W): "Me too." (T): "I think it was KSSK which did a survey to find out what people considered the most romantic job they could have if they were qualified. The number one answer? 'Webmaster.' But our industry has a steep learning curve. You can't fake your way through it. Also the hours are horrendous. A lot of people don't want to do that. It's a tough business I make a lot of money, but I will burn out if I can't get expansion capital and add 20-30 people. Put this in your article, just tell them call Monster Software. I'm hiring. (S): "Add my number in there too." (T): "(laughs) I'll jan-ken-po yo u for them." More Info? David Talisman, david@monstersoftware. com, www.monstersoftware.com Walt Simmons, diver@decisionresearch.com; www.decisionresearch.com.

THE $2.4 BILLION TIGR

*HUH R&D

* $93 million [1]

* Biotechnology

* $88 million [2]

* Astronomy

* $100 million [3]

* Internet, Computer and Software services

* $600 million [4]

* Sports Tourism

* $800 million [5]

* Film Production

* $99 million [6]

* Health Services Exports

* $61 million [7]

* Diversified Agriculture

* $309 million [8]

* Aquaculture

* $37 million [9]

* Forestry

* $30 million [10]

* Educational Tourism

* $181 million [11]

1. Total UH research grants received FY98-99.

2. For 1998-1999, UH CTAHR estimate, agricultural, marine only (excludes medical). Job count '98'99: 1,150 F/PT workers.

3. For 1998, Source: UH. Job count 1998: 754 workers.

4. For 1998, HTDC survey estimate. Job count 1998: 7,538 workers.

5. Direct expenditures, 1996. DBEDT study. Total sales generated $1.4 billion.

6. Direct expenditures, 1998, DBEDT study. Total sales generated $167 million. Job count 1996: 817 workers. (U.S. government estimate)

7. For 1997, DBEDT. Includes doctor, dentist, hospital, nursing, other health services.

8. Farm value 1997, State Dept of Ag. Job count 1998: 5,000 workers.

9. 1997, State Dept of Ag.: commercial production, research, consulting, training.

10. 1997, Hawaii Forestry industry Assn. estimate.

11. DBEDT estimate, 1997, Hawaii public and private colleges and universities, vocational/technical schools. 12,250 out-of-state students. (excluding vocational, technical).