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Reasons U.S. not Japan dominates world software market

STANFORD -- A pop quiz for computer users:

Q: What is your favorite Japanese software package?

A: None.

The reason for the answer is that, other than video games, the Japanese have virtually no presence in the U.S. or world software markets. By contrast, American software dominates not only domestically but also worldwide, making up nearly 75 percent of global package software sales.

Through a series of more than 60 in-depth industry interviews in Japan and the United States, Stanford researchers have identified the key factors that have contributed to the U.S. success in this large and growing market, as well as those that have hindered the Japanese.

The study is part of the Computer Industry Project, a multidisciplinary research effort funded by the Alfred P. Sloan Foundation. Edward A. Feigenbaum, the Stanford professor of computer science who heads the software study, reported on its latest findings last month at the World Economic Forum.

"It is very interesting that the Japanese, who have been so effective in consumer electronics, laptop computers and computer memory, among others, have virtually no presence in the $100 billion to $120 billion U.S. software market," Feigenbaum says.

The software market is important for the future, researchers point out. As computer hardware increasingly becomes a mass-market commodity, profit margins are shrinking. Software production, however, has remained a high value-added area with large profit margins.

"Increasingly, the hardware is just the box that the software comes in, and the box is not limited just to computers. These days software is in everything from microwave ovens to telephones to jet aircraft," says Avron Barr, who directs the study jointly with Shirley Tessler.

According to the researchers, a number of economic, organizational and cultural factors have made it possible for the U.S. software products industry to thrive during the period of rapid change that it has experienced in the last 15 years:

"It was not the funding itself, but the independence of the research that was important,” says Barr. “The fact that the U.S. government hasn't had any grand plan but has supported a diversity of research projects has actually been an advantage. By contrast, the Japanese have taken a top- down approach, as in their Fifth Generation Project, that hasn't been nearly as successful.”

In addition, the Japanese government provided only limited support for basic software research until 1983.

Despite multi-billion-dollar estimates of economic losses published periodically by industry associations, the researchers have found that executives in U.S. software companies generally admit that piracy is not hurting their business. Japanese software vendors, on the other hand, list it as their greatest concern.

Part of this difference is due to the fact that the U.S. government has established more effective methods to protect authors' intellectual property rights. In Japan, the government is one of the major duplicators of software, because departments are given a budget for purchasing hardware but not software, the researchers discovered.

But the reasons for piracy in Japan go far deeper, the researchers have concluded. Because software is largely intangible, the Japanese do not consider it to be real in the same way as a computer or television or automobile. That is one reason why the Japanese government's efforts to stop computer companies from including software with their computers has been ineffective and many Japanese see nothing wrong with copying it freely.

In Japan, by contrast, software programming is considered a relatively low-status job, even though companies have increased the pay for such positions in recent years. According to the researchers, the fact that Japanese consider software to be insubstantial reflects negatively on the status of its authors.



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