The big challenge facing the U.S. software industry might not be the economy, looming fiscal cliff or growing competition. First things first — the companies are begging for qualified job candidates.
Software firms say the U.S. isn't producing enough qualified engineers and tech salespeople.
"I'd say that has been the industry's biggest problem in the past year," said Jeff Winter, chief executive of GravityPeople, a tech recruiting firm. "You have a harder time finding and hiring people for open positions.
Said Mike Deissig, talent and development manager for online job service firm TheLadders: "It's really a job-seekers market.
The U.S. unemployment rate remains high, with recent college graduates struggling to find full-time work.
But the number of college graduates with computer science and information science degrees has slowed the past 10 years, even as venture funds continue to pour billions of dollars into software startups.
Service Needed Now The dearth of talent is becoming a critical issue for software companies trying to grow fast in competitive markets.
One example is ServiceNow (NOW), which makes software that companies use to automate their work flows and do other business processes. ServiceNow, which went public in June, has grown its staff to 1,100 employees from 275 just in the past 18 months.
But it still has some 150 unfilled jobs, mostly for software engineers.
The relative lack of computer science graduates is a top concern, says ServiceNow CEO Frank Slootman.
"It's about as bad as we've seen it since the late 1990s," he said, especially for software engineers. "Companies fight each other tooth and nail for able bodies and minds.
Stars Aligned For Software Slootman has a message for parents.
"Don't have your kid go into astrology even though it's a passion — because it becomes a hobby (and the field) doesn't make money," he said. "The world is made up of software these days, and these jobs are going to be in high demand for a long time.
At Workday (WDAY), a maker of software for HR tasks, the issue is hiring salespeople. The company, which made one of tech's most-anticipated IPOs this year, boosted its overall head count by 75% in the last 12 months, to 1,620 people. But it has many more jobs to fill.
Hiring was slower than Workday expected in its fiscal Q3 ended Oct. 31, CFO Mark Peek told analysts on his earnings conference call. But he added, "It's not something that we are particularly concerned about at this point; we think we'll do some catch-up hiring this quarter.
One challenge for a fast-growing firm like Workday is that it will only hire salespeople with proven track records, says Richard Davis, an analyst for Canaccord Genuity.
"The salespeople Workday is trying to hire are experienced folks from other firms that have been successful," Davis said via email.
Information on college degrees is spotty. The President's Council of Advisors on Science and Technology has said the U.S. needs to boost the number of graduates with STEM degrees to 370,000 a year from the current 300,000. STEM stands for science, technology, engineering and math.
Looking at U.S. college graduates who received student loans, the number of grads with computer and information science degrees fell 14.4% in the 10 years ending with the 2010-2011 academic year, says the U.S. Department of Education and the National Center for Education Statistics.
On the plus, the number of such grads rose 8.7% from 2009-2010 to 2010-2011. Average salaries of $90,000 or more for software engineers is a big motivator, but that hasn't been enough, says Slootman.
"The demand is quite dynamic and the supply, unfortunately, is not," he told IBD.
Adding to the demand for such professionals is the fact that venture capital continues to invest in software startups, providing funds to hire needed staff.
U.S. venture capital investments in software companies surpassed $6 billion the first nine months of the year, compared with $7.3 billion for all of 2011 and $4.1 billion in 2009, says PricewaterhouseCoopers and the National Venture Capital Association.
Venture funding has diminished the talent pool by jumping on software trends such as Big Data, mobile and cloud computing, says GravityPeople's Winter.
The tightened software job market "has to do with the amount of money that has been invested in the software market," he said.
Analysts say startups and smaller companies have a hard time competing for talent.
Salaries and bonuses aren't always the issue, says TheLadders' Deissig.
"It's 'Can I work from home? Am I going to be working 18 hours a day? Am I going to be able to go and relax a little while I'm working to take my head away from the computer?' So it's a lot more about a lifestyle than just getting some more money," he said.
Deissig also says cutting-edge technology can keep software engineers from jumping ship.
Besides efforts to boost funding for STEM education in the U.S., there are legislative efforts to allow more foreigners to get permanent work visas if they earns masters or doctoral degrees in the U.S. in tech fields, or if they help start tech companies in the U.S.
Bills such as the STEM Jobs Act of 2012 and Startup Act 2.0 have a lot of support. Apple (AAPL) and Microsoft (MSFT) are among tech companies strongly supporting the former bill, which would grant up to 55,000 such visas for qualifying foreigners.
Pushing out newly educated workers could adversely affect the U.S.'s technology edge in future years, says GravityPeople's Winter. "So you have all of these people moving to Asia or India and establishing their technology ideas on different soil, and the U.S. is just bumping along with older ideas," he said.
The lack of available talent could slow the growth for many U.S. software companies, says ServiceNow's Slootman.
"Eventually," he said, "it will hold companies back."