The driving force behind all these developments, of course, is innovation in computer hardware, telecommunications equipment, and software. This results in a constant flow of new productivity-enhancing products and helps maintain profitable selling prices in a very competitive industry for the winners with superior products, that is. Often they have considerable international sales, resulting in foreign exchange risk. Dilution is another concern. Use of stock options can be excessive.
Stock valuations are generally high, which frequently results in extreme price volatility.
Lastly, deep-pocketed hardware companies tend to intrude in the software space. Intense industry competition is a final, and recurring, concern for investors. One need only witness the notorious rivalry between Oracle s Larry Ellison and Microsoft s Bill Gates to understand this clash of business and egos. Software programmers are a rare breed with tremendous entrepreneurial drive. They also have the good fortune to be in an industry that requires little capital to start a company.