As a German I say: I would not say we can't do software or we are bad at it. "Getting really big" is not the typical German culture - so instead we have software companies from mittelstand that are quite successful in their niche, but if you don't work in the specific industry, you surely have never heard of.
What we are really bad at is internet-based (cloud-based) services. On one hand in Germany there are strong data protection laws which make some kind of monetization harder - but only people from Germany and neighboring countries seem to care about what is done with their data. On the other hand there existed German companies that tried to provide similar services to GMail, Dropbox etc., but they simply did not have the large financial backing that is necessary to provide such a service with large capacities for free in the hope that some time in the future they will make money on it. So they had to do monetization attempts much earlier on which did not work out well.
I don't think data protection is our problem. For one thing, if our government really meant it (which they don't), we could build businesses that attract customers from all over the world who need strong data protection laws they can't find anywhere else.
For another thing, there probably is a huge, unexplored market for all kinds of software which would be in line with the current law.
However, there are many roadblocks that hinder people from experimenting, like too much bureaucracy and financial dangers (UBI might come in handy here)
And then there are "the little things". Take that law which urges you to fully disclose your address on your website. If I had build twitter, without knowing how it is going to turn out, I would not want my boss to be able to find out what I do in my spare time. In other words, I wouldn't have put it online.
This is what happened to Booking.com, sold to Priceline back in 2005 for about $150M due to lack of growth capital, currently Booking.com accounts for 70% of Priceline's revenue, which, with some handwaving, would amount to a virtual market cap of 50+ Billion $ if hypothetically they had continued on their own.
Sage and Sophos are pretty well known.
Generally though I agree and it's something Europe should/could be good at since they are high paying jobs that require a good thorough educational system.