Ray Lane: Good riddance, software business

Ray Lane: Good riddance, software business

Summary: The software business is going, going gone. What's going to take its place?

TOPICS: Tech Industry

The software business model is dead. May it rest in pieces. 

Experts of all stripes are declaring an end to the software business as we know it. But what's going to take it's place? The picture isn't clear yet, but one thing is certain -- we'll see fewer and fewer shrinkwrapped CDs, less lock-in to proprietary stacks, and far more user-generated and user-driven applications.

And this new paradigm is coming upon us fast, prominent industry observers say. At this week's FASTforward Enterprise 2.0 conference in San Diego Ray Lane, former Oracle president and partner with Kleiner Perkins Caufield & Byers, said its time to begin the death watch for an industry that no one is likely to miss. (I posted a brief summary that captures some his points at the FASTfoward Enterprise 2.0 blogsite here.) 

In a market in which three vendors control 75% of the revenues (Microsoft, Oracle, and SAP) the traditional "economic model no longer sustainable,” Lane said. With the rise of more choices — such as open source, software as a service, and the rise of development in China and India — users and customers no longer have to be locked into vendors’ expensive solutions and upgrades. The reign of the large established vendors is quickly coming to an end as more alternatives come on the market.

What's taking the place of large commercial, locked-in solutions that have sucked up billions of corporate dollars over the years? Web 2.0-based tools, collaborative environments, and mobile capabilities are the types of applications a new generation of users expects, said Lane. They, above anyone else, see the disconnect between consumer IT and enterprise IT. "Why is it so easy to order a book off Amazon, but so complicated to put an order through SAP at work?"

"Most applications process a transaction and populate a database," he said. "Now, it's about collaboration. We'll use the power of individuals for the benefit of the enterprise."

The latest Wharton (UPenn) newsletter also discusses the dissolving software business model, particularly as it pertains to Microsoft. The report speculates, for example, that advertising-supported applications may become more of the norm. An example I cited years back was the mortgage rate or loan calculators you can find on many Websites -- essentially, free software that carries a sponsored message. Microsoft has been watching this development for some time as well.

Wharton experts say the January 30 launch of Vista "may be among the last of its kind -- a product sold for a flat fee in a shrinkwrapped box. Indeed, many wonder if the software business model that has made Microsoft so dominant for the last 20 years may begin to fade in the decade to come as new software business models -- from open source to advertising supported -- gain increasing traction."

In the end, Microsoft is likely to adopt bits and pieces from many software models as it creates future versions of Windows and Office, Wharton notes. "I think we will see most end-user applications divided between those supported through ancillary revenues -- with advertising being the biggest chunk of that -- and those bundled into a monthly fee with other services," said professor Kevin Werbach. "For businesses, we'll continue to see service-based models involving open source or free software combined with hardware, hosting and customization."

One of the trends I continue to cite at this site, from an SOA perspective, is the growing availability of services both from within and outside the firewall. Enterprise applications may evolve to bundles of hot-swappable services that can be purchased from sources from across the globe.  

Topic: Tech Industry

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  • I disagree...

    While I agree that open source, software as a service, and the rise of development in China and India are interesting and important trends, Mr. Lane is greatly exaggerating their impact. Traditional software business models will continue into the foreseeable future along side of and incorporating these new trends.

    In 2006 Microsoft did $54.9b in sales, up 11.5% from the year before. Oracle did $18.6b in sales, up 9.5%. SAP did $13.6b, up 10.3%. If the big, "traditional" vendors are getting bigger, how can you call an end to the business model? If they were flat or shrinking it would be a different story.

    I'm not defending the use of CDs to ship software, nor am I saying that SaaS and non-license revenue based models aren't very important, but I think it is a mistake to think the big guys, and some new ones, won't adapt.
  • Message has been deleted.

  • perhaps but I think you overstate

    Whenever someone talks about the rise of software as a service, I am intrigued. But then - because of a connectivity problem - I get stuck using web based email. It makes me think "thank goodness I have an email program installed on my computer and I don't have to do this forever".
  • Web Based Applications

    Agreed. However, Web Based Email is what prompted the development of Software As a Service that we see from OfficeLive and now Google. Make no mistake, eventually the Google Web will be at a monthly charge as soon as they figure out how, and with what reason people should pay. Officelive is STILL in beta, only because they're waiting to see what Google does next, before they begin charging for their online Business services. At some point, perhaps when our grand-kids are grown, there will be nothing but Tricked-Out HARDWARE, with an internet conection to online Software. Payments will be by yearly subscription, unless your a student.
    • Duh! The web is down and I can't work.

      I do not disagree that we are headed in this direction, but how can we bevthat
      stupid! Giving up all control of our applications and data to others.

      1) Not everything we can do on a computer can be done with Web based apps.
      2) Web based apps are always slower to accomplish the same task.
      3) Do we really want our data out in web space?
      4) What happens when your web based app server goes down, you can't connect
      or upgrades you when you need to give that presentation?
      5) Web based apps are less secure. You are sending data over the internet!

      The whole reason this trend exists is:
      1) End users are so computer illiterate that they can not install software.
      2) Windows sotware installs are so complex that software developers don't know
      how to install software.