Word reaches me of a new report from Jason Maynard, software analyst at investment bank CSFB, called "On Demand: The Tectonic Shift in Computing." Among several brutal assertions that leap out is this one: "It is no exaggeration to say that traditional software is already dead." Apparently, the only question mark is how long it will take for customers and vendors to realize.
The report cites the adoption and proliferation of open source as another major contributor to the demise of traditional software, hastening a move away from conventional software licensing:
"Eventually," says the report, "it will be nearly impossible for a software vendor to survive by building a better mousetrap ... in economic terms, software pricing will fall to where it equals the marginal cost of producing the software."
The report adds that, since it costs nothing to make a copy of a software product, the only way vendors will be able to make money is by delivering functional services and business processes.
To help track this transformation of the software industry, the bank has launched a new index — the Credit Suisse Software On Demand Index, or CSSODI (pronounced Cassidy) for short. Originally trailed in a press release issued back in May (PDF of release), the index will be released quarterly and aims to help investors track the proportion of software industry revenues generated by the on-demand model.
If the name sounds familiar, that may because Jason Maynard was also the creator of the Merrill Lynch On-Demand Index — MLODI (pronounced Melody) for short, which launched back in 2004. I do hope the current incarnation of Jason's index fares better than the Merrill version, which as far as I know only lasted for a couple of quarters.
The timing of CSSODI is much more favorable, as indeed Jason's latest charts show: on-demand really is now taking hold in the mainstream software industry. It's about time Wall St, as well as the industry itself, woke up to the implications. I certainly believe that Jason does a great job of spelling out those implications, and from what I've seen of it, I can heartily recommend his new report.