What does the fall of GM tell us about software?

The fate of the US car giants may hold some important lessons for software vendors, says Mark Taylor

It seems possible that the story of decline in US car manufacturing contains interesting parallels for the software industry, says Mark Taylor.

General Motors (GM) filed for bankruptcy protection last month, making it the biggest failure of an industrial company in US history. Most pundits have laid the blame squarely on the credit crunch, but the seeds of GM's demise were sown in the 1970s, when cheaper, more innovative cars started rolling off Japanese production lines.

Can any parallels be drawn between the history of the US automobile industry and the rapidly evolving landscape for software? American car design emerged from the shadow of World War II with the introduction of high-compression V8 engines and modern bodies from GM's Oldsmobile and Cadillac brands.

Throughout the 1950s and 1960s, engine power and vehicle speeds rose, while designs became more integrated. Cheap oil and easy credit kept engines large, powerful and hungry. But things began to change in 1973, when oil export cartel Opec announced its decision to raise the posted price by 70 percent.

Sustained innovation
That price hike provided a window of opportunity for smaller, cheaper cars from Japan. These were initially derided for their looks and build quality, but sustained innovation and a lower cost of ownership enabled brands such as Toyota and Nissan to gain a firm foothold in the US market.

Yet despite the success of the Japanese, masterful congressional lobbying and billions of dollars in advertising convinced US consumers to favour large, fuel-hungry muscle cars from homegrown giants such as GM, Chrysler and Ford. By the late 1990s and early 2000s, their pick-up trucks and SUVs accounted for almost two-thirds of the US market. The big three manufacturers were masters of their particular universe.

The present financial squeeze has been tough on just about all business, and in May Toyota reported a record annual net loss of $4.4bn (£2.7bn). However, its early investment in hybrid, all-electric and now hydrogen vehicles should see the company through the current climate.

The same cannot be said of its US rivals, though — especially GM. By ignoring market realities and failing to adapt their business model, it went bust.

Future of software
So, what does GM's demise tell us about the software industry and its future? Like the US car industry, software is dominated by a handful of vendors that have grown fat on the expectation of inflated rates of return — by as much as 30 percent.

Vendors continue holding on to inflexible business models, even though the days of massive government spending and easy credit are over. Huge resources have been pumped into governmental and supra-governmental lobbying to stack international patent law in vendors' favour.

Innovation is discouraged, which allows for the picking and choosing of whatever looks shiny and presenting it as their own. Nevertheless, new market entrants have emerged with innovative development and business models better suited to current market realities.

Unfamiliar with real competition, established vendors prefer to fight back using disingenuous publicity campaigns, differential pricing and expert political manoeuvring.

Given this context, it is not inconceivable that the fate of an oligarchy in one market cannot be repeated in another.

As chief executive of Sirius Corporation, Mark Taylor has been instrumental in the adoption and rollout of open-source software at some of the largest corporations in Europe, including a growing number of companies running exclusively on free software, end to end, server to desktop. A direct participant in some of the leading enterprise open-source projects, Taylor is also a well-known authority on all aspects of the open-source phenomenon. Follow Sirius on Twitter.