I hate to be the one to tell you, dear reader, the bad news, but I must: the software market is evaporating before our eyes.
I came to this unsettling realization after attending several conferences over the last few months, including Comdex. I don't mean that software companies are crashing by the dozens on the stock market (they are) or that their customers are sick and tired of buying scores of high-priced licenses they don't need (also true). I'm talking about a larger, quasi-cultural shift in the business where software is becoming an afterthought.
At this point, more than a year removed from the height of the dot-conomy, there are only a few elite software companies left. The first tier consists of the biggest of the big--Microsoft, Oracle and IBM. The second tier includes smaller but established players like BEA Systems, SAP, Computer Associates, Siebel Systems and a handful of other arguments. And the third tier? Yikes. I'm not even going to go there.
Sure, the small number of true software franchises has a lot to do with consolidation and the current recession (just go ahead and say it--you'll feel better). But there is also a serious change occurring in the marketplace. Software brands are fading, and not just in terms of sales and customer deployments. People are looking at software in a whole new light--if they're looking at all. Once indispensable to businesses, software is now seen as a troublesome luxury. There are several reasons for this shift:
1. When you go to your next IT conference or trade show, count how many software displays you see on the exhibit floor. Take note of how many booths actually have a software program demo running. You won't see many, because these shows and conferences are dominated by gadgets, toys and silly handheld products that no one will ever use. Sure, this trend is nothing new. But the slide has become even greater recently. In the age of gloriously short attention spans, conferencegoers--even shrewd CIOs--just aren't willing to put up the time to see a software demo. It's all about the cell phone, the PDA and the Xbox. It's a shame because many people still do a lot of business at these events. And what will help your business more? A digital camera that has a Windows XP-enabled Web browser, or the newest enterprise application integration software?
2. In a post-dot com world, many people see e-business software as a failure. And why not? Even the self-proclaimed king of e-business software--Oracle--is taking damage these days. Once seen as potentially the biggest e-business software market, B2B came crumbling down earlier this year. I can't recall the last time I saw a software vendor call itself an ERP company, either. CRM appears to be the last refuge of e-business software, and before recently, only Siebel was truly thriving. Even worse, the batting average for successful CRM deployments is pretty low. Face it. The software industry, especially e-business, committed too many errors and sustained much more damage over the last year than other sectors of IT. There were too many expensive products that simply couldn't be integrated and didn't work in the real world. This stigma is now killing a lot of promising start-ups and new ideas before they even get off the ground.
3. New software outside of e-business is like Rodney Dangerfield--it gets no respect. Again, this goes back to the Age of ADD and the rules of hyper-business in IT. Many people don't want to take the time to learn about a new acronym or a new software technology. I agree that there are too many acronyms, but it appears that too many customers are unwilling to take a chance on some brave new technology. Security software is finally getting long-overdue attention in the marketplace, but there are also exciting advances being made in emerging areas of content management, peer-to-peer and disaster recovery. The problem is, too many customers and solution providers are pulling back this year. Customers don't want to spend money on something that's not a 100 percent guaranteed sure thing, and VARs can't invest much of their time and resources in mastering and reselling a new product. The result is a severe traffic jam of novel software that's being neglected.
Software has been one of the great frontiers of IT because of its vast possibilities. It's not like the computer, thank goodness, which is bland and uniform and restricted to the limits of hardware and ridiculous benchmarks. The IT industry can support a large number of vendors and product types because of the remarkable innovation being born from today's software developers. The innovation may be at its height, in fact, but the actual products appear to be getting bottlenecked, which is a pure tragedy for this ailing industry.
4. The so-called ASP industry. Gone. What was once considered a gold mine of the new economy has turned out to be a mirage. It is second only to Dexy's Midnight Runners as the most notorious next-big-thing-gone-wrong in history. Last year, the ASP model put the spotlight on software and looked to boost the market by giving customers new ways to buy and use products. Instead, 90 percent of hosting companies disappeared quicker than Barry Bonds in a playoff game, as did analyst reports that predicted a multibillion dollar ASP market. This sets up the next point, which is:
5. The "software as a service" shift. I understand the concept of Web services, but not how most proponents plan to apply it to their software business. I've witnessed several demonstrations, keynotes and presentations about Microsoft's .Net, and it just gets more confusing the more I listen. And I'm not exactly sure why Microsoft and others are turning on themselves and essentially abandoning their bread and butter by shifting not so stealthily toward services. This could turn out to be one of the all-time greatest backfires--along with the Watergate break-in and the Red Sox ditching Babe Ruth and Roger Clemens. Many solution providers already have a foothold on deploying Web services. In addition, delivering high-end software via the Internet will take a lot of bandwith and infrastructure that we don't have here in the West. Better still, some software just isn't meant for Web services (how exactly would a predictive failure tool work if it's delivered as a Web service on the same network the tool is supposed to be monitoring?).
On a side note, Net-native software companies are showing exciting potential. Companies like Salesforce.com, UpShot and Synchrony Communications are offering CRM services through Net-native applications that act as a low-cost, no-integration Web service. Why these start-ups can innovate and articulate their Web services strategy and Microsoft--with plenty of time, money and resources--cannot seriously boggles the mind.
The truth is this: software--not handhelds, tablet PCs, million-dollar servers or camcorders with a Web browser--will be the market to truly revive the IT industry. I've been wrong in my predictions before--forecasting that Vince Carter would be a bust in the NBA and that Sammy Sosa would flame out of the home run chase in the second half of the 1998 season immediately come to mind--but I think this one is a no-brainer.
And there is hope for the software industry, despite all the trends working against it. Security software vendors are finally getting the respect they've been deserving of for so many years. Wireless technology holds promise, as do emerging software markets such as P2P. If economy begins to pick up early next year, solution providers will begin to adopt and support new products and vendors, while more customers will be willing to take a chance on the cutting edge software emerging today. Still, the software industry as we know it is slowly disappearing. If we let it go completely, we'll be sorry.