The Trend of Software Industry

There are several fundamental changes in software industry in recent years:

(1) Major software providers are gradually shifting focus from selling license to selling services, and are securing more revenue from services than from licenses.
(2) High end server and storage providers are going back to IBM System/360 model of technical business, that is, selling hardware with software as value-added.
(3) Software as utilities such as the model of salesforce.com and others.
(4) The so-called professional open source model exemplified by JBoss, Linux and MySQL etc..

Those changes will properly indicate the future of software industry. The old model of selling license may not be dominating for a long time; instead, in near future this industry will probably go with the model of service as the major sources of revenue. Associated with this may be the disappearance of differentiation between technical consulting firms and software providers.

The value proposition of software from the end users’ point of view is that software solves problems or boost productivity. The assumption behind this proposition is that the end users are able to use software to create value. The evidence is that this assumption may not always be valid particularly when infrastructure level software (ERP, SCM, CRM and Integration Backbone etc..) is concerned. The underlying issue here is that in-house development force or a third party in most cases does not have the knowledge or skills to apply the software to their full potentials. Therefore, the task of using software effectively goes back to the original software provider. This value chain is not optimized either from the end users’ point of view or from the software provider’s point of view.

In traditional industries, people buy services from the professionals because the services are what they are really concerned and what they use to estimate the value. There, the norm is that tools of the professionals are not sold in general. Software is a tool, and only the value realized through software is interested to end users; hence, when more and more analysis elucidate the ineffectiveness of the current software industry value chain, this industry will and should fall back to the same model as all the old professional services follow.

The phenomena in software industry we observed in the beginning of this article are the first steps in the direction of back to future.