July 15th, 2005
War of the worlds
As if the software world was not facing enough threats, the hardware world now threatens to undermine software business models left and right. New chip architectures and other hardware trends now raise the prospect of software industry upheaval. "The real losers," according to a recent piece in The Economist, could be companies such as Oracle, SAP and IBM, "whose industrial strength programs are the bedrock of business."
It is not just SOA that threatens established business models — and is forcing software titans to reinvent themselves (a la SAP’s "NetWeaver," Oracle’s "Fusion" and and assorted other SOA initiatives that vendors have announced).
Turns out, dual-core processing platforms from the likes of AMD and Intel promise to create a wave of dilemmas for software companies. Dual-core processing dramatically expands the power of the chip (enabling it to perform like 1.3-1.8 single-core processors). That leaves software companies feeling that customers are getting a "free ride." Which raises an important question: Will software firms try to charge more for the enhanced core (and risk the customer’s wrath) or must they continue charging for the processor (and, potentially, sacrifice a great deal of revenue)? While Oracle is apparently upping the price at this point, IBM and Microsoft have sought temporary market advantage by promising that prices won’t change.
Then, there’s "virtualization," "partitioning" and "rapid provisioning" — trends that threaten to further erode conventional software business models. "While virtualization may be great for hardware ROI, it wreaks havoc on software licensing policies," the publication states.
Some folks believe subscription-based (Software-as-a-Service) models hold the answers for an industry that is struggling to put a price on value. However, recent research suggests that buyers "overwhelmingly" prefer single, one-time payment methods (per-user or per-processor) – a surprising discovery given all the complaints in recent years about being gouged by vendors.
Could it be that software-based value models are all doomed? Could it be that software companies will have to begin charging for – dare I say it — business results? That would require them to develop new results-driven, business models that involve the sharing of risk and reward with their clients. New SOA and open source approaches might enable them to aggregate existing software capabilities rather than pouring all their capital into proprietary ones. If that happens, one wonders if we will even continue to call them software companies. What do you think?
