Software sea change

The old way of selling software by the box is being challenged by the rise of online software applications. The Economist says:

The pressure Microsoft is facing in its core businesses is similar to one confronted by IBM—another firm that was once synonymous with computing. At the beginning of the 1990s IBM had to face up to the shift from a computing world dominated by mainframes to one dotted by personal computers. In this new world hardware became a low-margin commodity and Microsoft’s operating system took the privileged position. Today, Microsoft still dominates the PC market. But like IBM before it, today’s giant knows that its position is under threat.

The threat to Microsoft comes from online applications, which are changing how people use computers. Rather than relying on an operating system and its associated application software—bought in a box from Microsoft, and then loaded onto a PC—computer users are increasingly able to call up the software they need over the internet. Just as Amazon, Google, eBay and other firms provide services via the web, software companies are now selling software as a subscription service that can be accessed via a web-browser. Salesforce.com, the best known example of this trend, offers salesforce management tools; other firms offer accounting and other back-office functions; there are even web-based word-processors and spreadsheets. This lowers the economic and technical barriers to entry for firms wanting to compete with Microsoft, as well as diluting the advantages the firm gets from controlling how the computer works.

As mentioned above, this has happened before, with hardware:

• I once worked for a company that sold unique, useful software that required customers to buy their minicomputer hardware at ten times the price of a microcomputer. They’re gone.
• I once worked for a company that sold computer terminals for connecting to central computers in the face of rising competition from independent microcomputers. They’re gone.
• I once worked for a company that sold operation automation software for mainframes and minicomputers. They’re gone.

I went freelance. Now I work mostly for software companies.