The Future of the Software Industry

madro writes "Remember 'Does IT Matter?' a while ago? Nicholas Carr is back with an editorial in today's New York Times following Microsoft's decision to dramatically reduce its cash stash. Carr's take: Microsoft is admitting it can't find better uses for its cash, due to the growing maturation of the software industry. No mention of open source, although Apple's consumer-targeted model of free iTunes driving iPod demand is one listed alternative." Reader CodeArtisan submits another piece about Microsoft's loot distribution, and Newsforge (which is part of OSDN along with Slashdot) has a story about the future of commodity software.

Comments

The Problem At Hand

[Effugas]

MS's giant cash pile is too deep of a pocket for international juries and governments to ignore. The disbursement is being directly driven by the fact that the company has enough cash on hand to be able to shrug off $600M judgements.

What, did you think the timing was accidental?

--Dan

Re:iTunes driving iPod!?

[0racle]

And your everyone? The iTunes interface is a reason for the iPods success, perhaps not at first, but if iTunes was a pain to interface the iPod with, a lot of people, as in people who wont whip up a perl script to do it if its not what they want, would have thought twice about it. The iPod took off in part because the word of mouth about it had nothing negative to say about it.

Commoditization

[OldAndSlow]

I don't think that what software is turning into a commodity. It think what is happening is that it is getting very hard to charge premium prices for software that implements old solutions. My customers (mostly) don't care about programming languages, OSes, or database managers. But they sure have to pay for them.
But there is very little innovation left to be had in these basic layers, so why are we being charged thousands, and even tens of thousands, for licenses? Surely not to support R&D.
It may well be that we are entering an era when we will see a great blossoming of innovation, if only because sole proactitioners and small teams can afford to the tools to tackle the kinds of problems that need to be solved today.

buying time...

[Hooya]

... until longhorn ships.

you have to ask, why now? MS has been in business for such a long time (in software industry terms). MS has never been known to hand out payola. why now?

MS has nothing else to keep the mindshare. OSS is creeping up outside the realm of just the geeks. MS has nothing effective to fend it off. except hoards of cash.

without the payola, the stock would start on a slippery slide downwards all the while losing mindshare. and remember, mindshare among geeks is what got MS to where it is in the first place.

all this just to buy time, literally, until longhorn ships.

if there is any 'after burner' somewhere in the FOSS community, the time is now to kick it in. to win over mindshare before longhorn. because from now until longhorn, MS has nothing but diversionary tactics to keep people interested in MS.

and to all MS fanboys out there, i'm not saying this is a bad thing. it's a great thing. i'm just making a guess as to why they are doing it now.

Exactly!

[weston]

It think what is happening is that it is getting very hard to charge premium prices for software that implements old solutions.

Precisely. I think we are indeed going to see an explosion of software, especially niche software -- and this is possible exactly because platform software is becoming commoditized.

Nope, it's not new wisdom. It's covered by Eric Raymond in his essays and it's all over the place... but for some reason, only a few people seem to understand this.

This started around the time of the tax cut

[K-Man]

This was a fairly expected move due to the tax cuts you note. Cash in the bank can be realized either as a capital gain in the stock, if the company holds onto the cash, or as a dividend of about the same amount. The old system encouraged capital gains instead of dividends, but the new one makes dividends preferable.

MS went for years without paying any dividend, because stockholders were able to get their returns in price appreciation. Now, expect flatter pricing, with more dividends. That's good news for stockholders, but bad news for stock option holders.

Re:maturation of the software industry

[runderwo]

Emacs.

I'd agree

[JohnnyComeLately]

In accounting we'd go over cases of corporate buy outs and study guys where the company was diced. The one exception to this rule is Microsoft. Meaning, most companies that slow down in innovation and have a huge hoard of cash get bought by leveraging against their equity. I walk up to Joe Sleez banking and say, "Loan me $4 Billion to buy Microsoft, which has $3.8B in cash, $100M in Accounts Receivable, and misc in other assets. You buy the company and dice it up and sell off the parts. Similar to a car, the parts can be worth more than the car as a whole. Plus, you never leveraged a dime of your own money.

Many firms have poision pills and other defensive postures against this aggressive practice, but I've always been surprised no one has tried to buy and dismantle M$. I was also surprised they never paid a dividend, as its a psychological move for investors. Then again, most people aren't buying M$ for a diversified, low-risk retirement portfoilo.

Coming around to the specific topic of timing, it certainly makes sense that the tax code is encouraging it. If you're netting over 7% leaving it alone, why pull out retained earnings to have a cut taken out of it? When I saw they had cash doing nothing (ok...mortgage backed securities) and were keeping ahead of the risk-free rate (rate of a 10 year bond), it's a no brainer to leave it in Microsoft's bank account. I'd almost say you're better off telling them to dividend re-invest. You avoid the taxable income, increase your holdings, and benefit more from the impending stock buy back.

I really hate M$ for its predatory marketing practices and $hitty products, but from an investing standpoint it's hard to hate them.

Broadening of the marketplace

[mcrbids]

The software industry is maturing. It's also broadening. There are zillions of little niche markets well served by a bright high-level language programmer who's willing to listen.

(Hint: I'm one of those listening programmers - I'd like to think I'm bright)

Don't look at software in terms of "an industry" or as "a product". Look at it as a means to solve problems, and then work out terms where by solving problems, you get paid.

Software isn't the point anymore. The solution to the problem is the point. Look at IBM and their services department. They don't care about the software - why else would they deprecate their zillions of dollars invested in AIX and go with free Linux?

They sell services, and software is just the means. Why not use a community supported, free product?

In an immature market, having the product matters. Specs like N Mhz and M superBytes are important. In a mature market, the solution to X problem matters. Who gives a rat's ass about Mhz or superBytes?

So quit with the "software is manufactured" model of the 1980s and get on with the "software is a means to solve a problem" model of the 21st century! There's plenty of money to be made, you just have to tilt your head 45 degrees and look for the problems waiting to be solved!