Matt Asay of Nodable a, cloud computing company, wrote and editorial to the Register in the UK entitled “Microsoft’s Surface proves software is dead” The title of the article is somewhat misleading – it should read, “Microsoft’s Surface proves softwarelLicensing as a business model is dead”. The gist of the article is that Microsoft is caving into the industry trend of coupling operating systems and devices. Microsoft has traditionally relied on platform agnosticism for its software and had let OEM manufacturers build the hardware. It is true that Microsoft is in part abandoning its traditional model, but it is probably an overstatement to say that say that “Software is Dead” or to even say that “Software Licensing as a Business Model” is dead.
Software, like any other commodity, evolves. It starts with an idea. The idea is then turned into a product. If the idea takes off, then it sells like crazy. Before you know it, there are numerous copycats that attempt to make the product, whatever it may be, cheaper and better to sell it as an alternative. Eventually, the product becomes old such that it loses its value and may become cheap if not outright free. Any future value of a product is generated by improvements and new innovations to the product. This could be said of the car industry. Automobiles have evolved from the Model-T to the new, high-tech hybrids of today, and this is likely to continue. Cars of 20 years ago, unless they are collector’s items, won’t cell for more than a couple thousand dollars. The same could be said for software. Consider applications such as VisiCalc – the first spreadsheet software. VisiCalc was developed and sold on the Apple. The idea was modified, and products like Lotus 1-2-3 came out and dominated. The problem with Lotus is that it didn’t evolve. Microsoft snatched up Excel, improved on it, and started bundling and integrating it with Access, PowerPoint, and Word to make office. Excel, and Office for that matter supplanted the Lotus 1-2-3 and Word Perfect hegemony to become the de facto business software used today. One could hardly give away Lotus 1-2-3 today because of this. In the operating system arena, the same thing is happening. iOS and Android are starting to challenge Windows. iOS evolved from the open source project BSD, and Android evolved from Linux. Because of this, operating systems are becoming more or less a cheap or free commodity. The revenue generators then come from the sales of hardware.
But software licensing as a business model is still very much alive. Microsoft is still selling Office. Other notable examples would be games that push the envelope on graphics, immersion, and storytelling. Games such as the Call of Duty series, Skyrim, and Diablo III are software that people were willing to pay in upwards of $50 dollars per copy. But a little over 10 years ago, people were willing to do the same for games like Quake 3 Arena. This game however has been copied such that there are numerous free alternatives to it. Likewise, the app market is growing every day. Software companies charge a buck or two for apps that do simple things on smartphones and tablets or more for more complicated apps.
But undeniably, one cannot leave without mentioning the “software as a service” business model. software as a service model is nothing new – it’s as old as the software industry itself, in which companies develop a piece of software that is free to use, but they sell value-added services that the customer pays for. In some cases, the software is hardly useful without the company’s services. Other companies such as Facebook and Google giveaway the services and make money off advertisements in the services. Google and Red Hat capitalized on software that was already free and added value to it by selling service that used free software.
It’s not likely that there will be another Microsoft, but new software companies are being opened every day. So long as there are new innovations being made for which a program can be written, software licensing as a business model will exist. The challenge is for Microsoft to figure out how to adapt its Windows cash cow into a product that can compete with the cheap-as-free competition and still remain profitable.