That the software business model is going to change is clear. Writes Ray Lane, a partner at venture-capital firm Kleiner Perkins, in Strategy+Business:
The software industry’s economic model makes no sense. First, applications are built on proprietary standards, which prevent separate programs from working together and make upgrades costly. Second, applications are sold through indirect channels and direct sales forces, an approach that boosts marketing expenses and doesn’t use the Internet as a low-cost distribution channel. The model is a serious obstacle to innovation – of every dollar paid for software, 50 to 60 cents covers the vendor’s sales and marketing costs, whereas only about 15 cents goes into RD to create better products.
The Internet is shaking up this model. Through digital delivery, software developers will activate new application features on customers’ servers, rather than require customers to replace an old version with a new one across multiple IT systems. Developers can sell software as a service, greatly lowering the costs of software distribution and increasing operating efficiency. No longer burdened with installation duties, customers can focus on how to use new features to transform their operationsWith the Internet-enabled model, software makers could upgrade applications at any time and deliver them immediately.
The new world of Web Services is helping accelerate the shift in how software is going to be delivered, and creating new opportunities. This is India’s best opportunity for creating a global software brand. Linux can be the platform, and the software delivered through the Internet, built on protocols like XML, SOAP, WSDL and UDDI. Writes Jon Udell in Linux Magazine (June 2001):
As the Web evolves from a collection of pages into a cloud of services, Linux’s future as a major platform seems assured. Web services, expressed in terms of the SOAP protocol, are inherently open. Microsoft will naturally want people to use only its own HailStorm services to store and manage identities, personal information, and the like, but there’s nothing to stop anyone else from creating equivalent services.
To interact with these Web services, users will require new kinds of client software. Consider messaging and personal information management. Our e-mail clients and PIMs, which have changed remarkably little over the last 10 or 15 years, serve us poorly. Do you know anyone who isn’t suffering from e-mail overload or calendar confusion? Now imagine what happens when we start sharing these communication channels with a swarm of Web services. We’re going to need applications that real people — not just geeks — can use to filter information effectively, sign and encrypt messages, index and locate documents, collaborate on group projects, and delegate access to data and services.