Looking Back at the Changing Face of the Software Industry from 2004 and Beyond

Bill Gates may have made a whole lot of predictions about the future of software in the first edition of his 1995 book The Road Ahead, but even the founder of Microsoft couldn’t image the magnitude of the impact of the Internet.

Within a few years, the Web altered everything. As old software companies faded away—unable to adjust to the new paradigm—new ones cropped up in their place. Although many of these new companies weren’t able to survive the dot-com bust, they did make an impact on the software industry as a whole. The way in which companies coped with the industry in flux back then can be easily applied to the way companies are adopting the cloud computing model in 2010.

Driven by emerging business needs, new customer demands and market forces, the way software was developed and the vendors that deliver it were greatly altered in the mid-2000s. Said Microsoft’s platform strategy general manager Charles Fitzgerald in 2004, “There’s an argument that almost every company is in the software business in one way or another.” Fitzgerald added that although American Express and eBay aren’t commonly thought of as being in the software business, they are. “If you participate in the information economy, you will be a software company. If you’re in a customer-facing business, software is the way you’re going to differentiate yourself,” he explained.

The fact of the matter is that the industry that provided much of the software in 2004-05 was poised to change dramatically in the years that followed. The industry will continue to enter periodic waves of consolidation and expansions, and the industry consensus is that it will remain in consolidation mode for the next couple of years. Larry Ellison, CEO of Oracle, predicted that within a few years the software market will be dominated by just a few companies: Oracle, Microsoft, Salesforce.com, Adobe and SAP.

Ellison wasn’t alone in his predictions, as some software buyers, like Mani Shabrang, head of technology deployment and research and development in Dow Chemical Co.’s business-intelligence center, agreed with him. “The number of software vendors will definitely get smaller and smaller,” said Shabrang in 2004. Another variable to consider, brought up by Shabrang, was that vendors of new types of software would emerge as vendors of mature software categories (like enterprise resource planning) consolidate. Shabrang predicted that a new generation of tools for visualizing data and intelligent software that recognizes the tone and meaning of written prose (in addition to mining text) would pop up as well.

Another group believed that there will be just as many software vendors in the future as there were back then. Danny Sabbah, chief technology officer of IBM’s software group, said that new companies would develop higher-level applications, thus leaving the markets for infrastructure software, middlewear and even core applications such as ERP to a few major companies.

CEO of business-intelligence software vendor Information Builders Inc. Gerald Cohen said, “Roughly every two or three years, new software categories appear. As long as there’s a venture-capital industry, there will be new categories of software.”

So what would the next application be? No one knew, although emerging service-oriented architecture technology was poised to lay the foundation for a new generation of software applications. The software of the future was predicted to be made up components, many of which would be developed in-house by the business requiring them. This is in contrast to what was the model back in 2004, in which vendors developed ever-larger applications that often took months to install.

According to Sabbah, software would likely switch from integrating business processes within a company to integrating these processes between companies. For example, applications might link ordering, invoicing, and inventory-management tasks up and down a supply chain within an industry in the not-so-distant future.

Another looming question was what the predominant operating system and underlying new applications would be. Microsoft ® Windows and Linux distributions would continue to compete, that much was sure, and the battle only got fiercer when Microsoft unveiled its next-generation Longhorn client and server in 2006-07, respectively.

Even in 2004, industry prognosticators knew that larger and more-complex systems weren’t going anywhere. The question was, how would the process of developing software be managed, especially as geographically disbursed programmers and offshore developers were doing an increasing amount of development work? The challenged awaiting users of the complex applications they create also needed to be addressed.

IBM’s Sabbah had this to say about the future of software, “The real challenge of our industry is to build software that is [easy to use] and simple to deploy but not simplistic.”

As shown by the growth of companies which provide software on a hosted basis, like Salesforce.com, it became increasingly important to pay attention to changes in vendor-buyer relationships and how software functionality was delivered.

Co-founder and CEO of business-intelligence and data-analysis software vendor SAS Institute Inc. Jim Goodnight wasn’t worried by these potential changes, instead placing his focus on that new opportunities awaited him and his company. In 2004 Goodnight said, “The IT industry needs to jeep a fairly shortened horizon. Our horizon is about two years. We make it a practice not to have these big five-year plans. If you do, you’re going to get about halfway through, and the world if going to change.” In 2010 Goodnight’s words still ring true.  For more information regarding the changing Software landscape, please visit Nubifer.com.

  1. Fascinating how far the industry has progressed. Very much in agreement about subscribing to a ‘2 year horizon’.

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