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Saturday, July 24, 2004Microsoft's decision to return $32 billion to its shareholders may be a wise business move, but it is also an admission of defeat: The company is confessing that despite years of trying, it has not found an attractive way to invest its cash reserves.The software industry's sluggishness is not just a reflection of the vagaries of the economic cycle. It is a manifestation of a fundamental, if often overlooked, characteristic of the industry's product: Software never decays. Machinery breaks down, parts wear out, supplies get depleted. But software code remains unchanged by time or use.For software companies to grow, therefore, they have to give buyers good reasons to throw out perfectly serviceable versions of programs and install new ones in their place. Until recently, that hasn't been a problem. The rapid growth in the power of microprocessors, combined with ever-shifting computing standards, forced companies to replace or upgrade their existing programs at a breakneck pace. The case for continuing to upgrade (both desktop software and hardware included) these programs is weak and getting weaker.The same trend is playing out in complex and expensive enterprise applications - the programs that underpin business processes like accounting, customer service and purchasing.Nicholas Carr concludes by saying, "Software companies are smart and inventive, and they will continue to come up with new, if ever more specialized, products. The industry will remain a large and important one, but it seems fated to resemble more and more a traditional, mature sector like manufacturing.It is no longer unthinkable to say that software's glory days lie in the past, not the future". Looks to me that Carr's facts are right but the inferences are debatable. I beleive that the areas untouched by modern IT systems and the global trade and heightened competition would make companies invest more and more in IT and contiune realigning processes and chasing different business models.
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