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Saturday, May 28, 2005

The IT Software Evolution

Is the enterprise software business dying? Is anybody out there buying new licenses? Based on data coming in the past few weeks, it seems that there are very few buyers.The collapse of new licensing revenue isn't news - it started five years ago- but the latest news makes it look like a permanent and accelerating fact of life for software vendors. The CIO of British Petroleum said in a sandhill conference that out of a $2B IT budget, only $30M is allocated for new software licenses.
Mike Kinkead, serial software entrepreneur and one of the founders of the Massachusetts Software Council recently moderated a strategy session for the council to figure out the way forward, and his conclusion was that the traditional enterprise software business is dying. That doesn't mean that the software business as a whole is dying, but it has shifted permanently to new revenue models. He asked : "What big software company came out of the Internet boom? Netscape is dead." He pointed out that the big winners, like Google and eBay, are users of software, not vendors. We still buy a lot of software, embedded in devices and services, but we don't buy it as licenses.
Enterprises still need software, and lots of it, to run their operations, but they are buying few new licenses. Part of the story is that the market is mature and buyers have enough software already. Part of the story is that offshore outsourcing makes it cheaper to build your own.Erik Keller was perhaps the first to talk about the return of the build.I believe that traditional enterprise software companies still can deliver a lot of value.However, we need to figure out new packaging and revenue models for them. The new-license business is hardly paying its cost of sales, so a lot of people are spinning their wheels on long sales cycles, rather than innovating and delivering.
Paul Kedrosky feels that it isn't so much that people aren't using software, or even new operating systems.They are.It's just that such things are now buried in services that insulate us from the messy old 1990s business of enterprise software. He ay be closer to truth. We are seeing a trend where enteprises want to extend on existing software systems with new module rollouts or build components as add-ons.

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"All views expressed are my personal views are not related in any way to my employer"