Does Anyone Buy Software Anymore?

Big shifts are taking place in the software industry. For most of its history, software has been bought much like a load of bread: you buy it, consume it, then at a later date you buy some more.

But this model is fading. Large companies, who get some (or much) or their software on a license basis, are moving away from purchasing software. Models like software as service (SaaS), renting rather than buying, are fundamentally altering the software business. Also tipping the apple cart are open source and wireless applications. (More on that in a moment.)

Add it all together, and several years from now the software industry is likely to look far different from its current incarnation.

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Among the key questions facing the software business is: Have we seen most of the changes we'll see for a while, or are still bigger shifts coming up?

The answers depends on whether you’re a consumer or an enterprise, says Joanne Correia, a vice president at Gartner and the lead analyst in the firm’s Software Industry group.

Consumers, she notes, use their PC with a browser to visit sites like Google and AOL, getting a lot of their functionality from online tools. Yet however many of their apps are Web-based, “The PC is still sitting there with software on it. So you still need an operating system, and something that connects – that’s not going to go away.”

But the question, she says, is: "How thin can you make it?"

How bare bones can the consumer’s at-home software infrastructure be, with the rest residing online? How close can that user experience come to, say, accessing the Web from a TV in a hotel room, in which virtually no software resides on a user’s box?

Whatever the exact answer, one trend seems clear: given the current direction toward Web-based apps, the idea of trooping out to the store to buy boxed software will someday be a quaint memory.

Mission Critical Apps

In the enterprise world, until the late ‘90s, “We had an ‘occasionally connected’ model,” Correia says. “We didn’t have a lot of bandwidth. We did a lot of dial-up – things were pretty slow.”

Today, of course, enterprise workers are connected at every moment. And many of the array of applications they use have been outsourced, or otherwise reside outside the enterprise. They’re rented or licensed, not purchased.

The exception to this are e-mail and IM tools, which still tend to be owned by the enterprise. “One of the reasons for that is that people believe e-mail is a mission critical app,” she says. “And secondly, a lot of the data that’s stored is really sensitive, particularly with Sarbanes-Oxley.”

The software most likely to be removed from the “must buy” list are apps that aren’t highly customized (or customized at all). “The first thing that went is payroll,” Correia notes. Following that was travel-booking apps and other non-critical tools.

“The next thing that goes is global account management, so that’s why you see a lot of Salesforce.coms, or people who sell account applications, like SAP, Sage in Europe, and Oracle, offering software as a service on the front end, then having it reconcile to the [in-house] back-end stuff.”

“Remember, we’re in a software transition right now,” she says. Many companies spent heavily in the late ‘90s in preparation for the supposed dangers of Y2K. “Every single enterprise system was rebuilt, pretty much.”

And now the cycle is ready for renewal. “Enterprise systems last, on average, seven to twelve years – though some of them are twenty-five years old. And we are just coming into that seven- to ten-year,” cycle end, she says.

The most advanced, competitive-edge companies are actively rebuilding their front-ends and back-ends. In the process, more and more software functions are being displaced from actual enterprise ownership. Over time, we’re headed toward a world where businesses don’t want to own software – or as little as possible.

Next page: Open Source and Wireless