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The Software Paradox By @JnanDash | @CloudExpo #Cloud

Software, once again, is a means to and end, as opposed to an end in and of itself

I just read a new booklet from O’Reilly called The Software Paradox by Stephen O’Grady. You can access it here.

Here is a direct quote:

This is the Software Paradox: the most powerful disruptor we have ever seen and the creator of multibillion-dollar net new markets is being commercially devalued, daily. Just as the technology industry was firmly convinced in 1981 that the money was in hardware, not software, the industry today is largely built on the assumption that the real revenue is in software. The evidence, however, suggests that software is less valuable—in the commercial sense—than many are aware, and becoming less so by the day. And that trend is, in all likelihood, not reversible. The question facing an entire industry, then, is what next?”

IBM completely missed the role of software when it introduced the IBM PC back in 1981. The focus was on hardware and software was a means to that end. I lived through those years at IBM and saw this first hand. When presenting to a high level executive on the concept of data warehousing in 1991, his only question was how much hardware can it sell.

Microsoft saw the value of software and licensed its MS-DOS to others, as part of the IBM contract it signed to deliver PC-DOS. That made Microsoft enormously rich over the next twenty years. During IBM’s difficult years in 1992-93, someone jokingly said IBM stood for “I Blame Microsoft”.

If (1950-1986) marks the first generation of software where IBM dominated (it started separately charging for software in 1968), the second generation (1986-1998) was dominated by Microsoft (and others like Oracle) where monetization of software occurred big time. When I joined Oracle in 1992, the revenue was barely $1B and that grew rapidly to $10B over next eight years.

Then something interesting happened – call it the third generation (1998-2004) when a new class of technology providers came to picture, like Google and Amazon. They engaged the user directly via a browser. Google showed the economics of scaling to a worldwide user base by its own proprietary software which subsequently became open source. Actually Google publishes early papers on stuff like Pregel, Dremel, and Spanner  with details for the community to implement its own version. That’s how Hadoop got created by Doug Cutting at Yahoo from the Google papers on GFS, etc. Amazon founded in 1994, is a huge user of open source in building its AWS stack. Here there was no direct software licensing charges. It was a shift to cloud-based service. Even Cloudera (one of the custodians of Hadoop) finds it hard to monetize, as the core piece is free. Now the fourth generation (2004-now) started adding new players such as Facebook, Twitter, LinkedIn, GitHub which build their stack on open source software. Except Google, the rest have given much of their internally developed code to open source.

It seems software has come full circle – started as an enabler, then large software licensing revenue stream (commercial software players like Microsoft, IBM, Oracle, SAP,..), then alternate model with no upfront pricing, but a subscription model (e.g. SalesForce, Workday,..), then finally no-charge software back to being an enabler for cloud-based services.

This conundrum was described by Mike Olson of Cloudera – “you can no longer win with a closed-source platform and you can’t build a successful standalone company purely on open source.” So the question is – what is the right model moving forward? Several creative approached are being tried.

The software industry is already seeing tectonic moves – shift to cloud services, open source, and economically cheaper solutions than before. This is impacting the big commercial players as their new license sales are starting to decline. Oracle, for example, is moving rapidly to cloud-delivered models at the cost of short-term revenue hit. So are SAP, Microsoft, and IBM.

Software, once again, is a means to and end, as opposed to an end in and of itself. Welcome back to the future!

Read the original blog entry...

More Stories By Jnan Dash

Jnan Dash is Senior Advisor at EZShield Inc., Advisor at ScaleDB and Board Member at Compassites Software Solutions. He has lived in Silicon Valley since 1979. Formerly he was the Chief Strategy Officer (Consulting) at Curl Inc., before which he spent ten years at Oracle Corporation and was the Group Vice President, Systems Architecture and Technology till 2002. He was responsible for setting Oracle's core database and application server product directions and interacted with customers worldwide in translating future needs to product plans. Before that he spent 16 years at IBM. He blogs at http://jnandash.ulitzer.com.

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