The data is clear: while there is substantial money in software, the difficulty of employing it as a primary revenue mechanism is increasing. This supports our observations of generational shifts in attitudes towards the importance of software [coverage]. In short, we recognize four basic generations of software producers.
- First Generation (IBM) “The money is in the hardware, not the software”:
For the early hardware producers, software was less interesting than than hardware because the latter was harder to produce than the former and therefore was more highly valued, commercially.
- Second Generation (MSFT) “Actually, the money is in the software”:
Microsoft’s core innovation was recognizing where IBM and others failed to the commercial value of the operating system. For this single realization, the company realized and continues to realize hundreds of billions of dollars in revenue.
- Third Generation (GOOG) “The money is not in the software, but it is differentiating”:
Google’s origins date back to a competition with the early search engines of the web. By leveraging free, open source software and low cost commodity hardware, Google was able to scale more effectively than its competitors. This has led to Google’s complicated relationship with open source; while core to its success, Google also sees its software as competitively differentiating and thus worth protecting.
- Fourth Generation (Facebook/Twitter) “Software is not even differentiating, the value is the data”:
With Facebook and Twitter, we have come full circle to a world in which software is no longer differentiating. Consider that Facebook transitioned away from Cassandra – a piece of infrastructure it wrote and released as open source software – for its messaging application to HBase, a Hadoop-based open source database originally written by Powerset. For Facebook, Twitter, et al the value of software does not generally justify buying it or maintaining it strictly internally.
The question, as I asked the audience last week at the Open Source Business Conference, is what this means for those in the commercial software business. The answer, from my vantage point, is simple: they need to begin leveraging data alongside their software. As we’ve been saying since 2007 [coverage].