Tuesday, February 06, 2007

Software is Dead. Long live the Web

Yes, its official - Software is dead (albeit dying a slow death) - but still dead. The shift from "double-clicking on an install CD" to loading up a web page has crossed over from simply a techno-shift to a economic-shift. What does the mean? It means there is no turning back. Let me explain.

A few years ago, you could see the rise of Software-as-a-Service (SaaS) as a new way to deliver high-powered applications over the web... but it lacked a lot of the "must-haves" a typical IT guy would want - whether its the "I like the GUI to be quick and responsive" type of IT guy, or the "I don't trust the security on the web" type of IT Guy - there was always apprehension in making a full transition to SaaS over your Classic .EXE.

But guess what. Nobody cares what the IT guy wants anymore... in the 90's budgets were high, and the IT guys were pumped-up superstars - cutting costs, improving operations and streamlining business - but now - the promises of yesteryear are looking bleak - and IT didn't deliver on the $150,000 Siebel install, and the $1.5M SAP Install, and the $500,000 Reporting software. Now business is business and IT is a service - which means no more big checks.

So what does this mean? It means there is an economic shift. "Pay-as-you-go" has become the mantra - and "License" is a four-letter word.

Risk is not an option. Companies don't want to pay up front, for a 2 year implementation, hoping the software works. Also, if your a startup - forget it. Nobody buys from a startup anymore. But I think the most important factor in the past few years has been the fact the "cycle of innovation" has grown shorter then the "budget cycle". Let me dive into this nugget. Essentially, 10 years ago - software vendors (especially startups) where innovating quickly and the big guys were having trouble keeping up. And due to the urgency to be competitive in the Information Age - the buy cycle for new technology was short. So - basically, only startups could keep up with demand, and building new/cool stuff. Well now, with the conservative nature of the economy, the "hype" sold by IT coming to light, and the budget cycle becoming longer (3 months to 3 years) - now the big guys don't have to innovate as quickly - because nobody buys new technology anymore - they want to see it baked. So it is nearly impossible for a startup to compete - because even though they have something unique - its not marketable. And by the time it is marketable - everyone has it.

This is why SaaS has won. Companies can implement "new" technologies with very little risk, because there is no heavy upfront license fee - they can pay-as-they-go.
So is this a bold prediction? Probably not. So what is my point? Don't invest in EXE companies. Long live .COM.

1 comment:

Jeff Douglas said...

I agree 100% with your analysis. With the increased popularity and interoperability of AJAX and RIA you get the desktop application feel without the pain of managing distributions. The release of Adobe's Apollo later this year could be another major blow to the EXE model.

SaaS has a few issues which they are addressing such as availability (look at SalesForce.com recently) and "where does my data live". I think alot of companies are becoming more "trusting" of providers maintaining their mission critical data due to such services as Google Apps and Amazon's S3.