Gates ‘disruptive’ changes memo
p2p news view / p2pnet: Various mediasources are reporting on Microsoft internal memos that discuss a disruptive change to their business, one from Microsoft chairman Bill Gates on October 30, and an earlier one from Chief Technical Officer Ray Ozzie on October 28.
For his part, Gates recognizes that the software marketplace is slowly moving from products to services, but doesn’t seem to acknowledge just how much disruption to their current business this will represent. Mr Gates has always been at the forefront of treating software as a product that is manufactured, packaged and distributed, and sold on a per-unit price. This method of production, distribution and funding of software is often called “software manufacturing” given it closely resembles the methods used for tangible manufactured goods.
There are two broad types of changes as software moves towards a service: software hosting services, and software knowledge enhancement services.
One is where software is hosted by some remote services company. Rather than receiving and running software on their own computers, a customer hires some third party to run the software and hire the results of the software. This is the type of marketplace Microsoft is talking about when they put a positivist spin on this change. They believe they’ll be able to leverage existing product-based monopolies to create a favourable position for themselves in this market.
The more important ‘disruptive’ change is the move away from “software manufacturing”.
Since software is a pure intangible, it naturally has a marginal cost (cost per additional unit of production) of zero. With p2p and other techniques it’s also possible to make the marginal cost of distribution approach zero. The fact that the marginal cost of production and distribution approaches zero is something that the current “software manufacturing” companies consider a threat, and when done without authorization they call it “software theft”.
Alternative methods of production, distribution and funding exist that harness the fact that the marginal cost is zero. The Free/Libre and Open Source Software (FLOSS) marketplace is an example. While there’s a per-unit price for packaging and support, there’s no per-unit price on the software itself. Companies in this marketplace focus on funding the up-front (one time) production costs of the software, and then allow the software to be shared at a marginal price equal to the marginal cost (zero).
Software manufacturing industry associations such as the Business Software Alliance (BSA), branded as the “Canadian Alliance against Software Theft” (CAAST) in Canada, are fond of sending out statistics of so-called “software theft” that don’t differentiate between customers using their manufactured products without payment and customers legally using FLOSS software where the marginal price is zero. The fact is that since the “software manufacturing” and software as a service marketplace currently co-exist, it’s impossible to use the simplistic statistical methods they are (ab)using to make their entirely inaccurate copyright infringement claims.
This is a considerable threat to Microsoft given that without its product-based monopolies on the desktop and office productivity suites, they will not be in a favourable position for software hosting services. The fact that they recognize Google as their greatest threat is telling: Google uses and helps produce FLOSS software infrastructure such as Linux to create their software hosting services. They are very active in the FLOSS sector, funding many projects that they use internally (Linux, Apache, etc) for their services as well as funding strategic projects for distributed FLOSS (OpenOffice.org and Mozilla.org) which promote standards on the end-user desktop.
While Microsoft has been very successful in delaying this maturing of the software marketplace, I don’t believe it’s possible for them to stop it entirely. Far too many competitors are realizing the way to beat Microsoft is to no longer play by their “software manufacturing” rules. This means more and more companies will be moving away from the monopolized software as a product market towards a competitive and innovative software as a service marketplace.
How long do you think the current “software manufacturing” sector will last?
Russell McOrmond – p2pnet contributing editor
[McOrmond is an independent author (software and non-software) who uses modern business models and licensing (Free/Libre and Open Source Software, Creative Commons).]
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November 10th, 2005 at 6:12 pm
Commercial closed source software manufacturing will probably go under in less than 10 years unless that cartel is able to purchase legislation or court decisions to stifle FLOSS (Free/Libre and Open Source Software)
November 10th, 2005 at 11:49 pm
The revenue in software will be support/training based and possibly bespoke solutions for companies.
The open source movement is gaining speed every day, updates and improvements come thick and fast. Why pay for a new version of office from microsoft(which is just a new coat of paint) when you can use Open Office or KOffice for free? The latter provides better open document format support, unlike the former which forces it’s users to use propriority formats?
Goverments around the globe are beginning to see both the cost and integration benefits of using open source software, good luck microsoft, you will need it, heh.
November 11th, 2005 at 9:23 am
“disruptive changes” = “too many ppl getting wise to the scam”
November 11th, 2005 at 12:02 pm
People say this again and againg — that MS Windows is “dying” — but many don’t see that happening. Sure, it won’t die, but it won’t prosper internationally.
Currently MS is less than 90% world wide market share (higher in the USA and “rich” countries). But only a few years ago, they are essentially 99%.
So we made some progess.
Not to mention in the SERVER and EMBEDDED (e.g. cell phones, portable electronics such as TV, DVD, etc, medical devices, communications devices) LINUX is KICKING ASS —- The majority.
Here’s my estimate.
In 5 years, MS will account for 87%.
In 10 years, MS wil account for 84%
In 15 years, MS will account for 50%
In 20 years, MS will account for less than 30%.
Any betters out there??? What’s your estimate?
November 14th, 2005 at 3:23 pm
How long will the current “software manufacturing” sector last? Well that depends on the vast availability of broadband access. When consumers and business have cheap and affordable broadband everywhere. Those fat pipes will enable innovative competitors to drain the revenue stream of the “software manufacturing” sector at an accelerated rate. A recent sign of the accelerations is the fact that Yahoo, Google and others will offer wireless services.