The Software Industry’s Identity Crisis

The software industry is undergoing a gradual transformation, and consumer fatigue is at its root. The licensing model that has formed the basis for the modern software industry is facing challenges on many fronts, and the industry is scrambling to keep its footing. Where this period of change may lead software producers and consumers isn’t quite clear, but some trends are emerging. Since the proliferation of the internet, unauthorized redistribution of digital goods has become rampant. But although software sharing probably won’t kill the software industry, the reasoning behind it shares some pedigree with the customer revolt that promises to transform the way software is sold.
Four of the top 20 richest people in the world made their money from software. Over the past two decades, no other industry has been responsible for making a select few people so much money so quickly. And it’s especially amazing because so many of these people started with so little.

You don’t need a lot of infrastructure to create a blockbuster software program. And most importantly, if it becomes popular, you just keep selling copies like you’re printing money. The sale price of a software license is not based on the price of the component parts like a manufactured good. It’s usually not even based on its complexity or the amount of R&D effort it took to produce it. It’s a product with unlimited supply, whose price is set by the demand for it in the marketplace.

For example, the complexity of the Oracle database and the amount of man-hours that has gone into its creation is probably less than that of the Windows operating system, but it costs a hundred times more. Lucky for Bill Gates, there’s a demand for a much higher quantity of Windows licenses. I guess that’s why he’s more than twice as rich as Larry Ellison.

Bytes and bits, considerable brainpower, and a lot of good fortune created empires, and it was all based on a simple formula: create some software that people want, preferably software that large businesses want in large quantities, charge the maximum amount that the market will bear, sell lots and lots of licenses, make a better version of the software a couple of years later, that fixes some of the annoying problems that plagued the earlier version, sell lots and lots of licenses again, and so on.

Intellectual Property

Other industries produce and sell goods of this type. The book publishing and motion picture industries also produce “virtual” goods for which the cost to produce another copy is relatively small. The only way that someone can write a software program, or a song, or write a book and have a hope of being the primary beneficiary of its proceeds is if there is a legal mechanism to prevent its unauthorized copying and redistribution. It’s about enforcing intellectual property rights, and from the very birth of the concept, consumers have been a little reluctant to grant it the same moral weight as physical property.

Intellectual property has always existed, but its owners have had mixed success in enforcing their ownership of it. In early societies, inventors of new tools or methods were probably content to be given credit for their ideas and enjoying a boost in status for, say, inventing the wheel, or irrigation. Later people developed layers of secrecy around their knowledge, such as the expert stone masons of medieval Europe, who founded a secret society upon their desire to maximize their earning potential by limiting the number of practitioners of their craft.

Around the same time, intellectual property was also protected by laws. Church scholars who translated the Bible into local languages were savagely executed by the church/state in an attempt to keep a monopoly on religious and political power. But the average inventor didn’t have much protection, and was lucky to even get credit for his or her invention. This went on for centuries. Famously, Isaac Newton invented Calculus but reportedly sat on his discovery for years for fear of someone stealing his ideas.

Eventually, governments created protections for intellectual property, via patents and copyrights. Patents started to take off in Europe in the 16th century, with the monarchy asserting control over commerce and innovation. Copyright proliferated in the 18th century, with the widespread ownership of printing presses. Overall, these laws were a boon to the advancement of knowledge and art in the world, because it gave inventors and creators an opportunity to more easily benefit monetarily from their creations, and perhaps even dedicate themselves full-time to their professions. Eventually, intellectual exercise, which had long been the domain of the economic elite, was opened to normal folks.

The typical individual, the ultimate “consumer” of these ideas, however, was never all that keen on the higher ideals. A good idea was a good idea, and people were always eager to appropriate it for their own benefit. Eli Whitney was constantly in court trying to protect his patent on the cotton gin, and by the time the courts ruled, his patent had expired. The early days of book and pamphlet were a free-for-all. Shakespeare probably didn’t earn much money from the publishing of his plays and sonnets, but, having cribbed most of the stories for his plays from other authors, I doubt he worried much about it.

Even when one country enforced copyrights rigidly, other countries were always eager to capitalize on the inventions of others. Several of America’s founding fathers were dead set against honoring European patents, hoping to give the fledgling state a leg up in competing with Europe’s massively more developed economy. In the 20th century the U.S.S.R. and its satellite states were loath to pay royalties to Western authors and artists. And today, the marketplaces of countries all over the world are filled with unauthorized copies of software, music, movies, and books.

Historically, copying a new invention or a book involved quite a bit of effort, and most people were content to buy those products or books from whoever sold them. It wasn’t until a product came into the marketplace that was in high demand but was particularly easy for the average person to copy that there was a real crisis. In the days before recorded music the main way for new songs to proliferate was by selling sheet music. But copying the music and words of a new song is easy to do even by hand. It doesn’t take more than a few minutes, and once you learn the song, you can perform it all you want and even teach it to others. In the 19th and early 20th centuries there was a copyright infringement crisis in the music industry. Within a few decades, radio and recorded music came on the scene, and songwriters no longer depended on sheet music for their livelihoods.

The invention of the photocopier created another crisis of sorts for the publishing industry, as it allowed small-scale copying of published material. Shortly after that, the VCR gave the TV and motion picture industry a heart attack. It turned out to be the best thing that ever happened to them, but that’s another story. But the mother of all intellectual property crises was born at exactly the same moment as the software industry really hit the big time: the proliferation of the personal computer.

At first, software was included with the computer, and wasn’t really assigned any value outside of that context. If you had a Univac, it came with some software, but most of it you had to write yourself. Eventually, companies started writing software for other companies, but its use was limited to a very small pool of business users, and the associated contracts and other legal agreements were strict enough to keep that software where it was supposed to be.

But when the personal computer came out, suddenly you had these ever-more-powerful tools in the hands of a lot of people, including a lot of kids. And these computers needed software, but a lot of people didn’t want to buy it, and frankly didn’t think they should have to. And the software was so easy to copy. Even in the days of cassette drives and gigantic floppies it was easy, though it was slow. And copy they did. At first it was kids swapping floppies, then using BBSes, and later the fledgling internet. It stayed small-time for a couple of decades, but even back then it was enough to cause a young Bill Gates to lash out at hobbyist software copiers.

The software industry took steps to prevent copying, with license keys, elaborate protection measures, and even hardware devices that were required to use the software. But most of these methods were eventually cracked, and those cracks were disseminated within the community, and the protection measures ultimately succeeded only in annoying and inconveniencing legitimate customers.

Luckily for the software industry, the real money was in selling to businesses. Though smaller businesses also routinely violated software licenses and made illicit copies, the high stakes for violation and aggressive enforcement through the Business Software Alliance ensured that most businesses would pay for software, so the piracy problem remained mostly an issue for companies that sell to the general public.

Unauthorized copying and redistribution is also a major issue for companies that want to expand overseas. Just like the early American founding fathers, many people in less developed countries see the vast wealth of the Western software industry and feel no moral obligation to pay into it. They feel that constricting economic development for lack of ability to afford foreign software just doesn’t make sense. And sympathetic lawmakers in those countries are reluctant to enforce foreign copyright with too much vigor.

Major software companies have generally taken a philosophical attitude toward this problem. Microsoft has even been accused of encouraging distribution of pirated copies of Windows in the less developed world because it takes the long view: as countries like China and India become more developed, and governments spring to protect its domestic software industry by cracking down on copyright violators, everyone will have become hooked on Windows, and will start to pay.

But even taking rampant piracy in some countries into account, unauthorized redistribution was no kind of death blow to the software industry, even its most vulnerable, consumer-oriented companies, until the personal computer revolution took its most dramatic turn in the mid 90s with the popularization of the Internet. The easy copyability of software was already a problem when the mode of sharing was recordable media. Once the bits and bytes could be disseminated over the net, the industry found itself with a genuine crisis. And as the pipe got wider, the problem spread to the other intellectual property-based industries. In the early days of the internet the publishing world was already under assault (though I doubt they even knew it at the time) as unauthorized digital copies of books and other printed media, but probably mostly porn, were shared over the network. Then music, then movies.

Today, if I’m sitting at my desk, it’s vastly quicker and more convenient for me to download most software programs that I might want illegally than it is for me to buy them through legal channels. And that’s a serious problem for the software industry.

But the problem for intellectual property-based businesses isn’t that it’s quick and easy to infringe. It’s also quick and easy to smash a store window or run over a kid on a tricycle. But regular, decent people don’t do those things. But regular, decent, normally law-abiding people do routinely violate intellectual property laws. And why? Because while they do realize that it’s wrong on some level, they find it easy to justify.

I actually didn’t embark on this long examination of the history of intellectual property in order to claim that software “piracy” is the major bane of the software industry. It’s a problem, especially in certain sectors, but the industry has managed to thrive despite it. But the true challenge to the industry’s status quo is not unauthorized copying, but it’s related in that the routine justifications that infringers use are closely related to the sentiments that the largest consumers of software are starting to develop. And it’s a growing rebellion that the software industry is going to be forced to deal with.

So why do otherwise law-abiding citizens feel that they can morally justify infringing copyright? The industry likes to paint them in one of two colors: either they are morally equivalent to thieves of any other good, no better than the pickpocket or shoplifter, or they are uninformed fools who don’t understand that their actions are illegal and hurt the people who produce the software, music and other good that are being shared illegally.

I believe that neither of these characterizations is particularly accurate. In fact, I believe that most of these people are quite sophisticated in their understanding of the economic and moral impact of their actions. They feel justified in infringing because they have made the judgment that the purveyors of these goods in the legitimate marketplace are taking advantage of them and not meeting their reasonable demands for fairer pricing and more convenience in distribution. And in fact, even your typical teenage mp3 hound has a pretty complete understanding of the economic forces at work. They don’t do it because they misunderstand. They feel justified in doing it because they do.

Copyright infringement, though immoral, is not morally equivalent to theft of a physical good because infringement does not deprive the owner of his or her possession of the good. If I pick your pocket, you no longer have your wallet. But if I hear you whistling a tune, and start whistling it myself, and teach it to others, I have not prevented you from continuing to whistle. The only problem comes when you expect to have the exclusive right to benefit monetarily from the performance of that tune. In this case, by learning it without your permission I have degraded your capability of selling it to myself and any others that I taught it to. It still has an impact, but a completely different impact than stealing a physical good would have.

In some cases, copyright infringement could have a much more damaging impact than theft of a physical good. I could steal Bono’s sunglasses, and he probably would only be mildly annoyed. But if I got my hands on U2’s new album a month before release and put it on the internet, that could mean thousands of dollars in lost revenue for him. But even in that case, the impact is different.

Back to the infringer’s understanding of economics. Most goods, physical or intellectual, must go through a complex economic cycle between the inventor and the consumer. Physical goods must be designed, patented, manufactured, transported, packaged, transported again, warehoused, marketed, sold, shipped to distributors, sold, shipped to retailers, sold, and delivered to end users. Virtual goods like software and music generally go through the same cycle, though the manufacturing process is usually a bit simpler. At each of these stages, a middleman takes his share. And some of these shares are pretty big bites.

For many products, the retailer takes half of the proceeds, and the distributor takes half of the rest. Printing and/or pressing to digital media cost money, and all of these packages must be shipped back and forth. And what benefit does the average consumer derive from all of this? None. In fact, a negative benefit, because they have to drag themselves to the store to go get the product or wait around for it to ship. The fact that they have to pay an inflated price to support all these unnecessary steps and middlemen just add insult to injury.

Furthermore, there’s a populist angle to the justification. After all of the sales and distribution people take their cut, a small percentage actually goes to the company that brought the product to market. The thing is, the people who actually produced the goods, the software or the music, or the book, don’t even get nearly all of that. In many cases, the amount that the actual creator receives is less than one percent. And there’s recognition of that, and a lack of enthusiasm among consumers to subsidize all of that old fashioned infrastructure in exchange for printed material and physical media that they don’t need and a product that should be available instantly but isn’t.

There’s a similar reluctance to support the old order among business customers, who are even more privy to the way commerce really works. If you want to buy software for your business, you typically either work through some kind of mail order house or systems integrator, who takes a cut, or through a pushy salesperson from the vendor.

And the steps that software firms have taken to reduce piracy have made management of licenses a major headache for larger companies. And the stakes are high. If a disgruntled employee calls the BSA on you, and your lack of organization has resulted in re-use of a few Microsoft Office serial numbers, you could be facing major liability. So businesses end up buying a lot of software, and a lot of it comes in boxes that junk up the place, with little slips of paper containing the oh-so-important license key. And you inevitably end up buying a few more licenses for stuff than you really need, so you have expensive software sitting on the shelf, not being used, which will become obsolete and worthless within 18 months.

Business as Usual

The prices for most “enterprise” software varies a lot, and seems to be mostly based not on any kind of objective metric, but more based on a voodoo-like attempt on the part of the salesperson to determine the maximum amount the business will pay. Licensing fees, maintenance agreements, and consulting are all intermingled into a figure with a lot of zeroes, and of course the software firms are not interested in the software that will be solve your problem the best, but rather the solution that will perfectly match the maximum amount that the business can afford to pay. This usually results in vastly over-ambitious projects involving legions of employees from the vendor and the customer trying to work together and implementation timeframes of as long as a year or more in some cases. More often than not, the end result is a major disappointment and the project is scrapped, despite huge expense and major effort.

Now this scenario, which plays itself out over and over again in the business world, is not all the fault of the software companies. The software companies are putting their revenues ahead of their customers’ best interests, but that’s expected. Their job is to sell as much of their software as they can. The other half of the blame goes to gullible upper management at businesses who is too easily swayed by fawning acclaim in the trade press and flashy vendor presentations at trade shows. Companies like Oracle, who recruits its salespeople from among the Great White Sharks swimming off Southern Africa, are great at closing huge sales through sheer force of will. And why are these salespeople so aggressive and successful? Because they are richly rewarded for their efforts. The best salespeople in the enterprise software business make millions of dollars, literally.

And because the pricing of software is based on demand, and supply is unlimited, the salespeople, top managers, and investors in successful software companies can make lots and lots of money. So software consumers are being sold overly-ambitions software implementations that often fail, resulting in hundreds of thousands of dollars down the toilet, while the sellers are rolling in the dough. And did I mention that a lot of this software sucks?

Here at OSNews, people complain constantly about the well-known shortcomings of Windows, Linux, and other OSes. And they’re correct. Even the most widely-used software is bound to be fraught with defects, minor and major. But the quality of some of the “enterprise class” software out there is absolutely frightful. I won’t name any names, but anyone who’s worked in big business IT can probably rattle off a few of the worst offenders.

It’s not because these software firms don’t have talented engineers. In fact, in most cases, their original products were creative and well-designed, and many of the big firms’ flagship products are very good. But usually, once a product has started to sell well, the demands of the bottom line start to trump product quality. Typically, enterprise software needs either extensive customization or the user is forced to shoe-horn their needs into what the software can do well. Usually the ultimate solution involves a combination of the two, so you have clumsy workflow mixed with hastily-created customizations, and the whole thing can come off a little unwieldy.

Add to all this the fact that the software engineers are being hounded by management to include product functionality for the sake of increasing sales, while often bug fixes, security issues, and architectural improvements fall by the wayside. The goals shift from creating an excellent product to creating sales. And this is accomplished in a few ways:

Chasing fads: Whether it’s XML, “Push,” Java, Linux, or the dozens of other fads and buzzwords that have swept the software industry over the past few years, you can always count on a vicious circle occurring in the software industry. The trade press will start hyping the latest buzzword, then customers will start asking the salespeople if their product has it, the salespeople will say yes, that it’s in the next version, then marketing and PR will gang up on the engineering VP and demand that they immediately add XML or Linux or Java to the next version. Sometimes these fads mark real, worthwhile trends, like the move from client-server to web-based architectures. Other times, it’s all just a waste of time and a distraction.

Creating spin-off products: Database vendors sell an important product that forms the backbone for many companies’ IT infrastructure. But naturally a database doesn’t do anything by itself. So they have partners who provide various systems to run on it: a Human Resources package, a financial package, etc. But those partners seem to be getting all the money, so the database vendor makes a couple of hasty acquisitions and gets some products together. And they use their leverage as the database vendor to get their customers to buy their new applications. And the core product might lose engineers as the best ones are shifted off to these new enterprises, or development of the new core functionality might get sidetracked with supporting other projects and their needs. So you get an excellent but neglected and fragmenting core product, and a bunch of spinoffs that may still be vastly inferior to the former partners’ products.

Manufacturing pretexts for upgrading: Whenever a new release of Windows or Mac OS is in the works, there’s always a big push to publicize the flashy new features it contains. And though sometimes these new features are a revolution, usually they’re just eye candy, or modest improvements on existing utilities. The real advantages of these new releases, security enhancements or performance boosts, are usually too modest or just plain too un-sexy to get people too excited. Worst of all, many times the big new reasons for upgrading are often the fixing or partial fixing of serious flaws from the previous version that should never have existed in the first place.

And when that doesn’t work, forcing an upgrade: OS vendors are probably the most guilty of this one out of all the software makers, but it’s widespread in the industry. If too many years go by and a software company’s users are just not being attracted to the paid upgrades that are being offered (for example, there hasn’t been a feature added to Microsoft Word since 1993 that I cared about), then there are various dirty tricks that they can do to force me to upgrade. They can mess with file formats, so my version of the software won’t be able to open newer documents. They can “stop supporting” older versions, which may mean that security flaws won’t get fixed and compatibility other software won’t be resolved, in addition to the fact that they won’t take my phone calls anymore.

In each of these cases, the demands of revenue generation trump improving the product. Where does fixing bugs, improving architectural elements, and maximizing security come in? As a necessary evil.

So, to sum up, kids and other individual consumers of intellectual property feel like massively rich and powerful corporations want to force them to subsidize an outmoded sales and distribution regime that’s inconvenient and annoying to them, and that’s how they justify file sharing. Similarly, decision makers in the world’s companies feel like they’re caught under the thumbs of massively rich and powerful software firms who want to force them to subsidize an outmoded sales and distribution regime whose goal is to maximize revenue even at the expense of their IT projects’ success and puts them on a treadmill of forced upgrades and implementation of substandard spin-off products. And all this for software that mostly doesn’t work all that well in the first place. Does it push them to violate copyright and licenses? In some countries, yes. But in the US, the BSA’s big stick is an effective deterrent. What it has done is push companies to consider alternatives.

Open Source Software

The most famous of the alternatives to the status quo is open source software. Now, free software of various kinds had been around for decades before it caught on with mainstream businesses. Because of its long history in academia and government, there was some very mature and useful open source software already available when people started paying attention to it. It was the internet that really made the difference. Suddenly, the advantages that commercial vendors had with their distribution networks, marketing machines, service and support capability, and sales teams evaporated. It suddenly became easy to spread information about free software, distribute binaries and source code, provide documentation and support, and create a collaborative development environment at almost no cost via the internet.

Sure, a lot of the open source software was a bit rough around the edges, and with the popularization of the internet came a proliferation of new open source projects, many of which were immature. But the bar really wasn’t all that high. Even some of the most widely used enterprise software was either of dubious quality or was vastly over-qualified for the task at hand. Projects like Linux, Apache, PHP, and MySQL were either close enough in quality to their commercial alternatives to be workable, or the commercial alternatives were overkill for the task anyway. Who needs a $7000 Sun server and a $5000 Oracle license for a regional sales intranet anyway?

Many people still scratch their heads at the phenomenon, wondering why individual programmers and even for-profit companies would be willing to donate their efforts to open source projects. That’s the subject of many other interesting articles, but suffice to say, many of the beneficiaries of these tools don’t care where the idealism is coming from; they’re just reaping the benefit. The availability of open source software has made some niches virtually unprofitable (Unix on x86, webservers, scripting languages), and has provided enough competition in others that companies that were on track to completely dominate their markets have had to fight tooth and nail instead (Microsoft’s Server OSes).


Other companies took a different path, but it was another one that was only made possible by the internet. Some people realized early on that with a fast, reliable network at their disposal there was an opportunity to centralize IT infrastructure in radical ways. Whereas only a few years before it was necessary for every branch office to maintain a complex, interconnected network of systems, it was now possible to consolidate them, and in some cases to outsource them altogether.

Probably the poster child for this phenomenon is Most companies that maintained sales teams had made the transition from rolodexes and file cabinets to computerized databases and lead-tracking tools, but most of these were either non-interconnected, glorified address books or wildly expensive client-server systems. So started offering a really good sales force automation system right over the internet for a monthly fee per salesperson. And they’ve become incredibly successful. Their customers are still spending money on software, in some cases a lot of money, but they know exactly what they’re getting for their money. And they don’t have to shoulder the risk of a botched implementation, worry about scalability, or hire or train staff to maintain the system. And if they end up dissatisfied, there was no huge up front cost and effort. They can just walk away.

Many companies, new and old alike, have embraced this model of selling access to a centralized system rather than (or in addition to) selling software the old way. Sure, web-based interfaces can be clumsy, and the internet can pose reliability and security problems, but there are a lot of ways to deal with those special challenges, and they look minor compared to the dangers of the old way.

In a way, all internet users have experienced this very same revolution in software, but just haven’t noticed. If you were to look at a listing of consumer-oriented software for sale ten years ago you would see titles for mapping, mortgage calculators, dictionaries and encyclopedias, games, business directories, book and periodical archives, tax and financial software, and other titles that have now been largely replaced by online services, many of which are free. Once CD-ROM based dictionaries or maps were largely unnecessary, because it was so much more efficient and economical to use the online ones, the market for them completely dried up.

Subscription Pricing

Many companies are jumping halfway onto this new bandwagon by keeping the traditional software but overhauling their licensing terms. Instead of a perpetual license with a large fee, they charge an ongoing subscription fee.

This solves a couple of consumers’ gripes. It makes it easier to spread the expense out over time, which the green-eyeshade guys always like, and it gets the companies off the upgrade treadmill, or rather, it puts them on it, but more straightforwardly. The vendor is not given the perverse incentive to produce flashy new functionality or engage in dirty tricks like messing with file formats that will entice or compel users to upgrade. Instead, they must provide consistent value and steady improvement that will make the user feel that the subscription is paying off. And depending on the terms of the contract, the user may find it easier to walk away from software that isn’t performing as advertised.

The Combo Shots

All of the issues that we’ve discussed are having an impact on the software industry, but what might have the biggest impact is that some of these issues are “ganging up” to deliver a one-two punch.

Open Source + Piracy

There are many countries in the world where most people, including legitimate businesses, do not pay for software licenses. This is not a sustainable state of affairs, however. Eventually, those governments will have to crack down on copyright violation, or they’ll have a hard time negotiating trade agreements with the United States and Europe. So individuals, and especially businesses, will have to go legit at some time. There are two ways of going legit, however; they can start paying for commercial software, or they can foreswear it.

For example, Microsoft’s alleged tactic of looking the other way while developing nations become hooked on Windows might not pan out. Many developing countries see the benefit of having more control over the platforms that they base their new information economies on, and open source software is a great opportunity for them to exercise that control but not have to start at square one. China has famously adopted its own Linux distribution, Red Flag. Similarly, there’s a lot of Linux activity in India. In both nations, there is a considerable amount of brainpower to tap and limited capital. That could mean huge advancements in open source platforms that become popular in those areas, and commercial vendors like Microsoft may never see those countries open up to their products like they’d hoped.

In another odd bit of synergy, P2P technologies like Bittorrent were developed to make it easier for individuals to share files with millions without having thousands of dollars in bandwidth charges. Of course, these P2P networks became popular ways of trading unauthorized mp3s, software and movies. But now that these systems are in such widespread use, it makes it even easier for open source developers to release a hot new project into the world, even without a fat pipe.

Open Source + Subscription pricing

With so many middlemen taking their bite out of the pie, someone with a modestly-priced piece of software isn’t really looking at making that much money selling software the traditional way. For every software billionaire, there are a thousand would-be entrepreneurs who never made any money. In many sectors of the software industry, though, the big money isn’t made from licenses, but from consulting, support contracts, and other services. In these cases, some entrepreneurs have made the calculation that it’s better to give away the software altogether and hope that free redistribution and word of mouth will do all the marketing for them. Then, they can offer an array of services to the users. This business model has been modestly successful for smaller software companies, though it hasn’t yet been proven on the large scale.

Other companies have set up the same kind of services based on already-existing open source software, developing an expertise, contributing to the projects, and even hiring the key developers and putting them on salary. Some examples: Red Hat, IBM (and now Novell) with Linux, Covalent with Apache.

Red Hat, whose “product” has always been as much p a service as a product, now operates exclusively under a subscription-based service contract. So although strictly speaking an ongoing license fee is not required to use Red Hat Enterprise Linux, you pay an annual fee to get maintenance, upgrades, and support from Red Hat, and the primary conduit for maintenance and support is a proprietary service called Red Hat Network.

Software as Service + Open source

The combination of open source software and software-as-service has made it easy for new companies to enter the market. A well-implemented idea can be put into practice with almost no capital expenditure. Even though open source software often requires more expertise to set up and manage than commercial software, with its polished installer, professional documentation and well-staffed customer support center, all those advantages are for naught when it’s all managed behind the curtain by skilled engineers and admins who are comfortable with the open source tools.

The Results

So how has the software industry dealt with these challenges? They’ve had a long time to try to deal with illicit copying, with limited success. One sector that has long been the most affected by unauthorized sharing and has had a back-and-forth battle with crackers for decades is the game industry. The internet intensified that challenge, but has emerged as a savior. One of the hottest new software segments is networked games, and game companies have either used those networks as a verifier of legal licensed software or have even set up monthly subscription services that are required to pay. But most of the other software makers have relied on the legal liability that businesses would have if they get snitched on to the Business Software Alliance.

The reaction to the open source threat has been more pronounced. After an initial stage of denial, the availability of quality open source alternatives eventually lit a fire under the commercial vendors, who were forced to pay attention to quality, slash their prices, reform their licensing schemes, and overhaul their sales practices in response. Therefore, the fact that so many businesses searched for an alternative made a huge difference even for those that stuck with the commercial vendors. Windows Server 2003 is the best OS Microsoft has ever made and Sun sells a $995 server now. Coincidence?

But let’s not forget the old standby that technology firms use when faced with a vibrant new competitor: a massive PR campaign. Microsoft is in the midst of a concerted effort to tout its advantages over Linux. In fact, there may be an ad right at the top of this page promoting Windows’ superiority. Steve Ballmer and Bill Gates have been flying all over the world for the past couple years trying to keep large firms and even entire countries from adopting Linux. But they’ve also been (at least giving lip service to) making security a much higher priority at the company.

There’s still plenty to gripe about when you need to buy software these days, but the consumer is in a much better spot today than they were ten years ago. There are more licensing options, pricing has improved a bit, there’s always the open source alternative for some software, which will at least give you some leverage at the negotiating table, and even the option to not buy and install software at all, but simply pay a monthly fee.

The internet is really the culprit here. It made the producer-consumer relationship so potentially frictionless that other industries that thrived on that friction are feeling the squeeze too: music, newspapers, teleconferencing, wireline telephones, real estate, travel agents, even the movie, television, and book industries are all seeing their roles as the conduit between customers and producers be subverted. Some of the intermediaries may not survive at all, while the rest will be forced to change.

Only time will tell, but I think that we’re seeing an inevitable pendulum swing over to software consumers having a bit more power over the sellers than in the past. And we may not see the easy billions to be made in the software industry. They may just have to work a little harder for their money. Would that be a bad thing?


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